Corporate Voluntary Management (cva) Moratorium in Malaysia

Introduction to Corporate Voluntary Management (CVA) Moratorium

A Corporate Voluntary Management (CVA) moratorium generally provides the company additional time to defer repayment and to carry on its business to facilitate recovery from the debts owed, rather than to resort to liquidation immediately. CVA is particularly useful for companies needing time to negotiate with creditors or to find a reliable and dependable solution to avoid being wound up. This mechanism is a crucial tool for companies facing financial distress as it offers an alternative route to insolvency and liquidation.

The Legal Framework in Malaysia

With the introduction of CVA under the Companies Act 2016, companies in Malaysia now have the option to enter into a binding compromise or arrangement with their creditors without the need for court approval. The fundamental difference is that the implementation of the debt restructuring proposal is assessed and monitored by an insolvency practitioner with minimal court intervention. A moratorium on creditor actions automatically commences from the time of filing the proposal to the court by the applicant, which can include directors of the company, the liquidator, or a judicial manager (Companies Act 2016, s. 395).

Role of the Insolvency Practitioner

A meeting of the company and its creditors must be convened by the insolvency practitioner, who agrees to act as the nominee. This voluntary arrangement proposal requires the approval of 75% in value of the company’s creditors present, and voting at such a meeting may be either in person or by an appointed representative, known as a proxy, and a simple majority of the company members. Once approved, the voluntary arrangement binds all the company’s creditors. Unlike the existing Scheme of Arrangement procedure, the Act requires a qualified insolvency practitioner, known as the nominee, to conduct an initial assessment of the viability of the proposed CVA (Companies Act 2016, s. 396).

Assessment and Implementation

Once the nominee has reviewed the proposed CVA, they submit a statement to the directors indicating whether: a) The proposed CVA has a reasonable prospect of approval and implementation; b) The company is likely to have enough funds available during the proposed moratorium to continue its business; and c) Meetings of the company and creditors should be convened to consider the proposed CVA (Companies Act 2016, s. 397). If the nominee provides a positive statement, the directors file a document with the court outlining the terms of the proposed CVA and other required documents.

Comparison with Judicial Management

In contrast to Judicial Management, the Act specifies the CVA moratorium's eligibility, which remains in force for 28 to 60 days from filing the required documents, including the proposed voluntary arrangement, the company’s statement of affairs, and the nominee's statement. During this period, the company cannot be wound up, a judicial manager cannot be appointed, and no shares can be transferred (Companies Act 2016, s. 398). Comparatively, in CVA, a secured creditor may appoint a receiver to manage its secured property during the moratorium.

Flexibility and Advantages of CVA

During the moratorium, the nominee convenes a meeting of the company and its creditors as deemed fit. This new corporate rescue mechanism provides more flexibility in managing debts while avoiding the likelihood of winding up. Similar to the Scheme of Arrangement, CVA allows directors to propose arrangements to their company and creditors. However, the implementation of the arrangement is the nominee's responsibility, who will either act as a trustee or otherwise to supervise its application. Consequently, the CVA appears to be the best option for a company seeking to avoid the inevitability of being wound up (Ahmad, 2019).

Conclusion and Future Implications

Most importantly, the current reform has introduced a new corporate rescue mechanism into insolvency law, granting directors more flexibility to manage companies in distress so that they may remain operational and avoid winding-up scenarios. In doing so, Malaysia’s new insolvency laws continue the international trend towards focusing on preserving value for the benefit of all stakeholders. This reform aligns with global standards and reflects an ongoing effort to recalibrate insolvency law in Malaysia (Rashid, 2020).

References:

• Ahmad, S. (2019). Corporate Voluntary Arrangements: A Malaysian Perspective. Journal of Business Law.
• Companies Act 2016, Malaysia.
• Rashid, A. (2020). The Evolution of Insolvency Law in Malaysia. Asian Business Review.