However, unlike a CVA and judicial management, there is no automatic moratorium. A3.2 A company may be incorporated as a private company with a single director who must be resident in Malaysia (s 196). There have been welcome developments in the law governing corporate restructuring and insolvency introduced by the new Malaysian Companies Act 2016. Judicial management is the other corporate rescue mechanism. Bloomberg reported on 22 March 2020 that Malaysia’s growth may be as low as 2% with the triple whammy of the coronavirus, low oil prices and the political change. If the company can be continued as a still operating company, the liquidator may be able to carry out a sale at a better price. (Sham Chin Yen & 15 others v Mansion Properties Sdn Bhd [2019] 1 LNS 781, CA), Judges: Kamaludin Md Said JCA (delivering the judgment of the court), Hamid Sultan Abu Backer JCA, and Hanipah Farikullah JCA. SINGAPORE/PARIS, Oct 9 (Reuters) - A group of leasing companies has rejected a restructuring plan put forward by Malaysia Airlines, bringing the carrier closer to a showdown over its future. The current status of Malaysian insolvency law. These individuals consider the voluntary arrangement under the Insolvency Act 1967. Second, the debtor then files a court application for an interim order for voluntary arrangement. This continued supply is subject to an assurance, undertaking or guarantee to pay for services and charges incurred during the period of receivership. The airline’s parent company, Malaysian Aviation Group (MAG), announced earlier this week that it is currently facing financial difficulties in … For example, in a court winding up, the liquidator can automatically choose to continue to run the business of the company for six months. Arising from this second point, it would be prudent to ensure that there is only one set of the same Court proceedings. This gives the company a few months of valuable breathing space. The cases featured below range from judicial management, schemes of arrangement and the receiver’s ability to have continued supply of utilities. We work with underperforming companies to rapidly transform and improve their performance, providing specialist services for businesses that have cash flow, debt, or operational problems that are reducing profitability, detracting from growth in shareholder value and/or causing financial instability. Strategic Restructuring in Malaysia Airlines (MAS) 1. The winding up of a company may be one option to preserve the remaining assets of the company and to allow a controlled sale of the company. The creditors’ views must be sought first and this can be difficult if the company is already facing legal action. As the CDRC platform only attempts to resolve bank debts, the company will still face claims from its other creditors. To complete the series, I now feature the top five restructuring and insolvency cases in Malaysia for 2019. This Act was a specific piece of legislation and with a social purpose. If the scheme does not also involve any arrangement between the company and its members, there is no requirement for a vote by the members. Fourth, the Court of Appeal suggested that at the time of the filing of the judicial management application, there must be an element of bona fides. Fifth, the nominee needs to secure more than 50% in number and at least 75% in value of the creditors’ agreement. Second, the debtor company will work with an insolvency practitioner to draw up the CVA proposal. It acts as a platform to allow for debtor companies and the financial institution creditors to work out a debt restructuring without the need to resort to formal court proceedings. section 368(2) of the CA 2016. The CVA is a relatively quick out-of-court process. The aim is to achieve 75% in value of creditors’ approval for each class. ... 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 CA 2016 introduced the corporate voluntary arrangement, or CVA. In Malaysia, bankruptcy only refers to the insolvency of an individual. As an example of a possible exemption, allow the CVA to be used by all private companies and exempt private companies from section 395(d) of the CA 2016. The warning from Malaysia Airlines' holding company group raises the stakes in negotiations for a financial shake-up known as "Plan A" and sets out an … Without a supply of essential utilities, a company in receivership would not be able to continue business and would shut down. Malaysia Airlines The priority provisions on debenture holders’ debts are set out in the CA 2016. As there are no grounds of judgment, it is not clear how section 392(6) and (7) was interpreted. These creditors had opposed the scheme of arrangement. A3 SINGLE MEMBER/SOLE DIRECTOR COMPANY AND ITS IMPLICATIONS A3.1 A company can be incorporated with a single member who can be either an individual or another company. You can read more of the features of CVA in my earlier post. However, the secured creditors’ rights cannot be affected without their consent. SINGAPORE, Oct 10 — A group of leasing companies has rejected a restructuring plan put forward by