ReconstructionReceivership

Winding UpStrike off

Compromise Receivership Striking off Winding up

Sec 176 Sec 308 Sec 254

an arrangement in which parties of conflicting interests agree to accommodate each side by adjustment or modification of their interests

A company goes into receivership when receiver is appointed by the debenture holder (or trustee) under a power contained in debenture or trust deed, or Court

deregisters the co by striking the co’s name off the register of companies as a defunct co under s308

a legal process which the affairs of the co to an end, co being dissolved and its property administered for the benefits of its creditors and members

Business will proceed A receivership can be terminated or the receivership becomes a liquidation

Termination of company Termination of company

No/low cost Lower cost Higher cost of liquidation

Discussion and negotiation with the creditors

A receivers’ task is to take possession of assets covered under the charge, to safeguard them and to receive the income from them for the benefit of secured debenture holder.

– Application to CCM for striking off

– Procedure taken by CCM under section 308

 

– Voluntary winding up by the members or by the creditors; or

– Compulsory winding up by order of the Court

Directors are still in power

The director will remain in the office but their power to deal with assets of co in charge cease

Directors are still in power

the power of directors shall cease

Any changes in capital structure, in ownership or in operation, which is outside the ordinary course of business.

May be done through a compromise or arrangement with debenture holder, creditor and shareholders with variation, adjustment or modification of their rights; or

Restucturing 3

Corporate Restructuring

Is an arrangement in which parties of conflicting interests agree to accommodate each side by adjustment or modification of their interests.

Restucturing 4

DEFINITION – Compromise and arrangement

Is a rearranging of a company’s structure which may involve transfer of assets of one co to a new co or an alteration to the capital structure of the co with the same persons as s/holders

Restucturing 5

Definition -Reconstruction

C&A can be proposed to the creditors when a co is heavily in debt but its business is viable.

The court will given power by the Act to give effect to the scheme of compromise /arrangement even though consent of every person intended to be bound by the scheme is not obtained as long as a majority of three fourth in value of the creditors or members agree who present and vote(s176)

Restucturing 6

Compromise & arrangement (C&A) -Section 176

Creditors and debenture holders giving an extension of time for payment

Debenture holders having the rights attached to their debentures varied in some other respect

Debenture holders accepting a cash payment less than the face value of their debentures

Creditors and debenture holders accepting shares in the co or in a new co in discharge of their debts

Restucturing 7

Examples of scheme involving C&A with creditors:

Secured creditors giving up their securities in whole or in part

Debenture holders agreeing to forgo their interest for a stated period

Restucturing 8

Examples of scheme involving C&A with creditors

Preference s/holders agreeing to cancellation of arrears of dividends

Preference s/holders agreeing to a reduction in the fixed rate of dividend in the future or have their rights varied

Ordinary s/h agreeing to surrender part of their holdings to preference s/h in return of the preference s/h agreeing to accept ordinary shares in lieu of arrears of dividend or

Reorganization of the share capital of a company by consolidation and/or division of different classes of shares.

Restucturing 9

Examples of scheme involving C&A with members:

The directors would appoint corporate, financial and legal advisers

Preparing the necessary draft scheme with the assistance of the financial and legal experts

Attitudes of the various parties concerned should be tested (creditors, members) by inviting them to separate meetings

The final form of the proposed compromise or arrangement settled by directors

For listed company, they must make an immediate announcement to the Bursa Malaysia of the proposed scheme

Restucturing 10

Procedures

An explanatory statement and any other relevant documents according to the requirement of the proposed scheme shall then be prepared

An application to the Court for an order to convene meeting

The court may order the holding of the scheme meeting in such manner as the court directs

The secretary will send the various documents and explanatory statement with the notice of the meeting

Restucturing 11

Procedures

The meeting held as directed by Court. Such meeting may be adjourned if agreed by a ¾ majority

in value of the creditors/members present and vote. If the scheme has been approved, the court

may by a court order grant its approval to the scheme subjects to such alterations. Once approved, all the parties concerned are bound by the terms of the C&A

The order given shall have no effect until it is lodged with CCM and it shall take effect as may be specified in the order.

