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Exploring The Rehabilitative Role Of The Companies (Amendment) Bill 2023

‘…one has to remember that a scheme of arrangement is a corporate rescue mechanism. As with other corporate rescue mechanisms, such as judicial management, it seeks to rehabilitate the company and achieve a better realisation of assets than possible on liquidation.’

Hitachi Plant Engineering & Construction Co Ltd And Another V Eltraco International Pte Ltd And Another Appeal [2003] 4 SLR 384

Consequent to the Consultative Document on the Proposed Companies (Amendment) Bill 2020, the Companies (Amendment) Bill 2023 (Bill) was recently passed by the House of Representatives.

This alert highlights the proposed changes to be made to the Companies Act 2016 (Act) in relation to corporate rescue mechanisms.

Restraint Of Proceedings And Automatic Restraining Order

Currently, Section 368 of the Act does not specify the extent of the protection provided by a restraining order granted pursuant to this section. Section 11 of the Bill proposes to introduce subsections (1A) and (3A) to Section 368, both of which will have the effect of insulating the company against winding-up proceedings, the appointment of a receiver (and manager), legal proceedings other than the proceedings specified under certain provisions of the Act without obtaining leave of court, execution proceedings, enforcement of securities and re-entry and forfeiture under any lease in respect of premises occupied by the company.

Unlike judicial management under the existing provision, companies that apply for leave to convene a creditors’ meeting in order to vote on a scheme of arrangement are not given automatic protection from the legal proceedings specified above. Under the proposed new Section 368(1A), a restraining order will be automatically granted to a company that makes such an application until the application is decided on by the court, or the lapse of two months from the date of filing of the application, whichever is earlier.

Related Company

Rather interestingly, the protection afforded by the restraining order may soon be extended to related companies where an application is made by the related company, pursuant to the proposed new Section 368A of the Act.

Section 365 of the Act, as may be revised by Section 8 of the Bill, will define a related company as a subsidiary company, holding company or an ultimate holding company of the subject company, i.e. the company which has applied to undergo a scheme of arrangement.

Super Priority Financing For Scheme of Arrangement And Judicial Management

More often than not, companies in financial distress that resort to corporate rescue mechanisms are unsurprisingly unable to both repay their creditors and simultaneously rehabilitate the company.

Therefore, the introduction of the concept of super-priority financing in Malaysia by way of the proposed new Section 368B and Section 415A of the Act for schemes of arrangement and judicial management respectively is certainly welcomed. Pursuant to these sections, the repayment of debt arising from any rescue financing, i.e. a ‘White Knight’, will be given priority over debts owed to other creditors. This concept seeks to instill confidence among current and potential investors of the company over its prospects of revival and rehabilitation.

Authority To Cram Down

The proposed new Section 368D of the Act, which would likely invite ire from dissenting creditors, will empower the court to force a scheme of arrangement through even if only one class of creditors has voted in favour of the scheme. Effectively, as long as at least 75% of the total value of one class of creditors included in the scheme approves of the same and the scheme does not discriminate unfairly between two or more classes of creditors, the court has the authority to cram down on all the creditors upon the application of the company.

Despite the somewhat extreme consequence of such a provision, this section could potentially overcome the issue of coming to a deadlock in creditors’ meetings.

Power To Order Revote On Scheme of Arrangement

Another long-awaited amendment is the proposed introduction of Section 369A of the Act, which will provide courts with the power to order a revote in respect of a creditors’ meeting to approve a scheme of arrangement. Given that companies resorting to corporate rescue mechanisms frequently and fundamentally do not have the financial or temporal luxury of going through the entire court process all over again in order to pass such a scheme, this section is undoubtedly crucial to, at the very least, increase the likelihood of the company successfully passing the scheme of arrangement.

Approval Of Scheme Without Creditors’ Meeting

The court may soon, upon the application of the company, approve a scheme of arrangement without a meeting of creditors pursuant to the proposed new Section 369C of the Act. Although this section will impose stringent requirements that need to be complied with before the court makes such an order, in practice, this section would likely significantly expedite the entire process of obtaining the sanctioning of the scheme of arrangement by the creditors and the court and also considerably reduce the expenses to be incurred by the company.

Review Of Scheme Of Arrangement

The proposed new Section 369D of the Act, as may be introduced by Section 13 of the Bill, will allow the court to review and clarify any terms of the scheme where the court is satisfied that the company has committed an act or omission that has resulted in the breach of any terms of the scheme of arrangement upon the application of the company. In such a case, the court may, among others, confirm, reverse or modify the act or omission or give such direction as the court deems fit to rectify the said act or omission.

Eligibility For Corporate Voluntary Arrangements

Presently, public companies, licensed institutions regulated by the Central Bank of Malaysia, companies subject to the Capital Markets and Services Act 2007 (CMSA 2007) and companies with a charge over their property are not eligible to apply for a corporate voluntary arrangement.

Section 14 of the Bill proposes to revise Section 395 of the Act such that the restriction will be confined to licensed institutions regulated by the Central Bank of Malaysia, companies subject to specific parts of the CMSA 2007 and companies approved under Part II of the Securities Industry (Central Depositories) Act 1991.

Eligibility For Judicial Management

The proposed revision to Section 403 of the Act pursuant to Section 16 of the Bill, will similarly broaden the categories of companies which can apply to be placed under judicial management and exclude the same types of companies as Section 395 of the Act if the Bill is passed by Parliament.

Moratorium Under Judicial Management

Companies that make an application to be placed under judicial management are automatically given a moratorium, which essentially halts all legal proceedings against the company up until the point the court decides on the application.

The current position is such that once the court has granted the judicial management order, the automatic moratorium is replaced by another moratorium that stays in place for a period of six months, which may then be extended for a further six months upon application by the judicial manager.

With the potential amendment to Section 406 of the Act pursuant to Section 17 of the Bill, the court will be given wider discretion and more flexibility to decide on the period of extended moratorium as the court deems appropriate.


The revisions and additions to be made to the Act if the Bill is passed by Parliament are without a doubt, much-needed and overdue. Whilst at this juncture it is too early to tell how these amendments would actually unfold in practice, based on the limitations and lacunae of the existing provisions on corporate rescue mechanisms, practitioners are optimistic that companies can expect a higher probability of succeeding in their respective corporate rescue mechanism applications.

1 December 2023


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