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.

#1: Wider Restraining Order

The restraining order is often critical in ensuring a moratorium on legal proceedings against the scheme company applying for a scheme of arrangement.

On the other hand, a restraining order may also be seen as an abuse of process if it were to unduly restrain legal proceedings over and over again.

In that light, the Companies Amendment Bill 2023 introduces enhancements and safeguards.

First, expansion of the width of the restraining order.

The restraining order will list out the exact forms of proceedings and actions to be restrained against the scheme company – see the proposed section 368(1A) and section 368(3A).

The new sections will have express language to restrain acts such as no winding up, no appointment of a receiver, no execution, and no steps to enforce any security.

Second, immediate automatic moratorium.

When the restraining order application is filed in Court, an automatic restraining order will take effect. This initial automatic restraining order will last for two months or until the application is decided by the Court, whichever is earlier.

This immediate automatic effect will also avoid the need for the scheme company to initially comply with the difficult pre-conditions under section 368(2)(a) to (d) of the CA 2016. It appears that these pre-conditions will only be required for the extension of the restraining order after the initial automatic restraining order period.

Third, a related company may also apply for a restraining order.

This is through the proposed section 368A where the related company can also apply for a restraining order. A ‘related company’ means a subsidiary, holding company, or ultimate holding company.

The intention of the new section 368A is that the related company plays a necessary and integral role in the proposed scheme of arrangement and requires the moratorium. For instance, where a corporate guarantor being the holding company is not applying for a scheme of arrangement.

Fourth, the removal of repetitive restraining orders.

A cooling-off period. The Court cannot grant a further restraining order if there has been an earlier restraining order in the last 12 months – see the proposed section 368(3B).

#2: Cross-class Cramdown in Schemes of Arrangement

Schemes of arrangement require the creditors to be split into different classes. Often, all the different classes of creditors must vote the scheme through for the scheme to be successful.

The proposed section 368D introduces a cross-class cramdown mechanism.

If at least one class of creditors has voted in favour of the scheme, there can be an application to the Court to bind all the other classes of creditors of the scheme. Essentially, one or more classes of approving creditors can cram down a class or classes of dissenting creditors.

The overall two requirements for a cross-class cramdown are – see section 368D(3):

  1. An overall 75% in value of all the creditors present and voting for the scheme did vote in favour. Therefore, for this component, you do not split the calculation into the different classes and you look at the universal value of those present and voting at the scheme meeting.
  2. The Court is satisfied that the scheme does not discriminate unfairly between two or more classes of creditors, and is fair and equitable to each dissenting class

In deciding on what is fair and equitable to a dissenting class, section 368D(4) sets out the conditions. There are different conditions if the cramdown is utilised against secured creditors or unsecured creditors.

#3: Pre-Pack Scheme of Arrangement

The proposed section 369C introduces the pre-pack scheme mechanism and removes the need to hold a scheme meeting. The advantages will be a reduction of costs and greater speed for approving a debt restructuring.

A pre-pack typically is a pre-negotiated and agreed plan with the scheme company’s major creditors. It is ideal for clear cases of agreement for pre-arranged schemes.

The scheme company can enjoy the shortened procedure of:

  1. Providing all necessary disclosures and information as required in the Explanatory Statement – see the proposed section 369C(3)(a).
  2. Achieving the statutory majority in a notional counting of votes – see the proposed section 369C(3)(d).

Thereafter, the Court may sanction the scheme of arrangement.

#4: Improvements to Scheme Procedure

There are general improvements and codification of procedural aspects of the scheme of arrangement.

First, the identity of the chairperson of the scheme meeting.

The chairperson has to either be the court-appointed insolvency practitioner or a person elected by the majority in value of the creditors or members – see the proposed section 366(2A).

Second, the Court can order a revote for the scheme.

When the scheme is tabled for Court sanction, the Court has the power to order a revote on the scheme and to order adjustments such as a change in classification and the amount of the voting debt. This is now a statutory codification of certain case law that has seen the Court order such a revote – see the proposed section 369A.

Third, procedural certainty on the proof of debt process.

The provisions set out the requirements for the filing of proofs of debt, the ability to inspect other scheme creditors’ proofs of debt, and the adjudication process for the proof of debt – see the proposed section 369B.

Fourth, the Court’s power to review post-sanction of the scheme.

Post-sanction, the Court may still clarify any terms and may act if there has been any omission or breach of the sanctioned scheme – see the proposed section 369D.

