Corporate Rescue Mechanisms

LEE JIA CHERN

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 Corporate Rescue Mechanisms

Corporate Voluntary Arrangement

Reconstruction and Amalgamation Judicial Management (JM)
Scheme of Arrangement (SA) (CVA)
[s370] [ss403 - 430]
[ss395 - 402]

- Who are eligible to be under - Who may apply?

(i) Moratorium CVA? - The application and its effects
(ii) Compromise - Who may propose CVA? - Purposes
- Effects

Proposal for CVA

Judicial Manager
Statutory Scheme of Arrangement (i) appointment of nominee
(i) Who may be a JM?
[ss365 - 369] (ii) report by nominee
(ii) Power & duites of JM
(iii) duty of nominee
(iii) Proposal
(iv) Protection of creditors and members

- Court's approval Moratorium

- Who may apply? (i) Effective date
- Company is not insolvent (ii) Effects
- Court ordered meeting (iii) duration
- court appointed liquidator

- Restraining order
- Who may apply?
- Publication of restraining order
- Consequences of a restraining order

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Scheme of Arrangement (“SA”)
1. Company faced with financial difficulties but has in fact good prospects.
2. Creditors may propose a Moratorium SA or a Compromise SA.
3. However, it might be difficult for getting all the creditors to agree to a particular SA.
4. An SA does not bind all the creditors unless they agree to it. So the scheme will be
derailed if anyone of them files a winding up petition against the company.
5. Hence, the CA 2016 provides for a statutory SA that will bind all creditors – Statutory
Scheme of Arrangement.

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 Statutory Scheme of Arrangement
[s366 – 369]
1. Definitions of ‘compromise’ and ‘arrangement’. – Sri Hartamas Development Sdn Bhd [1990] 2 MLJ 31

2. Who may apply for a Statutory Scheme of Arrangement (“SSA”)? – s366(1)

i. the company;
ii. any creditor or member of the company;
iii. the liquidator (company wound up); or
iv. the judicial manager (company under judicial management)

3. Who can propose for an SSA? – Re Kuala Lumpur Industries Bhd [1990] 1 MLJ 280

4. Application to the Court – s366(1)

 Should the proposal be in complete form when an application to the court is made? – Re Kuala Lumpur Industries Bhd
 Protection of the interests of creditors – Re Price Mitchell Pte Ltd (1984) 9 ACLR 1
 Order 88 rule 2 of the Rules of Court 2012 – Made by way of an Originating Summons
 Ex parte or inter partes? – Re Foursea Construction (M) Sdn Bhd [1998] 4 MLJ 99

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Statutory Scheme of Arrangement –
Court-ordered meeting
1. The Court may order a meeting if it is satisfied of the application under s366(1).
2. The meeting may be postponed? How does a proposed SA become binding upon all
the creditors, members, company or the liquidator and contributories, as the case
may be? Court may make alterations or impose conditions –
3. Can the Court refuse to order a meeting of creditors? – Sri Hartamas Development v
MBF Finance Bhd [1990] 2 MLJ 31
4. The Court Order under s366(3) becomes effective once it is made by the Court?
5. What are the requirements after the Court Order has been made under s366(3)?

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Statutory Scheme of Arrangement –
Application by a liquidator/judicial manager
1. Application shall not be made if the company is insolvent,
and unable to pay its debt in full at any given time.
2. How does the Court exercise its discretion?
Sri Hartamas Development Sdn Bhd
Re Buildmat (Australia) Ltd (1983) 7 ACLR 944
3. Hence, s367(1) empowers the Court to appoint an approved
liquidator to assess the viability of the proposed SA.

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Statutory Scheme of Arrangement –
Restraining Order
1. To ‘shield’ the company from any possible proceedings against it.
2. To restrain any action or proceeding against the company except by leave of the
Court – s368(1)
3. How long is the ‘protection’?
4. Can it be extended?
5. Who may apply?
6. What are the conditions to be fulfilled in making the application for a restraining
order?
 Re Lityan Holding Bhd [2007] 3 CLJ 554
 Barakah Offshore Petroleum Bhd & Anor v Mersing Construction & Engineering Sdn Bhd &
Ors [2019] 1 LNS 551; [2019] MLJU 338

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Statutory Scheme of Arrangement –
Restraining Order
7. The restraining order shall be publicised.
8. Consequences of a Restraining Order
 Restrain further proceedings against the company
 Prohibits the disposition of the company’s property
 The appointment of nominee director

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Reconstruction and Amalgamation [s370]
1. What is a reconstruction?
 Brooklands Selangor Holdings Ltd v Inland Revenue Commission [1970] 2 All ER
76
 Re South African Supply and Cold Storage Co Ltd [1904] 2 Ch 268

2. What is an amalgamation?
Re South African Supply and Cold Storage Co Ltd
 Re Hayes’ Will Trust; Dobie and Others v Board of Governors of the National
Hospital and Others [1953] 2 All ER 1242

3. What are the procedures?

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Corporate Voluntary Management (“CVM”)
[ss395 – 401]
1. What is a CVA?
similar with an SA
Different in term level of supervision

2. Who shall supervise a CVA?

insolvency practitioner?
 approved liquidator?

3. Who are eligible for a CVA?

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CVM – The Procedures
• Proposal for a CVM
1st • Who may propose?

• Submission of Proposal
• What are the documents needed?
2nd • Appointment of Nominee

• Filing of Documents to Court

3rd

• Moratorium – Commencement, Duration, Extension, and

Effect
4th • Power and Duties of a Nominee during a Moratorium – 7th
Schedule

• Meetings – of Company, and of Creditors

5th

• Implementation and Supervision of CVM

6th

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Judicial Management (“JM”)
1. What is JM?
2. Who are excluded from being placed under JM?
3. Under what circumstances can a company be placed under
JM?
 Re Genesis Technologies International (S) Pte Ltd [1994] 3 SLR 390
 Deutsche Bank AG and Another v Asia Pulp & Paper Co Ltd [2003] 2 SLR 320;
[2003] SGCA 19
 Re Cosmotron Electronics (Singapore) Pte Ltd [1989] 1 SLR 251

4. Who can apply for a company to be placed under JM?

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JM – The Procedures
Filing an • Nomination of Judicial Manager
Application • Moratorium

• Newspaper
• Company
Advertisement • Any other person
• Registrar

Hearing of the • Majority value creditors may oppose

JM Application • Options of the Court after hearing

• Consequences of a JM Order
JM Order • Maniach Pte Ltd v L Capital
Jones Ltd [2016] 3 SLR 801

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JM – After JM Order – Judicial Manager
1. What shall the Judicial Manager do?
2. What are the powers and duties of the Judicial Manager?

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JM – After JM Order – the Company
1. Statement of Affairs
2. Statement of Proposals
3. Meeting of Creditors
 Committee of Creditors
 What if the proposal is approved?
 What if the proposal is rejected?

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JM – After JM Order – the Creditors and Members

1. To avoid abuse or misuse of powers by the Judicial

Manager
2. Relief from the Court – applied by any member or
creditor
3. What orders may the Court make?
4. Prohibition against the transfer or assignment of
company’s property

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JM – After JM Order –
Duty to Cooperate with the Judicial Manager

1. Who shall cooperate?

2. How to cooperate?

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JM – After JM Order –
Inquiry into Company’s Dealings

1. Who may make inquiry?

2. How to make inquiry?

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~THE END~

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