6 March 2018
There have been welcome developments in the law governing corporate restructuring and insolvency introduced by the new Malaysian Companies Act 2016.
The new Companies Act marks major legislative changes to Malaysian corporate law. Two significant developments introduced under the Companies Act 2016 relate to judicial management and corporate voluntary arrangements.
A company facing imminent insolvency proceedings may now resort to judicial management, a concept which has long been available in other common law countries. This provides a temporary reprieve from debt recovery proceedings.
In this procedure, the management of a company hands over its duties to an independent court-appointed judicial manager. For a company to obtain a judicial management order, the court must be satisfied that the following are fulfilled:
Where the above requirements have been fulfilled, the court is empowered to grant a judicial management order which is valid for a period of six months; this may be extended for a further six months. Upon the granting of such order, the court-appointed judicial manager takes control of the company’s affairs, business and property in order to prepare a restructuring scheme which is then presented to creditors for their approval. A protection automatically available to a company upon submission of a judicial management application to court is a moratorium on all enforcement proceedings.
The judicial manager will prepare a scheme for creditors’ approval for which a 75% majority sanction is required.
This is a new provision where the company can enter into a compromise or arrangement with its creditors under the supervision of an insolvency practitioner with minimal court intervention.
This corporate voluntary arrangement is not applicable to public companies; licensed institutions or operators of a designated payment system regulated by Bank Negara Malaysia; companies which are subject to the Capital Markets and Services Act 2007 or companies with encumbered assets.
The application for a corporate voluntary arrangement must be lodged with the courts via a proposal by either the directors of the company; or the liquidator; or a judicial manager. Upon such application, an automatic moratorium on any creditor action is imposed. The moratorium ends on the day the meeting of creditors is called unless extended for a period of up to 60 days with the consent of 75% majority in value of creditors present at the meeting of creditors.
The proposal for a corporate voluntary arrangement has to be accompanied by a statement of an insolvency practitioner who has agreed to act as a nominee. This should indicate whether or not, in his or her opinion, the debt restructuring proposal has a reasonable prospect of being approved and implemented, and whether the company is likely to have sufficient funds during the proposed moratorium to carry on business. The nominee would then call for a creditors' meeting to obtain a 75% majority vote in support of the proposal. Once approved, the proposal becomes binding on all creditors and members, and the nominee or another insolvency practitioner functions as the supervisor of the voluntary arrangement to see to its implementation.
by multiple authors