COURT OF APPEAL, MALAYSIA
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www.ipsofactoJ.com/appeal/index.htm [2000] Part 4 Case 10 [CAM] |
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COURT OF APPEAL, MALAYSIA |
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Coram SHAIK
DAUD JCA |
P.B. Securities Sdn Bhd - vs - Autoways Holdings Bhd |
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SITI
NORMA YAAKOB JCA DENIS
J.F. ONG JCA |
11
AUGUST 2000 |
Judgment
Shaik Daud JCA
(delivering the judgment of the court)
This
was an appeal against the dismissal by the Shah Alam High Court of the
appellant's application for a declaration that the appellant was a scheme
creditor of the respondent and was entitled to attend and vote as an
unsecured creditor at the unsecured creditors' meeting of the respondent.
The
appellant a fully owned subsidiary of Public Bank Bhd, is a licensed stock
broking firm. The appellant had by a letter of offer dated October 7, 1997,
offered a margin facility of RM50 million to Autoways Development Sdn Bhd, a
wholly owned subsidiary of the respondent. A formal agreement was executed
the same day and at the same time too, the respondent as the parent company
of the borrower company, gave a corporate guarantee in favour of the
appellant. All these have not been disputed.
By
early 1998, it became obvious that the respondent and its group of companies
were facing financial difficulties and unable to settle their debts. As a
result in May 1998, they engaged Messrs Arthur Andersen Corporate Advisory
Sdn Bhd ("Arthur Andersen") a reputable firm of accountants to
prepare a restructuring scheme of arrangements with their numerous creditors
for submission to the court under s 176 of the Companies Act 1965 ("the
Act"). Arthur Andersen came out with a proposal dated May 21, 1998.
This proposal recognised the appellant as a scheme creditor, and confirmed
by the affidavit of the respondent's managing director one Chua Sin Han,
affirmed on May 21, 1998. This fact was also confirmed in an internal
document of the respondent as averred to by the managing director of the
respondent in the same affidavit at paragraph 9 thereof. There can be no
doubt that these two documents constitute complete acknowledgement that the
appellant was a creditor.
The
Arthur Andersen proposal dated May 21, 1998 was put forward by the
respondent to the court when the respondent applied for an ex parte
restraining order under s.176(10) of the Act on May 22, 1998, where the
appellant was listed as one of the scheme creditors. The restraining order
was served on the appellant on May 26, 1998. It is submitted that this in
itself is an acknowledgement that the appellant was one of the scheme
creditors, otherwise there was no reason whatsoever to serve the restraining
order on the appellant.
This was followed on June 9, 1998 by the respondent asking the appellant to submit its claims of the debt owing for the purpose of the scheme. This request is contained in a letter dated June 9, 1998, from the respondent's managing director one Chua Sin Han addressed to the appellant. There has been no denial of this. It is submitted that this act of the respondent is an unqualified acknowledgement as the respondent had not reserved the right to reject the appellant's claim nor was the letter written "without prejudice". It is, we think, pertinent to reproduce this letter.
Dear
Sirs,
We
refer to the Restraining Order under Section 176(10) of the
Companies Act, 1965 given by the High Court dated 22nd May 1998. You
are now required to forward a Statement of Claims: of the debt due
to you as at 31st May 1998 in order to assist our Financial Advisers
and Corporate Lawyers to work out all actual and contingent
liabilities so as to complete the scheme of arrangement and
compromise. We
wish to inform that if you fail to submit the said "Statement
of Claims as 31st May 1998" by the 30th June 1998, you may not
be considered in our scheme of arrangement and compromise
restructuring exercise because of the time constraint we have to
determine the total extent of the liabilities. Therefore,
we urge you to reply to us as soon as possible to enable us to
finalise the scheme. If you have any queries, please do not hesitate
to contact our Ms. Melissa or Ms. Jackie. Your
prompt action to the above is much appreciated. Yours
faithfully, AUTOWAYS
CONSTRUCTION SDN. BHD. (this
is a computer generated printout, no signature required) CHUA
SIN HAN Managing Director. |
The
contents of this letter speak for itself.
Accordingly
and in response to the request, the appellant submitted its claim by hand vide
covering letter dated June 26, 1998, claiming RM50,596,678.07. This was
received and acknowledged by the respondent's credit manager one Nooraini
Ashaari. There was no rejection of this claim nor was there any other
response.