A copy of the order must be annexed to every copy of the M&A or the court may exempt such compliance or direct it for such period as it thinks fit

Restucturing 12

Procedures

RO - To restrain further proceedings in any action or proceeding against any person

The court may grant RO on application of co or any member or creditor

Restucturing 13

Restraining Order (RO) under CA 1965, s176(10)

The court may grant RO to a co for a period of not more than 90 days (or longer period as the court may allow) if◦ It is satisfied that there is a proposal for a

scheme of C&A representing at least one-half in value of all creditors

◦ The RO is necessary to enable the co formalise the scheme for approval of creditors

◦ A statement as to affair of co is lodged with application

◦ It approves the person nominated by a majority of creditors in the application for RO to act as directors

7 days after granting RO by court, co must lodge copy of order to CCM and publish a notice in newspapers.

Restucturing 14

Restraining Order (RO) under CA 1965

RECEIVERSHIP

RECEIVERSHIP

A company goes into receivership when receiver is appointed by◦ the debenture holder (or trustee) under a power

contained in debenture or trust deed, or ◦ Court

The appointment is normally made in the event of a breach by the co of the conditions attached to the debentures.

RECEIVER - qualification

A receiver of the property of a co must not be the following:◦ A corporation;◦ An undischarged bankrupt;◦ A mortgagee of any property of the co;◦ An auditor or an officer of the mortgagee; or◦ Any person who is not an approved Official

Receiver (sec 182(1) CA)

Procedure on appointment Appointor must within 7 days after

appointment, lodge Form 59 to CCM as notice. [s186(1)]

Receiver appointed must immediately send notice of his appointment to co.[s188(1)(a)]

Within 14 days after receive notice, the co shall prepare and deliver to the receiver a Statement of Affairs (Form 62) [s188(1)(b) and s189]

Procedure on appointment Co must add to all documents on which

co’s name appears a statement that a receiver has been appointed [s187]

Within 1 month after receipt of Form 61 & 62, receiver shall lodge to CCM a copy of statement

For receiver appointed by debenture holders, send to the trustee a copy of the statement

Remuneration of Receiver Receiver appointed by debenture holders,

it is fixed by agreement Receiver appointed by Court will have his

remuneration fixed by the Court.

Duty of “Receiver” and “Receiver and Manager” A receivers’ task is to take possession of assets

covered under the charge, to safeguard them and to receive the income from them for the benefit of secured debenture holder.

A receiver can only dispose of the asset charged, pay off the debts due to the secured creditors.

He may be also appointed as a “receiver and manager” to empower him to continue managing the business as a going concern until the secured debt is discharged.

Power of receiver appointed by Debenture Holders

A receiver is an agent of the debenture holders thus the debenture holders are liable on contracts entered by the receiver, unless the term of issue provide otherwise. Debenture may also provide that receiver as agent of co.

Power in collection and realization of assets. He can only carry on the co’s business if he

is expressly empowered to do so by the terms of the debentures or the trust deed (appointed as receiver and manager).

Power of receiver appointed by Debenture Holders

From the proceeds he obtains from carrying on the business and realising the assets, he will◦ Pay the expenses of the business, interest on

prior charges, preferential debts and his own remuneration

◦ Pay to the debenture holders what is due to them by way of principal and /interest.

Receiver is entitled to indemnity out of the co’s assets and has priority over the debenture holders

Power of receiver appointed by Court

A receiver may be appointed by Court when:◦ The principal / interest is in arrears; or◦ The co is being wound up; or◦ The security is in jeopardy

upon application of the trustee for debenture holder of a trust deed or on application of borrower or SC under provision of SCA 1993.

The receiver is independent officer of the Court and personally liable on contracts made by him.

