Corporate Voluntary Arrangement (“CVA”) is modelled after the English Insolvency Act 1986. It provides short term protection to a company against legal action form creditors while the directors manage the company. This procedure is designed to be expeditious with minimal court intervention and expense. It aims to restructure companies that are expecting financial difficulties through a compromise or an arrangement between the company and its creditors without the need to be approved by the court.
CVA under Companies Act 2016 (“CA”) is largely based on UK CVA under Insolvency Act 1986. The main differences between UK CVA and Malaysia CVA is that UK provides for grounds to challenge the decision of meeting of CVA but there is no such provision exists in Malaysia.
Definition of CVA
S394 CA defines voluntary arrangement as a composition in satisfaction of a company’s debts or a scheme of arrangement of a company’s affairs under Subdivision 1. As per s395 CA, CVA does not apply to a public company, a company which creates a charge over its property or any of its undertaking, a company subject to CMSA 2007, a company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia.
Procedure for CVA
1) Proposal
May be proposed by the company’s directors, judicial manager or liquidator. According to s396(2) CA, the proposal shall include the appointment of a nominee. For context, s394 CA defines “nominee” as anyone who is qualified to be appointed as an insolvency practitioner.
2) Submission of Proposal
According to s397(1) CA, if the directors or Official Receiver intend to make a proposal for a voluntary arrangement, the directors or Official Receiver shall appoint a nominee and shall submit a document setting out the terms of the proposed voluntary arrangement; and a statement of the company’s affairs containing the particulars of the company’s creditors and its debts to the nominee.
Besides, as per s397(2) CA, the nominee shall submit to the directors, a statement indicating whether:
(a) the proposed voluntary arrangement has a reasonable prospect of being approved and implemented;
(b) the company is likely to have sufficient funds available for the company during the proposed moratorium to enable the company to carry on its business; and
(c) that the meetings of the company and its creditors should be summoned to consider the proposed voluntary arrangement.
3) Filing of documents to Court
As per s398 CA, a moratorium commences automatically from the time of filing of the following documents to court:
(a) Proposed voluntary arrangement (VA)
(b) A statement of the Company’s affairs
(c) Consent form from the nominee to act
(d) A statement from the nominee
4) Moratorium
Under Paragraph 3 of Eight Schedule of the CA, a moratorium can remain in force for a period of 26 days from the time it commences and can be extended to 60 days subject to the consent of the nominee and members of the company, and obtaining 75% majority in value of creditors.
As mentioned in Paragraph 5 of Seventh Schedule of the CA, a nominee may withdraw their consent if they are of the opinion that the proposed voluntary arrangement no longer has a reasonable prospect and if the company will not have sufficient funds to carry on its business as mentioned in 2016.
Paragraph 17 of Eight Schedule of the CA states that when a moratorium is in force, no winding up petition may be made, no meeting and no resolution may be passed, no proceedings or execution proceedings may be made and no application for judicial management order may be made against the company.
5) Summoning of Meetings
As per s399(1) CA, Where a moratorium is in force, the nominee shall summon a meeting of the company and a meeting of its creditors at the time, date and place as the nominee thinks fit within the period specified in the Eighth Schedule.
Moreover, according to s400(5) CA, once the proposed VA has been approved by the required majority, it shall take effect and be binding on all creditors of the company whether or not the creditors have voted in favour of the proposal.
It should be noted that as per s400(6) CA, no modification in respect of the proposal is allowed in any of the meetings.
6) Supervision/Implementation
According to s401(1) CA, the supervisor of the voluntary arrangement may be either the nominee by virtue of the approval given at one or both of the meetings summoned under section 399; or any other person other than the nominee who is an insolvency practitioner.
The supervisor would be responsible for the implementation of the proposal. Under s401(5) CA, they may apply to the court for directions in relation to any particular matter arising under CVA. Besides, they may apply to the court for the winding up of the company or for a judicial management order to be made. If creditors or any other person are dissatisfied with the act, omission or decision of the supervisor, they may appeal to the court and the court may confirm, reverse, give directions or modify any act or decision of the supervisor as provided in s401(4) CA.
Power to Grant Relief
It should be noted that s581(1) CA confers power to the court to relieve a nominee’s liability wholly or partly in any proceedings for negligence, default, breach of duty or breach of trust provided that he had acted honestly and reasonably, having regard to all the circumstances of the case.
