COVID-19 & corporate rescue mechanisms


COVID-19 & corporate rescue mechanisms

On 16 March 2020, the Government of Malaysia issued a nationwide Movement Control Order (MCO) until 31 March 2020, of which was extended until 12 May 2020 and further extended until 12 May 2020 pursuant to the Prevention and Control of Infectious Diseases Act 1988.


The war against Covid-19 is a battle beyond disease. It is also a battle of debt.

Companies are facing cash flow problems and are pushed to the edge of possibly being wound up. During times of business uncertainty, this brief newsletter aims to provide some legal certainty to businesses on the rescue mechanisms available under the Companies Act 2016 (“CA 2016”).




In line with the Companies Commission of Malaysia (SSM)’s initiative to assist companies impacted by the MCO, the YB Minister of Domestic Trade and Consumer Affairs has issued a Directive on 21 April 2020 which is effective from 23 April 2020 until 31 December 2020.

This Directive affects the definition of a company’s “inability to pay debts” under Section 466 of the CA 2016, and is presumably exercised under the powers given by Section 615 CA 2016.


This Directive provides:

• That the threshold of indebtedness of a company is increased from RM10,000 to RM50,000; and

• That the time period for an indebted company to respond to a statutory notice of demand is extended from 21 days to 6 months from the service of the statutory notice of demand, failure of which would allow the creditor to file a petition to wind-up the company.




Companies should also be informed of the mechanisms available to be rescued before sliding into insolvency.

The general idea when considering such corporate rescue mechanisms is the importance of striking the balance between managing the interests of creditors, and protecting companies from the dire consequences of being wound-up which would have a far-reaching effect on its employees, creditors, and the community at large.

The CA 2016 confers several key rescue mechanisms for businesses, the key differences of which are provided in the table below:

  1. Judicial Management (“JM”) under Section 404 CA 2016
  2. Corporate Voluntary Arrangement (“CVA”) under Section 397 CA 2016
  3. Scheme of Arrangement (“SA”) under Section 366 CA 2016



Judicial Management


Judicial Management (What?)
Court appoints a Judicial Manager who will manage the company and present a restructuring proposal to the company’s creditors.


Judicial Management (Eligibility?)
Does not apply to (s. 403 CA):

  1. Licensed institutions or an operator of a designated payment system regulated by the Central Bank of Malaysia.
  2. Public listed companies.

JM Order shall not be made in relation to a company which has gone into liquidation (s. 405(6) CA)


Judicial Management (Who can Initiate?)

  1. Company’s directors;
  2. Creditors


Judicial Management (Moratorium)

  1. Automatic interim moratorium from the time of the JM Application until the Court’s decision to grant the JM Order or dismiss the JM Application. (s. 410 CA)
  2. If the court grants a JM Order, the moratorium continues for 6 months, with the option to extend for a further 6 months. (s. 406, 411(4) CA)


Judicial Management (Key Features?)

  1. The Company’s directors powers are given to the court-appointed Judicial Manager.
  2. Automatic moratorium from the application until the grant or disposal of the JM Order.


General Procedure – Judicial Management
JM Application: The court’s consideration (s. 404 CA):

  1. whether the Company is or will be unable to pay its debts, according to the definition of “inability to pay debts” under Section 466 CA 2016, and
  2. Whether there is a reasonable probability of rehabilitating the company.

The Court will appoint a Judicial Manager who is an insolvency practitioner. (s. 407 CA)


If JM Order is granted:
Moratorium applies during the period when the Order is in force. (s. 411 CA)

The Judicial Manager shall present a statement of proposal / restructuring proposal and seek to achieve 75% in value of the creditors’ approval. (s. 420, 421 CA)



Corporate Voluntary Arrangement


Corporate Voluntary Arrangement (What?)
Largely an out-of-court agreement between the Company and its creditors to reach a compromise on the repayment of debts, as managed by the Company’s directors with the supervision of a Nominee / Insolvency Practitioner


Corporate Voluntary Arrangement (Eligibility?)
Does not apply to (s.395 CA):

  1. Licensed institutions or an operator of a designated payment system regulated by the Central Bank of Malaysia.
  2. Public listed companies.
  3. Companies with a charge over its property/assets.