Power of receiver appointed by Court

Entitled to an indemnity out of the co’s assets and has priority over the debenture holders

Will take possession of the assets, carry on business, collect debts and act as owner of the property charged.

May apply for directions (to Court) in relation to the performance of his functions.

RECEIVERSHIP-effect on director

The director will remain in the office but their power to deal with assets of co in charge cease

The BOD can still exercise their power :◦ to convene a GM ◦ for compliance with CA 1965 and still liable to

default of co with regard to compliance with filing of returns to CCM.

Priority of payments during receivership After realising the co’s assets and if the

proceed is insufficient, the payment must in the following manner:◦ Cost & expenses of realization the assets◦ Cost & expenses of receivership, including

receiver’s remuneration◦ The costs and remuneration of the trustee for

the debenture holders.◦ Plaintiff’s cost in legal action◦ Claims of preferential creditors if the

debentures are secured by floating charges◦ Claims for principal/interest for deb/h

Account of receipt and payment The receiver is required within a month

after the expiration of 6 months from the date of his appointment and of every subsequent period of six months to prepare a detailed account of receipt and payment on Form 63 and lodge the form to CCM together with an affidavit verifying the accounts.

Termination of receivership

A receivership can be terminated ◦ Where some means have been worked out to

enable the creditor concerned to be satisfied so that the receiver can be withdrawn, or

◦ The receivership becomes a liquidation

Termination of receivership Where the receiver ceases to act, he

must:◦ Within 7 days thereafter lodge with CCM notice

to that effect (Form 60)[s186(2)]◦ Within 1 month, lodge with CCM a detailed acc

with affidavit on Form 63 [s190]◦ Formally advise the co and surrender

possession of any property not realized.

Dissolution A company can only be dissolved by

legal process. When a co collapses, its existence can be terminated by adopting any of these procedures:◦Striking it off the register as a defunct co

and so dissolved without winding up [s308];◦Dissolution as a result of winding up or

liquidation [Pt. X, s211-s318] ; or

Striking the co off the register

A co’s existence can be terminated when CCM deregisters the co by striking the co’s name off the register of companies as a defunct co under s308.

The effect of the deregistration - co would be dissolved upon publication of the notice of striking off by CCM

Deregistration normally chosen to avoid the costs of liquidation.

Striking the co off the register

By:◦ Application to CCM for striking off◦ Procedure taken by CCM under section 308

Application to CCM for striking off

A co seeking application to CCM must fulfill the following conditions:

Obtain consent from shareholder Has no asset and liabilities at time of

application Has no o/s charges in Registrar of

Charge Has no o/s penalties or offer of

compounds under CA1965 Has no o/s tax or other liab with any

gment agencies

The information of co with the registrar is up to date

Not involved in any legal proceeding within or outside Malaysia

Has not made any return of capital to sh Not a holding or a subsidiary of another

corporate body Not a “guarantor co”

Application to CCM for striking off Procedures:

◦ Settle all debt ◦ Obtain shareholders’ consent –pass a resolution

to authorise directors to make the application to CCM for striking off

◦ Board meeting/resolution pertaining to statutory declaration set in section 308

◦ Written application to CCM by co’s directors,,s/h, cs, accountant or lawyer requesting a striking off (enclosing a statutory declaration, Form 11)- no fee required.

If CCM satisfied with the statutory declaration, may proceed to strike off the co.

Procedure taken by CCM under section 308

Alternatively, deregistration could be initiated by CCM in situations:◦ CCM finds out that a co has no officers to

make statutory returns; or◦ No record in CCM’s office of the lodgment of

AR etc for 6 consecutive yrs;◦ A report showing that the co is no longer in

operation◦ The co can no longer be communicated at its

registered office or the directors are not contactable.

Procedure taken by CCM under section 308

CCM send letter of enquiry if he has reason to believe that a co is not carrying on business or not in operation.

Unless an answer stating that the co is carrying on business or in operation is received by CCM within 1 month, he may publish in the Gazette and send to the co a notice that at the expiration 3 months from the date of notice, the name of co will be struck off the register unless cause is shown on the contrary, and the co will be dissolved.