Malaysia Airlines, bringing the carrier closer to a showdown over its future. This decision allowed a receiver or receiver and manager to obtain a declaration under the CA 2016 to compel a provider of supplies (including utilities such as water, electricity, gas and telecommunications) to continue supply. Third, the interim order will grant protection. It may be the case that the company has failed in its restructuring options. These provision in receivership and judicial management also only refers to “any of the supplies including water, electricity, gas and telecommunications” but does not limit the type of supplies. This decision will restrict the ability of a company to apply ex parte for a restraining order and for leave to convene the scheme creditors’ meeting. On the flip side, this decision protects creditors’ interests since they must be consulted first. It is sometimes common practice for a company to first file an Originating Summons in the first court to obtain leave to convene the scheme creditors’ meeting. I have updated the correct link to my earlier post on the Perwaja Steel decision. It also modifies the existing law relating to schemes of arrangement. The changes include raising the statutory demand threshold ten-fold from AUD2,000 to AUD20,000. If the approval is obtained, it will then be binding on all the creditors. Visit our COVID-19 site for more detail on our Restructuring Services in light of this pandemic. This allows breathing space for the company to restructure its debts. A common feature of corporate rescue mechanisms is that there is to be a moratorium to stay legal proceedings against the distressed company. This latter aspect has led to the criticism of CVA as a rescue tool and where we see the low usage of CVA. Malaysia Airlines' parent company is still holding negotiations with lessors and creditors over a restructuring plan to keep the carrier alive, but the talks are taking longer than planned, according to a staff memo seen by Reuters. What is Credit Debt 1) Court Approved Schemes of Arrangement 2) Special Administration The Court dismissed the application. The fresh Originating Summons would likely be assigned to a second Court. First, the CVA can be utilised only by private companies and, in particular, where the company has no secured debt. The initial six-month term may only be extended for a further six months. Businesses are defined as insolvent when they are overwhelmed by debts and can no longer make repayments on time. When a company first becomes insolvent, it becomes necessary to carry out corporate recovery. Enter your email address to subscribe to this blog and receive notifications of new posts by email. Further, individuals may face the risk of bankruptcy under the Insolvency Act 1967 (IA 1967). Malaysia Airlines might have to shut down if it is unable to restructure the company quickly. A group of leasing companies has rejected a restructuring plan put forward by Malaysia Airlines, bringing the carrier closer to a showdown over its future. A common feature of corporate rescue mechanisms is that there is to be a moratorium to stay legal proceedings against the distressed company. This allows breathing space for the company to restructure its debts. At this stage, the company may also apply for a Court Order for an urgent moratorium known as a restraining order. Any company listed on Main Market or ACE Market of Bursa Malaysia that has already been classified as a PN17 or GN3 company respectively; Companies are expected to be viable as a going concern post-restructuring in all cases. Such a distressed company may then have to opt for a judicial management application which triggers an automatic moratorium. Sorry, your blog cannot share posts by email. Sorry, your blog cannot share posts by email. Earlier, I covered the top five Malaysian company law cases for 2019. Coronavirus: Restructuring and Insolvency for Businesses, 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 letter, dated Oct. 8, states that if the airline group “insists on proceeding with the proposed restructuring plan (RP), our clients will use all means at their disposal to challenge it on all possible grounds.” Malaysia Airlines is one of dozens of carriers severely hit by the coronavirus crisis, which has battered demand for air travel. This has not been tested in the courts yet but it has largely been understood that public-listed companies fall within this phrase. This may be subject to court determination in the future. Third, the Court must justly, economically and expeditiously dispose of the judicial management application and any appeal process. The debtor cannot have filed for an interim order within the last 12 months. The company in this case was a housing developer and had initiated a scheme of arrangement and obtained a restraining order to restrain ongoing legal proceedings against the company. KUALA LUMPUR: Malaysia Airlines Bhd is prepared to shut down if ongoing talks with leasing companies about a restructuring plan fail, The Edge Malaysia cited the national carrier’s CEO as saying. In practice