THE NEW COMPANIES ACT 2016 How Judicial Management and Corporate Voluntary Arrangement Affect Recovery of Your Million Dollar Debts as an Unsecured Creditor 20 APRIL 2017 (THURSDAY), PULLMAN KUALA LUMPUR [ ] ENACTED by the Parliament of Malaysia as follows: PART I. The Companies Act 2016 also allows the Court to appoint an approved liquidator to assess the viability of the scheme of arrangement proposed and prepare a report for submission to the meeting of creditors and members. Within five days of being informed of the judicial management order, the judicial manager shall publish a notice of the judicial management order in Form 15 of the First Schedule and forward a copy of the notice and order to the Registrar. Our current Companies Act lacks simple corporate rescue provisions similar to those adopted in neighbour-ing South Africa in order to assist in the resuscitation of a company. The condition relating to non-creation of charge does not sync well in practice. A company can only be placed under judicial management for a maximum period of 12 months. For the key features of judicial management and corporate voluntary arrangement, please see below. Corporate Rescue Mechanisms under Division 8 of the Companies Act 2016 comes into operation On 1 March 2018, Division 8 of Part III of the Companies Act 2016 (“CA 2016”) came into operation; well ahead of the earlier indicated time line of ‘the last quarter of 2018’. The two mechanisms are known as Corporate Voluntary Arrangement and Judicial Management. When it enters into effect on a date yet to be determined, the new Malaysian Companies Act 2016 will make significant changes to Malaysia’s corporate insolvency regime. Failure to advertise the notice of the application for judicial management order may result in adjournment of the hearing date or dismissal of the application. These schemes came into effect on 1 March 2018. Both mechanisms make use of an independent insolvency practitioner who will form a debt restructuring proposal of which the company’s creditors must approve. Alternative Corporate Rescue Mechanisms under the Companies Act 2016 This article is fourth in a series entitled A New Corporate Landscape: Key Changes under the Companies Bill 2015 that our clients should know about. Corporate Rescue Mechanism under Companies Act 2016 (CA) There are several mechanisms under the CA which will provide temporary shelter while you seek to restructure your existing debt obligations, including refinancing or rescheduling of credit facilities and securities. Hence, the CA 2016 vests in the appointed judicial manager the powers to manage the company’s affairs in place of the directors. With 18 offices located throughout all 10 ASEAN member countries and a team of over 700 staff including 400 consultants and legal professionals, we provide legal, advisory and transactional services that help create and secure business opportunities. Yet they provide two distinct paths to address the financial difficulties of a business. The applicant for the judicial management order shall, within forty eight hours of the request and upon payment of the necessary sum, furnish a copy of the cause papers to any creditor or member of the company. The nominee’s function is to assess the viability of the proposal and, if it is subsequently approved by the creditors, to act as a supervisor who oversees its implementation. Division 8 is significant as it sets out the two mechanisms introduced by CA 2016, aimed at facilitating financially distressed companies to implement their rescue plans. With the introduction of Corporate Voluntary Arrangement (“CVA”) under the Companies Act 2016, ii the company may enter into a binding compromise or arrangement with its creditors without the need for the compromise or (2) This Act comes into operation on a date to be appointed by the Minister by notification in the Gazette , and the Minister may appoint different dates for the coming into operation of different provisions of this Act. CVA is probably the simplest form of corporate rescue. Power up your legal research with modern workflow tools, AI conceptual search and premium content sets that leverage Lexology's archive of 900,000+ articles contributed by the world's leading law firms. To what extent companies will utilise these two corporate rescue mechanisms remains to be seen. The Registrar must be notified of the application for judicial management order. Prior to CA 2016, the procedure often utilised by financially distressed companies in Malaysia was the scheme of compromise or arrangement under section 176 of the former Companies Act, 1965. Guidelines For Corporate Rescue Mechanism Under Division 8 Part III of the Companies Act 2016 PDF (uploaded on 5/12/18) 8. We have previously discussed the insolvency law policy and procedure, touching briefly on judicial management and corporate voluntary arrangement. Both the corporate voluntary arrangement and judicial management, together with the Com-panies (Corporate Rescue Mechanism) Rules 2018 (“Rules”), came into force earlier this year on 1 … It ring fences the company from any legal or execution process (including winding up proceedings) during the formulation period of the CVA until a decision on the proposal is made by its creditors and members. Please contact customerservices@lexology.com. Become your target audience’s go-to resource for today’s hottest topics. Prior to CA 2016, the procedure often utilised by financially distressed companies in Malaysia was the scheme of compromise or arrangement under section 176 of the former Companies Act, 1965. To