A legal analysis of the corporate rescue mechanisms under the companies act 2016

The Companies Act 2016 introduced two novel corporate rescue mechanisms, Corporate Voluntary Arrangement (CVA) and Judicial Management (JM) to welcome a corporate rescue culture for the rescue of financially distressed companies in Malaysia. These rescue mechanisms co-exist with available mechanisms under the liquidation culture, liquidation and receivership. Also retained is the Scheme of Arrangement (SOA), although it was not meant as a rescue mechanism. Integral to the rescue mechanisms is the Insolvency Practitioner (IP), a new professional, who is in charge of the rescue process. The IP also encompasses liquidators who had operated under the liquidation culture. Conflicts between the rescue and liquidation laws are expected to arise and the present insolvency framework under the CA 2016 is inadequate to promote a corporate rescue culture. This study aims to examine the SOA, CVA and JM as effective rescue mechanisms for private companies and the suitability of existing regulations to regulate IPs. Doctrinal method of research was employed, by comparing the legal position in Malaysia with the United Kingdom (UK) and Singapore. In the process, both primary and secondary data materials were considered. Notwithstanding that features are enhanced for the SOA, CVA and JM, under the Companies (Amendment) Act 2024, this study reveals that shortcomings still exist. For the SOA, it is costly, complicated and time consuming for private companies. Although the CVA is a consensual arrangement with creditors but it operates with a lack of guidelines governing the creditors’ meeting process, unlike the position in the UK. As for the JM, obstacles are present even at an early stage of the process where the application may be vetoed by secured creditors, but similar veto powers in Singapore and the UK, have been diluted. This study also shows, by referring to the developments in Singapore and the UK, that the regulatory framework for IPs being co-regulatory with the main tasks entrusted to professional bodies and an oversight role played by the authorities, is inadequate. It is therefore recommended for the SOA, a simplified pre-pack arrangement; that the CVA be enhanced with creditors’ meeting guidelines; the JM process be refined to address the obstacles faced by an applicant; and a single government regulatory framework for IPs.