Corporate Rescue Mechanism

Under the Companies Act 2016 (CA2016), various corporate rescue mechanisms such as scheme of arrangement, corporate voluntary arrangement and judicial management has been introduced. You may read our article on it here.

Financial Difficulties

Due to the unexpected Covid-19 pandemic and the various type of Movement Control Order implemented to curb the spread of Covid-19, more and more companies are facing with financial difficulties. The introduction of various corporate rescue mechanisms in the Companies Act 2016 is helpful in assisting the affected companies.

In this article, we will be focusing on Judicial Management (JM).

Is Judicial Management (JM) a viable option for your business?

Well, it depends on your situation and budget. Read on to find out more.

What is Judicial Management (JM)?

JM is a court supervised rescue plan to allow for companies in financial distress to rehabilitate their business.

A company should consider/get ready the following information prior to application for Judicial Management Order (JMO):

-An up-to-date financial statement and financial forecast;

-Seek advice from a qualified insolvency practitioner on its proposed restructuring plan;

– Seek legal advice if the company fulfill the criteria for JM application;

– Concurrence from the secured creditors if possible;

-The cost of placing the company under a JM; and

-That the directors will be temporarily relinquishing their power to administer the affairs of the company during the JMO.

Directors temporary relinquish power to manage

By deciding to place the company in JM, the company’s directors temporarily relinquishing their power to manage the affairs of the company to the appointed JM. The appointed JM has to be a qualified insolvency practitioner appointed by the Court.

During the JM period, the JM will manage the affairs the company based on the power conferred under the CA2016.

Working out a restructuring proposal

Upon appointment, the JM with the corporation of the management will work out a restructuring proposal and table it for the creditors’ approval.

The cost for placing a company under a Judicial Manager

As the JM steps into the shoe of the Board of Directors and manages affairs of the company, the cost for placing a company under a JM is also higher than opting for a scheme of arrangement or corporate voluntary liquidation.

Judicial Management (JM) is not available to all

As of todate, the JM mechanism is not available to the following:

Company which is a licensed institution or an operator of a designated system regulated under the laws enforced by the Central Bank of Malaysia; and
Company which is subject to the Capital Markets and Services Act 2007

Moratorium Upon Filing of JM Application

Upon filing of JM application, the company enjoys an immediate moratorium against the following:

Winding-up
Enforcement of any charge on or security over the company’s property and repossession of any goods in the company’s possession under any hire-purchase agreement, chattels leasing agreement or retention of title agreement, except with leave of Court; and
Commencement or continuation of legal or execution proceedings, except with leave of Court.

The moratorium will be in place throughout the JM appointment period. The moratorium serves as a breathing space for company to focus on the business restructuring and rehabilitation without any treat from the creditors.

A JMO shall remain in force for 6months from the date of making of the order unless otherwise discharged or upon application be extended for another 6months.

It is recommended for the company to seek concurrence from the company’s secured creditor/debenture holder, as a secured creditor has the power to veto the application for JMO.

The proposal requires approval by 75% of total value of creditors, therefore it is also recommended for the company to seek agreement/concurrence from their major creditors.

How can Bizboard help?

As a team of professional accountants, Bizboard work and liaise with various professionals such as legal advisors, financial institutions, government authorities, and other related professionals to achieve the best possible solution and highest recovery for all stakeholders throughout the insolvency or restructuring process.

Bizboard act as an independent adviser to ensure the process is conducted in proper order and in accordance with the relevant laws and regulations. Our highly qualified team has worked throughout various cases in different industries and has extensive knowledge of business and its impact on stakeholders when a company faces financial distress.

Biztalk-Corporate Recovery Series #14 Corporate Rescue Mechanism: Judicial Management