Three recent developments have taken place within the framework
of Malaysian insolvency law as a whole. These are:
- The enactment of the Pengurusan Danaharta Nasional Berhad
Act 1998 to acquire and manage assets and liabilities of financially
distressed companies in Malaysia. This statute came into force
on 1.9.98. Its provisions, including the introduction for the
first time in Malaysia of the concept of special administration,
have already been discussed in various sections of this paper.
It will not therefore be mentioned here.
- An amendment to the Companies Act 1965 in the form of the
Companies (Amendment) (No.2) Act 1998 (Amending Act No. A1043
of 1998) that came into force on 1.11.98 that introduced new
provisions to protect creditors during the period the scheme
is pending before the courts.
- The introduction of a framework and guidelines for the newly
established Corporate Debt Restructuring Committee issued on
28.10.98.
Section 14 of the Companies (Amendment) (No.2) Act 1998
This provision introduced a new sub-section (10A) into section
176 of the Companies Act 1965. It is apparently intended to protect
creditors during the period in which a restraining order under
section 176(10) of the Companies Act 1965 operates. Formerly the
old section 176(10) did not specify any particular period for
which a restraining order was to operate. When the Asian economic
crisis began affecting Malaysian institutions, many public listed
companies sought restraining orders pending the formulation of
a concrete scheme of arrangement. Courts in Malaysia were granting
restraining orders of an average period of 9 months duration,
sometimes longer or shorter, much to the chagrin of financial
institutions. The new amendment states that the restraining order
will be for an initial period of 90 days, with the possibility
of a longer period only for "good reason". Provision is also made
for the appointment of a director representing the majority of
the creditors onto the board of the corporate debtor to represent
the creditors. It is unclear whether the majority of creditors
for this purpose are in terms of value or numbers. This may be
contrasted with the statutory majority for approval of the scheme
proper. The provision that restricts dispositions of property
once winding up commences has also been introduced in a modified
form into the scheme of arrangement regime. This is to prevent
corporate debtors from dissipating assets except in the ordinary
course of business whilst a scheme is pending before the courts,
thus protecting creditors.
The Corporate Debt Restructuring Committee
On 28.10.98 Bank Negara Malaysia announced a new framework and
guidelines ("the Framework") for measure to assist corporate debtors
that were financially distressed. The details of the Framework
are set out in the attachment that is Appendix I hereto.
The formation of a Corporate Debt Restructuring Committee ("CDRC")
had earlier been announced on 14.7.98. Its main purpose is to
take the lead in implementing workouts once an approach has been
made to it by an corporate debtor. It has a secretariat at Bank
Negara Malaysia. The CDRC began dealing with applications for
assistance as of 17.9.98. This is the first time that a framework
for work outs has been introduced by the Central Bank.
The Framework
The Framework was released on 28.10.98. It contains the terms
of reference of the CDRC. These are:
- The business of the corporate debtor must be viable.
- The corporate debtor must not be in receivership or liquidation.
- The corporate debtor's total aggregate bank borrowings should
be approximately RM50 Million or more.
- The corporate debtor should have borrowings from more than
one bank.
- Corporate debtors that have already obtained restraining
orders under section 176 of the Companies Act 1965 may also
apply provided the restraining order is withdrawn once a standstill
agreement has been reached.
The Constituent Organs
The structure and organs within the CDRC framework are:
- A steering committee;
- A secretariat to co-ordinate and administer the initiative;
- The respective positions and roles of debtors and financial
institutions, which are the only "creditors" that the CDRC takes
cognisance of;
- A Creditors' Committee;
- A Lead Creditor; and
- Consultants.
The Steering Committee
The steering committee's role is pivotal. It will, or is intended
to:
- Convene meetings of the corporate debtor and financial institutions;
- Ensure that deadlines are adhered to;
- Mediate in disputes between financial institutions inter
se or between financial institutions and the corporate debtor;
- Assist in disputes with foreign banks;
- Assist in expediting approvals or waivers, as the case may
be, from regulatory bodies, where possible;
- Assist in the appointment of a lead creditor; and
- Assist in the selection of consultants.
A Brief Summary of the Work Out Regime
Corporate debtors are required to provide information to the
creditors and to undertake to operate the business only in the
normal course of business, with transactions not falling with
the ordinary course of business having to be subjected to creditor
approval beforehand. Provision is made for observers to be present
at board meetings of the corporate debtor, on behalf of the financial
institutions. The security rights of financial institutions remain
unaffected. New monies however will take priority over old. Debt
trading is allowed but on condition that the re-structuring is
not affected. Creditors will be expected to agree to a standstill
for a reasonable period of time, and during that time, to form
a creditors' committee. Each creditor is expected to act in the
best interests of the body of creditors as a whole. The creditors'
committee should reflect the broad spectrum of creditors, and
financial institutions with the largest exposure in each class
of debt should be nominated as constituent members. A lead creditor
is expected to be appointed and to manage and co-ordinate the
work out with defined objectives in mind.
