The new exemption from the Companies Act 2016, which gives distressed firms ample flexibility to settle their loans, is a step embraced by the sector because it offers a breathing room for enterprises.
However, experts said that more immediate intervention is required to support businesses, such as the provisional Covid-19 law, similar to the one introduced in Singapore. A legislation will allow the legislature to go before Parliament, and the government has now stated that these steps before support businesses can only be proposed at the July sitting.
This is in the light of the arrangements of Dewan Rakyat to have a one-day sitting for the next session on 18 May due to the social gap requirements. In the meantime, experts suggested that more amendments may be provided to the Businesses Act, leveraging the authority of the Minister of Home Trade and Consumer Affairs to offer more flexibility and clarification for firms hit by the pandemic.
On 22 April, the Government released the Businesses (Exemption) Order 2020, which saw the Minister exercising his authority to exclude all firms from the requirements of the Companies Act. Effectively, corporations had historically had just 21 days to respond to a formal notice of claim by their creditors until it was declared unable to meet their debts and the borrower could file a winding-up motion against their creditors.
With the exception, businesses are given a six-month duration to reply by either settling their debts, submitting plans for how they intend to resolve their debts, or contesting the notice of appeal, among other responses – for notices provided between 23 April and 31 December.
The closure requirement is now greater, which ensures that the firm will only be wound up if the sum of the loan reaches RM50,000 instead of RM10,000 previously.
Lawyer Lavinia Kumaraendran, who specializes in conflict resolution, clarified that the exception that requires businesses to respond to the allegations raised by their investors for six months instead of 21 days was advantageous to corporations because it provided them flexibility and breathing room to bring their act together by exploring realistic alternatives for debt arbitration or even restructuring, if appropriate.
Companies will be mindful that there are other court cases that can be launched, which may result in actions being made against them over a span of six months.
That requires the warrant of possession and auction, which allows the borrower to seize away the estate of the debtor.
While the exemption was a move in the right direction, Lavinia said that it was imperative to have a Covid-19 Bill / Act to provide more holistic measures for businesses.
Crisis Management and Insolvency Specialist, Lim San Peen told StarBiz that while pending more action by the legislature, the Minister may provide a fast fix in the form of new regulations and exemptions from the Companies Act 2016.
Lim, who is the President of the Insolvency Practitioners Association of Malaysia (IPAM), said the association had recommended that the government issue legislation and offer exemptions to the Firms Operate in three main fields.
The first, he stated, was in terms of shielding businesses with an extended suspension duration, during which investors will not be allowed to take steps or making lawsuits against them by freezing their properties or other interventions.
Second, he shared that the government should approve new loans or rescue funding for troubled businesses and give them a super-priority position.
In view of this, the higher priority position would require new debts to be repaid in preference to unsecured creditors-but not to secured creditors-in the event that the corporation is liquidated. Noting that a judicial order will be required in this situation to maintain compliance.
Third, Lim said that the government may propose removing the insolvent trade clause on a provisional basis, keeping directors directly accountable if they are found to have kept trade and incurring debts despite being informed that the business may be insolvent.
Meanwhile, in terms of the effects on investors, Kenanga Investment Bank analyst Ahmad Ramzani Ramli said that steps such as the Businesses (Exemption) Order 2020 are unlikely to harm. He said the banks should not have a major effect, because they would all get the money they owed by the end of the day.