Corporate Rescue Mechanism

CA 2016 provides for a formal companies or arrangement mechanism between a company

and its creditors or its members. These statutory mechanisms can be achieved by schemes of
arrangement, reconstruction and amalgamation of companies, corporate voluntary
arrangement and judicial management.
Schemes of arrangement
Schemes of arrangement is a structured proposal by the company to re-negotiate or
reschedule its debts and other contractual agreements it has with its creditors.
M.A. Khan defines schemes of arrangement as a statutory procedure which requires the
approval of the target shareholders at a meeting and the sanction of the court, whereby a
compromise or arrangement is proposed between a company and its creditors or between the
company and its members or any class of them.
A scheme allows a company to restructure itself provided that after proposing the scheme by
the company to its shareholders if approved by a statutory majority at a special meeting
convened by the court, it becomes effective and binding on all shareholders once sanctioned
by the court as the arrangement must be approved by a court.
It is useful in cases where a company is in financial difficulty. It can be used to facilitate debt
restructuring. Usually in cases where the debts are a mass of unsecured trade creditors, a
scheme may be more appropriate. It is vital to obtain sufficient support to obtain the required
majority at the creditors’ meetings. For a scheme to be a viable proposition that the creditors
will accept, new capital or investment and sale of major assets to raise cash appear to be
essential. Where more than one company in a group is in financial difficulty, schemes will
have to be voted on and approved in each case.

Law and procedure

S.366 (1) of CA 2016 allows company, creditor or members of the company, liquidator and
judicial manager to apply for statutory scheme of arrangement. Such application to court for a
compromise or scheme of arrangement with creditors and members can be made by
originating summons under Order 88 Rule 2 Rules of Court 2012
In Re Kuala Lumpur Industries Bhd, the plaintiffs were restrained from proceeding against
the members of a group of companies for a period of 2 months by an order made under
S.176(10) of CA 1965 obtained by way of an ex parte originating summons. In making
S.176(10) of CA 1965, there must be a proposal of the scheme of arrangement but with
sufficient particulars to enable the court to assess that it is feasible and merits due
consideration by the creditors when it is eventually placed before them in detailed form.
The application is generally made ex-parte as shown in Re Foursea Construction (M) Sdn
Bhd. In this case, the applicant filed an ex parte originating summons under S.176(1) and
(10) of CA 1965 for an order that the applicant be directed to convene meetings in respect of
its creditors for the purpose of considering the scheme of arrangement proposed to be made
between the applicant and its creditors. The court held that an application must be dealt with
an opportunity given to the creditors on record to make their representation and not ex parte
as by doing, so great injustice is caused to the creditors.

How court exercises its discretion

In Re Buildmat (Australia) Ltd, the court refused to make an order to approve the proposal.
It is against public policy to approve any scheme to be undertaken by a company that is
incapable to pay debts in full. The court is not only concerned with the interest of the
creditors but also its duty to uphold the commercial morality of the country.
In Sri Hartamas Development Sdn Bhd v Mbf Finance Bhd, the court set aside the ex parte
order to call meetings of creditors and members because the interests of the unsecured
creditors were not adequately safeguarded and that it was against public policy to sanction a
scheme of arrangement where the company was hopelessly insolvent.

Who can apply?

S.366 (1) of CA 2016 allows company, creditor or members of the company, liquidator and
judicial manager if the company is under judicial management to apply for statutory scheme
of arrangement.
In Francis a/l Augustine Pereira v Dataran Mantin Sdn Bhd & 6 Ors, S.176 (1) of CA
1965 provides that a scheme of arrangement for a class of creditors can be approved by the
court. A class of creditors is determined by their common interest. Such interest separating
them from other creditors with whom they are unable to consult together in respect of that
common interest.
In Re Glendale Land Development Ltd, summons were filed by the company seeking orders
for the convening of meeting of its members and creditors to consider a scheme of
arrangement proposed under S.315 of the Companies (NSW) Code.
In Kamuja Corporation Sdn Bhd v Aras Dimensi Sdn Bhd, the case concerns an application
for leave by the liquidators under S.226(3) of CA 1965 filed to commence action against a
wound up company and having relevance to a scheme of arrangement arising therefrom.

