At a glance
- Section 395 was substituted with effect from 31 January 2025: a corporate voluntary arrangement is now open to public companies and to companies that have granted a charge, leaving only three regulated categories outside it.
- The constraint moved rather than disappeared. Section 398A lets a secured creditor recover secured property during the moratorium on stated grounds, but only over property other than immovable property, and only with the nominee's consent.
- A scheme of arrangement carries no solvency test and turns on securing seventy-five per cent in value of each class; judicial management is the only route that displaces the board, and section 409 requires the Court to dismiss the application where a receiver has been or will be appointed or a secured creditor opposes it.
A company under financial pressure has three rescue mechanisms available under the Companies Act 2016: a scheme of arrangement under section 366, a corporate voluntary arrangement, and judicial management. Which of them a company can use changed materially when the final provisions of the Companies (Amendment) Act 2024 came into force, and much of the guidance still in circulation describes the earlier position. The questions behind the choice have not changed: given the company's cash position and its mix of secured and unsecured creditors, which mechanism is open, what does the moratorium do to day-to-day trading, and who runs the business while it runs?
Three mechanisms, three different starting points
A scheme of arrangement is a court-supervised compromise between a company and its creditors or members. It binds a class once agreed by a majority of seventy-five per cent of the total value of that class present and voting, and then approved by order of the Court. A corporate voluntary arrangement lets the directors propose a compromise to creditors under the supervision of a nominee, with a moratorium that commences automatically once the prescribed documents are filed with the Court. Judicial management places the company's affairs, business and property under a court-appointed judicial manager and displaces the directors' powers while the order is in force.
Each aims at preserving a business rather than realising it for creditors; whether winding up is the better answer sits outside this comparison.
A scheme of arrangement is not itself a distress signal
Section 366 carries no solvency test. The Court's power to order a meeting applies whether the company proposing the compromise is solvent or insolvent, and the section expressly contemplates a compromise or arrangement proposed “whether or not” for the purposes of, or in connection with, a scheme for the reconstruction of a company or the amalgamation of two or more companies — transactions solvent groups undertake for commercial reasons unconnected with distress. Section 370 provides the machinery for the resulting transfers.
What a scheme requires is agreement. Seventy-five per cent in value of each affected class, present and voting, must approve, and the Court must then sanction the result. Where that level of agreement is not realistically achievable, because creditors are numerous, dispersed or unwilling, a scheme is not workable however sound the business case may be.
The corporate voluntary arrangement is now open to secured companies
This is where older guidance dates quickly. Section 395, which lists the companies to which the corporate voluntary arrangement provisions do not apply, was substituted by section 14 of the Companies (Amendment) Act 2024. That section was the last provision of the Amendment Act to be brought into force; confirm its commencement against SSM's own record.
Before the substitution, a public company was excluded, and so was a company which had created a charge over its property or any of its undertaking. The second exclusion caught most secured borrowers: a company that had granted a debenture or a fixed and floating charge to its bank could not use a director-proposed corporate voluntary arrangement at all. The substituted section 395 removes both exclusions. It now disapplies the Subdivision only to a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia; a company approved or registered under Part II, licensed or registered under Part III, approved under Part IIIA or recognised under Part VIII of the Capital Markets and Services Act 2007; and a company approved under Part II of the Securities Industry (Central Depositories) Act 1991.
A company with bank security over its assets is therefore no longer excluded by section 395. Anything still describing a charge as a bar to a corporate voluntary arrangement states the position before 31 January 2025.
What replaced the old bar
Eligibility widened, but the position of chargees was addressed at the same time. Section 398A, inserted by the same Amendment Act, provides that notwithstanding section 398 a secured creditor may take possession of, exercise any other right in relation to, or otherwise recover, the secured property during a moratorium in a voluntary arrangement, if the secured property is not required by the company for the voluntary arrangement, the moratorium poses a high risk to the existence of the secured property, or the value of the secured property decreases because of the moratorium.
Two limits on that right matter to a company weighing the route. First, the secured creditor must notify and obtain the consent of the nominee before taking possession of the secured property. Second, section 398A defines secured property as property other than immovable property which is subject to a charge or any other security. On its terms the section addresses movable secured property, and land and buildings do not fall within that definition.
For a secured borrower the question has moved rather than disappeared. It is no longer whether the company is eligible, but what a lender can still reach while the moratorium runs, over which assets and on what conditions — a narrower question, and a more useful one to put to advisers.
