Temporary measures in relation to insolvency proceedings announced by the companies commission of Malaysia
On 10 April 2020, the Minister of Domestic Trade and Consumer Affairs announced in a press statement that Companies Commission of Malaysia (“SSM”) will be increasing the current indebtedness threshold from RM10,000 to RM50,000 until 31 December 2020, to reduce potential actions to wind up companies. Additionally, companies will also be given a period of six months from the current 21 days, to respond to a statutory notice of demand. These initiatives are part of an effort to reduce the burden on the business community and corporate sector which has been economically impacted by the COVID-19 pandemic.
The question that arises with the announcement of these initiatives is whether the increase of the debt threshold for initiating winding up proceedings against a company and the extension of the statutory limitation period would be legally enforceable in this manner.
The relevant law on this issue is governed by Section 466(1)(a) of the Companies Act 2016, which provides that a company shall be deemed to be unable to pay its debts if the company is indebted in a sum exceeding the amount as may be prescribed by the Minister.
Although Section 466(1)(a) gives the Minister of Domestic Trade and Consumer Affairs the legal power and authority to set the indebted sum, it is pertinent to note for companies intending to take the benefit of this temporary increment of a company’s debt threshold may not be legally enforceable as of yet until the same has been duly gazetted by the Minister in the Federal Gazette.
Section 466(1)(a) of the Companies Act 2016 further provides that the company has 21 days after the service of a notice of demand to pay the indebted sum to creditors. With the increased 6 month period for companies to respond to statutory demands, this would now provide companies that are struggling financially the necessary buffer to pay the sums demanded by the creditor.
However, it must be borne in mind that the extension of the statutory limitation period in the form of an announcement by the Ministry does not have legal effect as it stands and cannot supersede the Companies Act 2016, which is an Act of Parliament. Any amendments to Section 466(1)(a) of the Companies Act 2016 can only be amended by the passing of another legislation and it remains to be seen how this temporary measure will be legally implemented without the passing of any subsidiary legislation/regulations.
Without further directives from SSM following from the announcement, it is also unclear when these initiatives would take effect in relation to winding up proceedings. Therefore, a party wishing to commence such proceedings might face uncertainties on whether a winding-up petition could be presented after the expiry of 21 days on the basis of non-compliance of statutory demands that were issued to the debtor before the announcement was made.
With all these uncertainties and without proper amendments to the law in place, the Judiciary as well as the litigating parties involved may later find themselves in a conundrum in the winding up proceedings.
While the efforts of the Malaysian government to help businesses stay afloat in the current economic situation have been commendable so far, the government should perhaps give due consideration in passing an Act similar to the one passed by Singapore to give the government legal basis to enforce all temporary measures.
An all-encompassing legislature to lawfully protect businesses and individuals hit by the COVID-19 pandemic would be a better solution and would provide better clarity on how and when these measures would legally be effected. Guidance may be sought from the Singapore COVID-19 (Temporary Measures) Act 2020, in which commencement of insolvency proceedings should be restricted accordingly to give a chance for companies and businesses to recover financially after the COVID-19 crisis is over.
Update dated 24 April 2020:
On 23 April 2020, the Minister of Domestic Trade and Consumer Affairs has published the Companies (Exemption) Order (No.2) 2020 [P.U.(A) 123] in the Federal Gazette (“Exemption Order No. 2”).
Pursuant to the newly gazetted Exemption Order No. 2, the Minister has exempted all companies from Section 466(1)(a) of the Companies Act 2016 which provides that a company has 21 days after the service of a notice of demand to pay the indebted sum to the creditor. This exemption is subject to the condition that a company shall be deemed unable to pay its debts under Section 466(1)(a) of the Companies Act 2016 if the company neglects any notice of demand within the period of 6 months after service of the notice of demand.
It is clear from Exemption Order No. 2 that the exemption would only apply in relation to any notice of demand which is served within the period of 23 April 2020 to 31 December 2020. As such, only companies that were served statutory demands on or after 23 April 2020 would enjoy the extended period of six months to pay the indebted sum to creditors before a winding up petition can be filed by the creditors. Companies should also note that if a statutory demand were to be served on or after 1 January 2021, the position would revert back to Section 466(1)(a) of the Companies Act 2016 where the period of 21 days applies.
Exemption Order No. 2 is effected by the Minister in exercising his powers conferred by Section 615 of the Companies Act 2016. Section 615 of the Companies Act 2016 provides that the Minister, upon the recommendation of SSM, may order the exemption of any person, corporate or class of corporations from all or any of the provisions of the Companies Act 2016.
With regard to the increased debt threshold of RM50,000.00, the Minister has also gazetted the same on 23 April 2020 and a copy of the Gazette can be found here. In exercising his powers conferred by Section 466(1)(a) of the Companies Act 2016, the Minister prescribes that the amount of indebtedness of a company shall be an amount exceeding RM50,000.00. Similarly, companies should take note that the increased debt threshold is only temporary and effective from 23 April 2020 until 31 December 2020.
Pursuant to the respective Gazettes, the temporary measures initiated by SSM earlier have effectively been passed into law and Exemption Order No. 2 has provided much needed clarity on how and when these temporary measures are to be implemented and effected. These temporary laws would now provide struggling companies a short respite to get back on their feet to avoid the consequences of winding up proceedings against them.
It may also be worth mentioning that Exemption Order No. 2 revokes the previous Companies (Exemption) Order 2020 [P.U.(A) 122] (“Exemption Order No. 1”) which was gazetted by the Minister on 22 April 2020. In Exemption Order No. 1, the Minister had exempted the provision of Section 466(1)(a) of the Companies Act instead of exempting companies from the statutory period of 21 days. While the desired outcome remains the same, the wordings of Exemption Order No. 1 may give rise to questions on whether the Minister has the legal power to exempt a statutory provision in the absence of such wordings in Section 615 of the Companies Act 2016.
By: Jaclyn Chang Mei Qi
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice and/or legal opinion. Messrs Yeoh & Joanne accepts no liability for any loss which may arise from reliance on the information contained in this article.
一个全方位的立法机构来合法地保护受到COVID-19打击的企业和个人将是一个更好的解决方案，并且将更清楚地说明这些措施将如何以及何时合法地实施。立法机构可以从《2020年新加坡COVID-19(临时措施)法案》(Singapore COVID-19 (Temporary Measures) Act 2020) 中寻求指引，就如在该法案中，破产清盘程序的发起应受到相应的限制，以便在COVID-19危机结束后，公司和企业有机会在财务上得到恢复。
于2020年4月23日，国内贸易和消费者事务部部长（“部长”）在 《联邦公报》上公布了 《2020年公司(豁免)令》(第2号)，[P.U.(A) 123] （“第2号豁免令”）。
还值得一提的是，第2号豁免令撤销了部长于2020年4月22日在联邦公报上公布的 《2020年公司(豁免)令》[P.U.(A) 122] ( “第1号豁免令”) 。在第1号豁免令中，部长豁免了《2016年公司法令》第466(1)(a)条文的规定，而不是免除公司遵守该21天的法定偿还期限。虽然预期结果将保持不变，但第1号豁免令的措辞可能会引起质疑，即在《2016年公司法》的第615条文中没有此类措辞的情况下，部长是否有法律权力豁免某项法定条文。
文章来自于：张美琪律师 (Jaclyn Chang Mei Qi)
文章翻译：李淑婷律师 (Lee Su Ting)
免责声明:本文仅供参考，不应作为法律建议和/或法律意见。Yeoh & Joanne律师事务所不会承担因依赖本文所含信息而产生的任何损失的责任。