Court-convened meetings
The meetings of different classes of creditors or members will be convened once order
granted by the court and the manner in which the meetings are to be summoned.
The meeting can be adjourned if the resolution for adjournment is approved by 75% of total
value of creditors as mentioned in S.366 (2) of CA 2016. S.366 (3) of CA 2016 stated that the
scheme of arrangement is binding on creditors, members, company or liquidator if it is agreed
by 75% of total value of creditors or members.
Notice summoning the meeting must be in accordance to S.369 of CA 2016. When it is sent
to creditor or member, it shall be accompanied with a statement explaining the effect of the
compromise or arrangement over their material interest as mentioned in S.369 (1) of CA
2016.
The applicant may then apply to court once the court convene meetings have approved the
proposed scheme for the approval of the compromise or arrangement
The court may grant its approval to the compromise or arrangement subject to such
alterations or conditions as it deems just according to S.366 (4) of CA 2016.
In Sri Hartamas Development Sdn Bhd v Mbf Finance Bhd, S.366 (4) of CA 2016 gives
discretion not only to order a creditor is meeting but also to refuse to make an order for such
meeting

When does the arrangement take effect?

Under S.366 (5) of CA 2016, the compromise or arrangement will take effect on the date of
the lodgment of a copy of the court order to the Registrar or any earlier date as ordered by the
court. In S.366 (6) of CA 2016, this order must also be annexed to every copy of the
company’s constitution or every copy of instrument issued that constitute or define the
constitution of the company.
In S.366 (7) of CA 2016, the court may exempt a company from complying with the
requirements of S.366 (6) or determine the period during which the company shall comply
with the requirements.

Court approval
Once approved by the court, the terms of the compromise or arrangement will be binding on
all the creditors or class of creditors, the members or class of members, the company and the
liquidator and contributories, if the company is being wound up according to S.366(3) of CA
2016