however, the restructuring provisions have been used to assist companies in financial difficulties as a rescue mechanism. Fifth, the judicial manager’s proposal aims to achieve 75% in value of the creditors’ approval. This allows the same Court and the same Judge to have a holistic supervisory function over the entire scheme of arrangement process. This is the first appellate decision that dealt issues concerning the judicial management mechanism. The leave question is whether an Order made pursuant to an ex parte application under sections 366 and 368 of the CA 2016 subsequently served on the creditors is an abuse of Court process which renders the entire court sanctioned scheme liable to be set aside. Overview on restructuring and corporate rescue options for businesses in Malaysia. A “sizeable” number of creditors support the company’s plan, some are against it and others are still undecided, Izham Ismail told the business weekly in an interview Saturday. First, the High Court undertook a plain reading of the relevant provision i.e. There is the pre-bankruptcy rescue mechanism known as the voluntary arrangement which I will deal with below. The Court ruled that the Employment Act was to take priority. Although there is no voluntary administration procedure in Malaysia for the restructuring of a company enduring a period of financial distress, the compromise and scheme of arrangement mechanism as provided in Section 176 of the Companies Act, 1965 (the Act) (similar to Sections 411 to 413 of the Australian Corporations Act, 2001; Para. After that six months, the liquidator will need approval from the creditors (through the committee of inspection) or from the court. Due to the similarity in language, this decision would also have significance for a judicial manager who seeks to have continued supply to the company. A company undertaking an SOA exercise will typically work with consultants including a restructuring advisor to turnaround the business. At the first stage, the company applies to Court for an Order to hold meetings of the company’s creditors. More on the winding up laws in my earlier post. The company needs “to get the 50:50 (undecided) ones with those who have agreed,” Izham was cited as saying in the publication. Third, any secured creditor can veto the judicial management application. Thanks. Recent Developments of Insolvency and Restructuring in Malaysia A financially distressed company is not in a position to undertake a scheme of arrangement and to have urgent protection from legal proceedings in the meantime. Malaysia Airlines proposed a debt restructuring plan for 16 billion ringgit ($3.85 billion) in liabilities to its creditors including leasing companies and suppliers., but the proposal was rejected. There are provisions in the CA 2016 that relate to this issue. Top 5 Restructuring & Insolvency Cases in Malaysia for 2019, https://themalaysianlawyer.com/2019/08/19/case-update-priority-of-wages-under-the-employment-act-over-debenture-holder-debts/, 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. It is management driven in that it is a debtor-in-possession process. The moratorium continues on during the judicial management order. Set out below are the findings by the Court of Appeal. As highlighted above, there are drawbacks or possible weaknesses in some of the above restructuring options. The Court will approve the scheme once it is satisfied that all the statutory requirements have been met. It held that chilled water did not come under the ambit of “supplies” in sections 392(6) and (7). Malaysia Airlines is seeking to restructure after the COVID-19 pandemic forced it to slash operations. This is because of the drastic effects of an insolvent company going into judicial management, and there may be no prospects of recovering money or assets. Second, the winding up of the company and the appointment of the liquidator can still allow for the continuation of the business of the company. But at that time, there was still the pending legal challenges before the first Court. This can be a disadvantage of judicial management as a rescue option. Third, the company returns to Court to apply for sanction. It would be common practice to nonetheless disclose to the second Court all the proceedings that had already taken place and any ongoing legal actions. The filing of a judicial management application triggers an automatic moratorium. The filing of a judicial management application triggers an automatic moratorium. Summary. I have written about the Barakah Offshore decision on this issue. A receiver and manager was appointed over a company. Third, upon the filing of the necessary papers, an automatic moratorium applies to protect the debtor company. Restructuring a corporate entity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company. First, the company’s application in the first Court proceedings for leave to convene the scheme creditors’ meeting and for the restraining order ought to have been served on the relevant creditors. Malaysia Airlines Bhd. This case relates to the law on schemes of arrangement and