Restraining Order (“RO”) under a proposed scheme of arrangement (“Scheme”) – Can it exist beyond a period of 1 year?

RO can be granted under s.368 Companies Act 2016 (“CA”). This is to protect the Applicant company from facing legal proceedings, pending the convening of a creditors meeting to deliberate the proposed Scheme (“Convening Application”).

Under the recent amendments to s.368, an Applicant company can obtain an RO up to a maximum period of 12 months:

(a)   initial RO period of 3 months (“Initial RO”);

(b)   extension of not more than 9 months [subject to compliance with s.368(2)]

This 12 month period is in addition to an automatic 2 month moratorium from the time the RO application is filed (or until the RO application is decided – whichever is earlier).

To curb abuses of the moratorium provisions, a cooling off period has been inserted in sub-section (3B) which prevents the grant of a RO, if an earlier RO was granted within the preceding period of 12 months (“Cooling Off Period”).

What happens if, despite best efforts, the Applicant is unable to secure creditors approval of its Scheme within the 12 month period? Can the Applicant file a 2nd Convening Application, together with a 2nd RO Application – notwithstanding the Cooling-Off Period?

The answer is Yes.

In the recent case of Martin Bencher v. Sapura Energy [2025] MLJU 511, the Court of Appeal made the following key observations:-

(1)          S.366 does not prohibit the filing of consecutive/fresh Convening Applications. The 2nd Convening Application (and 2nd RO Application) can be initiated whilst the first is in force so long as it is intended to be effective after the lapse of the first;

(2)          The Cooling Off Period of 12 months [in sub-section (3B)] is to be measured from the date the Initial RO was granted. This means that if the Initial RO was granted and the full extension of 9 months was obtained – that would completely satisfy the 12 month period and the Applicant can file the 2nd RO Application immediately thereafter.

This is a welcome clarification from our appellate courts as it draws a balance between discouraging repeated (and potentially frivolous) RO applications on the one hand, and promoting the legislative intent of corporate rescue mechanisms to save distressed companies on the other.

In essence, the threat of abuse of process can still be weeded out as the Initial RO in such cases would not likely be extended – thereby preserving a Cooling Off Period of 9 months. Whereas genuine efforts towards restructuring will not be impeded or shut out if it cannot be completed within the original 12 month period.

This approach appears to be in line with our Singapore counterparts where the Singapore Court of Appeal in Pathfinder Strategic Credit v. Empire Capital Resources, found that the 4th set of restructuring proceedings did not amount to an abuse of process because there were genuine changes to the restructuring efforts.

See grounds of judgment here:

https://tinyurl.com/25m4353v