Restraining order
While undergoing the court-convened meeting and obtaining approval from the court, the
company is in a vulnerable state and may wish to apply for a restraining order provided under
S.368. Such restraining order is to shield the company from any possible proceedings against
it. S.368 (1) of CA 2016 stated that if a compromise or agreement has been proposed, the
court might restrain further proceedings against the company except by leave of the court and
subject to terms.
The court can grant restraining order for a period not more than 3 months and can extend to
not more than 9 months under S.368(2) of CA 2016. The court will only grant restraining
order provided the applicant has satisfied the conditions set out in S.368(2) of CA 2016
whereby the court thinks that it is necessary to grant such an order and there must be no order
made or resolution passed to wind up the company
In making a restraining order, there must be proposal of the scheme of compromise or
arrangement as required under S.368 (2) (a) of CA 2016. Besides, there would be a bona fide
application for a court-convened meeting under S.366 of CA 2016. Before a restraining order
can be granted, there must be in place viable proposal for the consideration of the court
In Re Lityan Holdings Bhd, a restraining order could not be made under S.176 (10) of CA
1965 based merely on facts stated in the supporting affidavit of the plaintiffs. The granting of
a restraining order is a serious matter that involves the interest of shareholders and creditors
of the company. Before a restraining order can be granted under S.176 (10) of CA 1965 there
must be in place a proposed compromise or arrangement between the plaintiff and its
creditors, or any class of them or between the company and its members or any class of them.
The company must be able to present a viable proposal for the consideration of the court
supported by views of experts.
In Bina Goodyear Bhd v Ambank (M) Bhd & Anor, it would only be wise and fair to all
parties concerned including the creditors, based on the facts of the present case to allow the
application of the restraining order at least for one final time. This would allow an
opportunity for the scheme to at least be rightly considered for its implementation. A
restraining order denied now would only mean the applicant would be further put in a
position of difficulty in trying to address the interest of all parties in its present challenging
financial position. In this regard, it would not benefit anyone if the restraining order were not
granted.
In Re Kuala Lumpur Industries Bhd, in considering the restraining order application, the
scheme of arrangement should have sufficient particulars to enable the court to assess that it
is feasible and merits due consideration by the creditors when it is eventually placed before
them in detailed form. Furthermore, the court has to be satisfied that there is or that there
would be a bona fide application.
The restraining order to be granted is necessary to enable the company and its creditors to
formalize the scheme of arrangement or compromise according to S.368 (2) (b) of CA 2016.
A statement of particulars as to the affairs of the company made up to date not more than 3
days before the application shall be lodged together with the application according to
S.368(2)(c) of CA 2016. Lastly, the court approves the person nominated by the majority of
the creditor in the application to act as a director according to S.368 (2) (d) of CA 2016.
In Metroplex Bhd & Bhd v Morgan Stanley Emerging Markets Inc & Ors, the High Court
refused to grant a 5th extension of a restraining order on the basis that there was no good
reason to extend the same. The court held that the existence of a good reason for an extension
of the restraining order had to be predicated upon the applicants’ bona fide conduct towards
achieving a feasible detailed scheme of arrangement for presentation to the general body of
creditors.
In Re Kai Peng Bhd, extension of the restraining order was granted. The court held that the
applicant company in its application for an extension of the restraining order had met afresh
all the requirements found in S.176 (10A) CA 1965 and the court was satisfied that there
were good reason to allow such an extension.
In Baneng Holdings Berhad & Ors v CIMB Bank Berhad, CIMB contended that the
applicants did not fulfil the conditions to apply for restraining order. The court held that the
applicants are only required to show that the proposed scheme involved more than 50% of its
creditors. The applicants are actively engaging 9 bank creditors. The fact that only CIMB is
objecting to the proposal shows that the proposed scheme involved more than 50% of its
creditors. Besides, the proposed scheme is not bona fide.

Effect of the restraining order

A restraining order shall have the effect to restrain further proceedings in any action or
proceeding against the company except with the leave of the court as mentioned in S.368(1)
of CA 2016. However the restraining order shall not have the effect of restraining further
proceedings in any action against the company by the Registrar or Securities Commission or
further proceedings in any action against any person including the guarantor of the company
but does not include the company that had applied for the restraining order as laid out in
S.368 (6) of CA 2016

In Re Artistic Colour Printing Co, the court’s power to restrain proceedings gives the court
power to restrain proceedings in any action or matter

In Re Panglobal Bhd, the restraining order includes restraining the appointment of a receiver
and manager under a debenture

In Jin Lin Wood Industries Sdn Bhd, this restraining order in this case is to maintain the
status quo, to prevent the applicants from being wound up or being executed against. The
learned judge was of the view that there is no necessity in setting aside the restraining order
as it would life the protection accorded to the applicants and will likely jeopardies the whole
Scheme.

Reconstruction & Amalgamation

Reconstruction is when a company is dissolved and its business assets are transferred to a
new company, whose constitution is practically the same and whose membership is
substantially the same.
In Re South African Supply & Cold Storage Co, the learned judge opined that reconstruction
is when the same business be carried on and the same persons carry it on at the new
company. However, it does not involve that all the assets shall pass to the new company or
resuscitated company, or that all the shareholders of the old company shall be shareholders in
the new company or resuscitated company. What is important is that substantially the
business and the persons interested must be the same. It is not vital that either the whole
assets should be taken over or that the liabilities should be taken over.
In Brooklands Selangor Holdings Ltd v CIR, it denotes the transfer of the undertaking or
part of the undertaking of an existing company to a new company with substantially the same
persons as were members of the old company.
Amalgamation is when 2 companies transfer their assets to a third entity or one company is
aborted into another.
S.370 of CA 2016 provides the court’s power to make orders to approve the compromise or
arrangement for the reconstruction or amalgamation of company.
In Re Hayes’ Will Trust, amalgamation happens when 2 companies are joined to form a third
entity, or one company is absorbed into and blended with another company.
In Re South African Supply & Cold Storage Co, there must be a blending of substantially
two or more existing undertakings into one undertaking. The shareholders of each blending
company becoming substantially the shareholders in the company which holds the blended
undertakings and there may be amalgamation either by the transfer of two or more
undertakings to a new company or by the transfer of one or more undertakings to an existing
company.