On
September 15, 1998, the appellant sued the principal borrower Autoways
Development Sdn Bhd for RM51,681,264.14 and interest.
The respondent failed to submit a scheme to the creditors within the requisite six months as ordered by the restraining order. On October 19, 1998 they applied ex parte for an extension of the restraining order for another six months and this was granted on November 19, 1998.
Consequently
on December 7, 1998, for the very first time the respondent submitted a
restructure proposal to the appellant for its consideration. This was the
first proposal. It is submitted that this is yet an unqualified
acknowledgement of the appellant as a scheme creditor. A further
acknowledgement can be seen from a letter dated March 2, 1999 from the
respondent to the appellant acknowledging a meeting between the appellant
and the respondent's consultants of February 9, 1999 and requesting the
appellant's assistance to provide information on the following:-
the
principal and interest amount outstanding as at December 31, 1997;
a
breakdown of monthly interest and other charges from January 1, 1998 to
December 31, 1998;
confirmation
on the shares of collateral, amount and value sold since December 31,
1997.
By
another letter dated April 21, 1999 to the appellant, the respondent
confirmed another meeting between their consultant and the appellant where
the scheme was discussed.
Then
by a letter dated May 5, 1999, the respondent's solicitors submitted an
amended restructuring scheme to the appellant's solicitors, "for your
client's consideration in settlement of the above matter". This was the
second proposal. In this proposal the appellant was again listed as a
creditor.
By
a court order obtained by the respondent ex parte on May 19, 1999,
the respondent was allowed to call separate meetings of separate classes of
creditors for approval of the re-structuring scheme, and at the same time
obtained a further six months extension of the court order dated November
19, 1999. On September 8, 1999, a third and final proposal was sent to the
appellant, by which act it is construed as an invitation to the appellant to
attend and vote at the creditors' meeting as a scheme creditor.
The
fact that the final proposal was sent to the appellant has not been denied
and this is adverted to in the affidavit of one Yong Yoong Fa, the chief
operating officer of the appellant, affirmed on October 13, 1999.
The final proposal carried a definition of an unsecured creditor as:
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The class of creditors which include stock broking firms which have provided margin financing to ADSB and financial institutions who have extended credit facilities to ACSB against corporate guarantees of AHB. |
It cannot be gainsaid that, the above definition fits the appellant to a T. The meeting for the unsecured creditors was to be held at 10.00 a.m. on September 30, 1999. The total amount of the debt was RM112,026,000 and this included the RM50,597,000 due to the appellant.
Based on this notice of meeting, a proxy form dated September 27, 1999 was filed in which the appellant indicated its desire to vote against the scheme. Such negative vote would be fatal to the respondent as the respondent would not be able to secure the requisite 3/4 value of creditors in order to endorse the scheme. The appellant represented 45.2% of the total value of unsecured debt of RM112,026,000.
Upon receipt of the proxy form, the respondent's solicitors contacted the appellant's solicitors to seek a postponement of the scheduled meeting with a view of exploring whether the appellant had any proposal for a better offer. This is reflected in Yong Yoong Fa's affidavit referred to earlier. The appellant refused a postponement and the next day, the day of the scheduled meeting, the appellant's proxy representative was excluded from the meeting.
It would appear that one day before the scheduled meeting of the unsecured creditors, on September 29, 1999, the respondent's board of directors held an emergency meeting whereby they resolved to oppose the claims specifically by the appellant and one other creditor. This decision came after the respondent received the proxy document indicating the appellant's intention to vote against the restructuring scheme.
Accordingly
on September 30, 1999 the appellant was excluded from the scheduled meeting
as well as the adjourned meeting on November 10, 1999.
From
the facts adumbrated above, it seems obvious that from the beginning the
respondent agreed and accepted the appellant as one of their unsecured
scheme creditors but the moment they realised that the appellant intended to
vote against the scheme, the respondent made an about turn and rejected the
appellant as an unsecured creditor.
As
a result of this, on October 13, 1999 the appellant applied in the Shah Alam
High Court to intervene in the proceedings for the approval of the scheme.
On November 10, 1999, however, the various other meetings of the various
classes of creditors proceeded as scheduled and the respondent claimed to
have obtained the requisite 3/4 majority, approving the restructuring
scheme. Based on this premise, the respondent purported to apply to the High
Court for the formal approval of the scheme under s.176(3) of the Act.
