Key Contacts:

On 18 January 2021, the Court of Appeal in Md Isa Bujang v CIMB Bank Berhad dismissed a bankrupt’s appeal against a High Court decision that struck out his claim for, inter alia, damages of RM22,445,601.64 against CIMB Bank Berhad for delay in the auction of his property charged to the Bank. The Bank was represented by our Partner, Claudia Cheah and Senior Associate, Aufa Radzi.

Key points 

Malaysia continues to go from strength to strength as an economic powerhouse in Southeast Asia. Ranked 12th in the World Bank’s Ease of Doing Business Ranking of 2020, offering political stability, competitive taxation, modern infrastructure and low labour costs, Malaysia has in recent times enjoyed an influx of investments from multinational corporations and overseas SMEs.

Considerations for Distressed Transactions

Clean Sales

The COVID-19 pandemic has caused significant disruptions to businesses and their cash flow, with some pushed to the brink of insolvency. The directors of a company should be aware of their duties and potential personal liability if the company continues to trade while it is insolvent. These duties and potential liability may also apply to officers primarily responsible for the management of the company.

Overview of directors' duties

A director owes various statutory and fiduciary duties to the company, including:

Following the outbreak of the novel coronavirus (COVID-19) which has seen the global economy descend into a state of turmoil, companies around the world strive to weather the storm of unprecedented challenges to their businesses. As Malaysia undergoes the fourth phase of its Movement Control Order to further curb the spread of COVID-19, companies are already planning or putting in place the necessary measures to soften the impact of COVID-19 on their businesses.

It is without doubt that a business as a going concern is more valuable than its net tangible assets. Continuing business has the potential of generating future profits. In fact, a commercially viable business does not only bring economic benefits, but also broader social benefits. As such, Governments around the world have rushed to implement various measures to assist businesses to restructure and combat the financial impact of the COVID-19 outbreak.

The government has provided temporary relief against winding up petitions for companies between 23 April 2020 to 31 December 2020 (“Prescribed Duration”). This has come about by increasing the minimum amount of indebtedness needed for a deemed statutory insolvency and by exempting the compliance period for a statutory demand for payment of 21 days, and permitting compliance within 6 months. This was done by gazetting Companies (Exemption) (No 2) Order 2020 (the “Exemption Order”) pursuant to S.466 of the Companies Act 2016 (the “Act”).

Small business is undoubtedly the lifeblood of economies, more so where those economies are emerging and developing. The promotion and nurturing of entrepreneurship is a key factor in economic success, not just for those entrepreneurs, but for the wider society, which, as stakeholders, benefits from the generation and distribution of wealth through economic and social policy. One unresolved question, however, is how to treat MSMEs (micro-, small- and medium-enterprises) in insolvency.

Both the corporate voluntary arrangement and judicial management, together with the Companies (Corporate Rescue Mechanism) Rules 2018 (“Rules”), came into force earlier this year on 1 March 2018 with the gazetting of notice P.U. (B) 106/2018. 

We have previously discussed the insolvency law policy and procedure, touching briefly on judicial management and corporate voluntary arrangement. We will now look at the rules applicable for the application for these two rescue mechanisms. 

Corporate Voluntary Arrangement

NON-FISCAL POLICIES TO HELP BUSINESSES OUTLAST THE COVID-19 VIRUS