News and developments
ENHANCEMENTS TO CORPORATE GOVERNANCE AND RESCUE MECHANISMS: COMPANIES (AMENDMENT) ACT 2024
[1] in keeping with the development of legal framework at international level[2] i.e., United Kingdom, Singapore, and United States.[3]
Furthermore, the revision of legislation pertaining to Scheme of Arrangement (“SOA”) and Restraining Order (“RO”) serves as a stimulation for companies with the potential to stay solvent, enabling them to avoid winding-up proceedings,[4] particularly during the COVID-19 pandemic recovery phase. Consequently, winding-up proceedings should only be considered as a final resort after the company has exhausted all available corporate rescue mechanisms.[5]
Similarly, it is noteworthy that s68, s395, s576, and s612A of the 2024 Amendment shall come into force on a later date fixed by the Minister of Domestic Trade and Cost of Living.[6]
COURT-APPOINTED INSOLVENCY PRACTITIONER (“APPOINTEE”)
By virtue of s366 (2A),[7] the law stipulates that all meetings held under s366 (1) shall be presided by either (i) an insolvency practitioner appointed under s367 (3),[8] or (ii) a person elected by the majority in value of the creditors or class of creditors or members or class of members. Prior to the 2024 Amendment, the neutrality of the appointee remains doubtful because the appointee is often appointed by the applicant scheme company itself. However, this issue has ceased to be relevant post the 2024 Amendment as the court is empowered to appoint an external appointee.
Further, the 2024 Amendment is aimed at increasing the success rate of the scheme.[9] Currently, the appointee may not only assess the viability of the SOA[10] and table the viability report at the meetings held under s366,[11] but the appointee also enjoys some other rights,[12] amongst other, right of access to all the records of the company at all reasonable times.[13]
As highlighted above, by virtue of s367 (3), the appointment of the insolvency practitioner for the company shall be mandatory upon (i) the application of restraining order by a related company under s368A[14] or (ii) the application by the company in the events listed below:[15] -
Author: Chin Lit Fwu (Partner) and Wallace Kew JiaRong (Pupil-in-Chambers)
Footnotes [1] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 93 (Puan Hajah Fuziah binti Salleh). [2] Ibid, pg 94. [3] Ibid, pg 95. [4] FMT Reporters. (2024). Companies (Amendment) Act 2024 will give more transparency, says minister. FMT. Retrieved from < https://www.freemalaysiatoday.com/category/nation/2024/03/27/companies-amendment-act-2024-will-give-more-transparency-says-minister/ >. Site accessed on 4 April 2024. [5] Ibid, pg 96. [6] See footnote 4 above. [7] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 366(2A). [8] Ibid, s 367(3). [9] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 95 (Puan Hajah Fuziah binti Salleh). [10] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 367(1). [11] Ibid, s 367(2). [12] Ibid, s 367(4). [13] Ibid, s 367(4)(a). [14] Ibid, s 367(3)(b). [15] Ibid, s 367(3)(a). [16] Ibid, s 368B. [17] Ibid, s 368D. [18] Ibid, s 369C. [19] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 96 (Puan Hajah Fuziah binti Salleh). [20] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 368B (1)(a) & 415A (1)(a). [21] Ibid, s 368B (1)(b)(i) & 415A (1)(b). [22] Ibid, s 368B (1)(c) & 415A (1)(c). [23] Ibid, s 368B (1)(c)(ii). [24] Ibid, s 368D (2). [25] Ibid, s 368D (1). [26] Ibid, s 368D (3)(a). [27] Ibid, s 368D (1)(b). [28] Ibid, s 368D (3)(b). [29] Ibid, s 368D (4). [30] Ibid, s 369C (1). [31] Ibid, s 369C (3). [32] Ibid, s 369C (2). [33] Ibid, s 369C (5). [34] Companies Act 2016 (Act 777) (Malaysia) s395. [35] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 395. [36] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 94 (Puan Hajah Fuziah binti Salleh). [37] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 369B (2). [38] Ibid, s 369B (1). [39] Ibid, s 369B (3). [40] Ibid, s 369B (6). [41] Ibid, s 369D (1). [42] Ibid, s 369D (1)(a). [43] Ibid, s 369D (1)(b). [44] Ibid, s 368(1). [45] Ibid, s 369D (1A). [46] Ibid, s 368 (1). [47] Ibid, s 368 (2). [48] Ibid, s 368 (3B). [49] Ibid, s365. [50] Ibid, s 368A (1). [51] Ibid, s 368A (5). [52] Ibid, s 406 (1). [53] Companies Act 2016 (Act 777) (Malaysia) s403(b) [54] Ibid, s 403. [55] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 95 (Puan Hajah Fuziah binti Salleh).
