Under the new Companies Act 2016, a private company may get into a binding agreement without the need of a court sanction with creditors which is through the Corporate Voluntary Management (CVA) scheme.
As per the discussion that has been made, on a fundamental level, a voluntary arrangement is there to acquire breathing space for the company so as to stabilize its business. In countries that have adopted CVA where the procedures for voluntary arrangement are conducted by insolvency practitioners, it may be argued that voluntary arrangement is as harsh as the avoided institutions of insolvency. But, CVA can be viewed as a brilliant prospect to introduce a pre-insolvency culture as to guide companies to obtain help at an early stage when stuck at situations that are not irremediable. The moratorium seeks to allow more time to defer the repayment and to continue its business to facilitate the debts for the company and also suspends the creditors right of taking legal action against the company.
Corporate Voluntary Arrangement does seem to be more flexible and less rigid as to the procedure that exist. This should be given utmost importance to where when the courts were the final decision makers previously to where they are instruments that have minimal supervision in the litigation now. Hence the aim that is to allow the company to acquire breathing space to stabilize its business can be achieved. Furthermore, it should be taken into account that despite the scheme is procedurally straightforward but may be made complex in some countries to not open a floodgate but at the end still gives out an escape way from the effect of liquidation.
The practical use will also probably be limited because it will not be applicable to any public companies or the ones with charged property, as well as specific institutions regulated by the Central Bank of Malaysia and the Capital Markets and Services Act 2007.Next, the company will apply to the Court to convene a meeting of the creditors or classes of creditors. In many situations however, the scheme will not advance beyond the application for court convened meetings because of the absence of a applicable scheme to be presented to creditors.
In addition, it is also at this part of proceedings that a company can obtain an ex parte order to restrain creditor actions. For some time, this proviso was prominently misused to attain temporary reprieve from a creditor’s action. The Companies Act 2016 recognizes this issue by confining the maximum period for a restraining order to about a maximum of 6 months which starts from a minimal of 3 months which allows the creditors to be protected too. The Companies Act 2016 also approves the Court to appoint an authorized liquidator to evaluate the practicality of the scheme of arrangement proposed and set up a report for submission to the meeting of creditors and members. This is on the reasoning that an independent liquidator will be able to follow a more objective assessment of the commercial practicality of a proposed scheme, and may provide needing aid to court accordingly.
In conclusion,the Companies Act 2016 alters Malaysia’s insolvency laws in the direction of a more advanced level of different countries and the introduction of this new corporate rescue mechanisms provides the corporations with more flexibility in dealing with debts while escaping the death knell of winding up. Oppositely, this new mechanism should also be considered and accepted when recovering from debtors. It is very much likely to safe companies in this country through CVA as a corporate rescue and may definitely make a good pre-insolvency rescue mechanism for companies in Malaysia.