THE Covid-19 pandemic has caused significant negative impact on businesses and the global economy on an unimaginable scale.
The outbreak has brought the world to its knees and has altered strategies from growth projection to a “do-or-die” battle for survivability.
EST Advisory Management Sdn Bhd director Thomas How Kooi Yong commented that businesses in Malaysia, especially the SMEs, have taken a severe hit in this unprecedented time with many ceasing to operate and others at the very edge of survival.
Businesses now are looking at the bleak prospect of insurmountable costs, depleted cash reserves, and the lifting of the Government-implemented moratorium at the end of September 2020. The challenges ahead are tough and survivability of SMEs and MNCs will be questionable.
Corporatenet Advisory Sdn Bhd director Riko P’ng Chiew Keem added that until an effective vaccine is found and provided there is no second wave of infections in Malaysia, companies will require time to restructure and refinance to keep their operations running while the economy recovers.
Legal remedies for corporate restructuring and rescue exercise that are available for such affected companies include the Scheme of Arrangement (SOA) – S. 366 Companies Act 2016; the Judicial Management – S. 404 and S. 405 Companies Act 2016; and, the Corporate Voluntary Arrangement – S.396 and S. 397 Companies Act 2016.
SOA is a court-supervised exercise whereby a scheme advisor will be tasked to evaluate a company’s financial position then formulate a proposal to restructure any outstanding debts.
There is no fixed form of SOA, but it is subjected to the practicality, complicity, and financial position of a company.
EST Advisory Management corporate advisor Jorrine Ang Pei Gaik said that the common scenarios in seeking SOA include requesting for extension of the repayment
of the loan period, proposing reduction of the repayment of the debt, or a “hair-cut”, and proposing to settle the debt by way of shares.
It is also appropriate for the sale of assets whereby the proceeds are utilised for the creditor’s benefits, the acquisition of the company by a “white knight” to satisfy the debts, and utilising proceeds of new sales order or projects to repay the creditors.
These legal remedies are supported by statutory protection, either by restraining order or a moratorium to preserve the status quo of any pending legal proceeding, to prohibit the commencement of new legal proceedings, and to preserve the assets of the company.
It can also be used to withhold the foreclosure or execution against the assets
of the company and ensure that winding-up orders are not granted during this period.
This allows a company to call a court-convened meeting and at the same time provides breathing space.
The company can then focus on strategising its business by restructuring and rehabilitating its financial position without worrying about the possibility of legal threats coming their way.
Once all the statutory requirements are fulfilled and the scheme has been sanctioned by the court, it will be binding on all the creditors listed within the scheme.
If you are wondering whether your company is in a situation that needs the execution of the SOA on your behalf, ask yourself these few simple questions:
(1) Is your business burdened by debts and currently unable to repay?
(2) Do you have reasons to believe your company will at some point return to profitability?
(3) Do you need to restructure your debt to repay and clear the way to return to profitability?
Led by directors Thomas How and Kenny Chong Chee Hong, EST Advisory Management Sdn Bhd aims to become one of the leading Malaysian corporate advisory companies.
Its mission is to help SMEs and corporate companies grow financially, while gaining prominence as a partner in its clients’ respective industries.
For details, email EST Advisory Management’s restructuring team at email@example.com, visit www.estadvisorymanagement.com.my, or call 03-7498 1988 to find out how it can help you mitigate your business financial status in this current financial climate.
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