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LexJournal - 0001 - Corporate Rescue Mechanisms - Corporate Voluntary Arrangement
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The ongoing COVID-19 pandemic has resulted in many companies in Malaysia to be severely affected financially. One of the major complications is having a set of problems with their creditors to the extent of being served with a winding up notice (Notice under section 466 of the Companies Act 2016, also known as the ‘Notice 466’) or worse, being slapped with a winding up petition.

Taking this cue, Malaysia has introduced corporate rescue mechanisms (“CRM”) consisting of the corporate voluntary arrangements (“CVA”) and judicial management to rescue and restructure companies under financial distress from being wound up. Provisions on the CRM could be found in the following legislation:

  1. Companies Act 2016 (“Companies Act”) - specifically, Part III, Division 8, Subdivision 1 of the Companies Act; and

  2. Companies (Corporate Rescue Mechanism) Rules 2018 (“CRM Rules”).

The CVA in Malaysia, adopts the United Kingdom’s CVA model established under the UK Insolvency Act 1986, aims to provide companies under financial distress with a simple procedure to restructure and rearrange their debts with their creditors.

Key Terms:

  • Applicant: Director(s) of the company, judicial manager (if the company is under judicial management order), or official receiver or liquidator (if the company is under liquidation).

  • Nominee: an insolvency practitioner appointed for the purpose of the CVA application before the CVA proposal is being approved.

  • Members: the company’s owners whose name has been entered on the register of members, i.e. shareholders.

  • Supervisor: an insolvency practitioner appointed for the purpose of CVA application after the CVA proposal has been approved.

What is CVA?

Essentially, CVA is a mechanism for a company under financial distress to enter into an arrangement to reorganise its debts with its creditors which could be a win-win situation to both the company and the creditors, whereby the former would be able to pay its debts to the creditors without the risk of being wound up.

This could be done through negotiations with creditors, offering a proposal to the creditors to repay or settle the debts as a class (as one whole group) instead of making an offer to each of the creditors individually.

Who Can Propose for CVA & Who Cannot opt for CVA

A CVA can be proposed by the directors of a private company, regardless of the size of the company. However, CVA cannot be an option for the following companies:

  1. Public companies;

  2. Licensed institutions or operators of designated payment system regulated and supervised by the Bank Negara Malaysia;

  3. Companies which are subject to the Capital Markets and Services Act 2007; and

  4. Companies that charge over their properties or provide third-party charges over their properties for other companies.

The proposal for CVA can also be made by a judicial manager (if the company is under judicial management order), and an official receiver or a liquidator (if the company is under liquidation).

Common Scenario

Company ABC has a loan facility with Bank Meibenk with a charged property. However, the property was owned by Company XYZ (a sister company to Company ABC) and charged by Company XYZ as a third party for the purpose of the loan facility. Company ABC has no charges over any of its properties.

Can Company ABC apply for CVA?

Yes, Company ABC can apply for CVA because the third-party charge was made by Company XYZ.

Moratorium under the CVA

Unlike the scheme of arrangement, CVA does not require a company to seek or obtain a restraining order to stop any party from suing the company during the CVA process. In short, a company is ‘awarded’ with an automatic moratorium by the Companies Act from being sued for any legal proceedings unless with a leave from the court.

This breathing space is given to a company under financial distress as a form of rehabilitation, giving them a little time to develop viable and reliable alternatives with their creditors.

The moratorium will commence automatically upon the application of a CVA application is filed in court together with all relevant supporting documents, and subsequently shall be in force for 28 days and may be eligible for an extension of another 32 days (up to 60 days in total counted from the commencement of the moratorium).

In other words:

Moratorium Period

28 days + 32 days (extension): 60 days.

