A scheme of arrangement is a court-supervised compromise or arrangement between a company and its creditors or members. It is provided for in section 366 of the Companies Act 2016, and is one of the mechanisms compared in our article on corporate rescue mechanisms in Malaysia.
Who can apply
The Companies (Amendment) Act 2024 (Act A1701) amended the scheme provisions. As amended, the Court may order a meeting to be summoned on an application for the approval of a compromise or arrangement by the company, a creditor or class of creditors, a member or class of members, a liquidator if the company is being wound up, or a judicial manager if the company is under judicial management. The Court may also appoint an insolvency practitioner to assess the viability of the proposal. These amendments came into operation on 1 April 2024 under P.U. (B) 118/2024.
Approval
Under the Act, a compromise or arrangement binds the creditors or members concerned if it is agreed by a majority of seventy-five per cent of the total value of the creditors or class of creditors, or members or class of members, present and voting in person or by proxy, and is then approved by order of the Court. The Court may approve it subject to alterations or conditions, and the order takes effect once an office copy is lodged with the Registrar.
Restraining orders
Proposing a scheme does not in itself stop creditor action. As amended, the Act allows the Court, on application, to grant a restraining order for a limited period, which may be extended on conditions set out in the Act. Filing an application for a restraining order under section 368(1) triggers the interim protections in section 368(1A), subject to its exceptions, until the Court decides the application or two months have elapsed from filing, whichever occurs first. During that interim period, among other things, no receiver or receiver and manager may be appointed over the company's property. Whether an order is granted, and on what terms, is a matter for the Court.
Financial information to prepare before assessing a scheme
The legal route and creditor classes require legal and insolvency advice. The finance team can help those advisers assess the proposal by assembling a consistent picture of the company’s position:
- Recent financial statements and management accounts, with a reconciliation to the underlying ledgers.
- A creditor schedule identifying amounts, due dates, disputes, security and guarantees, supported by contracts and statements.
- A cash-flow forecast showing immediate payment needs, assumptions and the effect of delayed receipts.
- An asset schedule distinguishing book values, any independently supported values and estimates still needing review.
- Details of material commitments, contingent liabilities and related-party balances.
- The proposed payments, funding sources and milestones, with a comparison between the proposal and realistic alternatives for discussion with the advisers.
Use a common information date and identify changes after that date. A ledger description alone does not establish a creditor’s legal rights, ranking or voting class. Mark disputed amounts and missing evidence rather than treating them as settled facts.
This preparation supports an assessment; it is not a viability opinion, a valuation or confirmation that a proposed scheme will be approved. Saifudin & Co’s contribution described here is financial-information, cash-flow and reporting support. Legal advice, court applications and formal appointments require the appropriately authorised advisers and office-holders.
This article is general information only and is not legal advice. Requirements depend on each company's circumstances; please refer to the current text of the Companies Act 2016 published by SSM and take legal advice. See Saifudin & Co's corporate restructuring and recovery services for the financial side of a restructuring.