Based
on the final proposal, there was justification for the appellant to vote
against the scheme. If the scheme was sanctioned by the court unsecured
creditors like the appellant, would have to give up 55% of their debt as
well as all interests due and in return would be left with a mere 45% of the
debt which in turn would be settled by the issue of redeemable convertible
preference shares in the respondent. This to our mind would be most unfair
on the appellant who would have to voluntarily give up 55% of the debt and
compulsorily take up 45% of shares in the respondent. To make matters worse,
after that, a permanent moratorium is imposed on all legal proceedings in
respect of the debt. In other words the appellant is compulsorily asked to
compromise 45% of the debt in shares in the respondent, which may not be
worth 45% of the debt.
The respondent raised no objection to the appellant intervening but at the hearing of the prayers in the application the appellant, elected to proceed only on one prayer, namely whether it was a scheme creditor and whether the restraining order issued by the court on May 25, 1998, ought to be discharged. Both parties agree that these two issues would decide the outcome of the scheme.
The
learned High Court Judge whilst allowing the appellant to intervene, held
that there were serious competing views as to whether the appellant is a
scheme creditor and this, he held, would depend on whether the appellant's
claim by way of proof of debt, was recognised and admitted by the
respondent. This he held, being a serious bona fide issue could only
be resolved by way of a full trial. The learned Judge completely ignored the
order issued by the court dated May 25, 1998, restraining the appellant from
suing the respondent on the guarantee. Therefore, having been thus
restrained, how could the appellant be required to prove its claim by way of
a trial?
The learned Judge also made reference to a so called bona fide dispute of the debt which could only be resolved at a trial. We find that this reference goes smack against the purport of s.176 proceedings. The learned Judge appeared to have lost sight of the words "in a summary way" appearing in sub-sections (1) and (10). This phrase must clearly mean that the sanctioning court acting under that section is entitled to deal with every issue in respect of the scheme of arrangement in a summary way. There is no necessity for a protracted trial of the debt. More so in this particular case where the debt has been repeatedly acknowledged without there being any dispute to it. These repeated acknowledgements, as can be seen from the facts stated above are contained in contemporaneous correspondences as well as in the respondent's internal documents.
It must not be forgotten that the restructuring scheme itself acknowledged the appellant as a scheme creditor and even invited the appellant to produce certain confirmations of the debt. After being furnished with such information, no objection was raised by the respondent. Therefore the question of a bona fide dispute does not arise. The learned Judge also ignored the evidence that when the respondent applied for the restraining order, they listed the appellant as one of 24 scheme creditors, to be involved in the restructure exercise. This document was submitted to the court and formed part of the court order.
Therefore in the light of what we have stated we agree with the submission of learned counsel for the appellant that the learned Judge was clearly wrong in his reasoning when he held that there ought to be a trial of the debt.
The
learned Judge also appeared to have been influenced by the phrase,
"without prejudice" which appeared in the proposal itself. With
respect, we are of the view that there is no such thing as a without
prejudice proposal under s.176. There is no such thing as a restricted
proposal. Therefore we hold that the appearance of that phrase in the
proposal makes no difference, as it has no effect whatsoever on the
proposal. It would have been quite simple for the respondent to reject or to
question the capacity of the appellant from the very beginning and it was
even entitled to omit the appellant from the list as a scheme creditor. Then
it may well be justified for the appellant to be excluded from the scheme.
This the respondent did not do.
