The judicial management order shall, unless discharged, remain in force for 6 months and may be extended on the application of the judicial manager for another 6 months. With such approval, the CVA takes effect and binds all creditors. Such period may be extended for up to nine (9) months. Section 420 of the Act provides that a judicial manager has 60 days (or such longer period as the Court may allow) to send to the Registrar, members and creditors of the company a statement of his proposal for the restructuring. Amongst the world of distressed companies in Malaysia, the more pertinent inclusion was the introduction of the two corporate rescue mechanisms, namely, corporate voluntary arrangement (CVA) and judicial management (JM) which I like to refer to as the “Two Rescuers”. The courts will not be able to cope with such huge numbers and there may be a delay in the granting of order. However, such procedure is only available to private companies and excludes companies that are holders of licenses issued under the FSA and the CMSA. When applying to the court to convene such meeting, companies often resorts to applying for an order restraining further proceedings in any action or proceeding for a period of three (3) months provided there is no winding-up order or resolution to wind up the company. (2015). The courts will not be able to cope with such huge numbers and there may be a delay in the granting of order. This is a wide protection afforded to the distressed company to give it some breathing room to stay legal proceedings against the company. Schemes of arrangement as corporate rescue mechanisms: the Malaysia experience. 619-647. Corporate Rescue Mechanism in the Malaysian Companies Act 2016 Prior to the existence of the Companies Act 2016, the Companies Act 1965 introduced a method by which companies may rescue themselves from insolvency statuses and financial difficulties. By the gazetting of the notice P.U. A meeting of creditors shall then be called within such moratorium period. The companies shall appoint a nominee who is a licensed insolvency practitioner to provide an opinion, amongst others, as to whether the proposed scheme is viable and whether it is likely to be accepted by the creditors. Such act will provide temporary relief measures to support businesses during this difficult time. Under the previous Companies Act 1965, a company in financial distress can only restructure by a scheme of arrangement under Section 176 of the Companies Act 1965. (B) 106/2018 dated 27 February 2018, the corporate rescue mechanism under Division 8 Part III of the Companies Act 2016 has come into force on 1 March 2018. Prior to CA 2016, the procedure often utilised by financially distressed companies in Malaysia was the scheme of compromise or arrangement under section 176 of the former Companies Act, 1965. While the papers relating to the voluntary arrangement are filed in court, the court only acts as a depository of documents and there is no court hearing before the voluntary arrangement can take effect. Section 366 of the Act allows the companies to propose a work out arrangement with its creditors in a court-ordered meeting. In order to implement the availability of a centralised agency, an act of parliament should be urgently passed to provide assistance to the struggling companies. Effectively, all companies in Malaysia will now have to operate under the Companies Act 2016 framework. The companies, especially the small and medium enterprises will suffer even more due to such delay. Pursuant to Section 403 of the Act, companies that hold licenses under the Financial Services Act 2013 (“FSA”) and companies which are subject to the Capital Markets and Services Act 2007 (“CMSA”) are ineligible for judicial management. Damansara Heights 50490 It is for the judicial manager to manage the company and to drive the restructuring and rehabilitation process. This is my article on my column Raising the Bar published on 4 August 2016 in The Malaysian Reserve (in association with the International New York Times).. GUIDELINES FOR CORPORATE RESCUE MECHANISM UNDER DIVISION 8 PART III OF THE COMPANIES ACT 2016 This guideline is issued pursuant to section 20C of the Companies Commission of Malaysia 2001. The CA provides for the following rescue mechanisms namely (i) Corporate Voluntary Arrangement (ii) Judicial Management, and an improved (iii) Scheme of Arrangement process whereby there are moratorium periods preventing legal proceedings or action to be taken against the financially distressed company (Moratorium). Sorry, your blog cannot share posts by email. The two corporate rescue mechanisms under Division 8 are judicial management and … The corporate rescue mechanisms under the new Companies Act 2016 allow additional options for a company to restructure its debts and to revive its business. | by Steven SY Tee and Nuraini Lau|. The new processes are the corporate voluntary arrangement and judicial management. The moratorium applies automatically from the filing until the disposal of the judicial management application and also while the judicial management order is in force. It allows this time-limited breathing room for the company from creditors’ legal proceedings. Moratorium and Required Majority to Approve the Proposal. Kuala Lumpur Office The corporate voluntary arrangement (“CVA”) is modeled after the corresponding provisions of the UK Insolvency Act. Upon the appointment of a judicial manager or an interim judicial manager, the directors would largely have no more powers of management. It is also imperative for the government to take an action to pass a legally binding framework to assist companies to recover and emerge stronger during this tough time. The applicant is required to seek an order of the court to convene meeting of the client members and various classes of creditors of the companies. A scheme of arrangement process may be used for insolvent and solvent companies for restructuring