this end, the judicial management which is helmed by a licensed liquidator i.e. Amongst the world of distressed companies in Malaysia, the more pertinent inclusion was the introduction of the two corporate rescue mechanisms, The next generation search tool for finding the right lawyer for you. Either the board of directors or members or creditors of the company can apply to Court to place the company under judicial management. corporate rescue mechanisms on corporate voluntary arrangement and judicial management (Div 8 of Part III). Both the corporate voluntary arrangement and judicial management, together with the Companies (Corporate Rescue Mechanism) Rules 2018 (“Rules”), came into force earlier this year on 1 March 2018 with the gazetting of notice P.U. Another significant feature of a judicial management is that as soon as the application is filed in Court,  an automatic freeze (moratorium) sets in on all proceedings, legal and execution process against the company including winding-up proceedings. The Companies Act 2016 came into force in Malaysia on January 31, 2017. They range from the new corporate rescue mechanisms in the Companies Act 2016 (CA 2016) for companies and the voluntary arrangement under the Insolvency Act 1967 (IA 1967) for sole proprietors. Questions? The person so appointed to replace the nominee shall file into Court a statement in Form 4 of the First Schedule indicating his/her consent to act. This gives the company and the judicial manager breathing space to work out the rescue proposal. Distressed Companies in Malaysia The New Companies Act 2016 came into force at the beginning of this year which brought together with it many new provisions. Corporate restructuring Changes in the corporate structure of a company or a group of companies as in a takeover, transfer of the whole or part of a company’s undertaking to a new company, the merger of two or more companies into a new company or a split of one company into two or more companies are termed as “arrangements”, “reconstructions” and “amalgamations”. New corporate rescue mechanism in force from 1 March 2018 introduces judicial management schemes and corporate voluntary arrangements 28 March 2018 The corporate rescue mechanism under Division 8 of Part III of the Companies Act 2016 came into force on 1 March 2018, together with the Companies (Corporate Rescue Mechanism) Rules 2018. Corporate Rescue Mechanism in the Malaysian Companies Act 2016 Prior to the existence of the Companies Act 2016 the Companies Act 1965 introduced a method by To facilitate their procedural implementation, the Companies (Corporate Rescue Mechanism) Rules 2018 were also brought into operation on the same date. the company’s creditors within 7 days from the date of filing of Form 3. Once the moratorium under Section 398 of the Act comes to an end, the nominee shall, within 7 days from the expiry the moratorium, notify the Court of the end of the moratorium in Form 5 of the First Schedule of the Rules and furnish a copy of the same to the Registrar, company and creditors. However, certain sections have yet to come into operation. 1. This site is best viewed in Google Chrome. One major highlight of the new Act would be the corporate rescue mechanism involving Corporate Voluntary Arrangement and Judicial Management. These relate to: the company secretary’s registration with the Registrar of … Guidelines Relating To Practising … PRELIMINARY. In the event the nominee withdraws his/her consent to act2, the nominee shall file his/her withdrawal of consent in Form 3 of the First Schedule to the Court and notify the same to: The directors of the company, Official Receiver or nominee appointed under Section 397 (1) of the Act may also apply to replace the nominee with another person. The new regime introduces two new corporate rehabilitation mechanisms for financially distressed companies, i.e. Under Corporate Voluntary Arrangement, court intervention is kept to a minimum making it a cheaper an… The nominee shall also notify the Registrar of the results on the date of filing of Form 2. For companies that are in financial duress, the new Act provides two corporate rescue mechanisms which companies can use to avoid winding up. The two corporate rescue mechanisms under Division 8 are judicial management and corporate voluntary arrangement. Similar to a judicial management, the feature which makes CVA an effective corporate rescue procedure is the automatic moratorium on lodgement of certain statutory forms and documents in Court. ZICO refers to an integrated network of multidisciplinary professional services firms, separately constituted and regulated in accordance with relevant local regulatory and legal requirements, and ZICO Law refers to the ZICO Law network and/or one or more of its member firms, each of which is a separate legal entity. Neither is the board of directors displaced. Introducing PRO ComplianceThe essential resource for in-house professionals. The corporate rescue mechanism under Division 8 of Part III of the Companies Act 2016 came into force on 1 March 2018, together with the Companies (Corporate Rescue Mechanism) Rules 2018. To approve the proposal, 75% of the total value of creditors present and voting is needed. The advent of the business rescue regime in the 2008 Act, which came into effect on 1 May 2011, introduced a long overdue system of corporate rescue … Unfortunately the CVA is of limited utility as it is only applicable to a private limited company (i.e. The Companies Act 2016 is anticipated to come into effect in late 2017. To learn more about