Corporate Restructuring and Rescue Mechanism in Malaysia

With the current economic climate in Malaysia, many small and medium-sized enterprises (SMEs) in Malaysia have experienced a significant drop in income and many business owners are considering company winding-up or closing down the business entirely. This is due to increasing pressure from creditors on outstanding payments and staff payroll commitments. However, other than winding up a company in Malaysia, there are other corporate rescue mechanism and corporate restructuring options in Malaysia to rescue a distressed business. 

There are 6 key corporate rescue mechanism and corporate restructuring options contained in the Companies Act 2016 (CA 2016) in Malaysia. WeCorporate has outlined these 6 key options to rescue a business in the article below:  

Related Read: How to close a Sdn Bhd company in Malaysia? »

1. Corporate voluntary arrangement (CVA) (only For Private Companies with no Secured Debt)

CVA is a new corporate restructuring and corporate rescue mechanism in Malaysia made available under CA 2016. It is a quick out of court process, which is as such:

• Initiated by the directors of the company who will make a proposal for CVA to the creditors, and to appoint a nominee to act as trustee/supervisor for the implementation of the CVA.
• Once the CVA is approved by the creditors, the nominee shall notify the Court and the company shall be able to implement the CVA.
• Upon filing of the application to the Court, the company is entitled to delay performing certain legal obligations or to delay payment for 28 days to 60 days (Moratorium period) subject to the consent of the nominee, shareholders of the company and 75% in value of the creditors.
• During the moratorium period, creditors do not have power to act against a company.

However, CVA only applies to private companies and does not extend to companies regulated under the purview of the Central Bank of Malaysia or the Capital Markets and Services Act 2007. Furthermore, it is also not available to companies with secured debt (e.g. property or undertaking charged to creditors). As such, this limits the use of CVA amongst businesses in Malaysia.

2. Judicial Management (JM)

It is another method of corporate restructuring and corporate rescue mechanism provided under Section 392, CA 2016 in Malaysia. Unlike CVA, under JM, the management of the company will be handed over to an insolvency practitioner.

The key features of JM are as follow:

• The filing of court application

  The filing of the court application for JM triggers an automatic moratorium which prevents company from winding up and also prevents any legal proceedings to be initiated against the company. This will provide much needed breathing space to the distressed company.

• The application must demonstrate to the Court

  • The company is or will be unable to pay its debts;
  • The survival of the company as a going concern;
  • The approval of a compromise between the company and the creditor; and
  • A more advantageous realisation of the company’s assets would be effected than on a winding up.

• Any secured creditor can veto the JM application

  Once the JM order is granted, the judicial manager has an initial term of 6 months to try to put forward a restructuring proposal to the company’s creditors. The moratorium continues on during the judicial management order.

  The judicial manager’s proposal aims to achieve 75% in value of the creditors’ approval. The judicial manager takes over all management powers of the directors. The initial 6 months term may only be extended for a further 6 months.

3. Scheme of Arrangement (SOA)

SOA is another method of corporate restructuring and corporate rescue mechanism in Malaysia. This arrangement will require the company to get 75% approval by classes of creditors and the management power will remain with the existing board of directors.

Below are the stages of the SOA:

1. Apply to the Court to hold a Creditors’ Meeting where the creditors must be classified into different classes based on their legal rights. The company may also apply for a Court Order for a restraining order as it is not automatically granted like CVA or JM. The initial restraining order will last for not more than 90 days, and can be extended.
2. Once the court order is granted, the company will hold the different meetings based on the creditor classes and the aim is to achieve 75% in value of creditors’ approval for each class.
3. The company will need to apply for sanction from the Court. The Court will approve the scheme once it is satisfied that all the statutory requirements have been met. The scheme will then become binding on all the creditors listed in the scheme.

For SOA, it is not mandatory for a company to engage an insolvency practitioner but it is common to have one to assist on the process.

4. Members Voluntary Company Winding Up

This can be initiated by a solvent company, through its directors and shareholders. It happens when the shareholders no longer want to continue with the business and for all of the assets to be sold, and for the proceeds to then be distributed back to the shareholders. For this, a liquidator will be appointed to manage the entire company winding up process.

Related Read: Malaysia Company Winding-Up During Covid-19 | Latest Update »

5. Creditors Voluntary Company Winding Up

This happens when the company is insolvent. It can be initiated by the company through its directors and shareholders but the creditors will have the final say on the person to be appointed as the liquidator of the company.

6. Compulsory Company Winding Up

This happens when a company fails to pay an amount (minimum RM10,000) as stated in the statutory demand issued by creditors within 21 days. (Note: an exemption has been made for the time being due to Covid-19 situation where the period has been increased to 6 months and the threshold has been increased to RM50,000). The creditor can file a company winding up petition to the Court to seek the Court Order for effective winding up of a company in Malaysia.

Before winding up a company in Malaysia, it is important to consider the various corporate rescue mechanism and corporate restructuring options in Malaysia. We understand that many businesses are facing mounting issues on collections and payments. Therefore, at WeCorporate, we offer assistance on providing financial advisory services to rescue your business. Talk to us today and our team of experts will guide you every step of the way!

Christine

Christine is a content writer at WeCorporate whose focus is mainly on the business landscape in the APAC region. She also occasionally writes on trending topics and provides useful insights to aspiring entrepreneurs and seasoned businessmen alike.