3.0 and Service Act 2007; a company which is

3.0 Differences
between CVA in Malaysia and in the US

Through the
introduction of the Companies Act 2016 (CA) of Malaysia, the companies in
Malaysia are therefore given a way to save their business from financial
difficulties. The provisions under the CA concerning to the CVA are modeled
after the UK provisions, which is largely based on the Insolvency Act 1986. In
order to distinguish whether such rescue mechanism is effective or gives
sufficient support to the companies in
Malaysia, thus a comparison of the operation of CVA can be made between Malaysia
and the United States (US). The company rescue mechanism in the US is provided by Chapter 11 of the US Bankruptcy
Code (BC), whereby it gives bankruptcy relief to companies who needed it.

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3.1 The
Availability of CVA

In
Malaysia, there is a limitation on the availability of CVA to the
public. Not every individual or company are given the right to seek CVA. According
to S.395 of the CA, it has provided that the CVA is not available to a public
company; a company which is subject to the Capital Markets and Service Act
2007; a company which is a licensed institution or an operator of a designed
payment system which regulated under the laws enforced by the Central Bank of
Malaysia; and also a company which creates a charge over its property or any of
its undertaking. Thus, from here it can be seen that not all companies are
given the opportunities to save or restructure their company when they faced
financial crisis.

However,
unlike Malaysia, according to Chapter 11 of the BC of US, reorganization of the
company under the bankruptcy laws are available to all kinds of businesses, be
it a corporation, partnership or sole proprietorship1.
However, there is exception to it, where a person cannot file for
reorganization bankruptcy under Chapter 11 if a prior bankruptcy petition was
dismissed due to the debtor willful failure to appear before court or failed to
comply with the orders of the court, or he was voluntarily dismissed after the
creditors sought relief by applying liens to recover the property2.

 

3.2 Procedures
and Control

In
Malaysia, in order to seek for CVA, only a
certain person with the position or power given are able to propose for CVA. According
to S.397 of CA, it has shown that in order to seek for CVA, proposal for a
voluntary arrangement shall be made by director of the company, if the company
has not been wound up or under the judicial management; the judicial manager,
if the company is under a judicial management order; or the liquidator, if the
company is being wound up3.
The CVA will be implemented by the “supervisor of the voluntary arrangement”,
who is the nominee4.
The nominee appointed must be the person
who is qualified to be appointed as an insolvency practitioner5
and he shall then monitor the company’s affairs. The nominee will look at the proposed CVA on whether it has a
reasonable prospect and whether the company is likely to have sufficient funds
to carry on its business.

However, in the
US, there is no specific person required
to files petition for corporate rescue. Chapter 11 case begins when the debtor
company of own free will files a petition with a bankruptcy court. It is
usually the company and not the creditors who file for Chapter 11 protection. However, in the US, secured lenders may
effectively force a company to file for relief under Chapter 11 by threatening
to enforce liens. Also, there is a presumption that the control remains with
the company through the concept of “debtor in possession” (DIP)6.

 

3.3 Moratorium

In
Malaysia, the moratorium takes effects automatically upon the nominee filed the
relevant documents to the court. There are no court orders needed to enforce
it. Clause 3 of the Eighth Schedule of CA provided that the initial duration of
the moratorium is 28 days. However, the moratorium can be extended for not more
than 60 days with the consent of the nominee, members, and the creditors7.
If it is not extended, the moratorium will be terminated on the expiry of 28
days or upon the members and creditors called to approve the proposed CVA, or
when the nominee withdraws his consent to act under Clause 5 of the Seventh
Schedule.

The similar
manner is used enforce moratorium in the US, whereby the moratorium only takes
effect when the moratorium is filed and no leave of court is needed. However,
there are still differences in the matters relating to the period of
“protection” given to the company. The Bankruptcy Code has given the debtor
exclusive right to formulate a plan of reorganization for a period of 120 days
from the date of filing. Although longer period has been provided, the period
still can be extended if sufficient reasons are established.

 

3.4
Which application of CVA is better?

After examining the differences between the CVA in
Malaysia and in the US, it is of the
opinion that the US corporate rescue mechanism is better compared to the one in Malaysia. This is
because, in Malaysia, it has restricted
the interest of persons or company to seek for relief through CVA, whereby to
S.395 of the CA has restricted the availability of CVA to certain types of
company. Yet, US mechanism did not impose any firm restrictions.  Also, US mechanism did not restrict on any
specific person required to files petition for corporate rescue. Furthermore, a
longer period of moratorium is provided
for the company as compared to CVA in Malaysia, where the company has more time
to reorganize or restructure its company more successfully.