By Gan Jer Nynn
The judicial management (“JM”) is another Corporate Rescue Mechanism available under the Companies Act 2016. This temporary court-supervised rescue mechanism is applicable for a company in financial distress to facilitate the rehabilitation or the restructuring of the company.
All companies may apply for a JM, except:
- A company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia; and
- A company which is subject to the Capital Markets and Services Act 2007.
The Court, on the application of the company or its creditors, may make a JM order if these two pre-conditions are satisfied:
- The Court is satisfied that the company is or will be unable to pay its debts; and
- The Court considers that the making of the order would likely achieve one or more of the following purposes:
- The survival of the company;
- The approval of a compromise or arrangement under section 366 of the Act between the company and any such persons mentioned therein; or
- A more advantageous realisation of the company’s assets would be effected than on a winding up.
Upon the filing of a judicial management application, an automatic moratorium will be imposed on the company.
- The moratorium shall be in force for 6 months, but the Court may, on the application of the judicial manager, extend this period for another 6 months.
- Any winding up proceedings, enforcement of security or other legal proceedings against the company will come to a standstill.
A judicial manager is an insolvency practitioner, who will be nominated by the company based on a majority in value of the creditors to manage the affairs of the company during the period where the JM is in force.
The role of a judicial manager is vital, where it has control over the business, affairs, and property of the company during the enforcement of the order. The office of a judicial manager must therefore not be left vacant, and an application to the Court to fill up the vacancy, shall be made within seven days from the date of the discharge, release or casual vacancy of the previous judicial manager.
A judicial manager has these powers:
- Power to take custody, delivery and seizure of properties;
- Power to sell or dispose of properties;
- Power to deal with charged property of the company;
- Power to enter into new contracts and employment contracts; and
- Power to summon persons to appear and production of documents.
- The judicial manager will put forward a restructuring proposal to the creditors of the company, where a 75 per centum of the total value of creditors present and voting must be obtained for the approval of the proposal. Once approved, the creditors are bound by the proposal.
- The Court shall dismiss the application of a JM order if a receiver or receiver and manager has been or will be appointed over the assets of the company, and the application is opposed by a secured creditor.
- However, the Court has an overriding interest over the appointment of a judicial manager if the Court considers the public interest so requires.
- In the event it appears to the judicial manager that the purpose specified in the order has either been achieved or is incapable of achievement, an application may be made by the judicial manager to the Court to discharge the JM order.