cookies and how we use them on our website and how to change your cookie settings, please view our, Corporate Rescue Mechanisms under Division 8 of the Companies Act 2016 comes into operation, New Law (Sap-Ing-Sith) on the Transferable Right to Utilise Immovable Property), Small and Medium Enterprise Development Fund – A Capital Raising Channel for Start-ups in Vietnam, Myanmar | Non-Bank Financial Institutions (“NBFIs”) Permitted to Have Foreign Nationals as Directors and Officers, Implementation of Capital Gains Tax Delayed. Under the Companies Act 2016 (“New Act”), the M&A is replaced by Constitution. To approve the directors’ proposal, 75% of the total value of creditors present and voting and a simple majority (51%) of the value of the company’s members present and voting are needed. Once approved, the proposal will be binding on all creditors including those who voted against the proposal and those who did not attend the creditors’ meeting. This corporate rescue mechanism aids the company from being pressured by aggressive creditors. The concept of corporate rescue lays emphasis on corporate sustainability than liquidation. In the past fifteen years corporate insolvency law in the UK has been radically reshaped mainly by means of the Enterprise Act. An Act to provide for the registration, administration and dissolution of companies and corporations and to provide for related matters. Corporate Rescue Mechanism in the Malaysian Companies Act 2016 Prior to the existence of the Companies Act 2016, the Companies Act 1965 introduced a method by which companies may rescue themselves from insolvency statuses and financial difficulties. However, together with the scheme of compromise and arrangement under Division 7 of CA 2016, Malaysian companies now have several statutory procedure options to execute their rescue plans if one becomes necessary. Prior to CA 2016, the procedure often utilised by financially distressed companies in Malaysia was the scheme of compromise or arrangement under section 176 of the former Companies Act, 1965. 4/2018) to complete the overall process of … However, it is not applicable to financial institutions or public listed companies. Companies Act 61 of 1973 (“the 1973 Act”). As indicated in our previous issue, this time we will be discussing the changes relating to insolvency rescue. In the modern legal regime for corporate insolvency there are two basic routes which can be followed in dealing with a company that is failing: liquidation and corporate rescue. (B) 106/2018 dated 27 February 2018, the corporate rescue mechanism under Division 8 Part III of the Companies Act … They range from the new corporate rescue mechanisms in the Companies Act 2016 (CA 2016) for companies and the voluntary arrangement under the Insolvency Act 1967 (IA 1967) for sole proprietors. notify the Registrar of such proposal on the date of filing of Form 1. the Registrar in such manner as may be determined by the Registrar; the company on the date of filing by furnishing a copy of the Form 3; and. The headings are also helpful because they briefly and accurately describe the topic and enable me to quickly and efficiently decide what I may or may not want to read in more detail. This session shares insightful lessons learnt from case studies of insolvency Key reforms include the introduction of: two new corporate rescue mechanisms: judicial management and corporate voluntary arrangement; and The information in this article is intended only to provide general information and does not constitute professional advice or legal opinion. Once the meeting of the company and meeting of its creditors are held under Section 399 of the Act, the nominee appointed under Section 397 (1) of the Act shall within 7 days from the date of the meetings, file in to Court a report of the result of the meetings in Form 2 of the First Schedule. By the gazetting of the notice P.U. Short title and commencement. The said replacement nominee shall also notify the Registrar of his/her appointment on the date of filing of Form 4 in such manner as may be determined by the Registrar. In addition, the CA 2016 has introduced two new corporate rescue schemes – ie corporate voluntary arrangement and judicial management. As a result corporate rescue has become increasingly a fashionable topic, which has long been a subject of global interest. Overview of the insolvency reforms made by the Companies Act 2016 Under existing Malaysian insolvency laws, the usual outcome in the event of corporate If the application for judicial management order is allowed by the Court, the order shall be in Form 13 of the First Schedule. Two new insolvency processes was introduced by the Companies Act 2016 which are corporate rescue mechanisms of judicial management and corporate voluntary arrangement. (1) This Act may be cited as the Companies Act 2016. ... 