Corporate Voluntary Agreement (CVA)

CVA is modelled after the English Insolvency Act 1986. It provides short-term protection to
a company against legal action from creditors while the directors manage the company. This
procedure is designed to be expeditious with minimal court intervention and expense. The
objective of CVA is to restructure companies that are expecting financial difficulties through
a compromise or an arrangement between the company and its creditors without the need to
be approved by the court.
S 394 of CA 2016 defines voluntary arrangement as a composition in satisfaction of a
company’s debts or a scheme of arrangement of a company’s affairs under Subdivision 1
CVA does not apply to a public company, a company which creates a charge over its
property or any of its undertaking, a company subject to CMSA 2007, a company which is a
licensed institution or an operator of a designated payment system regulated under the laws
enforced by the Central Bank of Malaysia according to S 395 of CA 2016.

Stage 1 - proposal
S 396 of CA 2016 lays out the person who can propose CVA. The directors can propose CVA
if the company has not been wound up or under judicial management as mentioned in S.396
(1) of CA 2016. A proposal for a CVA may also be made by a judicial manager if a company
is under a judicial management order or by a liquidator if a company is being wound up
according to S.396(3) of CA 2016. The proposal for CVA shall include the appointment of a
nominee either as a trustee or supervisor for the purpose of supervising the implementation of
CVA as stated in S.396(2) of CA 2016. S.394 of CA 2016 defines nominee to be any person
who is qualified to be appointed as an insolvency practitioner
Stage 2 – submission of proposal
S.397(1) of CA 2016 stated that if the director or Official Receiver intends to make a
proposal for CVA, the director or Official Receiver shall appoint a nominee and submit a
document setting out the terms of the proposed CVA and a statement of the company’s
affairs containing the particulars of the company’s creditors and its debts. Under S.397(2) of
CA 2016, the nominee will look at whether the proposal has a reasonable prospect of being
approved and whether the company is likely to have sufficient funds available to carry on its
business

Step 3 – filing of the documents to court

S.398 (1) of CA 2016 provides that a moratorium commence automatically as soon as the
company to the court files the documents. The documents needed to be filed are the proposed
CVA, a statement of the company’s affairs, a statement that the company is eligible for a
moratorium, a consent from the nominee to act, a statement from the nominee and a
statement disclosing the full particulars of previous proposed CVA.

Stage 4 – moratorium
Under Paragraph 3 of Eight Schedule of CA 2016, a moratorium can remain in force for a
period of 26 days from the time it commences and can be extended to 60 days subject to the
consent of the nominee and members of the company, and obtaining 75% majority in value of
creditors.
The nominee can withdraw its consent if he opined that the proposed voluntary arrangement
no longer has a reasonable prospect and if the company will not have sufficient funds to carry
on its business as mentioned in Paragraph 5 of Seventh Schedule of CA 2016.
Paragraph 17 of Eight Schedule of CA 2016 lays down the effect of moratorium in force.
When a moratorium is in force, no winding up petition may be made, no meeting and no
resolution may be passed, no proceedings or execution proceedings may be made and no
application for judicial management order may be made against the company

