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A robust corporate rehabilitation framework plays a critical role in fostering a business environment where companies with viable businesses that are facing financial distress have better opportunities to restructure and recover.
Toward this end, the Companies (Amendment) Act 2024 (Amendment Act) which came into operation on 1 April 2024, aims to strengthen the corporate rehabilitation framework and enhance corporate transparency in Malaysia.
The following corporate rehabilitation processes available under the Companies Act 2016 have their own distinct features and practical uses:
- Arrangements and Reconstructions (Scheme of Arrangement)
- Corporate Rescue Mechanisms:
- Judicial Management (JM)
- Corporate Voluntary Arrangement (CVA)
The new and enhanced provisions on corporate rehabilitation in the Amendment Act have widened the applicability of JM (a similar provision on CVA will come into force at a later date), included pre-pack and cram down provisions for Scheme of Arrangements and introduced super priority for rescue financing.
With increasing complexity in corporate restructurings, stakeholders have to engage with more nuanced strategies. Taking a strategic approach to corporate restructuring and insolvency is crucial to ensure a better likelihood of a successful corporate rehabilitation and deliver value to all stakeholders – whether it is a company facing financial distress, a creditor seeking to optimize recovery or protect its interests, or an investor looking to invest in financially distressed companies. Winding-up should be a last resort for viable businesses.