Judicial Management (“JM”) is a temporary court-supervised rehabilitation plan introduced through the Companies Act 2016 (“CA”) to assist financially distressed companies by providing an opportunity to rehabilitate and restore themselves back to profitability.
Basis of Application
Under s404 CA, an application for a company to be placed under a judicial management may be made to the court if:
(a) the company is or will be unable to pay its debts; and
(b) there is a reasonable probability of rehabilitating the company or of preserving all or part of its business as a going concern or that otherwise the interests of creditors would be better served than by resorting to a winding up.
As per s405(1) CA, a company, its directors, creditors or all three jointly may apply for JM. The JM order will only be granted if the court is satisfied that:
(a) the company is or will be unable to pay its debt under s466 CA 2016; and
(b) the making of the order would be likely to achieve one/more of the following purposes:
(i) the survival of the company, or the whole or part of its undertaking as a going concern;
(ii) the approval under section 366 of a compromise or arrangement between the company and any such persons as are mentioned in that section;
(iii) a more advantageous realisation of the company’s assets would be effected than on a winding up.
Procedure
When Making an Application for JM
According to s410 CA, during the period beginning with the making of an application for a judicial management order and ending with the making of such an order or the dismissal of the application, no resolution shall be passed, no order shall be made for the winding up of the company, no steps shall be taken to enforce any charge on or security over the company’s property and no other proceedings and no execution or other legal process shall be commenced.
When JM Order is Granted
When judicial management order is granted, as per s411(1)(a) CA, any receiver and manager shall vacate the office. Besides, s411(1)(b) CA states that any application to wind up the company shall be dismissed. As mentioned in s411(4)(a) CA, no resolution can be passed or order be made to wind up the company while the judicial management order is in effect. Moreover, s411(4)(b) CA states that no receiver or receiver and manager can be appointed during the period of judicial management order. Furthermore, as per s411(4)(c) CA, no legal and execution proceedings shall be commenced or continued, except with the consent of the judicial manager or with the leave of court.
It should be noted that according to s406(1) CA, a judicial management order is valid for 6 months unless it is discharged earlier. The court may on the application of a judicial manager grant an extension for a further 6 months.
Where a judicial manager has been appointed, every invoice, order for goods or services, business letter or order form, official website or any document whether it is in hard copy or electronic form where the name of the company appears shall contain a statement that the affairs, business and property of the company are being managed by the judicial manager as mentioned in s412(1) CA.
Judicial Manager
A judicial manager has the power to:
1) take a company’s property into custody or put the property under his control
2) do all things that is necessary for the management of the affairs, business and property of the company
3) do all other things as the court may order
4) apply to the court for directions in relation to any particular matter arising in connection with the carrying out of his functions
5) do as specified in the Ninth Schedule of CA 2016
Companies under JM
Protection of the Interests of Creditors and Members
S425(1) CA allows a creditor or member of the company to apply to the court for an order on the ground that:
(a) the company’s affairs, business and property managed by the judicial manager was unfairly prejudicial to the interests of its creditors or members; or
(b) any actual or proposed act or omission of the judicial manager is or would be so prejudicial.
After the application is made, the court may grant order to either give relief in respect of the matters complained of, adjourn the hearing conditionally or unconditionally or make an interim order or any other order that the court thinks fit by virtue of s425(2) CA.
According to s425(3) CA, the court order may:
(a) regulate future management of the company’s affairs, business and property by judicial manager,
(b) require the judicial manager to refrain from doing an act complained of by the applicant,
(c) require the summoning of a meeting of creditors or members; or
(d) discharge the judicial management order and make consequential provision as the court thinks fit.