402 of the Companies Act 2016. To view all formatting for this article (eg, tables, footnotes), please access the original, Domestic air carrier’s liability towards passengers, An overview of the amendments to the Arbitration Act 2005, Guide to restructuring, turnaround and insolvency in Asia Pacific - October 2018, New Dubai decree relating to any future restructuring of Dubai World and its subsidiaries, Malaysia: insolvency and restructuring under the Companies Act 2016, file the proposal with the Court by completing Form 1 of the First Schedule together with the document setting out the terms and conditions of the voluntary arrangement and other statements as required under the section 398(1) of the Act; and. COMPANIES ACT 2016. CORPORATE VOLUNTARY ARRANGEMENT Clause 422 of the Companies Act 2016 Corporate Voluntary Agreements (CVA)requires a qualified insolvency practitioner, also known as the nominee, to conduct the assessment of the viability of the proposal with minimal court intervention. The company law landscape in Malaysia has witnessed a significant change in its insolvency law with the adoption of two new corporate rescue mechanisms, the corporate voluntary arrangement and judicial management under the Companies Act 2016 (CA 2016), which has repealed the Companies Act 1965 (CA 1965). Both the corporate voluntary arrangement and judicial management, together with the Companies (Corporate Rescue Mechanism) Rules 2018 (“Rules”), came into force earlier this year on 1 … The application to Court for judicial management order under Section 40 of the Act is made by way of Originating Summons3 supported by affidavit4 affirmed by the person(s) making the application (or by any director or person duly authorised by the company). a licensed liquidator is tasked to come up with a rescue proposal for the company. COMPANIES (CORPORATE RESCUE MECHANISM) RULES 2018 IN exercise of the powers conferred by section 616 of the Companies Act 2016 [Act 777], the Rules Committee makes the following rules: The two corporate rescue mechanisms under Division 8 are judicial management and corporate voluntary arrangement. The revamp of the Companies Act 2016 has signifi cantly enhanced the rescue mechanism for corporate companies facing insolvency risks in Malaysia. These mechanisms aim … On 1 March 2018, Division 8 of Part III of the Companies Act 2016 (“CA 2016”) came into operation; well ahead of the earlier indicated time line of ‘the last quarter of 2018’. Upon service of the cause papers, the creditor is required to make an affidavit of service in Form 8 of the First Schedule. This website uses cookies. This alert is for general information only and is not a substitute for legal advice. Siva Shree and 2M .Kannappan 1Saveetha School of Law, Saveetha Institute of Medical and Technical Sciences, Saveetha University , … (1) This Act may be cited as the Companies Act 2016. Part II (Rule 3 to 7) of the Rules deals with the application for corporate voluntary arrangement. Interestingly, the United Kingdom Insolvency Act 1986 from which our CVA originated, does not have such condition. Obtaining funding for business operations and the corresponding creation of charges as security to the financier is common amongst companies including private limited set ups. CORPORATE RESCUE MECHANISM. (B) 106/2018. The two corporate rescue mechanisms under Division 8 are judicial management and corporate voluntary arrangement. In fact, it is the directors who come out with the proposal seeking a compromise with the company’s creditors. The Companies Act 2016 was passed by Parliament in May 2016… To kick start the process, the director, judicial manager or liquidator who propose for the voluntary arrangement shall:1. The rules dealing with the application for Scheme of Arrangement is much more extensive and can be found in Part III of the Rules (Rule 8 to 17). With the enforcement of Division 8 Part III of the CA 2016, SSM had also introduced and enforced on the same date the Companies (Corporate Rescue Mechanism) Rules 2018 (CCRMR 2018) and Practice Directive No. ZICO is an integrated network of multidisciplinary professional services firms helping organisations and individuals succeed in ASEAN. Any secured creditor, or person who has appointed or is or may be entitled to appoint a receiver and manager who intends to appear at the hearing of the application for judicial management order shall serve a notice of intention to appear in Form 10 of the First Schedule on the applicant or his/her solicitor. The aim of the rescue proposal is either to return the company to financial health or to ensure more advantageous realisation of its assets for the creditors than in liquidation. Recently, the environment in which corporate insolvencies are resolved has changed. These relate to: the company secretary’s registration with the Registrar of Companies; and the corporate rescue mechanisms. Both provide a collective way of settling the fate of the company when the claimants cannot resolve the company’s financial troubles through private negotiations. 4/2018 (PD No. “I find the articles on the Lexology newsfeed very relevant and up to date on a variety of topics of interest to my areas of practice. Corporate Rescue in the United Kingdom: Past, Present and Future Reforms by Paul J. Omar of Gray’s Inn, Barrister and Jennifer Gant Lecturer, Nottingham Law School I - Introduction12 Recent discussion in Australia in respect of Changes implemented by the Companies Act 2016 The Companies Act 2016 came into force in Malaysia on January 31, 2017. Judicial management is a court-supervised rescue procedure whereby a Court appointed judicial manager i.e. Even when several law firms write on the same topic, I can often glean new viewpoints and perspectives from the different firms. A Study of Corporate Governance under the Companies Act , 2013 1S.S. Under the Companies Act 1965 (“Old Act”), a memorandum and articles of association (“M&A”) is required for a company to be incorporated. Unlike judicial management, there is no Court involvement for a CVA except for the filing of certain statutory forms and documents in Court. If you would like to learn how Lexology can drive your content marketing strategy forward, please email enquiries@lexology.com. 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