Judicial Management or Abuse of Process?

A Case Analysis of Double Success Constructions Sdn Bhd v Smart Glove Industries (Malaysia) Sdn Bhd & Ors [2025] AMEJ 1455

Introduction

Under Section 410 of the Companies Act 2016 (“CA”), the filing of a judicial management application automatically imposes an interim moratorium on all legal proceedings. This includes the stay of any pending winding-up proceedings. In this respect, no legal proceedings can be commenced or continued against the target company, except with leave of court.  If a judicial management order is subsequently made, Section 411 CA provides that any pending winding-up petitions must be dismissed.

These provisions, among others, under the judicial management scheme are aimed at facilitating either the survival of the company as a going concern or a more advantageous realisation of the company’s assets, rather than a winding-up. In some cases, however, this corporate rescue mechanism has been abused by parties seeking to frustrate and/or stifle winding-up proceedings, irrespective of the application’s underlying merit.

In the recent case of Double Success Constructions Sdn Bhd v Smart Glove Industries (Malaysia) Sdn Bhd & Ors [2025] AMEJ 1455, the High Court tackled this issue, providing some clarity on the matter. This case involved a judicial management application brought against Smart Glove Industries (Malaysia) Sdn Bhd (“SGI”) where a pending winding-up petition was previously presented against it. As a result, the winding-up petition was stayed. The question of whether the judicial management application was bona fide therefore became a focal point of contention in the application.

At the outset, we make disclosure that our Mr. Polwin Sua Shiang-Nian acted as co-counsel for the successful party in the matter before the High Court.  

Parties

• Applicant: Double Success Constructions Sdn Bhd (“DSC”), claimed to be a creditor of SGI and in support of the application, DSC alleged that it was owed RM5,060,338.00 for works done for SGI. DSC never filed any legal proceedings in respect of the alleged debt.  

• Respondent: SGI, being the target company in the judicial management application.

• 1^st Intervener: Smart Glove Corporation Sdn Bhd (“SGC”), is a related company of SGI and supported the application. SGC alleged it is owed RM86,145,156.00 by SGI without a judgment.  

• 2^nd Intervener: Technygroup Holdings (M) Sdn Bhd (“TGH”), is a creditor of SGI for the sum of RM28,747,539.73 (“Adjudicated Sum”). The Adjudicated Sum was owed pursuant to the Adjudication Decision dated 20.02.2023 (“Adjudication Decision”) and the High Court Enforcement Order (in respect of the Adjudication Decision) [“Enforcement Order”] which was allowed on 31.01.2024.  TGH was the only party to oppose the judicial management application.

Timeline

• On 20.02.2023, TGH obtained the Adjudication Decision;

• On 31.01.2024, the High Court dismissed SGI’s setting aside and stay applications and allowed TGH’s enforcement application on the Adjudication Decision. The Adjudication Decision was therefore enforceable as a High Court Order/Judgment.

  
  

• On 05.02.2024, TGH filed a winding-up petition against SGI, premised on the Adjudication Decision. It was served on 06.02.2024.

  
  

• On 14.03.2024, SGI filed the application for stay of the Enforcement Order (which was dismissed on 18.04.2024).

  
  

• On 16.04.2024, just two (2) days before the hearing and decision of the stay application against the Enforcement Order, the judicial management application was filed and on 17.04.2024 the interim judicial management application was filed.

• On 22.04.2024, the interim judicial management application was allowed whereby the Interim Judicial Managers (collectively referred to as the “IJM”), namely, Mr. Andrew Heng and Mr. Kumarakuru A/L Jai Prakash were appointed over SGI. In support of the judicial management application, the IJM provided its draft proposal for the alleged rehabilitation of SGI.

DSC’s Submissions

DSC submitted the following:

• SGI is insolvent.

  
  

• SGI's assets are “depleting at an alarming rate”, whereas its total liabilities have increased overtime.

  
  

• The judicial management application was intended to “maximize the prospect of recovery” of debts owed to DSC and to “preserve assets of the Respondent for the benefit of creditors of the Respondent and the interested parties”.

  
  

• There is a reasonable probability of rehabilitating SGI by preserving all or part of its business as a going concern.

  
  

• Under the draft proposal, it was alleged that the estimated recovery rate to unsecured creditors was 50% whereas in a winding-up scenario, the estimated returns would only be 35%.