Stage 5 – summoning of meetings

Under S.399(1) of CA 2016, where a moratorium is in force, the nominee shall summon a
meeting of company and creditors at the time, date and place as the nominee thinks fit. The
purpose this summoned meeting is to decide whether to approve the proposed CVA as
mentioned in S.400 (1) of CA 2016.
For the CVA to be approved, there must be 75% of the total value of creditors present and
voting at the meeting under S.400 (2) of CA 2016. Besides, a simple majority of the members
meeting is required to pass the resolution to approve the CVA under S.400 (3) of CA 2016.
In S.400(5) of CA 2016, the approved CVA shall take effect and be binding on all the
creditors of the company whether or not they have voted in favour of the proposal. However,
the approved CVA will not be binding against the secured creditors if it affects their right to
enforce their security unless they agree as provided in S.400 (4) of CA 2016. No medication
in respect of the proposals is allowed in the meeting as mentioned in S.400 (6) of CA 2016.
In S.400(7) of CA 2016, after the meeting ended, the nominee shall report the result of the
meeting to the court and give notice of that result to the Registrar and to other persons the
Court may approve.

Stage 6 – supervisor or implementation

The supervisor of the CVA can be either the nominee by virtue of the approval given at one
or both of members’ & creditors’ meeting or any other person other than the nominee who is
an insolvency practitioner as mentioned in S.401(1) of CA 2016.
The supervisor would be responsible for the implementation of the proposal. Under S.401 (5)
of CA 2016, he may apply to the court for directions in relation to any particular matter
arising under CVA. Besides, he can apply to the court for the winding up of the company or
for a judicial management order to be made
If creditors or any other person are dissatisfied with the act, omission or decision of the
supervisor, they may appeal to the court and the court may confirm, reverse, give directions
or modify any act or decision of the supervisor as provided in S.401(4) of CA 2016.
In Threadneedle Pensions Limited v Asher Miller (SV of the V.A of the Cotswold Co Ltd),
an application was made to challenge the decision of the SV of CVA under S.7(3) of
Insolvency Act 1986 (which is in pari materia to S.401(4) of CA 2016). The court allowed
the application and reversed the decision of the SV

Power to grant relief

S.581(1) of CA 2016 confers power to the court to relieve a nominee’s liability wholly or
partly in any proceedings for negligence, default, breach of duty or breach of trust provided
that he had acted honestly and reasonably, having regard to all the circumstances of the case.

Malaysia CVA & UK CVA

CVA under CA 2016 is largely based on UK CVA under Insolvency Act 1986. The main
differences between UK CVA and Malaysia CVA is that UK provides for grounds to
challenge the decision of meeting of CVA but there is no such provision exists in Malaysia.
In Macaria Investments Ltd v Sanders & Anor, the applicant contended that the 2 land
contracts were a sham. He applied under S.6 of Insolvency Act 1986 for an order that the
CVA be revoked on the grounds that there had been material irregularity in relation to that
meeting. This is due to the presence of sham creditors at the meeting which approved the
CVA constituted an irregularity. The court allowed the application.
Judicial management
Under S.404 (a) of CA 2016, an application for a company to be placed under a judicial
management may be made to the court if the company is or will be unable to pay its debts.
S.466 (1) of CA 2016 lays out the situation where a company is unable to pay its debts. First
is when the company is indebted in a sum exceeding the amount prescribed by the Minister
and a creditor and they have served a notice of demand requiring the company to pay.
However, the company has not paid for more than 21 days after the service of notice. Second
is when the execution or other process issued on a judgement, decree or order of any court in
favour of a creditor of the company is returned unsatisfied in whole or in part. Third is after
the court takes into account the contingent and prospective liabilities of the company, the
court satisfied that the company is unable to pay its debts
Besides, it can be made when there is a reasonable probability of rehabilitating the company
or of preserving, all of its business as a going concern or the interest of creditor would be
better served than by resorting to a winding up as provided in S.404 (b) of CA 2016.
S.405 (1) (a) of CA 2016 stated that the court may make a judicial management order if the
court is satisfied that the company is or will be unable to pay its debts. Besides, S.405 (1) (b)
of CA 2016 stated that the court can make judicial management order if the order would be
likely to achieve one of the purposes, either the survival of the company or its undertaking,
the approval under S.366 of a compromise or arrangement between the company and its
member or creditors or a more advantageous realization of the company’s assets would be
affected than on a winding up.
In Re Genesis Technologies Pte Ltd, the court held that it should be vigilant to ensure that
directors or shareholders to the detriment of the creditors do not use judicial management.
The motive for an application for judicial management should be honorable.
In Deutsche Bank AG & Anor v Asia Pulp & Paper Co Ltd, the court refused to grant
judicial management order although the company had successfully demonstrated itself to be
in debt. The court had taken into consideration of the surrounding factors such as the costs
are high, insufficient knowledge and possibility of litigation
In Re Cosmotron Electronics (Singapore) Pte Ltd, the court refused to grant judicial
management although the company has fallen within the ambit of S.227A of SCA (in pari
materia to S.404 of CA 2016). If the creditors in some other way without any detriment to the
company or its shareholders can similarly achieve the purposes sought to be achieved by the
company in judicial management, the company would not have made out a valid case for
judicial management. Thus, if the rehabilitation of failed residential projects may rescue the
insolvent company and can pay off the debts of the company to the creditors, the company
may proceed to do so without having to use judicial management.
Judicial management can be applied by company, directors, creditors or all of them jointly as
mentioned in S.405(1) of CA 2016.

