Companies need more relief

PETALING JAYA: The recently-gazetted exemptions to the Companies Act 2016, which allows troubled companies more time to repay their debts, is a move welcomed by the industry as they provide breathing space for businesses.

However, experts said more urgent action is needed to help companies, such as enacting a temporary Covid-19 Bill, similar to that which was passed in Singapore.

A Bill would require lawmakers to go to Parliament, and the government has now said that such measures to help companies would only be presented in the July sitting.

This is in view of the Dewan Rakyat planning to have a one-day sitting for the upcoming session on May 18 due to the social distancing requirements.

In the meantime, experts said further exemptions could be made to the Companies Act using the powers of the Domestic Trade and Consumer Affairs Minister to provide further relief and clarity for companies that are impacted by the pandemic.

On April 22, the government gazetted the Companies (Exemption) Order 2020, which saw the minister exercising his powers to exempt all companies from a provision in the Companies Act.In essence, companies previously had only 21 days to respond to a statutory notice of demand from its creditors, before it is deemed “unable to pay its debt” and the creditor can initiate a winding up petition against the company.

With the exemption, companies get a six-month period to respond by either paying their debts, coming up with proposals on how they plan to settle the debts, or disputing the notice of demand, among other responses – for notices served between April 23 and Dec 31.

The winding up threshold is also higher, which means the company can only be wound up if the amount of debt exceeds RM50,000 instead of RM10,000 previously.

Lawyer Lavinia Kumaraendran, who specialises in dispute resolution, explained that the exemption, which allows companies six months instead of 21 days to respond to the demands issued by their creditors, was beneficial to companies as it gave them time and breathing space to “get their act together” by considering viable options to settle the debts or even to restructure the company if needed.

“From the creditor’s perspective, they will need to consider other methods or modes to recover any defaulting or outstanding debts.

“The six-month window, whilst helpful to many companies, remains as only one form of execution by creditors, which is winding-up the company, ” she said.

She said companies must be aware that there are other legal proceedings that can be taken, which may result in judgments being obtained against them within the six-month period.

This includes a writ of seizure and sale, which allows the creditor to take ownership of the debtor’s property.

While the exemption was a move in the right direction, Lavinia said it was imperative to have a Covid-19 Bill/Act to provide more holistic measures for businesses.

Crisis management and insolvency expert, Lim San Peen told StarBiz that while awaiting lawmakers to present other measures in Parliament, the minister can issue some quick fixes in the form of new regulations and exemptions of the Companies Act 2016.

Lim, who is the President of the Insolvency Practitioners Association of Malaysia (IPAM) said the association had proposed that the government issues regulations and provides exemptions to the Companies Act, in three key areas.

The first, he said, was in terms of protecting companies with an enhanced moratorium period, during which creditors would not be able take action or make claims against them by seizing their assets, or other measures.

Secondly, he said, the government could allow fresh loans or “rescue financing” for distressed companies and to accord them with “super priority status”.

“Super priority status will allow the fresh loans to be subsequently repaid in priority ahead of unsecured creditors - but not ahead of secured creditors - in the event the company is liquidated, ” he said, adding that a court order would be necessary in this case to ensure transparency.

Thirdly, Lim said the government could look at temporarily suspending the insolvent trading provision, holds directors personally liable if they are deemed to have continued trading and incurring debts while aware that the company could be insolvent.

“By temporarily suspending this rule, the hope is that directors would be more willing to continue operations to save their companies” he said.

Pending a specific Covid-19 Act or other proposals by lawmakers, Lim said, such measures would offer immediate relief for companies.

Victor Saw, Deals Partner and Business Recovery Lead at PwC Malaysia also agrees that The Companies (Exemption) Order 2020, while positive, may not be sufficient to help all companies.

“Some companies have not been operating for two months, with zero or minimal revenue, they may need time to restart operations.

“Those with perishable raw materials will need to reorder and will need more time than others, ” he said, noting that the six-month exemption period may not be sufficient.

Among the major issue for companies at the moment, he said, aside from the need for funding, was fear among directors of these financially distressed companies that they may be held personally liable, even though the debts incurred were with good intention.

Some countries like the UK, Australia and Singapore, he noted, had already enacted or in the midst of enacting laws for temporary suspension of this provision.

“What we may need will be some quick fixes in the form of new regulations to be issued by the Minister as provided for in the Companies Act and/or a special purpose act to be passed in parliament for businesses to have a better chance of survival, ” he said.

Meanwhile, from the perspective of the impact on creditors, Kenanga Investment Bank analyst Ahmad Ramzani Ramli said they were unlikely to be hurt by measures such as the Companies (Exemption) Order 2020.

He said banks would not see a significant impact as they would still get the funds owed to them at the end of the day.

“Companies are still liable to pay their debts; the creditors will just have to wait a bit longer due to the exemption.

“The only difference would be in their cashflow, whereby it will only be reflected six months down the road, ” he said.