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Key Amendments to Restructuring and Insolvency

posted 4 months ago

In a significant move to refine corporate governance, the Companies (Amendment) Bill 2023, recently passed by both Houses of Parliament, signals a transformative shift in the corporate landscape. This Bill, aligning Malaysia with global standards, introduces comprehensive changes aimed at enhancing transparency, simplifying restructuring processes, and strengthening insolvency frameworks. Such reforms are not just legislative updates but strategic steps towards fostering a resilient and investor-friendly business environment in Malaysia.

In this article we explore the key highlights which is set to introduce various changes to the laws of restructuring and insolvency.

1.    Enhanced Restraining Order

Section 368(1A) introduces an immediate moratorium period which takes effect upon filing of an application for restraining order, up to two (2) months or until the application is decided by the Court, whichever earlier.

Section 368(3A) provides protections to a company with the effect to prevent or discontinue actions taken against the company such as winding up proceedings, appointment of receiver, execution process and etc.

Section 368(3B) disallows granting of further restraining order to a company if an order under Sections 368(1), Sections 368B, 368D or 369C has been granted to a company or its related company under Section 368A, in the preceding 12 months. This amendment seeks to prevent abuse of process which might prejudice the rights of members and creditors.

Section 368A allows a related company to apply for a restraining order if the related company plays an integral role in a proposed scheme of arrangement.

2.  Cross-class Cram down

Section 368D empowers the Court to cram down on a class of creditors if it is satisfied that the dissenting class of creditors are not prejudiced when approving a scheme of arrangement.

Under Section 368D(2) and Section 368D(3), the Court may make an order to approve the scheme of arrangement and order the company and all classes of creditors concerned shall be bound by the scheme provided that:

(a)  a majority of 75% of the total value of creditors or class of creditors present and voting either in person or by proxy at the relevant meeting, have agreed to the scheme; and

(b) the Court if satisfied that the scheme does not discriminate unfairly between two or more classes of creditors and is fair and equitable to the dissenting class.

Section 368D(4) sets out the conditions of what is fair and equitable to a dissenting class.

3.  Approval of Scheme without Meeting of Creditors

Section 369C empowers the Court to issue an order to approve a proposed scheme of arrangement even without meeting of creditors if it is satisfied that the creditors would have agreed to such scheme had the meeting of creditors been convened.

Under Section 369C(3), the Court may approve a scheme in fast-tracked manner if:

(a)  The company has provided the creditors with an explanatory statement which contains the information stipulated under Section 369C(3)(a) and Section 369C(6).

(b)  The Court is satisfied that had a meeting of creditors been summoned, the scheme would have been agreed by a majority of a majority of 75% of the total value of creditors under Section 366(3).

4.  Super Priority Rescue Financing

Section 368B and Section 415A introduces super priority rescue financing to a company in a scheme of arrangement and under judicial management, and that rescue financing is given greater priority ranking in the event of a winding up.

A company may make an application to the Court for the following orders:

Section 368B(1)(a) & Section 415A(1)(a)

An order that the debt arising from any rescue financing obtained by the company shall be paid immediately after costs and expenses of winding up [pursuant to Section 527(1)(a)] are paid.

This “super priority debt” is to have priority above all other unsecured debts referred to in Sections 527(1)(b) to (f)

Section 368B(1)(b) & Section 415A(1)(b)

An order to secure debt arising from any rescue financing by the creation of security interest over unsecured assets.

Section 368B(1)(c) & Section 415A(1)(c)

An order to secure debt arising from any rescue financing by the creation of security interest of the same priority or a higher priority over existing security interest.

This order is subject to the protection of the interests of existing security interest holder.

5.  Procedure for Schemes of Arrangement

Section 368(1A) provides that all meetings held pursuant to an order of the Court under Section 366 shall be chaired either by an insolvency practitioner or a person elected by the majority in value of the creditors or members.

Section 369A empowers the Court to order a company to hold another meeting of the creditors or class of creditors to revote on the compromise or arrangement subject to such terms as the Court thinks fit.

Section 369B requires creditors to file the proof of debt with the company and the period within which the proof is to be filed in order to allow them to vote in the meeting to consider the proposed scheme or arrangement.

Section 369D empowers the Court to clarify the terms of a scheme of arrangement which has been approved, upon an application the company or creditor bound by the scheme.

6. Insolvency Practitioner in Schemes of Arrangement

Section 367(3) makes it mandatory for the Court to appoint an insolvency practitioner for the company in cases where:

(a) The company makes an application under Sections 368B (super priority rescue financing), 368D (cram down), or 369C (approval of scheme without meeting); or

(b)  A related company applies for a restraining order under Section 368A.

7. Wider Application of Corporate Voluntary Arrangement and Judicial Management

Section 395 has shrunk the scope into excluding only the companies which are approved and registered under:-

(a) The Central Bank of Malaysia.

(b) Certain parts of the Capital Markets and Services Act 2007 (Act 671).

(c)  Securities Industry (Central Depositories) Act 1991 (Act 453).

This amendment extends the application of the CVA to all companies including companies which have created a charge over their property or undertaking.

Section 403 allows wider application of judicial management including certain public listed companies.

8.  Extension of Judicial Management

Section 406 allows a judicial management order to be extended for a period of six (6) months or longer as the Court may allow.

9.  Protection for Essential Goods and Services

Under Section 430(2), a supplier who wishes to exercise his rights pursuant to an insolvency related clause in a contract shall communicate his intention to do so to the company in writing at least thirty (30) days before exercising his rights under the insolvency related clause.

Subject to the above, any insolvency related clause under any contract for the supply of essential goods and services shall not be exercised against any company.

The Ninth A Schedule lists the types essential goods and services under Section 430:

  • Supply of water
  • Supply of electricity
  • Supply of gas
  • Point of sales terminals
  • Computer software and hardware
  • Information, advice and technical assistance in connection with the use of IT
  • Data storage and processing
  • Website hosting

About the Author

Lum Man Chan
Partner
Dispute Resolution, Employment, Liquidation & Restructuring and Regulatory & Corporate Compliance
Halim Hong & Quek
[email protected]

Chew Jin Heng
Associate
Arbitration and Adjudication, Debt Recovery and General Litigation, Construction Disputes, Contractual Disputes, Land Disputes and Family Law
Halim Hong & Quek
[email protected]

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