(a) Are there civil or penal/criminal sanctions in the legal system of this economy in relation to the incurring and non-payment of debts by corporate debtors (for example, some type of sanction - such as the concept of 'insolvent trading' - to which the directors of the corporate debtor may be subject)?

 

Non-payment of debts by corporate debtors does not result in any form of civil/penal sanction. However, incurring debts when the corporation is either insolvent or in a state of marginal solvency may result in prosecution under sections 303(3) (which applies to contracting of individual debts) and section 304 (which is a general fraudulent trading provision) of the Companies Act.

(b) What are these sanctions?

 

For section 303(3), the sanction consists of either imprisonment for one year or a fine of five thousand ringgit. For section 304, apart from the possibility of imprisonment for three years or a fine of ten thousand Ringgit, the court has the power to order the officer concerned to bear personal liability for the debt(s).

(c) Do any of these sanctions have the effect of encouraging the directors of a corporate debtor to seek protection for the corporate borrower under the insolvency law regime?

 

In practice, there have been only a few instances where these provisions were enforced. Therefore, whether in practice these provisions stimulate or encourage corporate debtors to seek insolvency protection is unclear.

(d) Does the presence of the possible application of any of these sanctions create a problem if a corporate debtor which is in financial difficulty or insolvent seeks to negotiate an informal work out with creditors?

 

In practice, the potential application of these sanctions is hardly raised in the course of negotiations for an informal work out.