Nevertheless, in order for an extension to be granted by the court, the following requirements shall be adhered:

  1. the nominee and members of the company consented to the extension of time;

  2. obtained 75% majority in value of the creditors; and

  3. the nominee has informed in the moratorium committee meeting of the actions he has taken in order to comply with his duty as a nominee, and the costs incurred as a result of his actions for the company, and of any plans he intended to do to continue to comply with that duty if the moratorium is extended and the expected costs of his actions for the company.

The moratorium can be ended earlier than expected if:

  1. the nominee withdraws his consent to act;

  2. the nominee is no longer a member of a recognised professional body under section 433(3) of the Companies Act (i.e. ceased from being an insolvency practitioner);

  3. the proposal for an extension has been disapproved by the moratorium committee; or

  4. no notification to extend the moratorium has been filed in court upon the 28-day expiry.

What Not to do During the Moratorium Period?

A company under moratorium shall not do the following adumbrated matters:

  1. meeting of the company shall not be called, except with the consent of the nominee or the leave of the Court;

  2. no resolution shall be passed for the winding up of the company;

  3. no resolution on judicial management order shall be made or passed;

  4. transfer of any share of the company shall not be made except with the leave of the Court;

  5. no alteration on the status of any member of the company except with the leave of the Court; and

  6. not to lodge any documents with the Companies Commission of Malaysia (“SSM”) except for the documents relating to the CVA, the annual return, financial statements and applications for extension of time relating to the lodgement of the annual return and financial statement.

Conducting the CVA

1. Appointing a ‘Nominee’

Notably, the proposal must include the appointment of a nominee, either as a trustee or a supervisor. A nominee is any person who is eligible to be appointed as an insolvency practitioner.

The nominee will then report to the court on the feasibility of the CVA by including a proposal, entailing the nominee’s independent opinion and views on whether the proposed CVA is viable and reasonable.

The powers and duties vested in a nominee include overseeing the company’s affairs to determine whether:

  1. the proposed CVA has reasonable prospects for approval and implementation;

  2. the company is likely to have sufficient funds to conduct its business during the moratorium period; and

  3. a meeting of the company and its creditors should be called to review the proposed CVA.

2.Preparation of the CVA Proposal

In order to initiate a CVA application, an applicant must firstly ensure that there are no pending queries with the SSM regarding the company and that all information of the company with the SSM are up-to-date.

The proposal for a CVA needs to be comprehensive. The essential documents and information required include:

  1. Documents setting out the terms of the proposed CVA;

  2. A description of company affairs with details of creditors, debts, liabilities, and assets;

  3. A statement of the company’s eligibility for a moratorium;

  4. A statement of consent to act from the nominee;

  5. The nominee’s statement regarding the nominee’s opinion on the proposed CVA; and

  6. A statement disclosing the details of the previously proposed CVA or applications for a moratorium (if any).

Who prepares the CVA proposal?

The proposal for the CVA application should be prepared by the applicant. However, it is a common practice where a nominee is appointed months before the CVA is being filed in court to assist the applicant/company to prepare the CVA proposal because the nominee, being an insolvency practitioner, should know better on how such proposal should be made. To prepare a CVA proposal within 28 days is almost impossible.

3. Voting of the CVA Proposal

The applicant shall prepare the CVA proposal stipulating, among others, his proposal in restructuring the company’s debts after the CVA application has been filed in court.

Within 28 days (during the moratorium in force), the nominee shall summon for meetings for the members of the company and the creditors to vote in favour or against the CVA proposal. It is noteworthy that nothing in the Companies Act or CRM Rules prohibits the meetings for the members of the company and creditors of the company to be conducted simultaneously in one session, however the voting shall be calculated separately for members and creditors.

The required majority to approve the CVA proposal in the creditors' meeting shall be 75% of the total value of creditors present and voting at the meeting either in person or by proxy, whilst a simple majority is required to pass a resolution to approve the CVA proposal for in a meeting of members.

The CVA proposal tabled during the meeting shall not be modified or amended, and can only either be approved as it is or rejected entirely. Once the CVA proposal is approved, it shall bind all creditors of the company collectively.