Procedure taken by CCM under section 308 At the expiration of the 3 months period,

the CCM may strike the name of the co off the register [s308(4)] unless the co file an objection before expiration of 3 months.

The CCM shall then publish notice of the striking off in the Gazette.

The co shall be dissolved on the publication made in the Gazette.

But the striking off does not affect the liability of every officer and member of co [s308(1)(a)]

Procedure taken by CCM under section 308

The striking off shall not affect the power of Court to wind up a co whose name has been struck off the register [s308(1)(b)]

After dissolution of co, any outstanding property of the defunct co which was vested in the co shall become vested in the CCM together with all claims, rights and remedies of the co [s310(1)]

Procedure taken by CCM under section 308

CCM is authorized to sell or dispose of or deal with the property and the moneys received by CCM shall be applied in defraying all costs, expenses, payment of fees and commissions and any surplus shall be dealt with as unclaimed moneys under the Unclaimed Moneys Act 1965

CCM shall keep an account of all moneys and properties vested in him [s313(1)]

WINDING UP (WU)

A WU or liquidation of a co is a legal process which the affairs of the co to an end, co being dissolved and its property administered for the benefits of its creditors and members.

WINDING UP

During WU, the assets are realized, liabilities are paid out from the proceeds of the realization and any surplus amount thereafter are distributed to the members in accordance with their rights and interests in the co [s264 CA]

Types of Winding Up [s211] Voluntary winding up by the members

or by the creditors; or Compulsory winding up by order of the

Court

Voluntary winding up Circumstances in which a co may be wound

up [Sec 254 (1)]◦ When a period fixed for the duration of the co by

M&A, or occurrence of the event which the M&A provide the co to be dissolved and has passed ordinary resolution in GM

◦ If the co so resolves by special resolution.

Voluntary winding up

May take 2 forms:◦ A members’ WU, if the co is solvent; or◦ A creditors’ WU, if the co is insolvent

Voluntary winding up Members’ WU if directors are of the

opinion that it can pay debts in full within a period of 12 months from the date of commencement of WU by making statutory declaration of solvency [s257].

If later found the co is unable to pay debts in full, the WU becomes a Creditors’ WU after the creditors at the creditors’ meeting appoint some other person to be liquidator to wind-up the co [s259(2-3)].

Majority of director may make a written declaration that they have made inquiry into affair of co. The declaration will be together with amount of assets, and their expected realized value, liabilities, and estimated expenses of WU.

The declaration must be made at a meeting of directors, within 5 weeks immediately preceding the passing of the resolution for voluntary winding-up.

It must be lodged with CCM before the date on which the notices of the meeting at which the resolution for the winding up the co is to be proposed are sent out.

Declaration of solvency

Compulsory winding up by order of the Court

A co may be wound up under:◦ Special resolution of members; or◦ Special resolution resolved to that effect by

the co itself. Done usually upon the initiation of a

creditor of the co so as to force the co to go into liquidation on the ground that the co is unable to pay its debts.

Once a winding up petition presented, it cannot be withdrawn as only Court is empowered to dismiss, adjourn or hear the petition.

Petition by ◦ Refer to sec 217

Circumstances inn which court may order WU◦ Refer to sec 218

Court Winding Up

Procedures for winding up General procedures for WU are similar

although the modes of WU may differ:◦ A special resolution is passed or Court makes an

order for the co to be wound up;◦ A liquidator is appointed by the members and/or

creditors or by Court to oversee the entire process of liquidation; The co’s assets and affairs generally pass into the hands of the liquidator;

◦ The liquidator converts the assets into cash, calls in any uncalled capital and pays the creditors in order of priority. Any surplus is distributed to the members of the company; and

◦ The company is dissolved.

Members’ voluntary winding up

◦ Members’ VWU shall commence at the time the members’ of the co resolve to wind up and the members shall be in control the WU process and appoint a liquidator of their choice.