Procedures
The party who wishes to apply for judicial management to the court shall file the application
together with originating summons under S.404 of CA 2016 in Form 6 of the First Schedule
and a supporting affidavit in Form 7 of the First Schedule. Such requirement is stated in
Rule 8(1) of Companies (Corporate Rescue Mechanism) Rules 2018. The applicant shall
nominate a person who is an insolvency practitioner and not holding the position as the
auditor of the company to act as judicial manager as provided in S.407 (1) of CA 2016. A
judicial management order gives a company an automatic moratorium order to stay any legal
proceedings for 180 days, unless discharged and may be extended on the application of the
judicial manager for another 180 days.
When an application for a judicial management order is made to the court, the applicant shall
advertise the notice of the application in one widely circulated newspaper in Malaysia in the
national language and another one in English as provided under S.408(1)(a) of CA 2016. If
the applicant is a creditor, he needs to send notice of application to the company as required
under S.408 (1) (b) (i) of CA 2016. The notice of application of judicial management should
also be given to any person who has appointed or may be appointed as a receiver or receiver
and manager as provided under S.408 (1) (b) (ii) of CA 2016. The applicant shall notify the
Registrar for the judicial management application as well under S.408 (2) of CA 2016.
Upon receiving an application for a judicial management order, the court shall fix a hearing
date for the application on a date not later than 60 days from the date of the application is
filed under Rule 9(1) of Companies (Corporate Rescue Mechanism) Rules 2018. S.409 of
CA 2016 lays out the circumstances where the court may dismiss an application for a judicial
management order which is when a receiver or receiver and manager has been or will be
appointed under S.409(a) of CA 2016. Second circumstance is when a secured creditor under
S.409 (b) of CA 2016 opposes the making of the order.
During the hearing, creditors can oppose the nomination. If the opposition is successful, the
court may invite creditors to nominate another judicial manager as proven in S.407 (3) (a) of
CA 2016.
Where a judicial manager has been appointed, every document whether it is in hard copy or
electronic form where the name of the company appears shall contain a statement that the
affairs, business and property of the company are being managed by the judicial manager as
mentioned in S.412(1) of CA 2016

When making an application for JM

Under S.410 of CA 2016, during the period beginning with the making of an application for a
judicial management order and ending with the making of such an order or the dismissal of
the application, no resolution shall be passed, no order shall be made for the winding up of
the company, no steps shall be taken to enforce
Any charge on or security over the company’s property and no other proceedings and no
execution or other legal process shall be commenced.

