Case Update: Fraudulent Trading Rebooted

The High Court in the Sulaiman & Taye decision (see the grounds of judgment dated 8 July 2020 of Ong Chee Kwan JC) deals with very significant issues in relation to fraudulent trading. Fraudulent trading is where directors of a company have to bear personal liability for the debts of a company in winding up. This is because the directors carried on the business of the company with the intent to defraud its creditors. In particular, whether the delinquent directors bearing personal liability then has to pay directly to the aggrieved applicant or to pay into the wound up company’s assets for the general benefit of all the creditors. Continue reading

Case Update: Federal Court Decides Sums due to Management Corporation are Unsecured Debts

The Federal Court in its grounds of judgment dated 21 May 2020 Dubon Berhad (in liquidation) v Wisma Cosway Management Corporation held that fees due to a management corporation or a joint management body under the Strata Management Act is not a secured debt. Such fees are a pure unsecured debt within the insolvency regime. This will bring clarity for a liquidator of a company which is an owner of a strata property.

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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

UK’s Corporate Insolvency and Governance Bill: Possible Reforms for Malaysia’s Restructuring Laws

In response to COVID-19, the UK has fast-tracked its Corporate Insolvency and Governance Bill (the PDF copy of the Bill is here and with helpful Explanatory Notes). The overarching objective of this Bill is to provide businesses with the breathing space they need to continue trading during this difficult time and to avoid insolvency. I set out seven of the key measures that UK is introducing and the possible reforms that Malaysia can adopt.

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Company in Distress: Insolvency Issues relating to Employees

Under Malaysia’s movement control restrictions and with COVID-19, companies are facing cash-flow issues and financial difficulties. With the employers facing such difficulties, the employees may also face salary cuts (for example, see this news report) or retrenchment. Companies may then slip closer towards financial distress and may have to pursue restructuring and insolvency options. This article sets out the insolvency issues relating to employees.

I set out the different scenarios where a company in distress may pursue a scheme of arrangement, apply for judicial management, end up placed in receivership or is compulsorily wound up. I touch on how these scenarios will affect the rights of employees. Continue reading

Companies Winding Up Protection Takes Effect (Updated)

In my earlier post, arising from COVID-19, I had written about the Companies Commission of Malaysia (SSM) providing seven reliefs for companies. One of them is a temporary winding up protection for six months and the increase to the debt threshold to above RM50,000 in the statutory demand.

First, the Minister of Domestic Trade and Consumer Affairs (being the relevant Minister under the Companies Act 2016) has now exercised his powers under section 615 of the CA 2016 and gazetted the Companies (Exemption) (No. 2) Order 2020, which I will refer to as Exemption Order No. 2. This provides for the six-month period to respond to a statutory demand.

Second, the Minister has also issued the direction under section 466(1)(a) of the CA 2016 to prescribe the threshold amount to above RM50,000.

Please note that Exemption Order No. 2 has revoked the earlier Companies (Exemption) Order 2020, which I will refer to as the Exemption Order No. 1.
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