Brent Yap
May 9, 2021 5 min read
Updated: Aug 13, 2021
INTRODUCTION
At the time of writing, the Malaysian government has implemented the third movement control order (“MCO 3.0”) on selected “red” districts to contain the spread of the Covid-19 pandemic in the country.
Below is an overview of the laws and amendments introduced by the Malaysian government to offer protection for the businesses and individuals which are severely affected by the Covid-19 pandemic.
1. TEMPORARY MEASURES FOR REDUCING THE IMPACT OF CORONAVIRUS DISEASE 2019 (COVID-19) ACT 2020 (gazetted and published on 23 October 2020)
The TEMPORARY MEASURES FOR REDUCING THE IMPACT OF CORONAVIRUS DISEASE 2019 (COVID-19) ACT 2020 (“the Covid19 Act”) is intended to remain in operation for two years until 23 October 2022. It modify certain laws related to the pursuance of legal action caused by the Covid-19 pandemic on both the company and the individual(s) in areas such as court processes, consumer laws, purchaser’s obligations under the housing development laws, landlord-tenant matters, insolvency laws and limitation laws.
Among the highlights are :
1.1 A “cooling period” caused by the inability of contracting parties to perform contractual obligations in certain specified sectors identified in the Schedule to the Covid19 Act. The inability period covers the period running from March 18, 2020 to December 31,2020, and was extended from January 1, 2021 to March 31,2021 by virtue of the TEMPORARY MEASURES FOR REDUCING THE IMPACT OF CORONAVIRUS DISEASE 2019 (COVID-19) (EXTENSION OF OPERATION) ORDER 2020 (“the Extension Order”).
1.2 The Prime Minister may extend the operation of the Covid19 Act more than once, while the Minister charged with the responsibility of Law (ie the Minister of Law) in the Prime Minister’s Department (Parliament and Law) may further provisions to the Schedule of the Covid19 Act.
1.3 The Covid19 Act also seek to encourage the contracting parties to consider mediation process to resolve any disputes arising from the inability to perform contractual obligations. A mediator may be appointed to conduct the mediation and to resolve the dispute. Once a dispute is resolved, the parties shall enter into a settlement agreement to be formalised by the mediator and binding on the contracting parties.
1.4 The Schedule contain these specified sectors :
1.5 The Schedule was amended by virtue of the Amendment Order which came into operation on January 1,2021.
2. INCREASED OF AMOUNT OF INDEBTEDNESS THRESHOLD FROM RM10,000.00 TO RM50,000.00 UNDER SECTION 466 COMPANIES ACT 2016
The Minister of Domestic Trade and Consumer Affairs has issued a directive under Section 466 Companies Act 2016 to increase the minimum indebtedness threshold from RM10,000.00 to RM50,000.00 prior to a creditor issuing a statutory notice leading to the presentation of winding-up petitions, to help businesses to maintain its operations caused by the pandemic.
On April 1, 2021 the RM50,000.00 minimum indebtedness threshold became permanent.
Further, the Minister also gazetted the Companies (Exemption)(No.2)Order 2020 wherefore a company is granted a time period of 6 months to respond to a statutory notice of demand before a creditor is allowed to present a winding up petition., provided that the statutory notice of demand is served from April 23, 2020 to December 31, 2020.
The time frame will further encourage companies to seek to restructure its debts with its creditors using existing corporate rescue mechanisms provided by virtue of Division 8 of Part III of the Companies Act 2016 which came into force on 1 March 2018, together with the Companies (Corporate Rescue Mechanism) Rules 2018 based on the Companies Act 2016. The corporate rescue mechanisms are (i) schemes of arrangement, (ii) judicial management and (iii) corporate voluntary arrangement.
· Schemes of arrangement is provided under Section 366 Companies Act 2016 whereby it allows a company to apply to the court for assistance to achieve a compromise or an arrangement between the creditors (secured and unsecured) and the distressed company. The arrangement could be achieved by (i) reorganization of the share capital of the company by the consolidation of shares of different classes; (ii) by the division of shares into different classes; or (iii) by both of these methods.
· The application to court may be presented by the company, creditor or member of the company, a liquidator (if company is wound-up) or a judicial manager (if under judicial management).
· A preliminary compromise or restructuring plan is required to be submitted to the court.
· The court may also issue a restraining order to restrain legal proceedings against the company for an initial 3 months subject to a further extension of 9 months, pending the restructuring of the debts of the company.
· The compromise or arrangement will only be valid and binding if is approved by 75% majority of the total value of creditors or members present and voting and has been approved by the Court.
· A copy of the Court order approving the scheme of arrangement must be lodged with the Registrar of Companies and shall take effect on the date of lodgement or such earlier date as the Court may determine.
· A copy of every scheme of arrangement order made shall be annexed to every copy of the constitution of the company issued after the order has been made.
· Judicial management relates to the financially distressed company who has a reasonable chance to be rehabilitated.
· The distressed company, its directors or its creditors may apply for an order to place the company under the management of a qualified insolvency practitioner (“Judicial Manager”) whose main responsibility is to prepare and table a restructuring plan for creditor’s approval within 60 days from the date when the judicial management order is made.
· The court may also issue a moratorium to restrain legal proceedings against the company for an initial 6 months subject to a further extension of 6 months.
· The compromise or arrangement will only be valid and binding if is approved by 75% majority of the total value of creditors or members present and voting and has been approved by the Court. Recent case law suggest that the class of creditors apply to both secured and unsecure creditors.
· Corporate voluntary arrangement (CVA) relates to the financially distressed company, who has not created a charge over their assets or undertakings, to achieve an amicable settlement with creditors and without any supervision from the court. An independent insolvency practitioner may be appointed by the company to oversee the settlement proceedings and to report to the Court on the viability of a proposal.
· The distressed company, its directors, judicial manager (if the company is under a judicial management order), or official receiver/liquidator (if the company is wound-up) may prepare a proposal based on statutory requirements under the Companies Act 2016, to submit to court on the viability of the CVA.
· Once the proposal is properly prepared and filed into Court, there is an automatic moratorium to restrain legal proceedings against the company for an initial 28 days subject to a further extension of 32 days.
· The voluntary arrangement will only be valid and binding if is approved by 75% majority of the total value of creditors or members present in person or by proxy and voting and has been approved by the Court.
3. INCREASED OF MINIMUM DEBT UNDER THE INSOLVENCY ACT 1966 (gazetted on 22 October 2020)
The Insolvency (Amendment) Act 2020 was gazetted to allow an increment of the minimum debt prior to the presentation of a bankruptcy petition against an individual. As of time of writing, the minimum debt is now RM100,00.00, increased from RM50,000.00 previously. The Minister may increase this bankruptcy minimum threshold in the future depending on special circumstances and in public interest.
Summary
The government has taken measures to assist companies and individuals in Malaysia to help the continuing survival of these entities. It is pertinent to note that these laws and methods are designed to provide time and resources for the distressed companies and individuals to achieve a satisfactory resolution with their creditors.
