Abstract
This paper aims to provide an examination of the theories that underpin corporate insolvency as developed in the US and the UK, and apply that to the two novel corporate rescue mechanisms; the corporate voluntary arrangement and judicial management, which are embedded in the Companies Act 2016 (CA 2016) of Malaysia. This paper adopted a doctrinal and theoretical approach to law. The tension in the corporate rescue mechanisms in the CA 2016 between creditors and other stakeholders of a company affected the objectives on corporate insolvency in Malaysia. This paper identified the theories that are reflected in the corporate rescue mechanisms in the CA 2016– a gap within the provisions which was left out in the process that ranged from consultancy and leading up to the drafting of the CA 2016. In addition, the objectives of introducing the corporate rescue mechanisms were identified. These findings may pave the way to reform the corporate rescue law in order to enhance its conformity with the objectives of corporate rescue in Malaysia. This in turn would facilitate the recovery of financially distressed companies and the minimisation of the loss of employment.
Highlights
On 31st January 2017, Malaysia ushered in a new company law framework, the Companies Act 2016 (CA 2016) to replace the old legislation, which was the Companies Act 1965 (CA 1965)
The corporate rescue mechanisms embedded in the CA 2016 are through the Corporate Voluntary Arrangement (CVA) and Judicial Management (JM), which was implemented since the 1st March 2018
Both the corporate rescue mechanisms were modelled on similar laws in other jurisdictions: the CVA is based on the laws in the United Kingdom (UK) with moratorium, while the JM is modelled based on the Singapore law (Abdullah et al, 2016), which in turn was adopted from the administration process from the UK
Summary
On 31st January 2017, Malaysia ushered in a new company law framework, the Companies Act 2016 (CA 2016) to replace the old legislation, which was the Companies Act 1965 (CA 1965). By achieving higher sale value of the assets, this would benefit the unsecured creditors even when the debts exceed the proceeds of sale During this process, some employees and suppliers may be retained to continue the business of the distressed company before the sale of its assets so as to maximize the value of the assets (Bidin, 2012; Hunter, 1999). Some employees and suppliers may be retained to continue the business of the distressed company before the sale of its assets so as to maximize the value of the assets (Bidin, 2012; Hunter, 1999) Both the CVA and JM, or the SOA require the active participation and approval from a majority of the creditors. Its provisions have been limited and is not exclusively intended for corporate rescue (CD No 10, 13, 63, 69)
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