Applies to private companies which have not created a charge over their property/ assets as security for financing.


Corporate Voluntary Arrangement (Who can Initiate?)

  1. Company’s directors, if the Company is not being wound up or not under Judicial Management. (s. 396(1) CA)
  2. Judicial Manager if the Company is under a JM Order, or liquidator if the company is being woundup. (s. 396(3) CA)


Corporate Voluntary Arrangement (Moratorium)

  1. Automatic moratorium from the time the relevant documents are filed in Court for 28 days, and ends on the day of the creditors’ meeting.
  2. The moratorium can continue for up to 60 days with the consent of 75% of the creditors at the creditors’ meeting.


Corporate Voluntary Arrangement (Key Features?)

  1. The Company’s directors generally retain their powers of the day-to-day management of the Company.
  2. The directors get to work with an appointed Nominee / Insolvency practitioner of whom will supervise the terms of the CVA proposal.
  3. Largely an out-of-court process.


General Procedure – Corporate Voluntary Arrangement
The Company’s directors will work with an appointed Nominee / insolvency practitioner to prepare the terms of the CVA Proposal.

If the Nominee agrees with the CVA Proposal, then the documents setting out the CV terms can be filed in Court. (s. 397(2), 398(1) CA)

The proposal must receive an approval of 75% of the creditors within 28 days from filing the documents in Court. (s. 400 CA)



Scheme of Arrangement


Scheme of Arrangement (What?)
The Company’s directors present a proposal to restructure the Company’s debts/structure, and obtain the creditors’ approval and the Court’s approval.


Scheme of Arrangement (Eligibility?)
Generally applies to all companies.

Not limited to companies in financial distress, and extends to companies which intend to reorganise its corporate structure.


Scheme of Arrangement (Who can Initiate?)

  1. Company’s directors;
  2. Creditors;
  3. Shareholders


Scheme of Arrangement (Moratorium)
No automatic moratorium.

Instead, the Company must apply for a ‘restraining order’ to obtain protection against legal and execution proceedings. (s. 368 CA)


Scheme of Arrangement (Key Features?)

  1. The Company’s directors generally retain their powers to manage the company.
  2. The proposal under the Scheme of Arrangement must be approved by the Court.
  3. No automatic moratorium.


General Procedure – Scheme of Arrangement
The Company applies to the Court for an order to hold a creditors’ meeting.

The Company may apply for a ‘Restraining Order’ which acts as a moratorium, if the statutory requirements under Section 368 CA 2016 are met.

The Company must achieve 75% in value of creditors’ approval for each class of creditors, before applying to Court to sanction the Scheme of Arrangement.





Voluntary Arrangement under the Insolvency Act 1967 is a pre-bankruptcy rescue mechanism for individual owners who run a sole proprietor business, and of whom may be exposed to the risk of legal proceedings and bankruptcy.

Under the Voluntary Arrangement, the individual owner appoints a Nominee who acts as an independent professional to supervise the Voluntary Arrangement, and files a court application for an interim order which lasts for 90 days. This interim order acts as a moratorium against bankruptcy and other legal proceedings.

Within the 90 day period, the Nominee will hold a creditors’ meeting to secure more than 50% in number and at least 75% in value of the creditors’ approval of the Voluntary Arrangement.




Recently, business associations have urged the government to implement proper laws in light of this pandemic.  If there is anything that we can predict out of this, it is the unpredictability which may arise if proper legal guidance were not provided, because balancing budgets will not be the only challenge lurking in the post-Covid-19 business landscape.




Disclaimer: Please note that the contents above do not constitute legal advice. Should you require legal advice, please contact any of our lawyers as listed below:


If you have any queries, please contact our via e-mail, we are available for a scheduled conference call.

Messrs. Jeeva Partnership
Dato’ Shamesh (Partner) :
Charlotte Williams (Senior Associate):
Lim Yi Chan (Associate) :


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