- super priority rescue financing;[16]
- cross-class cram down;[17] or
- approval of proposed scheme without creditor’s meeting i.e., pre-pack SOA.[18]
- the debt incurred from any rescue financing obtained by the company shall be paid immediately after the costs and expenses of the winding up is cleared;[20]
- to secure a debt incurred by any rescue financier through the creation of security over unsecured assets;[21] and
- to secure a debt incurred by any rescue financier by the creation of security interest of the same priority or even higher priority over existing security[22] conditional upon the interests of existing security interest holder is not jeopardized.[23]
- there is at least one class of creditors who voted in favour of the scheme;[25]
- there is a majority of 75% of the total value of creditors present and voted in person or by proxy at the relevant meeting;[26]
- creditors to be bound by this scheme have been placed into at least two classes of creditors;[27] and
- such scheme is fair and equitable to every dissenting class without any unfair discrimination between two or more classes of creditors[28] after considering the factors laid down in s368D (4).[29]
- a company which is a licensed institution, or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia;
- a company which is approved or registered under Part II, licensed or registered under Part III, approved under Part IIIA, or recognized under Part VIII of the Capital Markets and Services Act 2007; and
- a company which is approved under Part II of the Securities Industry (Central Depositories) Act 1991.
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- All meetings held under s366 (1) shall be presided by either an insolvency practitioner appointed under s367 (3), or a person elected by the majority in value of the creditors or class of creditors or members or class of members.
- Under s367 (3), the appointment of a court appointed insolvency practitioner is mandatory if a related company applies for a RO, or if the company applies for super priority rescue financing, cross-class cram down, or pre-pack SOA.
- The expansion of the application of corporate voluntary arrangement to even public company and the companies with a charge created over their property or any of its undertaking.
- All creditors are required to file the proof of debt in the manner and within the period stated in the notice issued under s369B (1), failing which the creditors are prohibited to vote at the meeting. Also, a creditor who filed the proof of debt is generally entitled to inspect the entire or part of the proof of debt filed by other creditors.
- An interim RO shall take effect automatically for 2 months from the date of application for SOA or until the application for a RO is decided, whichever is earlier.
- In general, the timeframe for a RO is 3 months but it may be further extended by the court for another 9 months.
- The application of RO is now extended to related companies if a similar order has been granted to the subject company.
- No re-application of RO by the subject company or its related company is allowed if an RO has been granted to the companies in the past 12 months.
- The default rule is that judicial management shall last for only 6 months, but the court may upon the application of a judicial manager, extend such period subject to any terms and conditions. Also, judicial management is now applicable to even listed companies.
*NOTE: This is Part 2 of our two part series analyzing the Companies (Amendment) Act 2024. To read Part 1 on Bolstering Corporate Integrity, please click HERE |
Footnotes [1] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 93 (Puan Hajah Fuziah binti Salleh). [2] Ibid, pg 94. [3] Ibid, pg 95. [4] FMT Reporters. (2024). Companies (Amendment) Act 2024 will give more transparency, says minister. FMT. Retrieved from < https://www.freemalaysiatoday.com/category/nation/2024/03/27/companies-amendment-act-2024-will-give-more-transparency-says-minister/ >. Site accessed on 4 April 2024. [5] Ibid, pg 96. [6] See footnote 4 above. [7] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 366(2A). [8] Ibid, s 367(3). [9] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 95 (Puan Hajah Fuziah binti Salleh). [10] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 367(1). [11] Ibid, s 367(2). [12] Ibid, s 367(4). [13] Ibid, s 367(4)(a). [14] Ibid, s 367(3)(b). [15] Ibid, s 367(3)(a). [16] Ibid, s 368B. [17] Ibid, s 368D. [18] Ibid, s 369C. [19] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 96 (Puan Hajah Fuziah binti Salleh). [20] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 368B (1)(a) & 415A (1)(a). [21] Ibid, s 368B (1)(b)(i) & 415A (1)(b). [22] Ibid, s 368B (1)(c) & 415A (1)(c). [23] Ibid, s 368B (1)(c)(ii). [24] Ibid, s 368D (2). [25] Ibid, s 368D (1). [26] Ibid, s 368D (3)(a). [27] Ibid, s 368D (1)(b). [28] Ibid, s 368D (3)(b). [29] Ibid, s 368D (4). [30] Ibid, s 369C (1). [31] Ibid, s 369C (3). [32] Ibid, s 369C (2). [33] Ibid, s 369C (5). [34] Companies Act 2016 (Act 777) (Malaysia) s395. [35] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 395. [36] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 94 (Puan Hajah Fuziah binti Salleh). [37] Companies (Amendment) Act 2024 (Act 1701) (Malaysia) s 369B (2). [38] Ibid, s 369B (1). [39] Ibid, s 369B (3). [40] Ibid, s 369B (6). [41] Ibid, s 369D (1). [42] Ibid, s 369D (1)(a). [43] Ibid, s 369D (1)(b). [44] Ibid, s 368(1). [45] Ibid, s 369D (1A). [46] Ibid, s 368 (1). [47] Ibid, s 368 (2). [48] Ibid, s 368 (3B). [49] Ibid, s365. [50] Ibid, s 368A (1). [51] Ibid, s 368A (5). [52] Ibid, s 406 (1). [53] Companies Act 2016 (Act 777) (Malaysia) s403(b) [54] Ibid, s 403. [55] Malaysia, Parliamentary Debates, Representative, Fifteen Parliament, Second Session, 28 November 2024, pg 95 (Puan Hajah Fuziah binti Salleh).