Judicial management and the position of a secured creditor
Section 403 was amended by the same Act and now carries the same three exclusions as section 395: the Central Bank category, the Capital Markets and Services Act 2007 categories, and companies approved under Part II of the Securities Industry (Central Depositories) Act 1991.
The Court may make a judicial management order where it is satisfied that the company is or will be unable to pay its debts, and considers that the order would be likely to achieve the survival of the company, or the whole or part of its undertaking, as a going concern; the approval of a compromise or arrangement under section 366; or a more advantageous realisation of the company's assets than on a winding up.
Section 409 then requires the Court to dismiss an application for a judicial management order where it is satisfied that a receiver or receiver and manager has been or will be appointed, or where the making of the order is opposed by a secured creditor. The two limbs are alternatives, and either is sufficient. That is the statutory effect, and it operates independently of the merits of the proposal.
While an order is in force, section 411 allows a secured creditor, after notifying the judicial manager, to enforce security over the company's movable property or repossess goods held under a hire purchase, chattels leasing or retention of title agreement, on conditions closely mirroring section 398A. The drafting differs in one respect worth noting: under a voluntary arrangement the secured creditor must obtain the nominee's consent, whereas under judicial management the creditor gives notification and the first condition turns on the judicial manager's confirmation that the property is not required.
What the moratorium changes, and who runs the company
Both mechanisms restrain creditor action in broadly similar terms, and a restraint also applies between a judicial management application and its determination. Where the two diverge is management control. Under a corporate voluntary arrangement the existing directors continue to manage the business, with the nominee, and later the supervisor, overseeing the arrangement rather than running operations. Under judicial management, all powers and duties conferred on the directors by the Act or by the constitution are exercised by the judicial manager and not by the directors for as long as the order is in force. A judicial management order remains in force for six months from the date it is made unless discharged, and the Court may extend that period on the judicial manager's application.
For a board that is the sharpest practical difference between the two routes, and it usually matters more day to day than the eligibility question. Customer relationships, supplier terms, banking arrangements and staff all sit with whoever holds management authority.
Working through which route fits
- Map the creditor base by value and by security: how much is secured, over what property, and whether that property is movable or immovable, since that distinction now shapes what a secured creditor can reach during either moratorium.
- Test whether seventy-five per cent in value of each affected class is realistically achievable, since that is the precondition for a scheme of arrangement regardless of solvency.
- Model whether the company can fund continued trading through a moratorium from cash and available facilities, and for how long. This is a financial question before it is a legal one, and it determines whether either route is viable.
- Decide how much continuity of management matters to preserving the business, given that judicial management transfers the directors' powers and a corporate voluntary arrangement does not.
- Establish whether a receiver or receiver and manager has been or will be appointed, and whether any secured creditor would oppose a judicial management application, given the effect of section 409.
- Confirm with legal advisers which routes are open on the company's own facts. Eligibility, the moratorium conditions and the filing requirements are legal determinations, and these provisions were substantially amended across 2024 and 2025.
Where outside help is not needed
A company that can still pay its debts as they fall due, and needs only to renegotiate terms with a small and cooperative group of creditors, may not need any of these mechanisms. A consensual variation agreed directly avoids the court process, the cost and the visibility of a filing, and where the creditor group is small and aligned that is often the proportionate answer. Reading sections 395 and 403 is also enough to see whether the company falls into an excluded regulated category.
Outside input earns its place further on: modelling whether the company can trade through a moratorium and what that would take; preparing the statement of the company's affairs and the creditor analysis beneath it; comparing what each route would return to each class of creditor against a winding up; and working through how a proposal interacts with existing facility and security documents. Our corporate restructuring and recovery work covers that financial assessment, alongside the legal and insolvency advisers who carry the process itself forward.
General-information limitation
This article is general information about the rescue mechanisms in the Companies Act 2016. These are legal mechanisms, and legal and insolvency advice should be taken on them. It is not legal or insolvency advice, and it does not determine which mechanism, if any, is available to a particular company, or how a court or a secured creditor would respond in a particular case. The relevant provisions were materially amended by the Companies (Amendment) Act 2024, with different provisions commencing on different dates; confirm the current text of the Act and take current advice before any step is taken.
To discuss your circumstances, contact Saifudin & Co.