Corporate Rescue Mechanisms of Judicial Management

Two new insolvency processes was introduced by the Companies Act 2016 which are corporate rescue mechanisms of judicial management and corporate voluntary arrangement. These mechanisms aim to facilitate rehabilitation of company in the event of corporate insolvency to allow companies to restructure its debts and at the same time able to continue with its business as opposed to the only way of winding up under the old rule, subject to some conditions.

Judicial management

Judicial management as the name suggests is an order granted by court by way of application by the company’s creditor or director. From the time an application is made, and for the duration of any judicial management order made, a moratorium will be in force.[1]Once order is granted, an insolvency practitioner or judicial manager will based on powers vest him,take charge of company’s assets for over a period of six months which the order is in force and could be extended for another six months.

The said insolvency practitioner or judicial managerwill first make a restructuring proposal for creditor’s approval which will be obtained by the creditors meeting and voting[2]. A majority approval of 75% of present creditors is required and the effect of restructuring proposal being approved is the proposal becomes binding on all creditors.

Judicial management will not be available to institutions regulated by Capital Markets and services Act 2007 and Central Bank of Malaysia.[3] Besides that, judicial management order will only be granted if in applicant successfully show that there is a possibility of rehabilitation and by allowing such order creditor’s interest will be protected better than winding up process will.

Corporate voluntary arrangement

Corporate voluntary arrangement may be carried out betweencompanies with their unsecured creditors with minimal court’s intervention. It will not be available to company with charge over its properties, public companies and similar with judicial management, institutions regulated by Capital Markets and services Act 2007 and Central Bank of Malaysia.

Application for corporate voluntary arrangement could be made by company’s director or judicial manager to the court which moratorium commences from this moment onwards. Application is to be supported with an insolvency practitioner’s statement on his opinion that the arrangement should be approved or disproved based on whether company’s funds allow it to continue with its business.

Unlike judicial management, under corporate voluntary arrangement there is a time limit to moratorium. After application to court an automatic moratorium kicks in for twenty eight days during which no legal action may commence against the said company[4]. Approval and the subsequent effect is the same as required under judicial management and the creditor’s meeting should be done within this moratorium period, upon which the moratorium ends. It could be extended for another sixty days by majority approval during said creditors’ meeting.

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The Companies Act 2016 also implemented added security feature by way of an insolvency test under s 112[5] to protect rights of parties trading with the company and rights of the creditors. Different solvency test applies for different circumstances but in overall, directors are to sign a solvency statement to declare that the company is solvent for the purpose of declaring dividend, share buyback and redemption of preference share, reduction of share capital or financial assistance.

Insolvency-related amendments

Companies Act 2016 has also incorporated some insolvency-related amendments, with the strengthening of the laws on receivership, winding up and schemes of arrangement.


The receivership provisions in the CA 2016 substantially expand on the existing provisions in the Act. Section 375 and section 376 of CA 2016 set out the manner of appointing a receiver or a receiver and manager under an instrument or by the Court. S. 375(2)(a) of CA 2016 expressly sets out the agency status of a receiver appointed under a power conferred by an instrument.

On part of receiver’s liability, section 182 of CA 1965 provides receiver to be liable for debts incurred by him in the course of the receivership or possession. The same is incorporated in section 381 of the CA 2016. Further to that, section 382 imposes personal liability on the receiver.

Section 383 codified express powers of a receiver which are set out in the Sixth Schedule of the CA 2016. Presently, a receiver would have to derive his powers which expressly or impliedly conferred by Court.

Winding up

On the changes of winding up related sections, it can be noted that petition for winding up under section 218 CA1965 is generally presented subsequent to a final judgment. In the CA 2016, petition may also be presented without a judgment but after service of a s.218equivalent to section 466(1)(a) Notice of Demand pursuant to specifying the debt.

In CA 1965, there is no time limit to file petition to wind up a company after the issuance of the statutory notice under s. 218(2)(a). CA 2016 in s. 466(2) now requires a petition to be filed in Court within six months of the statutory notice. This imposes time limitation for s.218 notice in order to curb abuse and to set useful timelines for potential settlement processes.

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Presently s.218(1)(m) and (n) permits the Court to order a winding up if a company is being used for unlawful purposes or any purpose prejudicial to national security or public interest or incompatible with peace, welfare, public order, security, good order or morality in Malaysia. S.465(2) of CA 2016 provides that, a finding by the Registrar that a company is being used for such purposes shall be received as prima facie evidence until proven otherwise. The effect is to reverse the burden of proof which then place on company to disprove the existence of the state of affairs said to exist by the Registrar in commencing the winding up action

Section 218(2) has given minimum statutory amount for which a company may be presumed to be unable to pay its debts is RM500. Section 466 CA 2016 provides the amount now is to be prescribed by the Minister.

Under the present s.223 CA 1965, all dispositions made after the commencement of the winding up by the Court are void unless the Court otherwise orders. Whereas s.472 CA 2016 provide exception to allow exempt dispositions which are defined as dispositions made by a liquidator, or by an interim liquidator,pursuant to a power conferred on them by the Act or rules of the Court that appointed them or by an order of the Court. This may facilitate the liquidators in carrying out their function as part of winding up process to liquidate the assets of the company as part of the without having to seek validation orders each time a disposition is made.

S.493 CA 2016 is a new provision giving the Court power to terminate the winding up process. Currently termination of a winding up order is by way of a permanent stay under s.243which given court power to stay winding up. The same section is also used to seek a stay of winding up proceedings pending an appeal and this has continued to cause confusion. Cessation of a winding up as the power to stay in s.492 and the power to terminate in s.493 are clearly segregated.

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Twelfth schedule of CA 2016 sets out both the powers of a liquidator requiring the authority of the Court or a committee of inspection and powers which may be exercised independently of the same.Notable changes on s.236 CA1965 include the power to carry on the business of the company which increase from four weeks to 180 days after the date of the winding up order, to compromise debts not exceeding RM10,000which currently RM1,500 under s.236(2)(b) due to the company without approval of the Court/COI. This would enhanced the roles of liquidators to facilitate the smooth process of liquidation.

Further, CA 2016 also provide more protection to employees as unsecured creditors under s.292(1)(b). The upper limit for the payment of wages or salary in the distribution of a company’s property increased from RM5,000 to RM15,000 under s.527(1)(b) of CA 2016

Scheme of arrangement

The scheme of arrangement provisions remains largely the same except for two of the more significant changes. In s.367 of CA 2016, upon application, the court may appoint an approved liquidator to assess the viability of a proposed scheme and prepare a report for submission to the meeting of creditors and members. This would enable an independent professional in the field of insolvency to determine the viability of the scheme and take into account the interests of all the stakeholders.

Currently under s.176(10A) CA 1965 the court may grant a restraining order for not more than 90 days. Under s.368(2) CA 2016 the restraining order may be extended by court for not more than 9 months upon application to court. Further, s.176(10D) CA 1965 provides company disposes or acquires any property, other than in the ordinary course of its business, without leave of the Court, liable for monetary punishment of RM1 million. In CA 2016, the amount has increased to RM3 million as provided in s.368(7).

[1]Malaysia: New Malaysian insolvency laws (2016) Available online (Accessed on: 19th January 2017)

[2]Malaysia’s New Insolvency Regime (2016) Available online  (Accessed on 20th January 2017)

[3]Reform in the Malaysian Corporate Landscape Key Highlights under the New Companies Act (2016) Available online  (Accessed on 20th January 2017)

[4] Corporate voluntary arragement (2016) Available online ( Accessed on 21st January 2017)

[5] Companies Act 2016, s 112

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