Rights of the Creditors to Oppose

Unlike under the judicial management, there is no express provision that allows aggrieved parties or creditors to challenge the proposal/arrangement or meeting regarding a CVA.

However, section 401(4) of the Companies Act allows the supervisor’s actions to be challenged by the company’s creditors or any other person disagreeing with any act, omission or decision of the supervisor. It is noteworthy to realise that section 401(4) of the Companies Act is quite broad by allowing ‘any other person’ to challenge the conducts of the supervisor if he is dissatisfied with such conducts.

Also, it shall be not be confused between the terms ‘nominee’ and ‘supervisor’ in the context of CVA, as the term ‘supervisor’ is used after the CVA proposal has been approved while the term ‘nominee’ is used before the CVA proposal being approved. The supervisor is usually the nominee, though not necessarily and is not always the case.

The Effect of the CVA & What to do after the CVA Proposal has been Approved?

Once the CVA proposal has been approved, the nominee (who now shall be known as the supervisor) shall play his role to implement whatever arrangements that have been approved as stipulated in the CVA proposal, such as monthly repayment commitments, waiver or suspension on interests, charges, and penalties against the company for repayments or default of payments, and creditors’ withdrawal or abstention from taking any legal actions against the company while the CVA proposal being implemented.

Unfortunately, while fulfilling his duties as a supervisor, it shall be noted that no express statutory protection has been provided to supervisor in implementing the arrangements as agreed in the CVA proposal. Section 581 of the Companies Act 2016 (protection against negligence, default, breach of duty and breach of trust) only gives express statutory protection to the nominee and not to the supervisor.

Can the Company Operate during the CVA Process?

Compared to a judicial management application/order provided under the Companies Act, the management of the company can still run the day-to-day operation of the company, unless the approved CVA proposal says otherwise that may restrict the power and rights of the management.

What happens if the CVA fails?

There are two scenarios in the event when the CVA application/proposal fails. First, prior to the disapproval of the CVA proposal second, post the approval of the same.

If the CVA proposal has been rejected by the member and/or creditors, it shall be noted that the automatic moratorium will end earlier than envisaged, and the company will subject to legal proceedings should it fail to pay its commitments to the creditors.

However, if the CVA proposal has been approved and implemented, but during the implementation of the CVA proposal the supervisor thinks the company is unable to fulfil the arrangements as stipulated in the CVA proposal, the supervisor shall notify the creditors and the court, and the moratorium shall be terminated earlier. Without the moratorium, the company is at risk of being sued and wound up by the creditors.

Interestingly, despite an express prohibition for the CVA proposal to be modified (during the approval stage), there are some school of thoughts arguing that the Companies Act is ambiguous on whether the CVA proposal may be modified after it has been approved or during its implementation.

It is advisable for the applicant or nominee to insert a provision on post-meeting modification that allows the supervisor to propose for a modification of the CVA proposal in the event he thinks the current CVA proposal is unable to be implemented due to the present situation and difficulty. The provision on post-meeting modifications is proposed to be approved with the same requirements as how the CVA proposal should be approved.

Provisions on post-meeting modification in Malaysia is still untested waters and it is interesting to see if the courts would allow such modification to be made.


CVA is a helpful mechanism in rescuing a company from the risk of being wound up where it will give opportunity for a company to restructure its debts and to rise from its lowest point. To reiterate, CVA provides a win-win situation for both the company and the creditors in ensuring the company’s survivability in the middle of financial catastrophe and subsequently, the creditors will still be able to get some portion of their money (if not all).


All information stated herein are accurate as at its publication date and any mistakes or errors are regrettable. This article serves as a general information only, and shall not in any way be treated as a legal advice. Should you require any legal advice or further information regarding this topic or issue, please contact us or any of our relevant Partners.


Haeme Hashim

Head of Corporate & Commercial Practice

Ng You Xian

Associate Intern

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