#5: The Court-Appointed Insolvency Practitioner in Schemes of Arrangement

A scheme company would typically have its own financial advisers or insolvency practitioner firm. The firm assists in drawing up the scheme, carrying out the financial calculations, carrying out the meeting procedures, and presenting the likely alternative scenario if the scheme is not approved (e.g. the liquidation scenario).

The Court and the scheme creditors may not have sufficient resources to be able to question or monitor the entire process.

The Companies Amendment Bill 2023 enhances the role of the court-appointed insolvency practitioner (IP) to act as an independent safeguard to report on the scheme process to the Court and to the scheme creditors.

The mechanism is already present in section 367 of the CA 2016 and with these further enhancements:

  1. Upon any application, the Court may appoint the IP. The IP’s primary duty is to then table a report on the viability of the proposed scheme – see section 367(2).
  2. Further, it is mandatory for the Court to appoint the IP in cases of an application for (i) super priority financing; (ii) cross-class cramdown; (iii) a pre-pack scheme; and (iv) a related company applies for a restraining order – see the proposed section 367(3).
  3. The court-appointed IP shall have access to all records of the scheme company and can enquire from any company officer any information and explanation as required for his duty – see the proposed section 367(4).
  4. In the case of the mandatory appointment of the IP under section 367(3), the IP is to also be the chairperson of the scheme meeting – see the proposed section 366(2A).

On the one hand, the greater role of the court-appointed IP could lead to an increase in costs for carrying out a scheme of arrangement. The scheme company would have to bear the additional professional fees of the IP.

On the other hand, I view it as the necessary price to safeguard the overall interests of the scheme creditors. A court-appointed officer will help to independently provide reports and assistance to the Court.

#6: Super Priority Rescue Financing for Schemes and JM

The Companies Amendment Bill 2023  introduces super priority rescue financing for schemes of arrangement and for judicial management – see the proposed section 368B and section 415A.

In normal circumstances, a financially distressed company will find it difficult to obtain further financing. Super priority rescue financing allows the Court to order to creation of priority or better security for the rescue financier who is willing to extend credit to the distressed company.

Essentially, there can be three tiers of security for rescue financing:

  • Tier 1: The debt from the rescue financing to enjoy slightly more priority. It would rank above the preferential debts in winding up but still below the costs and expenses of winding up – see the proposed section 368B(1)(a) and section 415A(1)(a).
  • Tier 2: The creation of security over unsecured assets – see the proposed section 368B(1)(b) and section 415A(1)(b).
  • Tier 3: The creation of same-ranking security or even higher-ranking security over existing security. But subject to protecting the interests of the existing security holder – see the proposed section 368(1)(c) and section 415(1)(c).

#7: Corporate Voluntary Arrangement for More Companies

The proposed amended section 395 will allow corporate voluntary arrangements (CVA) to be utilised by far more companies.

The list of companies excluded from applying for CVAs would now only be certain forms of licensed and registered entities under:

  • The laws of the Central Bank of Malaysia.
  • Certain Parts of the Capital Markets and Services Act 2007.
  • A central depository company.

Therefore, in general, even public listed companies can utilise CVAs.

#8: Judicial Management for More Companies and Court Extension

Similar to CVA, the proposed amended section 405 will allow for the wider use of judicial management.

The list of companies excluded from applying for judicial management would now only be certain forms of licensed and registered entities:

  • The laws of the Central Bank of Malaysia.
  • Certain Parts of the Capital Markets and Services Act 2007.
  • A central depository company.

Additionally, under the current law, the judicial management order currently has a life span of an initial six months and only one further extension of another six months.

The proposed amended section 406 will allow the Court to have the discretion to allow for the extension to any longer period and subject to such terms as the Court may impose. This would be a welcome addition.

#9: Protection for Essential Goods and Services

I had initially looked forward to the Companies Amendment Bill 2023 to restrict or prohibit ipso facto clauses. These are clauses triggering a right for the counterparty to terminate a contract if the party enters insolvency-related proceedings.

However, the proposed section 430A is a very mild form of restriction for suppliers of essential goods and services.

Essentially, the proposed section 430(A)(2) merely requires the supplier to provide at least 30 days’ notice before exercising his rights pursuant to the insolvency related clause. An insolvency related event is where the company has become subject to a scheme of arrangement, a CVA, or a judicial management.

The proposed Ninth A Schedule sets out the list of essential goods and services:

  • Supply of water
  • Supply of electricity
  • Supply of gas
  • Point of sales terminals
  • Computer software and hardware
  • Information, advice and technical assistance in connection with the use of IT
  • Data storage and processing
  • Website hosting


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