The Companies Exemption Order on Winding Up – Ingenious or Illegal?

This is a guest post by Gerard Tang and Tan Hei Zel. It is one of the 3 articles selected to be published on TML following our open call for submissions. We would like to thank everyone who sent in their articles. We hope to see more quality legal writing published, which will hopefully lead to vibrant discussions and thought leadership in the Malaysian legal industry.

The Companies (Exemption) (No. 2) Order 2020 (“Order”) has provided temporary reprieve from winding-up proceedings. The Order, issued by the Minister of Domestic Trade and Consumer Affairs (“Minister”), has extended the time frame to respond to a statutory demand up to six months. However, this article explains how the Order is potentially ultra vires and flawed.

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The Order exempts all companies from section 466(1)(a) of the Companies Act 2016 (“Act”). Section 466(1)(a) provides for a statutory presumption of insolvency of a company where:

(a) the company is indebted in a sum exceeding the amount prescribed by the Minister;

(b) a notice of demand for the debt is served on the company; and

(c) the company fails to pay the debt within 21 days after service of the notice.

The exemption is applicable to notices served between 23 April 2020 and 31 December 2020. This exemption is subject to the condition that a company shall pay its debt within 6 months after service of the notice (“Condition”). This is a timely measure to tide businesses over during the economic downturn and a creative use of the exemption provision in the Act. However, we argue that the Order is potentially ultra vires and flawed. Continue reading