When JM order is granted

When judicial management order is granted, any receiver and manager shall vacate the office
as stated in S.411 (1) (a) of CA 2016. Besides, any application to wind up the company shall
be dismissed according to S.411 (1) (b) of CA 2016. S.411 (4) (a) of CA 2016 made it clear
that no resolution can be passed or order be made to wind up the company while the judicial
management order is in effect. Moreover, S.411 (4) (b) of CA 2016 stated that no receiver or
receiver and manager can be appointed during the period of judicial management order.
Furthermore, no legal and execution proceedings shall be commenced or continued, except
with the consent of the judicial manager or with the leave of court as provided in S.411(4)(c)
of CA 2016.
In Singapore, a party successfully applied for a leave of court to commence legal and
execution proceedings against the company which even carried retrospective effect. In
Maniach Pte Ltd v Capital Jones Ltd & Anor, the court allowed the application for leave by
way of originating summon which applied retrospectively.
S.406 (1) of CA 2016 provides that a judicial management order is valid for 6 months unless
it is discharged earlier. The court may on the application of a judicial manager grant an
extension for a further 6 months.
Where a judicial manager has been appointed, every invoice, order for goods or services,
business letter or order form, official website or any document whether it is in hard copy or
electronic form where the name of the company appears shall contain a statement that the
affairs, business and property of the company are being managed by the judicial manager as
mentioned in S.412 (1) of CA 2016.

Judicial manager
The judicial manager’s powers include take company’s property into custody or put the
property under his control as mentioned in S.414 (1) of CA 2016. He can do all things that is
necessary for the management of the affairs, business and property of the company under
S.414 (3) (a) of CA 2016. He also can do all other things as the court may order under S.414
(3) (b) of CA 2016.
S.414 (5) of CA 2016 stated that the judicial manager might apply to the court for directions
in relation to any particular matter arising in connection with the carrying out of his
functions. The judicial manager also have powers as specified in the Ninth Schedule of CA
2016.

Companies under judicial management order

The company is obligated to submit a statement of affairs within 14 days from receiving
judicial management order or longer period if is allowed by the judicial manager but it should
not be extended to be more than 60 days as stated in S.418(2) of CA 2016. S.419(1) of CA
2016 lays out the content needed in the statement of affairs which are the particulars of the
company’s assets, debts and liabilities, the names and addresses of its creditors, the securities
held by the creditors, the dates when the securities were created and other information
determined by the Registrar. The statement of affairs is to be given by a director and a person
approved by the judicial manager. Before giving the statement, it must be verified beforehand
by an affidavit as mentioned in S.419 (2) of CA 2016.
S.420(1)(a) of CA 2016 stated that the judicial manager shall send a statement of proposal to
creditors and registrar on how to achieve the purposes under S.405(1)(b) of CA 2016 within
60 days when a judicial management order is made or a longer period if the court allow.
S.420 (1) (b) of CA 2016 mentions that a judicial manager is also obligated to lay a copy of
the statement before summoning company’s creditors meeting for the period of not less than
14 days notice within 60 days when a judicial management order is made or a longer period if
the court allow.
The purpose of meeting of creditors summoned under S.420(1)(b) of CA 2016 is to decide
whether to approve the judicial manager’s proposal as mentioned under S.421(1) of CA 2016.
The proposal is approved when it has the votes with at least 75% of the total value of
creditors whose claims have been accepted by the judicial manager, present and voting at the
meeting either in person or by proxy as provided under S.421(2) of CA 2016.
Once the statement of proposal is approved, it shall be binding on all creditors regardless of
whether the creditors have voted in favour of the proposal as mentioned in S.421(3) of CA
2016.
S.422 of CA 2016 provides that after the judicial manager’s proposals be approved, the
meeting may establish a committee of creditors and may require the judicial manager to
attend before the meeting and furnish the meeting with information relating to the carrying
out by the judicial manager of his functions as the meeting may reasonably require.
The judicial manager has a duty to manage the affairs, business and property of the company
in accordance with the approved proposals as mentioned in S.423 (1) of CA 2016.
S.423 (2) (a) of CA 2016 mentions that a judicial manager can propose to make substantial
revision of an approved proposal. He first must send a statement of the proposed revisions to
all creditors of the company to their last known address and lay a copy of the statement
before summoning company’s creditors meeting for the period of not less than 14 days
notice. The revised proposal is approved when it has the votes with at least 75% of the total
value of creditors whose claims have been accepted by the judicial manager, present and
voting at the meeting either in person or by proxy as provided under S.423(4) of CA 2016.

