Corporate Restructuring & Recovery

Financial distress can require difficult decisions before a business reaches a formal process. Cash pressure, covenant concerns, creditor demands, delayed reporting, a deteriorating trading position or uncertainty about future funding may each call for a clear assessment of the facts, options and responsibilities involved.

Start with the financial position and the decision to be made

The immediate question may concern liquidity, obligations falling due, financing arrangements, creditor communication, business viability or a proposed restructuring. The facts should be established before a course of action is presented as appropriate.

Relevant information can include current cash flow, forecasts, borrowing and security arrangements, creditor and shareholder positions, contractual commitments, available assets, accounting records and the timetable for decisions or formal action.

The formal mechanisms available under the Companies Act 2016

Malaysian companies in difficulty may have several distinct routes available. They are not interchangeable, and eligibility is restricted.

Scheme of arrangement (section 366). A court-sanctioned compromise or arrangement between a company and its creditors or members. It requires the statutory majority of each affected class, and the court's sanction. It can bind dissenting creditors within a class, which is why the class composition and the majority requirement are central to whether a scheme is viable.

Corporate voluntary arrangement (CVA). A rescue mechanism allowing a company to agree a plan with creditors without requiring court approval, subject to a moratorium and to approval by the required majority of creditors. A CVA is not available to every company — licensed institutions and operators of designated payment systems regulated by Bank Negara Malaysia are excluded, as are companies approved, licensed, registered or recognised under the relevant Parts of the Capital Markets and Services Act 2007 and the Securities Industry (Central Depositories) Act 1991.

Judicial management (JM). A court-supervised process placing management under a judicial manager appointed by the court, with a proposal requiring approval by creditors representing 75% of the total value of creditors present and voting. A moratorium applies during the process.

Which mechanism is available, appropriate or achievable depends on the company's circumstances, creditor profile, security arrangements and timetable. Eligibility, thresholds and procedure should be confirmed against the Companies Act 2016 and SSM's current corporate rescue guidelines, with legal advice, before any step is taken.

Formal processes and informal options are different

Companies facing financial difficulty may also consider consensual arrangements, financing discussions or operational changes that do not involve a formal mechanism at all. The availability and consequences of any option are fact-specific.

Formal insolvency, court or appointment matters require the appropriate legal and licensed professional input and should not be inferred from a general service page.

How a scoped engagement may help

Depending on the circumstances and agreed terms, restructuring and recovery support may include:

• clarifying the financial question, immediate decisions and information gaps;
• reviewing financial information, cash-flow assumptions and the basis of forecasts;
• helping management organise financial information for discussions with stakeholders and advisers;
• considering the financial-reporting or transaction implications of proposed options; and
• identifying where legal, insolvency, tax, valuation or other specialist advice is needed.

The scope must be defined carefully. It does not amount to legal advice, a formal insolvency appointment, a guarantee of recovery or a conclusion on the duties or liabilities of any director, creditor or other party.

Timing and specialist advice matter

In a distressed situation, delaying the collection of reliable information can limit the options available. At the same time, haste should not replace a proper assessment of the facts, applicable requirements and stakeholder interests.

Where formal restructuring, insolvency, secured lending, employment, litigation or regulatory issues arise, those matters should be separately assessed with the appropriate advisers.

Discussing a financial-distress matter

Saifudin & Co can discuss the financial circumstances, available records, proposed timetable and decision that needs to be considered. Any engagement, scope and limitations must be agreed separately after the relevant facts and specialist requirements have been assessed.

This page provides general information only. It is not legal, insolvency or investment advice and does not determine the appropriate action, outcome or liability in a particular situation.