- Atiqah Maisarah
Judicial Management is a modern corporate rescue mechanism introduced under the Companies Act 2016 (CA 2016) to provide a formal alternative to the terminal process of winding up. Governed primarily by Sections 404 and 405, it allows a company, its directors, or its creditors to petition the High Court for a Judicial Management Order. The essence of this process is to place the company under the supervision of an independent insolvency practitioner who acts as an officer of the Court. This shift is designed to prioritize rehabilitation over liquidation, ensuring that the company’s value as a going concern is preserved for the benefit of all stakeholders.
The Court’s jurisdiction to grant an order is contingent upon meeting a two-fold statutory test.
- First, pursuant to Section 405(1)(a), the Court must be satisfied that the company is, or will be, unable to pay its debts.
- Second, under Section 405(1)(b), the Applicant must demonstrate a reasonable probability that the order will achieve one of the statutory objectives. These include the survival of the company, the approval of a compromise or arrangement, or a more advantageous realization of the company’s assets than would be effected on a winding up. This ensures that the process is not merely a tool for delay but a genuine attempt at restructuring.
In interpreting these requirements, the Malaysian High Court in Leadmont Development Sdn Bhd v Infra Segi Sdn Bhd [2019] 8 MLJ 473 emphasized that the Court must take a proactive role in assessing the viability of the proposed rescue. The burden of proof lies heavily on the Applicant to provide credible evidence of a turnaround plan. It is not enough to merely claim financial distress. The Applicant must show that the company’s business model remains sound and that the current debt crisis is a hurdle that can be cleared with the protection of a Court sanctioned manager.
Furthermore, the legal standard for reasonable probability was refined by the real prospect test adopted from the UK case of Auto Management Services Ltd v Oracle Fleet UK Ltd [2007] EWHC392(Ch). The Court does not require a balance of probabilities or evidence that it is more likely than not that the rescue will succeed. Instead, it is sufficient to show a real prospect of a better outcome than liquidation. If the administration can produce a result no worse than winding up in most circumstances, but offers a possible better result in others, the Court’s discretion leans toward making the order.
Finally, the granting of a Judicial Management Order serves a broader public interest by maintaining economic stability and preserving employment. By avoiding the immediate cessation of business, the law aims to prevent the cumulative effect of insolvency where one company’s failure leads to the collapse of its suppliers and subcontractors. Therefore, Judicial Management is viewed by the Malaysian judiciary as a restorative process that seeks to balance the strict contractual rights of creditors with the socio economic necessity of keeping businesses afloat in a challenging commercial landscape.
General Disputes Resolution and Appellate Division
General Disputes Resolution and Appellate Division
General Disputes Resolution and Appellate Division
General Disputes Resolution and Appellate Division
This article is prepared and published by
Messrs. Ben Lee & Sharen
Advocates & Solicitors