SESSION 7 Corporate Insolvency Framework. Effective and Efficient

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Barbara Joseph
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1 Changes in insolvency law Introduction of corporate rescue mechanisms: Judicial management Corporate voluntary arrangements Overall winding up process enhancement Qualification of insolvency practitioners 1

voluntary arrangements Overall winding up process

2 EXISTING NEW None Corporate Rescue Mechanisms Introduction of Corporate Voluntary Arrangement and Judicial Management. However a company which is: i. a licensed institution or operator of a designated payment system ii. regulated by the Central Bank; or an intermediary and financial markets institution regulated under the Capital Market Services Act 2007 are excluded from the application of provisions relating to corporate voluntary arrangement and judicial management RATIONALE To assist companies in financial trouble to be rehabilitated. This will provide framework for rehabilitation rather than taking the last resort of winding up the company. 2

regulated by the Central Bank; or an intermediary and financial markets institution regulated under the Capital Market Services Act 2007 are excluded from the

3 None SESSION 7 Characteristics of Corporate Voluntary Arrangement: CVA applies only to private companies A CVA is when a company enters into a binding compromise or arrangement with its creditors without Court s approval The moratorium commences automatically from filing of relevant documents in the Court Period of moratorium is 28 days and it can be extended for a maximum period of 60 days only. 3

without Court s approval The moratorium commences automatically from filing of relevant documents in

4 None SESSION 7 Characteristics of Corporate Voluntary Arrangement: Requisite majority is 75% of the total value of creditors who are present and voting. Approved scheme would be binding on all creditors and no modification will be allowed due to the short moratorium period. Results of the creditors meeting should be reported to Court for implementation of the proposal. the implementation of the plan will be supervised by Copyrights the Suruhanjaya Nominee Syarikat Malaysia 4

Approved scheme would be binding on all creditors and no modification will be allowed due to the short moratorium

5 None Corporate Rescue Mechanisms Characteristics of Judicial Management. Judicial Management is a temporary Court supervised rescue plan which places the management of a company with a qualified insolvency practitioner known as a judicial manager (JM). The JM will draw a workable rescue plan to be implemented upon approval of creditors (75% of those present and voting) & sanction by Court A moratorium period of 180 days will be granted by Court upon order for judicial management to implement of the rescue plan 5

insolvency practitioner known as a judicial manager (JM).

6 None Corporate Rescue Mechanisms Court may extend the moratorium period of 180 days up to a maximum of 360 days. Application for Judicial Management can be made by the company, its directors or creditors on grounds of inability to pay debts. Secured creditors have a right to oppose the application for Judicial Management however once approved in a creditors meeting, the plan will be binding on all creditors. A Judicial Management order can be discharged if purpose has been achieved OR if the JM is of the view the plan is unachievable 6

Secured creditors have a right to oppose the application for Judicial Management however once approved in a creditors meeting, the plan

7 Commencement of winding up (for compulsory winding up) is at the point of filing of a petition Commencement of winding up is at the date of adjudication order by Court Shortening time taken to wind up a company 7

8 Qualification of Liquidator - Only company auditor may apply to be approved as a liquidator Qualification of Liquidator - Any person who is a member of a recognized professional body may apply to be approved as a liquidator. To de-link the requirement that an approved liquidator must be an approved auditor as currently stated in section 8(3) of the CA to allow persons other than auditors who have sufficient experience in insolvency work to apply to be approved Liquidator. 8

To de-link the requirement that an approved liquidator must be an approved auditor as currently stated in section 8(3)

9 Inability to pay debts if the company is indebted in a sum exceeding RM500 Inability to pay debts if the company is indebted in a sum exceeding RM5,000 raising the present amount of RM500 to RM5,000 as the present amount is considered as too low as compared to other jurisdictions (in Singapore S$10,000 and Hong Kong, HK$10,000). The amount should not be too high that it precludes small creditors from initiating the claim, but should be high enough to remove likelihood of trivial claim 9

too low as compared to other jurisdictions (in Singapore S$10,000 and Hong Kong, HK$10,000).

10 Any disposition of the property of the company made after the commenceme nt of the winding up by the Court must obtain approval from the Court. Introduction of exempt disposition, by liquidator/ interim liquidator pursuant to power under the Bill (Schedule 12 Part II) or Rules of Court. The inclusion of exempt disposition will lessen the burden of the liquidator from having to apply to the court to validate any disposition of the company s property. 10

Introduction of exempt disposition, by liquidator/ interim liquidator pursuant to power under the Bill (Schedule

11 None SESSION 7 Power of Court to terminate winding up On the application of the liquidator or of any creditor or contributory, the Court may make an order to terminate the winding up to provide certainty as to the status of the company, due to the absence of an express provision for termination of a winding up under the existing CA 1965, which only empowers the Court to stay a winding up order on the application of the liquidator or of any creditor or contributory of the company 11

company, due to the absence of an express provision for termination of a winding up under the existing CA 1965, which

12 Unsecured creditors to be paid in priority Wages or salary of any employee not exceeding RM1,500 Changes in the provision relating to unsecured creditors to be paid in priority Wages or salary of any employee not exceeding RM1,500 RM15,000 ; all amounts due in respect of contributions relating to employees social security contribution (SOCSO) and superannuation or provident fund (EPF) The quantum of wages and salary is increased from RM1,500 to RM15,000. To enhance the social obligation of a company towards the well being of its employees especially those in the lower income category who will be most affected when a company sinks into liquidation. Social security contribution The unpaid social security contribution owed by a company to its employees is given priority. 12

quantum of wages and salary is increased from RM1,500 to RM15,000.

13 Undue preference transaction the existing s.293 is unclear with respect to what type of transactions are considered as undue preference unless crossreferencing is made to the Bankruptcy Act 1965 (BA) Undue preference transaction Any transaction in favour of any creditor shall be deemed to have given such creditor a preference over other creditors in the event of the company being wound up on a petition presented within six months from the date of making the transaction shall be deemed fraudulent and void. The current practice to make crossreferencing to the BA is abolished with the importation of section 53 of the BA where the time frame of 6 months is taken as the cut-off period to determine whether or not the transaction made become void as an undue preference 13

transaction in favour of any creditor shall be deemed to have given such creditor a preference over other creditors in the event of the company being wound up on a petition presented within six

14 THANK YOU

Judicial Management, Scheme of Arrangement and Winding Up in Singapore. Copyright Colin Ng & Partners LLP 1

Judicial Management, Scheme of Arrangement and Winding Up in Singapore Copyright Colin Ng & Partners LLP 1 Introduction Economic crisis many companies hit by cash flow problems and financial difficulties.