Session 2. Corporate Rescue Mechanism: How It Will Work

Transcription

1 Session 2 Corporate Rescue Mechanism: How It Will Work Moderated By: Lee Shih Partner SKRINE

2 Session Overview 1. Regulator s Overview: Corporate Voluntary Arrangement (CVA) and Judicial Management. 2. Case Study: CVA. 3. Case Study: Judicial Management.

3 Regulator s Overview Corporate Voluntary Arrangement (CVA) and Judicial Management.

4 Case Study 1 Corporate Voluntary Arrangement (CVA)

5 Smallcap Sdn Bhd SSM National

6 Smallcap Sdn Bhd SSM National Smallcap Sdn Bhd. Carries out manufacturing business. Owns a piece of land and operates its factory. Smallcap runs into cashflow problems when a major customer is unable to make payment to Smallcap. Smallcap unable to make payments to its creditors.

7 Smallcap Sdn Bhd SSM National Situation 1: Smallcap has outstanding loans owing to its bank. Its land has been charged to the bank. Situation 2: No charge over any of Smallcap s assets. Smallcap has unsecured creditors, hire-purchase arrangements for some of its vehicles and equipment.

8 Stage 1: Nominee for CVA 1. Directors of company submit to nominee, a qualified insolvency practitioner, the proposed CVA and statement of affairs [s. 397(1)]. 2. Nominee issues statement with his view on whether the proposed CVA has reasonable prospect of being approved and implemented [s. 397(2)].

9 Stage 2: Filing and Moratorium 1. Directors to file with the Court the necessary documents e.g. the proposed CVA, consent from the nominee and the nominee s statement [s. 398]. 2. Moratorium automatically applies for 28 days. Can be extended for not more than 60 days. [s. 398 and Eighth Schedule].

10 Stage 3: Calling of Meetings Within 28 days (with 14 days of notice given) 1. A meeting of members to obtain more than 50% approval. 2. A meeting of creditors to obtain 75% in value of creditors approval. 3. If more time needed, require 75% creditors approval and consent of nominee to extend moratorium for not more than 60 days.

11 Stage 4: CVA Takes Effect Once approved by required majority, CVA takes effect and is binding on all creditors. At conclusion of the meetings, Chairman of meetings to report the result of the meetings to the Court and give notice to the Registrar. CVA may appoint a supervisor to implement the proposal.

12 Case Study 2 Judicial Management

13 Titanic Bhd SSM National

14 Titanic Bhd SSM National Titanic Bhd: public listed company on the Bursa Malaysia Main Market. Business of oilfield services. Its financials were badly hit by the plunge in oil prices. Titanic slipped into PN17 status. Could no longer service bank loans and stopped paying many of its own suppliers and contractors. Banks issued letters of demand and threatened winding up proceedings. Bursa Malaysia has also issued a notice to show cause.

15 Titanic Bhd SSM National There is a potential white knight investor willing to inject additional capital. Crucial to preserve the listing status of Titanic. Titanic now seeks options to restructure its debts.

16 Stage 1: Filing of Application for JM 1. Preparation of the judicial management application [s. 404]. 2. Obtain consent of insolvency practitioner to be nominated as judicial manager [s. 407]. 3. Titanic s lawyers to file the judicial management application in court. 4. Moratorium takes effect.

17 Stage 2: Giving Notice Section Advertisement in national language newspaper and English newspaper. SSM National 2. Give notice to any person who has appointed or entitled to appoint a receiver or R&M of the whole, or substantially the whole, of the company s property under a debenture. 3. Give notice to SSM.

18 Moratorium Section 410 & 411 SSM National proceedings

19 Stage 3: Veto Vote Court shall dismiss application if receiver or R&M of the whole, or substantially the whole of the company s property has been or will be appointed. AND the making of the order is opposed by a secured creditor. [s.409] Nonetheless, Court can take into account the public interest. [s.405(5)(a)]

20 Stage 3: Hearing of the Application 1. Notice of intention to appear can be filed by creditors and members. 2. Majority in value of creditors can oppose the nomination of the judicial manager. Court can invite the creditors to nominate someone else. 3. Court: Titanic is or will be unable to pay debts? Would making of JM Order satisfy one or more of survival, scheme approval, or more advantageous realisation of assets.

21 Stage 4: Appointment of Judicial Manager 1. Initial JM Order: 6 months [s.406(1)] SSM National 2. Company shall submit a statement of affairs to the JM within 14 days of service of Order [s.418(2)] 3. Within 60 days of JM Order (or such longer period allowed by Court), JM to send a statement of proposal and lay a copy before the creditors meeting [s.420] 4. Proof of Debt exercise by JM.

22 Stage 5: Approval at the Creditors Meeting SSM National 1. Creditors meeting to approve the statement of proposal: Require 75% of total value of creditors whose claims accepted by JM present and voting [s.421] 2. If approved, shall be binding on all creditors. 3. JM shall report the result of the meeting to the Court and shall give notice to SSM.

23 Thank you SSM National