Legal Victory
High Court Grants Scheme Convening Order Despite Largest Creditor's Opposition — Malaysian F&B Company's Right to Put Scheme to Vote Upheld
When the holder of 61% of total debt value sought to block even the convening of a creditors’ meeting, NZSK Legal successfully argued for and obtained the convening order — and subsequently secured creditor approval and court sanction.
Summary
Industry
F&B — Franchise Operations (Multi-State)
Court
High Court (Commercial Division), Kuala Lumpur
Debt in Dispute
RM19.4 Million
Opposition Dismissed
Convening Order Granted
Scheme Vote
77% Approval
Final Status
Sanctioned
Maxine Khoo
Published: May 6, 2026
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Background
Our client was a multi-state food and beverage franchise operator holding sub-franchise licences for a regional fast food brand across several Malaysian states. A rapid expansion programme funded by a single major financier resulted in over-leverage when several new outlets underperformed. When the client sought to renegotiate its financing terms, the financier refused and filed a winding-up petition. Our client responded by proposing a scheme of arrangement under the Companies Act 2016 and applying for a convening order.
The matter raised a significant point of Malaysian corporate law: can a creditor holding more than 25% of total debt value prevent a scheme from even being put to a vote, simply by arguing that the scheme is mathematically doomed to fail because they will vote against it? NZSK Legal’s argument — and the court’s answer — has implications for all Malaysian restructuring practitioners.
The Challenges
- The major financier, holding approximately 61% of the total unsecured debt value, filed a substantive affidavit opposing the convening application on the basis that any scheme would mathematically fail the 75% threshold if the financier voted against. The financier argued that convening a meeting would be a pointless exercise and a delay tactic — and that the court should refuse the convening order and proceed to hear the winding-up petition.
- This argument had intuitive force. If the largest creditor, holding 61% of total debt, votes against a scheme, the scheme cannot achieve 75% approval. Why, the financier asked, should the court go through the expense and delay of a creditors’ meeting that will simply confirm what arithmetic already predicts?
- NZSK Legal identified a deeper legal question: who decides whether a scheme should be put to creditors — the company (and the court, through the convening process), or a single creditor by exercising a prospective veto? The answer to this question would determine whether a large creditor can effectively nullify a company’s right to propose a restructuring plan.
Our Approach
- NZSK Legal filed written submissions arguing that the court’s discretion at the convening stage is narrow and well-established: the court’s function at this stage is not to conduct a mini-trial on the merits of the scheme or to pre-determine how creditors will vote. A scheme of arrangement is the creditors’ decision to make — and creditors are entitled to a meeting at which to make it.
- We supported this position with Malaysian and Commonwealth authority establishing that opposition at the convening stage — including prospective voting opposition — is an exceptional remedy granted with great judicial reluctance. The appropriate forum for a creditor to challenge a scheme on its merits is the sanction hearing, not the convening application.
- Concurrently with the court proceedings, NZSK Legal maintained active commercial negotiations with the financier’s solicitors. We presented a revised scheme term sheet that increased the cash payment to the financier in year one and offered additional security over two of the highest-performing outlets — addressing the financier’s stated commercial concerns directly.
- The court granted the convening order, rejecting the financier’s opposition. NZSK Legal immediately escalated commercial negotiations with the financier, using the court order as leverage to demonstrate that the scheme process would proceed regardless.
The Outcome
- The Malaysian High Court granted the convening order, finding that prospective voting opposition by a creditor is not sufficient grounds to deny a company the right to have its scheme put to a creditors’ vote. The court affirmed that challenges to a scheme’s commercial merits belong at the sanction hearing — not the convening application.
- Following the court’s ruling, the financier re-engaged in substantive commercial negotiations. The revised scheme terms — incorporating the enhanced year-one payment and additional security — were sufficient to shift the financier’s position from opposition to qualified support.
- At the creditors’ meeting, the financier voted in favour of the scheme. Total approval was 77% by value — narrowly above the statutory threshold. The court sanctioned the scheme at the sanction hearing, which proceeded without opposition.
- The scheme has been in implementation for over a year. The client is meeting all restructured payment obligations and has rationalised three underperforming outlets pursuant to the scheme terms while retaining its profitable core locations. The franchise licences remain active.
Key Legal Principle
The right to have a scheme of arrangement put to creditors for their vote belongs to the company — not to any individual creditor, however large. Opposition to a convening order on the basis of prospective voting arithmetic is an exceptional remedy that Malaysian courts grant with great reluctance. The appropriate forum for substantive challenges to a scheme’s merits is the sanction hearing — where all parties are heard, all evidence is tested, and the court exercises its full supervisory function.
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