The judicial manager of a company has a duty to apply to the court for the judicial
management order to be discharged if it the purpose specified in the order has been achieved
or is incapable of achievement as mentioned in S.424(1) of CA 2016.

Protection of interests of creditors and members

S.425(1)(a) of CA 2016 allows a creditor or member of the company to apply to the court for
an order on the ground that the company’s affairs, business and property managed by the
judicial manager was unfairly prejudicial to the interests of its creditors or members. Besides,
they can also apply to the court for an order when any actual or proposed act or omission of
the judicial manager is or would be as prejudicial as mentioned in S.425 (1) (b) of CA 2016.
After the application is made, the court may grant order to either give relief in respect of the
matters complained of, adjourn the hearing conditionally or unconditionally or make an
interim order or any other order that the court thinks fit according to S.425(2) of CA 2016.
The effect of the court order is laid out in S.425 (3) of CA 2016. The court order may regulate
future management of the company’s affairs, business and property by judicial manager,
require the judicial manager to refrain from doing an act complained of by the applicant,
require the summoning of a meeting of creditors or members or discharge the judicial
management order and make consequential provision as the court thinks fit.

Duty to co-operate with JM

The person who is in the opinion of the judicial manager capable of giving the information
required shall give to the judicial manager such information concerning the company’s affairs
as the judicial manager may reasonably require at any time after the date of judicial
management order as stated in S.428(1)(d)(i) of CA 2016. Besides, he should attend on the
judicial manager at such times as the judicial manager may reasonably require under S.428
(1) (d) (ii) of CA 2016.
Besides that, the person who has duty to co-operate with judicial manager includes a person
who is or has at any time been an officer of the company, has taken part in the formation of
the company at any time within 1 year before the date of the judicial management order and a
person who is in the employment of the company under a contract for services, or has been in
the employment of the company within that year as laid out in S.428(1)(a), (b) and (c) of CA
2016.

Inquiry into company’s dealings

Upon the application of judicial manager, the court may summon any officer of the company,
any person known or suspected to have in his possession any property of the company, any
person who is supposed to be indebted to the company or any person whom the court thinks
capable of giving information concerning property of the company to appear before the court
as provided in S.429 (1) of CA 2016. The court may then require any such person to submit
an affidavit to the court containing an account of his dealings, to produce any books, papers
or other records relating to the company under the same provision.
After considering the evidence obtained, the court may, on the application of judicial
manager, order any person who has in his possession any property of the company to
surrender the property to the judicial manager as provided in S.429(4) of CA 2016. Similarly,
the court may, on the application of judicial manager, order any person who is indebted to the
company to pay the judicial manager the whole or any part of the amount due according to
S.429 (5) of CA 2016.
Offences by officers of companies in liquidation
Every person who is or was an officer or a contributory of company which is under judicial
management order, commits an offence if he does not disclose to the judicial manager all the
property of company as mentioned in S.537(1)(a) of CA 2016.
S.537 (1) (b) of CA 2016 - Does not deliver up to the judicial manager all company’s
property in his custody.
Commits an act under S.536 (1) (c), (g) & (h) (need to refer to the provision) within 12
months before the commencement of the wound up or at any time after the commencement.
S.537(1)(d) of CA 2016 - Makes any material omission in any statement relating to the affairs
of the company S.537(1)(e) of CA 2016 - Fails to inform the liquidator of a false debt within
30 days from the date he knows or believes that the false debt has been proved by any person.
S.537 (1) (f) of CA 2016 - Prevents the production of any book or paper affecting or relating
to the property or affairs of the company.
A judicial management order does not apply to a company subject to CMSA 2007, a
company in liquidation and a company which is a licensed institution or an operator of a
designated payment system regulated under the laws enforced by the Central Bank of
Malaysia according to S.403 of CA 2016.