PN17 – safeguard or straitjacket?

WHEN Bursa Malaysia introduced the Practice Note 17 (PN17) framework nearly two decades ago, it was meant to be a safeguard or a mechanism to protect investors and ensure market transparency by flagging companies in financial distress.

How things have changed.

The same framework that once served as a safety net is increasingly being viewed as a straitjacket, constraining corporate recovery and undermining market confidence.

The prolonged struggles of Capital A Bhd and KNM Group Bhd to exit the PN17 classification have reignited debate over whether Bursa’s rules have become overly rigid, bureaucratic, and detached from business realities.

What began as a well-intentioned effort to ensure accountability has, for some, evolved into a system that traps companies longer than necessary and discourages investors from engaging with them.

Corporate lawyers and market observers have increasingly questioned whether Bursa has overextended its regulatory role.

“The assumption is Bursa Malaysia knows sufficiently well to assess all industries covered in the portfolio of companies. The intricacies of the challenges of the turnaround strategy being implemented and unique challenges of each and every business cannot be easily understood by any one agency,” lawyer Edwin Lim of Edwin Lim & Suren tells StarBiz 7.

Another corporate lawyer argues that the issue lies not with oversight itself but with timeliness.

“Bursa appears to take an inordinately long time to assess what appears to be straightforward proposals,” he says, adding that this leaves companies in limbo and investors uncertain.

Bursa Malaysia, however, dispels any notion that the framework is too rigid.

In a written response to StarBiz 7, the exchange acknowledges “the perception that PN17 companies may be encountering challenges in exiting PN17 status” but stressed that the pace of exit “is primarily driven by the companies themselves”.

The speed of the process, it says, depends on three key factors: when companies submit their regularisation plans, how swiftly they implement them once approved, and when they apply for upliftment.

“The exchange’s role is to assess and process these plans in accordance with the Listing Requirements, and it remains committed to doing so in a timely and consistent manner,” Bursa explains.

The cases of Capital A and KNM highlight the complexities of navigating this system.

Despite Capital A’s operational recovery and strategic restructuring, its PN17 exit has been long delayed.

“Capital A’s delay in exit is a good example, even though the regularisation plan had been approved by Bursa Malaysia,” Lim points out.

Similarly, KNM’s drawn-out journey illustrates how procedural rigidity can clash with commercial urgency.

“KNM had to get the approval of creditors and Bursa Malaysia before it could implement its corporate actions, leaving KNM with no option but to delist to complete the turnaround strategy and avoid losing a major deal which could pare its debts,” Lim notes.

Bursa counters that it is not the source of delay.

“The responsibility to submit and implement a viable regularisation plan – and to meet the upliftment criteria – rests squarely with the PN17 companies,” the exchange emphasises, adding that any perceived obstacles are “a reflection of the companies’ own pace and strategic choices”.

Still, many believe the stigma of PN17 status alone can suffocate recovery efforts.

“PN17 is a red flag, basically curtailing the company’s ability to raise financing with the banks and generate sales,” Lim explains.

“In effect trapping a company in PN17 status for a much longer time along with the bureaucracy.”

For some, the issue is not the existence of PN17 but its lack of flexibility.

“Bursa needs to be practical and put on commercial glasses,” a corporate lawyer says, suggesting that a reassessment of the framework’s criteria is overdue.

Bursa acknowledges the tension between maintaining market integrity and facilitating business recovery.

The exchange adds that each case is carefully considered to uphold fairness and investor protection, and that rejection of applications is not a lack of support but “a necessary step to ensure that only companies with credible and sustainable recovery paths remain listed”.

Even when well-intentioned, prolonged PN17 classifications can corrode investor confidence.

“The longer a company remains under PN17, the less likely it is able to survive and recover,” Lim warns.

Another corporate lawyer agrees that “the criteria need to be relooked,” especially given Malaysia’s loss of competitiveness since the 1990s.

Bursa defends the classification, adding that PN17 “serves as an early warning mechanism, allowing investors to make informed decisions”.

It also points out that the framework is not static, having evolved from the PN4 system in 2005 with several reviews, the most recent being in 2024.

Transparency is key

To understand how Malaysia’s PN17 might evolve, it is useful to look across the Causeway. The Singapore Exchange (SGX) has taken a more market-driven and disclosure-based approach.

Until recently, SGX used a “Watch List” to monitor companies with weak financials, but it has since abandoned that system, choosing instead to focus on transparency rather than rigid regulatory remediation.

Companies that post losses for three consecutive years are now required to disclose their plans to regain profitability but are not automatically subjected to a formal restructuring regime.

The philosophy behind this is clear: let the market decide, as long as investors are well-informed.

In contrast, Bursa’s PN17 framework mandates a step-by-step “regularisation plan,” clear profit thresholds, and a formal approval from the exchange before a company can exit.

The Malaysian model is more prescriptive and compliance-heavy, while Singapore’s is more flexible and disclosure-oriented.

Singapore treats investors as capable of discerning which distressed companies are worth backing. Malaysia’s PN17 reflects a more paternalistic approach, one that prioritises investor protection but risks dampening market dynamism and delaying legitimate recoveries.

As Lim puts it, “the time has come to re-evaluate the current PN17 classification and regulation.” Malaysia’s capital market cannot thrive on rigidity alone.

He believes the full disclosure provision by all listed companies would be essential as this removes the bureaucracy of PN17 regulations and allows investors to decide on the valuation of a company based on its performance.

The Singapore experience shows that flexibility and disclosure need not come at the expense of investor protection.

The PN17 debate ultimately boils down to whether Bursa Malaysia should remain a strict gatekeeper or evolve into a facilitator of recovery.

The exchange argues that it must safeguard integrity, while critics say its rigidity undermines recovery and competitiveness.

Another lawyer puts it succinctly: “If the company is making genuine efforts to get out of PN17, Bursa must be agile enough to switch from regulator to facilitator.”

If Malaysia aspires to strengthen its capital markets and attract new listings, it must find the balance between prudence and progress.

That means retaining the discipline of PN17, but embracing the flexibility of Singapore’s disclosure-led model, one where transparency, not bureaucracy, determines a company’s fate.