The corporate rescue mechanism allows for financially distressed companies to consider two options: (1) corporate voluntary arrangement and (2) judicial management. The new regime introduces two new corporate rehabilitation mechanisms for financially distressed companies, i.e. Effectively, all companies in Malaysia will now have to operate under the Companies Act 2016 framework. With such approval, the CVA takes effect and binds all creditors. 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. Struggling companies may want to consider the need to restructure their debts by relying on corporate rescue mechanisms which are available under the Companies Act 2016 (“Act”). enacts fundamentally significant changes to company law in Malaysia. For companies that are in financial duress, the new Act provides two corporate rescue mechanisms which companies can use to avoid winding up. 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. This paper argues that the SOA, notwithstanding the presence of the corporate rescue mechanisms, may still be employed to achieve the objective of advancing corporate rescue for financially distressed private companies in Malaysia. Unit No 50-10-9, Level 10 In order to achieve agreement to the terms of a scheme, a vote of seventy-five per centum (75%) of the total value of creditors or class of creditors and client members, or class or client members present and voting at the court-convened class meeting, either in person or by proxy, are required. Upon the appointment of a judicial manager or an interim judicial manager, the directors would largely have no more powers of management. It introduces new concepts in relation to incorporation, capital allocation decisions secured creditors’ rights, reporting requirements, corporate governance and rescue mechanisms. If the proposal is voted in favour by seventy-five per centum (75%) in value of the creditors present or voting by proxy, the proposal will bind all parties. (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 mechanisms under the new Companies Act 2016 allow additional options for a company to restructure its debts and to revive its business. So the time frame for a CVA can be quite short, ranging from the initial 28 days and with a possible maximum extension of an additional 60 days. +60 3 209 25822 Along with the coming into force of the corporate rescue mechanism provisions, the new Companies (Corporate Rescue Mechanism) Rules 2018 have also come into force on 1 March 2018. It allows a company, or its creditors, to apply for an order to place the management of a company in the hands of a qualified insolvency practitioner, a judicial manager. It does NOT extend to companies regulated under the purview of the Central Bank of Malaysia or that of the Capital Markets and Services Act 2007 or a company with its property or undertaking charged to a secured creditor. The companies or the creditors may make an application for the appointment of a judicial manager and the applicant must show that it is unable to pay debts and there is a reasonable probability of preserving all or part of the company as a going concern, and that the interests of creditors would be better served than with a winding up. The new processes are the corporate voluntary arrangement and judicial management. We'll assume you're ok with this, but you can opt-out if you wish. Therefore, time is of the essence and it is important for companies to act quickly to minimise the impact the pandemic has on their businesses. Requirements for the Grant of a Judicial Management Order, The Court is empowered to grant a judicial management order if and only if –, (a) it is satisfied that the company is or will be unable to pay its debts; and. 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. ... New corporate rescue mechanisms to become available under the New Act i.e. With the current situation in Malaysia, there will be a rise in the number of companies who will opt for the corporate rescue mechanisms. Sorry, your blog cannot share posts by email. 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).. Enter your email address to subscribe to this blog and receive notifications of new posts by email. However, such procedure is only available to private companies and excludes companies that are holders of licenses issued under the FSA and the CMSA. Damansara Heights 50490 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. 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. The corporate rescue mechanisms provided under the Act require court’s approval or involving court’s process. The key feature of judicial management is that the process is no longer management-driven. The corporate voluntary arrangement is intended to be a quick and cost-effective mechanism with minimal court intervention. CORPORATE RESCUE: The Companies Act 2016 (“CA 2016”) provides two option of corporate rescue mechanism to rehabilitate the businesses of distressed companies. This guideline serves to inform the general requirements relating to Corporate Voluntary Arrangement (CVA) and Judicial Wisma Uoa Damansara The courts will not be able to cope with such huge numbers and there may be a delay in the granting of order. A scheme of arrangement process may be used for insolvent and solvent companies for restructuring purposes. This latter category appears to exclude any public-listed companies from applying for judicial management. This will also provide clarity and certainty to any legal issue arising from this pandemic. That said, in drafting the bill that culminated in the Companies Act 2016, the Companies Commission of Malaysia had set out to achieve many objectives, and the introduction of alternative corporate rescue mechanisms as one of the 19 policy statements and … Both mechanisms make use of an independent insolvency practitioner who will form a debt restructuring proposal of which the company’s creditors must approve. Malaysia’s scheme of arrangement framework allows for a restraining order to be granted. If a proposal is not approved at the creditors’ meeting, the court would normally discharge the order. 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 implementation of the proposal is supervised by an independent insolvency practitioner who would report to the Court on the viability of the proposal. The key feature of the CVA is that it is a management-driven restructuring process and with minimal Court involvement. There will be a judicial manager who takes control of the management of the companies and prepares the restructuring proposal for consideration by creditors. The company law landscape in Malaysia has witnessed a significant change in its insolvency law with the adoption of two new corporate rescue mechanisms, the corporate voluntary arrangement and judicial management under the Companies Act 2016 (CA 2016), which has repealed the Companies Act 1965 (CA 1965). The new Corporate Rescue Mechanism (“CRM”) is a much welcomed addition to the Malaysian Companies Act 2016 (“the Act”). On the other hand, a restrainin… In this article, I set out the restructuring and rescue options for businesses in Malaysia. This is a wide protection afforded to the distressed company to give it some breathing room to stay legal proceedings against the company. 41, No. The two mechanisms are known as Corporate Voluntary Arrangement and Judicial Management. In Malaysia, the Companies Act 2016 offers three corporate rescue mechanisms which can be used to avail distressed companies. 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