Companies placed into liquidation may still have a path back to becoming going concerns under Malaysia’s Companies Act 2016, provided they have a viable underlying business, creditor support and access to fresh capital, according to BDO Malaysia.
Bernard Tan, Executive Director of Advisory at BDO Malaysia, said Section 493 of the Companies Act 2016 allows the Court, upon application by a liquidator, creditor or contributory, to terminate a winding-up process in appropriate circumstances.
This creates the possibility for a liquidator to combine liquidation with existing corporate rescue mechanisms, including a Scheme of Arrangement (SOA) or Corporate Voluntary Arrangement (CVA), to restructure liabilities and potentially preserve viable businesses.
“Liquidation no longer has to mean the end of a business,” Tan said, adding that a company with a viable business, creditor buy-in and fresh funding may still be able to return to a going-concern basis.
Malaysia currently has three principal corporate rescue mechanisms under the Companies Act 2016 — SOA, Judicial Management and CVA.
An SOA enables a company to restructure through a Court-supervised compromise with creditors or members, while Judicial Management allows an independent judicial manager to take control of a financially distressed company and formulate a restructuring proposal.
A CVA, meanwhile, is designed for less complex restructurings with relatively limited Court involvement.
Tan said some companies nevertheless still enter liquidation when stakeholder consensus cannot be secured or available cash is exhausted.
Under the previous Companies Act 1965, liquidation generally resulted in the cessation of a company’s business, disposal of its assets and eventual dissolution. The current framework, however, provides greater flexibility.
Once a company enters liquidation, the liquidator takes control of its assets and business. As legal proceedings generally cannot be commenced or continued without Court approval, the liquidator can assess the viability of the business and potential restructuring options without being immediately exposed to creditor action.
For businesses that remain commercially viable, Tan said a liquidator could formulate an SOA or CVA to restructure debts, allow operations to continue and, where appropriate, sell selected assets as part of the restructuring.
He said a successful restructuring could potentially result in better recoveries for creditors and other stakeholders than selling assets on a break-up basis, which may typically attract discounted values.
Four Elements Critical To A Successful Rescue
Tan identified four key requirements for a company seeking to emerge from liquidation: a commercially viable business model with sustainable future earnings, strong creditor support, fresh working capital or rescue financing, and an experienced insolvency practitioner capable of managing both liquidation and restructuring.
He said creditors must be convinced that the business remains viable and that the proposed restructuring offers a realistic recovery that compares favourably with liquidation.
Fresh capital is equally important to restart or sustain operations, while experienced insolvency practitioners are needed to coordinate the restructuring process and manage competing stakeholder interests.
Tan’s primary area of practice is insolvency, with experience in receivership and liquidation administrations, including taking control of companies and assets ahead of disposals, developing sale strategies and executing asset sales involving properties, plant and equipment.
Before joining BDO in 2015, he led OCBC Malaysia’s Special Asset Management team, which was responsible for recovering medium-to-large corporate non-performing loans and implementing remedial and exit strategies for distressed accounts.
Tan said businesses and creditors should assess restructuring options at an early stage, as doing so could determine whether a distressed company receives a second chance or ultimately proceeds to dissolution.
