23 November 2023
The Companies (Amendment) Bill 2023, tabled in Parliament for first reading, contains provisions aimed at strengthening both the existing corporate rescue provisions to assist companies with financial difficulties post Covid 19-pandemic and the policy regarding beneficial ownership reporting framework.
We set out in this Client Alert some of the proposed amendments to the existing corporate rescue provisions:
A. Scheme of Arrangement (SOA)
(1) Automatic moratorium/protection for up to two (2) months – upon the filing of an application for a restraining order and until the application is decided by the Court or until the lapse of two (2) months from the date of filing of the application, whichever is earlier.
(2) Restraining order against related company (means holding company, subsidiary or subsidiary of the holding company of the subject company) – where the Court has granted a restraining order or an extension of period for the restraining order to the subject company, the Court may, on the application of a related company, also grant a restraining order to the related company for a period of not more than the period of the order granted to the subject company.
(3) Restricting/limiting the granting of further restraining order – no restraining order shall be granted to a company if an order had been granted to the company or its related company within the preceding period of twelve (12) months.
(4) Super priority for rescue financing – the Court may grant an order that the rescue financing be afforded super priority over all the preferential debts and all other unsecured debts, if the company is wound up, with certain requirements to be fulfilled to safeguard the rights and interest of the existing security interest holders.
(5) Power of Court to cram down / cross class cram down – this provision creates a mechanism to compel one or more dissenting classes of creditors to be bound by the scheme of arrangement with the objective to enable a scheme passed by the majority of 75% of the total value of creditors/class of creditors to be implemented with adequate protection being provided to those dissenting creditors.
(6) Standard procedural rule on Proof of Debts – the company shall state in every notice of meeting to its creditors, the manner in which a creditor is to file a proof of debt and the period within which the proof is to be filed (subject to the Court’s power to extend such period). Every proof of debt shall be adjudicated by a person appointed by the Court.
(7) Approval of scheme without meeting of creditors – the new provision allows the Court to approve a scheme without having a creditors’ meeting to provide a faster process to approve a scheme with certain requirements to be fulfilled to safeguard the interest and rights of the creditors.
(8) Enhanced role of the Insolvency Practitioner (IP) – the new provision provides for the appointment of IP in cases where an application is made for an Order relating to super priority financing, cross class cram down, application for restraining order by a related company and the approval of scheme without a creditor’s meeting.
(9) Meeting to revote– the new provision allows the Court to direct further meeting to be summoned and convened to revote a scheme or compromise and make such orders or directions in respect of classification of any creditors, admission of any creditor’s debt and the weight to be attached to the vote of any creditor at the further meeting.
(10) Review of the decisions made by the company – the new provision provides an avenue for any creditor to apply to Court for an order to, inter alia, reverse or modify the act or decision of the company or direction to rectify the act, omission or decision of the company in circumstances where the company has committed an act or omission, or a decision that results in a breach of any term of the scheme.
B. Judicial Management (JM)
(1) Widened access to JM – available to all companies except for the excluded categories comprising licenses institution/operator of designated payment systems regulated under laws enforced by Bank Negara Malaysia, any company registered/approved under certain parts under the Capital Markets and Services Act 2007 or the Securities Industry (Central Depositories) Act 1991.
(2) Extension of JM Order – the new provision provides the Court with the power to extend the effect of the JM Order (which is in force for an initial period of six (6) months) to a longer period subject to such terms as the Court may impose.
(3) Super priority for rescue financing – the Court may grant an order that the rescue financing be afforded super priority over all the preferential debts and all other unsecured debts, if the company is wound up, with certain requirements to be fulfilled to safeguard the rights and interest of the existing security interest holders. Any creditor of the company may oppose an application made by the judicial manager.
(4) Enhancement of secured creditor’s rights of recovery – a secured creditor to be allowed to enforce its security over the company’s movable property or repossess any goods in the company’s possession during moratorium period subject to fulfilment of any of the three (3) conditions, namely, property is not required during the period in which the JM Order is in force, period in which JM Order in force poses high risk to existence of property and value of property decreases due to the JM Order.
C. Corporate Voluntary Arrangement (CVA)
(1) Widened access to CVA – available to all companies except for the excluded categories comprising licenses institution/operator of designated payment systems regulated under laws enforced by Bank Negara Malaysia, any company registered/approved under certain parts under the Capital Markets and Services Act 2007 or the Securities Industry (Central Depositories) Act 1991.
D. Protection for essential goods and services
(1) Assurance of continued supply of essential goods and services to distressed company – New Division 9 to be introduced into the Companies Act 2016 to provide relief to the distressed company to ensure that essential supplies/services under existing contracts continue while the distressed company is under SOA, JM or CVA.
Any automatic termination of such contracts (i.e. ipso facto clauses) is proposed to cease to have effect upon SOA, CVA or JM being applied, thereby ensuring supplies will continue with such contracts.
Suppliers will be given the option to nevertheless apply for consent to terminate such contracts on grounds of non-payment within thirty (30) days from the date payment became due.
This article is intended for general information of the clients of our Firm. It should not be regarded as legal professional advice. If you need advice based on specific facts, please feel free to contact us.
|Ng Hooi Huang
Banking and Finance Litigation
Tel: +603-20311788 (Ext. 376)
|Tan Min Er
Banking and Finance Litigation
Tel: +603-20311788 (Ext. 416)