The Scheme of Arrangement in Malaysia's Modernized 2025 Corporate Rescue Framework
In 2025, the Scheme of Arrangement (SOA) under Section 366 of the Companies Act 2016 has been transformed from a traditional restructuring tool into a world-class corporate rescue mechanism. The groundbreaking Companies (Amendment) Act 2024 has introduced a suite of powerful new features, aligning Malaysia's SOA framework with the most advanced international standards and providing distressed companies with a more flexible and effective path to rehabilitation.
The Enhanced SOA Toolkit of 2025
The 2024 amendments have equipped the SOA with several innovative features designed to streamline the restructuring process and improve the chances of a successful rescue:
- Pre-packaged Schemes: In a significant move to increase efficiency, companies can now apply for court sanction of a pre-negotiated scheme without the need for a creditors' meeting. This "pre-pack" option is available if the company has already secured the support of the required majority of its creditors, and can dramatically reduce the time and cost of the restructuring process.
- Automatic Moratorium: Previously, companies had to apply to the court for a restraining order to get protection from creditor actions. Now, an automatic two-month moratorium is triggered the moment a company files an application for a restraining order. This provides immediate breathing space and prevents a scramble by creditors that could derail a potential rescue.
- Cross-Class Cram-Downs: Perhaps the most powerful new tool is the introduction of a cross-class cram-down mechanism. This gives the court the power to approve a scheme even if one or more classes of creditors have voted against it. This is possible provided that the scheme is approved by at least 75% in value of all creditors voting, and the court is satisfied that the scheme is fair and equitable and does not unfairly discriminate against the dissenting class. This new provision prevents a single dissenting class from holding a viable restructuring hostage.
- "Super Priority" for Rescue Financing: To encourage new investment into distressed companies, the court can now grant "super priority" to rescue financing. This means that new lenders who provide funds during the restructuring process can be given priority over existing creditors, reducing their risk and increasing the availability of much-needed capital.
The Core SOA Process
While the new features provide more flexibility, the core SOA process remains a court-supervised one. It typically involves the following steps:
- Application to the Court: The company, a creditor, or a liquidator applies to the court for an order to convene meetings of creditors and/or members to vote on a proposed scheme.
- Creditor Meetings and Voting: The creditors and/or members vote on the scheme. The default requirement for approval is a 75% majority in value of those present and voting in each class.
- Court Sanction: If the scheme is approved by the requisite majority, the company applies to the court for an order to sanction the scheme. The court will consider the fairness of the scheme and whether all statutory requirements have been met before granting its approval. Once sanctioned, the scheme becomes legally binding on all parties.
SOA in the Broader Corporate Rescue Ecosystem
The enhanced SOA is a key part of Malaysia's comprehensive corporate rescue ecosystem. It can be used as a standalone tool, or in conjunction with other mechanisms like **Judicial Management (JM)**. A company might, for example, enter JM to take advantage of the broad moratorium and the appointment of an independent professional, and then use the stability of the JM to formulate and propose a SOA.
Conclusion
The Scheme of Arrangement framework in Malaysia has been transformed into a sophisticated and powerful tool for corporate rescue. The introduction of pre-packaged schemes, automatic moratoriums, and cross-class cram-downs provides distressed companies with a world-class toolkit to navigate financial difficulties and achieve a successful restructuring. For businesses facing financial challenges in 2025, the enhanced SOA offers a viable and attractive path to rehabilitation and a sustainable future.