Corporate Voluntary Arrangement Amendments to come into operation on 31 January 2025
27 January 2025
The Minister of Domestic Affairs and Cost of Living has by
Gazette Notification P.U.(B) 53/2025, published today, appointed
31 January 2025 as the date on which section 14 of the Companies (Amendment) Act 2024 (“
Amendment Act”) will come into operation.
Amendment to section 395 of the Companies Act 2016
Presently, Section 395 of the Companies Act 2016 (“
Principal Act”) precludes the following entities from utilising the corporate voluntary arrangement (“
CVA”) framework:
- public companies;
- companies that are licensed institutions or operators of designated payment systems regulated under the laws enforced by Bank Negara Malaysia (“BNM”);
- companies which are subject to the Capital Markets and Services Act 2007 (“CMSA”); and
- companies that have created any charges over their property or undertakings.
Upon the coming into operation of section 14 of the Amendment Act on 31 January 2025, section 395 of the Principal Act will be amended to preclude the following entities from accessing the CVA mechanism:
- companies that are licensed institutions or operators of designated payment systems regulated under the laws enforced by BNM;
- companies approved or registered under Part II, licensed or registered under Part III, approved under Part IIIA, or recognised under Part VIII of the CMSA; and
- companies approved as central depositories under Part II of the Securities Industry (Central Depositories) Act 1991 (“SICDA”).
This amendment will significantly widened the application of CVA by allowing all companies, whether private or public, and regardless whether they have created any charge over their property or undertakings, to have recourse to the CVA mechanism other than those that are regulated entities under the laws mentioned in the amended section 395.
The Companies (Amendment of Eighth Schedule) Order 2025
In a related development, the Companies (Amendment of Eighth Schedule) Order 2025
1 (“
Amendment Order”), was gazetted on 10 January 2025 and will come into operation on
31 January 2025.
The Amendment Order amends certain provisions of the Eighth Schedule of the Principal Act (“
Eighth Schedule”), in particular the provisions relating to CVAs and moratorium eligibility.
Firstly, the Amendment Order deletes paragraph 1 of the Eighth Schedule which in essence states that companies - other than those specified in the existing section 395 of the Principal Act – are eligible for a moratorium for a CVA proposed by its directors.
Secondly, the Amendment Order deletes paragraph 2 of the Eighth Schedule and introduces a new paragraph 2A which,
inter alia, states that a company is eligible for a moratorium for a CVA proposed by its directors, judicial manager or liquidator if the company:
- is being wound up;
- is under a judicial management order;
- is not a licensed institution, or an operator of a designated payment system regulated under the laws enforced by BNM;
- is not approved or registered under Part II, not licensed or registered under Part III, not approved under Part IIIA, or not recognised under Part VIII of the CMSA; or
- is not approved under Part II of the SICDA.
It is to be noted that the conditions set out in items 3 to 5 of the preceding paragraph are reflective of the categories of companies that are not eligible for CVA under the amended section 395 of the Principal Act.
The deletion of paragraphs 1 and 2 and the introduction of paragraph 2A of the Eighth Schedule align the requirements in the amended Eighth Schedule with the requirements set out in the amended section 395 of the Principal Act.
Oher amendments to the Eighth Schedule include the following:
- paragraph 9 will be amended by substituting the words “or Official Receiver” with “Official Receiver, judicial manager or liquidator” to be consistent with the first and second sub-paragraphs of the new paragraph 2A; and
- paragraph 10 will be amended to require the nominee2 to perform the acts specified in paragraph 10 within seven days of his being notified of the commencement of a moratorium by the directors, the Official Receiver, judicial manager or liquidator, instead of seven days from the commencement of the moratorium period.
Comments
The amended section 395 of the Principal Act will significantly widen the applicability of the CVA framework and enable more companies to engage in out-of-court negotiations to restructure their debts and liabilities.
The amended section 395 of the Principal Act also makes it clear as to the categories of regulated entities under the CMSA that will be precluded from the CVA framework.
With the coming into operation of section 14 of the Amendment Act, all amendments to be made to the Principal Act pursuant to the Amendment Act will have come into effect.
3
Alert by Claudia Cheah (Partner) and Darren Conrad Bartolome (Paralegal) of the Restructuring and Insolvency Practice of Skrine.
2 A “nominee” refers to a qualified insolvency practitioner who is appointed by a company to supervise the implementation of a CVA and having the powers and duties set out in the Seventh Schedule of the Principal Act (see sections 394 and 396(2) of the Principal Act).
3 The other provisions of the Amendment Act came into operation on 1 April 2024 (P.U.(B) 118/2024) and 1 December 2024 (P.U.(B) 475/2024).
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.