Introduction

Without a doubt, a scheme of arrangement is a preferred corporate rescue mechanism for a company in financial distress. It allows the management of a company to retain control while carrying out an approved debt restructuring compromise or arrangement with creditors of the company. The ultimate goal is to restructure the debts of the company in a manner acceptable to at least 75% of its creditors in value so that the company can continue as a going concern.

In a relationship between a creditor and debtor, the issue of liability is always a cause of concern. This is made even more apparent when there is more than one debtor involved as the terms of liability is not necessarily clear. Among the popular issues of contention is whether the debtors’ liability is joint or joint and several. In this commentary, we will explore this artificial distinction through the recent Federal Court case of Lembaga Kumpulan Wang Simpanan Pekerja v. Edwin Cassian Nagappan @ Marie [2021] 1 LNS 928.

Introduction

The ongoing COVID-19 pandemic has resulted in many companies in Malaysia to be severely affected financially. One of the major complications is having a set of problems with their creditors to the extent of being served with a winding up notice (Notice under section 466 of the Companies Act 2016, also known as the ‘Notice 466’) or worse, being slapped with a winding up petition.

In the recent decision of the Malaysian High Court in Re Top Builders Capital Bhd & Ors [2021] 10 MLJ 327("Top Builders"), Ong Chee Kwan JC examines the proof of debt exercise in a scheme of arrangement ("SOA") and the guiding principles governing the granting of leave to proceed with legal proceedings against a financially distressed company that has obtained a restraining order (moratorium) pursuant to a SOA.

Given the current situation brought about by the coronavirus pandemic, the Malaysian economy has been badly affected with serious supply chain disruptions due to the nationwide lockdown. This has resulted in the tightening of companies’ cash flows and has given rise to an urgent need for companies to implement rescue mechanisms and restructure their businesses.

On 28 July 2021, Bank Negara Malaysia (“BNM”) issued the Policy Document on Recovery Planning (“Policy Document”) which came into effect immediately.

The Policy Document applies to the following institutions under the Financial Services Act 2013 or the Islamic Financial Services Act 2013:

In its recent decision, Sun Electric Power Pte Ltd v RMCA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd) [2021] SGCA 60, the Singapore Court of Appeal had occasion to clarify the applicable test for determining whether a company is insolvent/ unable to pay its debts under Section 254(2)(c) of the Singapore Companies Act 1967 (“Companies Act”) (which is in pari materia with Section 466(1)(c) of our Companies Act 2016).

This article looks at some recent developments in the bankruptcy and insolvency laws in Singapore and Malaysia.

Singapore: Dispositions of property

Under the Singapore bankruptcy law, any disposition of property made by a bankrupt since the day of making the application for the bankruptcy order is void unless the court consents to, or ratifies, the disposition. This rule is enshrined in section 328 of the Insolvency, Restructuring and Dissolution Act, 2018 (the IRDA).

Brief background factsIn the case of Ler Cheng Chye & Anor v Wong Ching Yong & Ors [2020] 7 AMR 900, [2020] MLJU 1565, Darryl Goon J decided on the issues concerning a challenge to the role played by a receiver and manager, and the need to consider what a receiver and manager appointed over the assets and undertaking of a company may or may not do, upon the commencement of winding up proceedings of that company.