purposes. Upon application to the court, a moratorium sets in immediately and all legal proceedings against the company cannot continue. The Covid-19 pandemic and the Movement Control Order have caused distress to many companies due to the suspension of business operations and suppression of consumer demand. The act should also address temporary relief from legal actions arising from the inability to perform obligations in contracts and freezing demands for payment for a period of time. Lee Shih. The Corporate Rescue Mechanism in Malaysia: CVA and Judicial Management, Companies (Corporate Rescue Mechanism) Rules 2018, TML and Legal Logic Asia Talk: Post Implementation Challenges of the Companies Act 2016, Case Update: Federal Court Decides that Restraining Order Can be Applied Without Notice, Largest Law Firms in Malaysia 2020: Domestic and Foreign Firms, 5 Things Companies Need to Know About the Amendments to Occupational Safety Laws, Judicial Management Statistics in Malaysia, Case Update: The Interim Judicial Manager to Protect Assets in Jeopardy, Case Update: Simultaneous Resignation and Appointment of Director, Case Update: Federal Court Decides on Extent of Directors’ Duties – Key Lessons for Directors, How to Qualify as a Liquidator in Malaysia, Case Update: Resignation of Directors Does Not Require Acceptance or Consent by the Company, Case Update: When an employee transfer can amount to a constructive dismissal. The approval level required is 75% in value of the creditors’ claims which have been accepted by the judicial manager. Commonwealth Law Bulletin: Vol. The two mechanisms are known as Corporate Voluntary Arrangement and Judicial Management. Both the corporate voluntary arrangement and judicial management, together with the Com-panies (Corporate Rescue Mechanism) Rules 2018 (“Rules”), came into force earlier this year on 1 … On the other hand, a restrainin… Kuala Lumpur As per Section 366 of the Act, a debt restructuring scheme under Section 176 of the Companies Act 1965 generally involves a compromise proposed between a company and its creditors or any class of them. Restructuring of debt can be done via (a) a scheme of arrangement, (b) company voluntary arrangement, or (c) judicial management in accordance with the Act. ridza@ridzalaw.com.my. Corporate Rescue Mechanisms in Malaysia: A 10-Minute Digest. (b)    it considers that the making of the order is likely to achieve one or 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 of a compromise or arrangement between the company and its creditors; (iii)   a more advantageous realisation of the company’s assets would be effected than on a winding up. The corporate rescue mechanism under Division 8 of Part III of the Companies Act 2016 came into force on 1 March 2018, together with the Companies (Corporate Rescue Mechanism) Rules 2018. This is where Corporate Rescue Mechanisms come in. ... New corporate rescue mechanisms to become available under the New Act i.e. In Malaysia, the Companies Act 2016 offers three corporate rescue mechanisms which can be used to avail distressed companies. Malaysia’s scheme of arrangement framework allows for a restraining order to be granted. Key Changes About The New Companies Act In Malaysia. The exclusion of this last group of companies may significantly reduce the efficacy of the CVA as a restructuring option. It is also a restatement of existing rules. Both mechanisms make use of an independent insolvency practitioner who will form a debt restructuring proposal of which the company’s creditors must approve. This arrangement is not available to: - a public company; - a company which is a licensed institution or an operator of a designated payment system regulated under the law enforced by the Bank Negara Malaysia; The two corporate rescue mechanisms share some common elements. CORPORATE RESCUE MECHANISMS. A scheme may also be initiated by a creditor, client member of the companies, liquidator or judicial manager. The judicial manager may make an application to court for an extension of time of up to six (6) months. According to reports, the major changes are in relation to the incorporation procedure of companies, the omission of authorised share capital and par value for shares, as well as a corporate rescue mechanism for companies. The Companies Commission of Malaysia’s relaxation of the creditors winding-up petition rules is a much-needed respite for times like these, however, if revenue streams continue to be severely affected many months post-MCO, companies may still find themselves in a precarious financial position. UNDER THE COMPANIES ACT 2016. With the current situation in Malaysia, there will be a rise in the number of companies who will opt for the corporate rescue mechanisms. At the company’s meeting, a simple majority is required to approve the proposed CVA while at the creditors’ meeting, the required majority is 75% of the total value of the creditors present and voting. The CVA is a procedure which allows a company to put up a proposal to its creditors for a voluntary arrangement. If more time is required for the stakeholders to decide on a proposal, the moratorium period can be extended for a further period not exceeding 60 days with the approval of 75% majority in value of the creditors at a meeting and with the consent of the nominee and the members of the company. There are also certain companies who will not be eligible for the mechanisms and this, will no doubt significantly reduce the availability of such mechanisms to the said companies. The CRM is akin to the medical term that we are all familiar with, namely Cardiopulmonary Resuscitation (CPR). Corporate Voluntary Arrangement. The judicial management mechanism, modeled after the Singapore provisions, provides a further option to rehabilitate a financially distressed company. As such, the restructuring proposal must be put forward for the creditors’ approval during this period. 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