NAME OF GROUP: TG 9.

2
NAMES & IDS OF THOSE ANSWERING THE TUTORIAL Q.
NO
NAME ID
.
1. HASHMEETH RAJ KAUR DHILLON 1161101113

TUTORIAL NO. AND Q. NO.: TUTORIAL 9 QUESTION 2

DATE PRESENTED (IF ANY) / DATE SUBMITTED: SUBMITTED ON 10/2/2021

Question 2

Compare and contrast the corporate rescue mechanisms of CVA and JM and the
circumstances when each could be suitable used.
Answer

Similarity of both the CVA and JM is that these schemes are aimed towards ensuring that a
restructuring plan is put in place to rescue the business of the company. Both schemes also
require any restructuring proposal to be approved by 75% of the company’s creditors

Differences are as below:-

Subject Corporate Voluntary Arrangement Judicial management

(CVA) (JM)
Purpose Provides a consensual statutory Allows for the appointment by the
restructuring tool that is available to Malaysian High Court of a
private companies only. judicial manager over an
insolvent corporate debtor, in
Enables company experiencing circumstances where it can be
financial difficulties to enter into an shown that there is a reasonable
arrangement with the creditors without prospect of preserving all or part
the need to have the arrangement being of the company as a going
approved by the court. concern and where interests of
creditors would be better served
than on a winding up.

Application Section 395 of CA 2016 Section 403 of CA 2016

CVA shall not be applicable to: JM shall not be applicable to:
(a) a public company; (a)    a company which is a
licensed institution, or an operator
 (b) a company which is a licensed of a designated payment system
institution, or an operator of a regulated under the laws enforced
designated payment system regulated by the Central Bank of Malaysia;
under the laws enforced by the and
Central Bank of Malaysia;
(b)    a company which is subject
(c) a company which is subject to to the Capital Markets and
the Capital Markets and Services Act Services Act 2007.
2007; and
(d) a company which creates a
charge over its property or any of its
undertaking.

Pre- Paragraph 9 of the Guidelines for Section 405(6) of CA 2019

conditions Corporate Rescue Mechanism Under
Division 8 Part III of the Companies A JM order shall not be made in
Act 2016 issued by Companies relation to a company after the
Commission of Malaysia company has gone into
(“Guidelines”) liquidation.

To ensure other due processes are in  

compliance with the relevant provisions Section 404 of the CA 2016
in the CA 2016, an applicant must
ensure that a company in the striking off An application for an order that a
process shall not initiate a CVA / JM. company should be placed under a
judicial management and for an
Paragraph 10 of the Guidelines appointment of a judicial manager
Before a proposal for a CVA / JM can may be made to the Court by the
be made, the applicant must ensure that: company or its creditor if the
company or its creditor considers
(a)      there is no pending query with that-
SSM (query status is available at
(https://www.ssm.com.my/Pages/Quick  
_Link/e-Query.aspx); and (a)    the company is or will be
(b)      all of the company’s information unable to pay its debts; and
with SSM are up-to-date. (b)    there is a reasonable
probability of rehabilitating the
company or of preserving all or
part of its business as a going
concern or that otherwise the
interests of creditors would be
better served than by resorting to a
winding up
Who can Section 396 of CA 2016 Section 404 read together with
propose / section 405 of CA 2016
apply? The application for CVA may be
proposed by: the application for a JM order may
be made to the court by
    
(a)      the directors of a company other (a)    a company or its directors,
than a company which is under a JM under a resolution of its members
order or is being wound up; or the board of directors, or
(b)      in the case of company under (b)    a creditor, including any
judicial management order, the judicial contingent or prospective creditor,
manager; and
 
(c)      in the case of company being
wound-up, the liquidator or Official or all or any of those parties.
Receiver.

Managemen Section 396(2) of CA 2016 Section 405 (3) of CA 2016

t of company
Nominee will be appointed as a trustee Court shall direct the affairs,
or supervisor for the purpose of business and property of the
supervising the implementation of the company shall be managed by a
CVA. judicial manager appointed by
the court.
Section 396(3) of CA 2016
Section 407(1) of CA 2016
A judicial manager if a company is
under a judicial management order or a In any application for a JM order,
liquidator if a company is being wound the applicant shall nominate a
up may be the nominee. person who is an insolvency
practitioner, who is not the auditor
Section 396(4) of CA 2016 of the company, to act as a judicial
In the case where the liquidator is the manager.
Official Receiver, the nominee shall be Section 407(2) of CA 2016
an insolvency practitioner.
The Court may refuse the
nomination of the applicant and
may appoint another person who is
an insolvency practitioner as the
judicial manager.
 
Court order Section 401(1) of CA 2016 Section 405 of CA 2016
for the
process The nominee or insolvency practitioner Court may make a judicial
who shall be known as the supervisor management order upon
would be responsible for the application and appoint a judicial
implementation of the proposal. manager.
Section 401 (4) of CA 2016 Section 581 of CA 2016
If creditors or any person dissatisfied by Power of court to grant relief
any act, omission or decision of the
supervisor may appeal to court
 Section 581 of CA 2016
Power of court to grant relief
Moratorium Section 398(1) of CA 2016 Section 411 read together with
section 410 of CA 2016
Moratorium commences automatically
upon filing to the court the documents The moratorium applies
set out in section 398(1) without the automatically from the filing until
court’s order. the disposal of the judicial
management application and
also while the judicial
management order is in force.
Duration of Paragraph 3 of 8th Schedule of CA Section 406(1) of CA 2016
any 2016
moratorium A JM order shall remain in force
The moratorium shall remain in force for a period of six months from the
for twenty-eight days. The period may date of the making of the order,
be extended for up to a maximum of unless the judicial management is
sixty days counted from the otherwise discharged, but the court
commencement of the moratorium may, on the application of a
subject to consent given by the nominee judicial manager, extend this
and members of the company and period for another six months
obtaining 75% majority in value of subject to such terms as the court
creditors who are present and voting may impose.
either in person or by proxy at the
meeting.

Operation of There are no provisions prohibiting the Section 411(1) of the CA 2016
business by directors from continuing the operation
directors of business and create further Upon the appointment of a judicial
indebtedness. manager, any receiver or receiver
and manager shall vacate the
office and any winding-up
application shall be dismissed.
Section 405(3) of CA 2016
The powers conferred and duties
imposed on the board of the
directors shall be exercised by the
judicial manager upon his or her
appointment.
9th Schedule of the CA 2016
Lists the powers of a judicial
manager that include the power to
borrow money and the power to
carry on the business of the
 company.

Circumstances on which these mechanisms be considered.

The circumstances in which the the CVA should largely be considered by smaller private
companies which are facing financial difficulties. The simple and straightforward mechanism
is an attractive option since it is cost-effective and takes significantly less time than the
Judicial Management. The availability of an automatic moratorium also means that
companies have a simple way of obtaining protection against legal and execution proceedings
while it attempts to rescue its business CVA is very restricted to unsecured creditors and will
not be applicable to the secured creditors. Meanwhile, the process of JM is generally
beneficial to all parties concerned. It will benefit the shareholders as their investment is not
totally lost. The employees under JM are also benefited as they are still employed, and the
unpaid creditors will be able to recover some, if not all of their debts.