the grant of a restraining order. This means that a more complicated restructuring would fail as the judicial management would simply run of time after the 12 months. This supplement is an addendum updating the first edition of Malaysia Company Law: Principles and Practices. For further information on how to apply to CDRC, please click here. Next, the supplier cannot make it a condition for continued supply that outstanding charges before the appointment of the receiver must be paid. Our Restructuring Services Group specialises in providing in-depth business and financial advisory to various stakeholders in the areas of corporate restructuring and business recovery. KUALA LUMPUR: Malaysia Airlines will have to shut down if its lessors decide not to back its latest restructuring plan, the airline’s group chief executive was quoted as saying on Saturday. Unlike a debtor-in-possession process, this is where the management of the company will be placed in the hands of an insolvency practitioner. In 2015, an entity-specific restructuring statute - the Malaysian Airline System Berhad (Administration) Act 2015 - was enacted, which facilitated the administration and restructuring of Malaysia Airlines and the transfer of its Would that revive the moratorium protection? Next, the Court must be satisfied that the making of the judicial management order will essentially help to achieve the survival of the company, the restructuring of the company, or a better realisation of the company’s assets. The Court cannot merely rely on surmise and conjecture. The relevant company does not have a positive cash flow from its operations because of disruption in its income stream. A group of leasing companies has rejected a restructuring plan put forward by Malaysia Airlines, bringing the carrier closer to a showdown over its future. A group of leasing companies has rejected a restructuring plan put forward by Malaysia Airlines, bringing the carrier closer to a showdown over its future. Second, the Court also looked at the legislative history of the introduction of the predecessor provision of section 176(10A). Gas District Cooling (GDC) is the supplier of chilled water for all air conditioning systems in Putrajaya. The voluntary arrangement is essentially where the creditors agree to compromise or discount the debts owing to them. The airline was pulled from the stock market and taken private by Khazanah Nasional, Malaysia's sovereign wealth fund, which eventually revealed a … When a company first becomes insolvent, it becomes necessary to carry out corporate recovery. The condominium purchasers had earlier filed legal actions to claim for liquidated damages against the company. It is one of the corporate rescue mechanisms. Some countries have already reacted to this growing risk of insolvency by changing their laws. There is a similar provision under section 414(7) of the CA 2016 that also allows a judicial manager to utilise such a similar mechanism. It provides a concise yet helpful explanation of the differences between the former Companies Act 1965 and the Companies Act 2016, which came into operation on … Many small businesses will be sole proprietors. Companies with viable businesses may sometimes find themselves in financial trouble when they are burdened with large debts. Corporate recovery solutions are provided by specialist accountants who work to get a good deal for those with financial ties to the business that is facing insolvency. In 2019, we saw further developments interpreting the insolvency-related provisions of the Companies Act 2016 (CA 2016). The Companies Act 2016 makes some significant changes to Malaysia's corporate insolvency regime, as it introduces two new insolvency processes: judicial management and corporate voluntary administration. The moratorium would allow a company to have a stay of all creditor actions and give the distressed company breathing space. objectives of the restructuring in the water services industry in Malaysia are to regulate, supervise and monitor the water services industry including Operational restructuring comes in handy when a company is faced with an “out of cash” situation. Businesses throughout Malaysia and across the world are already and will continue to be deeply affected by, amongst others, the current economic climate. (Court of Appeal Order dated 16 April 2019), Judges: Vernon Ong JCA, Zabariah Mohd Yusof JCA, and Yew Jen Kie JCA. 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. I have written generally about corporate rescue over here. The judicial manager takes over all management powers of the board of directors. The carrier faces a showdown over its future as lessors decide whether to back its restructuring plan. The issue was whether the employees’ wages (all referred to under section 31 of the Employment Act) would have priority over the debenture holders’ debts. Unlike JM and CVA, an SOA applies to all companies in Malaysia. Globally or locally, the COVID-19 pandemic has forced many companies to experience this kind of situation.
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