We are of the view that in the light of the uncontradicted evidence of repeated acknowledgements of the appellant as a scheme creditor, the learned Judge ought to have applied the doctrine of estoppel against the respondent. Up to September 20, 1999, the respondent had, by their words and conduct, allowed and even to a certain extent, encouraged the appellant to proceed on the basis and understanding that the respondent had accepted the appellant as a scheme creditor. The respondent had, therefore, led the appellant to harbour a legitimate expectation that it was a scheme creditor, and it would be unconscionable and unjust for the respondent to assert afterwards that the appellant was not. In other words, the respondent ought not to be allowed to approbate and reprobate. We refer to Halsbury's Law of England (4th Edn) Vol 16 paragraph 1507:
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1507. |
Approbation and reprobation. On the principle that a person may not approbate and reprobate, a species of estoppel has arisen which seems to be intermediate between estoppel by record and estoppel in pais. The principle that a person may not approbate and reprobate expresses two propositions, |
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(1) |
that the person in question, having a choice between two courses of conduct, is to be treated as having made an election from which he cannot resile, and |
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(2) |
that he will not be regarded, in general at any rate, as having so elected unless he has taken a benefit under or arising out of the course of conduct which he has first pursued and with which his subsequent conduct is inconsistent. |
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In Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1981] 3 All ER 577, the court approved the following passage from Spencer Bower & Turner on Estoppel by Representation (3rd Edn, 1977, pp 157-160):
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This form of estoppel is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed. |
The
writer describes such an estoppel as an estoppel by convention. See also Chor
Phaik Har v Choong Lye Hock Estates Sdn Bhd [1996] 2 AMR 2393. We are of
the view that in the present case there was sufficient material before the
learned Judge for him to hold that it would be unconscionable and unjust to
allow the respondent to resile from their course of conduct and by such
conduct is estopped from denying that the appellant is an unsecured
creditor.
It is also our view that the respondent had practised a deception on the court. Having earlier obtained the restraining order on the basis of including and asserting in no uncertain terms that the appellant who was the principal unsecured creditor, was a scheme creditor, the respondent later made an about turn to exclude the appellant from voting at the unsecured creditor's meeting.
From the outset i.e. the date of obtaining the restraining order, the respondent already had in their possession all the facts of the appellant's status as a scheme creditor therefore there was no earthly reason for them to make this about turn. From the evidence available it seems clear to us that the respondent's decision to exclude the appellant, which was only made on September 29, 1999 i.e. on the eve of the scheduled creditors' meeting, was solely made to prevent the appellant from voting against the scheme.
By obtaining the restraining order preventing the appellant from pursuing its legitimate claim in a court of law, the respondent had abused the process of the court to achieve another purpose. By their act to prevent the appellant from the unsecured creditors' meeting, the respondent had also abused the purport of s.176 of the Act.
In
the circumstances of the case, it is our view that to exclude the appellant
and to prevent it from exercising its statutory right to vote were not mere
procedural irregularities but illegalities so as to render null and void the
votes taken at the adjourned unsecured creditors' meeting of November 10,
1999.
On
behalf of the respondent it was submitted that on the totality of the facts
of the case, it would be unconscionable for the appellant to succeed and
that the doctrine of estoppel does not apply. It was contended that the
appellant was guilty of fraud and that there was a conspiracy. It was
submitted that the principal borrower, Autoways Development Sdn Bhd was at
all material times not the recipient of the facility provided by the
appellant. With respect, we find it difficult to accept such a contention.
As stated earlier, at the very outset i.e. at the time they obtained the
restraining order, the respondent were already in possession of all the
facts of the appellant's status and yet the respondent elected to include
the appellant as a scheme creditor, therefore, the respondent ought not to
be allowed to cry conspiracy and fraud at this late stage, a fortiori
when they knew that the appellant was going to vote against the scheme.
Therefore, we find no merits in the respondent's submission of conspiracy
and fraud at this stage of the proceedings.
In
the light of the above, we allowed the appeal with costs here and below and
ordered the refund of the deposit to the appellant. At this stage learned
counsel for the respondent informed the court that in view of the expenses
involved, the respondent would not be holding a fresh meeting of unsecured
creditors and were prepared to accept that the appellant had voted against
the scheme and the consequence of which is that the restructuring scheme
would not be carried out. By consent of both parties, we also made a
consequential order to the effect that acting under s.69(4) of the Act, we
declared the creditors' meeting for unsecured creditors under Scheme A held
on November 10, 1999 to be invalid.
Cases
Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce
International Bank Ltd [1981] 3 All ER 577; Chor Phaik Har v Choong Lye Hock
Estates Sdn Bhd [1996] 2 AMR 2393.
Legislations
Companies
Act 1965: s.69(4), s.176(1), (3), (10)
Authors and other references
Halsbury's
Law of England, 4th Edn, Vol 16
Spencer
Bower & Turner, Estoppel by Representation, 3rd Edn, 1977
Representations
Cyrus
Das, Benjamin Dawson,
C.L. Tan (Nik Hussain & Partners) for Appellant
William
Leong (William Leong) for Respondent
Notes:-
This decision is also reported at [2000] 4 AMR 4075
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