Judicial Management in Malaysia: A Guide to Corporate Rescue
Introduced as a key corporate rescue mechanism in the Companies Act 2016, judicial management offers a lifeline to companies in financial distress. It provides a legal moratorium, giving businesses the breathing space needed to restructure and rehabilitate. This guide explains what judicial management is, when it's appropriate, and the process involved.
What is Judicial Management?
Judicial management is a court-supervised process where an independent and qualified insolvency practitioner (the Judicial Manager) is appointed to manage a company's affairs. The primary goal is not to wind up the company, but to achieve one or more of the following:
- The survival of the company, or its undertaking, as a going concern.
- A more advantageous realization of the company's assets than would be effected on a winding up.
- The interests of the creditors are better served than by a winding up.
The Power of the Moratorium
Upon the filing of an application for a judicial management order, an automatic moratorium comes into effect. This is a powerful feature that freezes all legal proceedings against the company. During this period:
- No winding-up resolution can be passed.
- No legal action can be commenced or continued against the company without court permission.
- No steps can be taken to enforce any security over the company's property.
When is Judicial Management the Right Option?
Judicial management is appropriate for a company that is, or is likely to become, unable to pay its debts, but has a reasonable prospect of being rehabilitated. It is not suitable for companies that are hopelessly insolvent with no viable business to save. It is a valuable alternative to liquidation when there is a core business that can be rescued.
The Judicial Management Process: A Step-by-Step Overview
- Application: The company, its directors, or a creditor can apply to the High Court for a judicial management order.
- Appointment of Judicial Manager: If the court is satisfied that the criteria are met, it will grant the order and appoint a Judicial Manager.
- Statement of Proposals: The Judicial Manager has 60 days to prepare a statement of proposals outlining the rescue plan for the company.
- Creditors' Meeting: The proposals are presented to the creditors for approval. A majority of 75% in value of the creditors present and voting is required to approve the plan.
- Implementation: If approved, the Judicial Manager implements the restructuring plan. The judicial management order is typically for an initial period of six months, which can be extended by the court.
Judicial Management vs. Other Rescue Mechanisms
Compared to a CVA (Corporate Voluntary Arrangement) or a scheme of arrangement, judicial management is often more robust as the company is managed by an independent professional under the supervision of the court, providing greater confidence to creditors.
How We Can Help
Navigating a judicial management application and process requires deep expertise. At Saifudin & Co., our team can:
- Advise directors and stakeholders on the suitability of judicial management for their business.
- Assist in preparing the necessary documentation and financial analysis for a court application.
- Act as the court-appointed Judicial Manager, leveraging our experience to formulate and implement a viable rescue plan.
- Engage with all stakeholders, including creditors and banks, to build consensus and support for the restructuring proposal.
To explore if judicial management is the right path for your business, please contact us for a confidential consultation.