  
  

• The proposed judicial managers, who were also the appointed IJM, have the requisite experience as insolvency practitioners and consented to be appointed as judicial managers of SGI.

Findings by the High Court

The Alleged Debts & Issues Surrounding Bias and Credibility of the IJM

The court observed that although DSC claimed to be a creditor of SGI, it never initiated any legal proceedings to recover the debt. Similarly, SGC, also similarly claimed to be SGI’s creditor but was not equipped with any judgment for the alleged debts. Consequently, the court found these purported debts to be unproven and suspect.

In this regard, the court found the IJM to be biased and lacking in credibility. This was because, in the draft proposal, the IJM readily accepted the alleged debts due to DSC and SGC, while classifying the debt owed to TGH as a “contingent liability”. This was notwithstanding the fact that the debt owed to TGH was supported by a subsisting court order.

The court therefore held that the IJM was biased, to the detriment of TGH. The IJM’s affidavits and draft proposal were thus held to be of little value and credibility. It was held that the IJM was not acting bona fide in dealing with the debt owed to TGH.

IJM's Draft Proposal was Speculative & Based on Conjecture

The court held that the IJM’s draft proposal was speculative and based on conjecture. It was unlikely to bring about the better realization of the assets of SGI for the benefit of the creditors and/or for the survival of SGI.

The court agreed with TGH’s submissions as follows:

• The IJM’s draft proposal which alleged a 35% recovery rate for creditors in a winding-up scenario, was devoid of merit and speculative as: (i) the IJM provided no explanation on how the 35% recovery rate was arrived; (ii) the recovery rate was therefore highly questionable and premised on unexplained assumptions; and (iii) as such, the recovery rate is wholly speculative and premised on conjecture.

• Even if one were to consider the recovery rate of 35% under the winding-up scenario, with a calculation of the recovery of the total liabilities (including the purported "contingent liabilities"), it would be in the sum of RM44,651,872.15. By contrast, the IJM’s draft proposal estimates the recovery (by way of the proposed sale of SGI's Land 6496, being the only proposed action planned for recovery under judicial management) to be between RM32,000,000.00 to RM44,000,000.00; and

  
  

• Therefore, the IJM failed to demonstrate that the draft proposal would amount to a better realization of SGI’s assets compared to a winding-up scenario.

  
  

In so finding, the court adopted the cases of Gigatech Engineering v EnGreen [2023] 11 MLJ 457 and Goldpage Assets Sdn Bhd v Gan Kam Seng & Ors [2021] 9 MLJ 618 and emphasized that playing lip service to the requirements under Section 405 (1)(b) CA is insufficient and judicial management applications must be supported by strict evidence; not merely on surmise and conjecture.

Abuse of Process

Ultimately, it was held that the judicial management application was not bona fide and is an abuse of process for the following reasons:

• The judicial management application was filed only 22 days before the hearing of the winding-up petition;

  
  

• The judicial management application was brought 68 days from the date the petition was advertised; and

  
  

• DSC filed the interim judicial management application just 1 day prior to the hearing of the stay application against the Enforcement Order.

The High Court concluded that the judicial management application was designed and intended to stifle and/or frustrate the winding-up process and ultimately to frustrate the Adjudication Decision and the High Court orders in favour of TGH.

Accordingly, the judicial management application was dismissed with costs.

Commentary

This case is a cautionary tale for all considering the use of the judicial management scheme as an abuse of court process. The High Court’s approach in this case demonstrates that:

• The court will consider relevant surrounding circumstances in determining whether the judicial management application is bona fide. This includes:

• The timing of the judicial management application, and whether it follows an existing, pending winding-up petition brought against the target company;

  
  

• The legitimacy and validity of the purported debts alleged by creditors supporting the application;

• Whether the IJM (who is proposed to ultimately be appointed as the judicial manager) shows any preferential or unfair treatment against certain creditors, as reflected in the draft proposal by the IJM; and

  
  

• Any other indications of bias in the conduct of the IJM.

• The court will rigorously scrutinise the draft proposal (if any) to determine its veracity and whether it is able to achieve the better realisation of asset and/or the survival of the target company. Strict proof is required and mere assertions unsupported by evidence will not suffice.