Firing Up and Cooling Off the Restraining Order in Schemes of Arrangement

The Companies (Amendment) Act 2024 came into force on 1 April 2024. With the amendments, we see a strengthening of the restructuring and corporate rescue laws of Malaysia.

Among the different corporate rescue tools, schemes of arrangement had already been the most-used mechanism in Malaysia. The scheme of arrangement allowed for the Court to grant moratorium protection known as the restraining order.

Here, I analyse the changes and challenges relating to the restraining order arising from the new amendments to the Companies Act 2016 (CA 2016).

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Largest Law Firms in Malaysia 2023

The Malaysian Lawyer continues with its annual listing of the largest law firms in Malaysia for the year 2023.

The statistics are as at 18 December 2023 and where the law firm is the aggregate of the number of lawyers in all its branches.

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Case Update: Court of Appeal Confirms Liquidator Cannot Grant Sanction for Legal Proceedings

On 16 November 2023, the Court of Appeal in Oren Venture Sdn Bhd v Small Medium Enterprise Development Bank Malaysia Berhad (Court of Appeal Civil Appeal No. W-02(IM)(MUA)-587-04/2022) upheld the High Court decision (reported at [2022] 12 MLJ 247 and where I had written about it here).

Set out below is the extract from the Court of Appeal cause list website and with the Court setting out the brief grounds of decision (in the Malay language only). The full written grounds of decision do not appear available yet. I may write a fuller update once I have read the written grounds.

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Changes to Beneficial Ownership of Companies in the Companies Amendment Bill 2023

The Companies Amendment Bill 2023 provides enhancements to the beneficial ownership of companies framework and will usher in stronger statutory footing to enforce beneficial ownership reporting.

Current Law

Section 2 of the Companies Act 2016 (CA 2016) only defines ‘beneficial owner’ as ‘the ultimate owner of the shares and does not include a nominee of any description’. Information on the beneficial ownership of shares will be disclosed under section 56 of the CA 2016.

The current beneficial ownership reporting regime is also governed by the Companies Commission of Malaysia’s Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons (BO Guidelines) (accessible here).

There is a possible gap in the current legal framework. The CA 2016 only relates to reporting on beneficial ownership of shares in a company. However, the BO Guidelines are wider and enforce a reporting on the beneficial ownership of companies.

Proposed Amendments: 8 Key Areas

In the Companies Amendment Bill 2023, we will see an enhancement of the statutory framework on the reporting of beneficial ownership of companies. There are 8 key areas.
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9 Key Restructuring Insolvency Changes in Malaysia’s Companies Amendment Bill 2023

Malaysia’s Companies Amendment Bill 2023 has been tabled before Parliament’s House of Representatives (see Hansard for 10 October 2023). There will be a fuller Parliamentary debate towards the end of November 2023.

This article focuses on the 9 key restructuring and corporate rescue amendments.

All references below will be to the existing and proposed new sections in the Companies Act 2016 as referred to in the Companies Amendment Bill 2023.
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Case Update: Federal Court Rules on Related Party Creditors in Scheme of Arrangement

The Federal Court in MDSA Resources Sdn Bhd v Adrian Sia Koon Leng has ruled on the issue of the votes of related-party creditors in a scheme of arrangement. This has an impact on the classification of related-party creditors for schemes of arrangement in Malaysia.

With the Federal Court’s 2-1 split decision, I share the majority judgment  and the dissenting minority judgment.

Summary of the Decision and Significance
Majority Grounds by: Nordin Hassan FCJ

The scheme company, MDSA Resources Sdn Bhd (MDSA), had undertaken a scheme of arrangement to restructure its debts of more than RM370 million.

Both the High Court and the Court of Appeal refused the sanction of MDSA’s scheme of arrangement.

The scheme of arrangement only had a single class of unsecured creditors. The High Court and Court of Appeal upheld the objection that related party creditors should not have been in the same class as the other unsecured creditors.

Leave to appeal to the Federal Court was allowed for 10 questions of law.

The Federal Court’s majority decision upheld the objection based on the related party creditors voting in the same class.

The Federal Court’s majority decision answered two questions of law as follows:

1. Whether the votes of related-party creditors are to be treated differently from the votes of other creditors in the same class in a scheme of arrangement.

[Answer: Yes]

 

2. If the answer to 1 is yes, whether the votes of related-party creditors in a scheme of arrangement should be discounted or not be counted altogether.

[Answer: Yes]

 

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