Legal Victory
Members' Scheme of Arrangement Breaks Three-Year Shareholder Deadlock in Malaysian Oil and Gas Company
NZSK Legal used the rarely-invoked members’ scheme mechanism under Section 366 to resolve a corporate deadlock between equal shareholders, providing a court-supervised exit at independent valuation and restoring full commercial operations.
Summary
Industry
Oil & Gas Services (Private Company)
Court
High Court (Commercial Division), Kuala Lumpur
Mechanism Used
Members’ Scheme
Shareholder Approval
89% in Value
Deadlock Duration
3 Years
Operations
Fully Restored
Maxine Khoo
Published: May 6, 2026
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Background
Our client was a profitable Malaysian oil and gas services company owned equally by three founding shareholders, each holding one-third of the issued shares. A falling-out between two shareholder factions had rendered the board completely deadlocked — no quorum could be achieved at board meetings, no resolutions could be passed at general meetings, and no strategic decisions could be made. The deadlock had persisted for three years.
Despite being operationally profitable, the company was unable to renew key supplier contracts, process dividend declarations, approve audited accounts, or take any collective corporate decision. One faction sought to wind the company up on just and equitable grounds. The other — our client — sought to preserve and unlock the company’s value through a court-supervised mechanism. NZSK Legal identified the members’ scheme of arrangement under Section 366 of the Companies Act 2016 as the optimal vehicle: faster, less destructive, and more commercially rational than winding up.
The Challenges
- A members’ scheme of arrangement under Section 366 is one of the least commonly invoked mechanisms in Malaysian corporate law. While the same statutory provision governs both creditors’ schemes and members’ schemes, the application of voting thresholds, class constitution rules, and the court’s approach to fairness in a members’ context required careful analysis of Malaysian and Commonwealth authorities.
- The scheme proposed a share buyout mechanism — the dissenting faction would exit at an independently determined price, with the remaining faction retaining the business. Designing a buyout scheme that was defensible at the sanction stage required the exit consideration to be demonstrably fair, independently determined, and not subject to manipulation by either party.
- The opposing faction engaged their own valuation expert, who produced a higher figure than NZSK Legal’s appointed valuer. The gap between the two expert valuations created a risk of a contested sanction hearing on valuation grounds — expensive, time-consuming, and uncertain in outcome.
Our Approach
- NZSK Legal filed the convening application supported by a detailed affidavit explaining the three-year deadlock history, the operational and commercial harm being caused by the continued impasse, and the proposed scheme structure — a court-supervised share acquisition at independently appraised fair value.
- An independent chartered business valuer was engaged to conduct a full valuation of the company’s shares using both income (discounted cashflow) and asset (net tangible assets) approaches. The valuation report was exhibited in the scheme booklet and formed the basis of the exit consideration offered to the dissenting faction.
- When the dissenting faction’s expert produced a higher valuation, NZSK Legal advised our client to negotiate a mid-point settlement between the two expert figures — avoiding a contested expert evidence hearing that would have added months to the timeline and significant cost for all parties. The scheme was amended to reflect the negotiated consideration.
- The amended scheme booklet was re-circulated to all members. The convening process was re-run with the revised terms to ensure procedural integrity before the court-ordered members’ meeting.
The Outcome
- At the members’ meeting convened by the court, the scheme was approved by 89% in value of the members present and voting. The dissenting faction — holding one-third of shares — voted against, but the scheme achieved the required majority across the remaining shares.
- The court sanctioned the scheme, finding that the exit consideration had been independently determined, that the scheme was fair to the dissenting minority, and that it did not make a jest of the interests of the minority — the key judicial test in members’ scheme jurisprudence.
- The share acquisition was completed pursuant to the court order. The dissenting shareholders were paid the scheme consideration and their shares were transferred. The remaining shareholders reconstituted the board and the company immediately resumed full commercial operations.
- The company renewed its key supplier contracts within three months of scheme completion and has returned to full profitability. This matter remains a model for using the members’ scheme mechanism to resolve corporate deadlocks — one of the most underutilised applications of Section 366 in Malaysian company law.
Key Legal Principle
A members’ scheme of arrangement under Section 366 of the Companies Act 2016 provides a court-supervised exit mechanism for deadlocked Malaysian companies that is faster, cheaper, and more commercially rational than a winding-up petition on just and equitable grounds. Where equal shareholders are unable to reach a negotiated exit, the scheme provides a judicially calibrated resolution that preserves the business and protects both majority and minority interests.
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