◦ The affairs and conduct of co will be placed under control of liquidator.

◦ Once the special resolution is passed and liquidator appointed, the CS will ceased his duty. But CS may act as liquidator for members’ WU as there is no requirement under CA that the liquidator must be an approved liquidator for WU

Creditors’ voluntary winding up

◦ Creditors’ WU can only take place where the directors are unable to file a Declaration of Solvency due to the fact that the co is “insolvent”.

◦ In creditors’ WU, the management of the co is shared by the members and the creditors but the creditors have control as they appoint the liquidator and decide on the composition of the committee of inspection.

Procedure Members’ Voluntary WU

BOD Meeting

EGM

CCM

Form 66

Form 11(within 7 days)

Form 71 (within 14 days)

Declaration of Solvency

Resolution for WU

Notice of appointment of Liquidator

Liquidator will notify to auditor, solicitor, banker, employees, suppliers, customer

Procedure Creditors’ Voluntary WU

BOD Meeting

EGM

CCM

Form 65A Statutory Declaration

Form 11(resolution)(within 7 days)

Form 72A (Notice of appointment(within 14 days)Creditors’

meeting

Provisional Liquidator

Liquidator*

Committee of Inspection

Procedure Court WU

PetitionCourt Order

EGMCreditor Meeting

CCM

Liquidator submit Form 70 (14 days from date of appointment)

By company, creditors, contributories, receiver, liquidator, minister, BN

To appoint liquidatorTo appoint liquidatorTo appoint Com of Inspection

At the end, liquidator applies court order for his release

Effects of winding up

◦ the power of directors. In VWU, when the liquidator appointed, the power of directors shall cease where allowed by the liquidator/members with the leave of liquidator. The directors’ power shall cease when the Court orders the WU of the co despite the lack of express statutory provision to that effect.

Liquidators

◦ A person appointed to carry out the WU of the co’s affairs and terminate its existence where the affairs and assets of the co will be placed under his control.

◦ Represent the interests of all creditors including unsecured creditors.

Qualification to act as Liquidator

◦ S10(1)(a)-(f) CA – a person shall not, except with the leave of Court, consent to be appointed and shall not act as liquidator of a co if he is subject to any of the following disqualifications:a. Not an approved liquidator1

b. Indebted to the co > RM2,500c. An officer of the co, a partner, employee or

employer of an officer of the cod. Becomes bankrupt

1approved liquidator defined as approved co auditor who has been approved by Minister. The term liquidator includes the Official Receiver when acting as a liquidator of a co [S4(1) CA].

Qualification to act as Liquidator

e. Assigns his estate for the benefit of his creditors or makes an arrangement with his creditors pursuant to any law relating to bankruptcy.

f. Convicted of an offence involving fraud or dishonesty on conviction by imprisonment for 3 months or more.

◦ a & c shall not apply to members’ WU◦ a & c shall not apply to creditors’ WU if it is

determined by resolution by a majority of creditors.

◦ CS, director or any officer may be appointed as a liquidator

◦ However, approved liquidator is usually appointed in creditors’ WU

Appointment & remuneration of a Liquidator

In members’ VWU, liquidator is appointed at the same time as the resolution to wind up the co is passed. The remuneration of the liquidator is fixed by the co at the members’ meeting at the time of his appointment

In creditors’ VWU, the co and the creditor may at their respective meeting s nominate liquidator. If different persons were appointed, the person appointed by creditor shall be liquidator. The remuneration of the liquidator is fixed by the committee of inspection or creditor.

Court is given power to appoint liquidator in VWU if no liquidator is acting.

Appointment & remuneration of a Liquidator

◦ In compulsory WU, Court will appoint a liquidator who in effect replaces the directors and takes control of the co.

◦ In compulsory WU, the liquidator entitled to receive such salary by way of a % as determined by agreement between the liquidator and the committee of inspection

Statutory Duties of Liquidator Liquidator’s account (Lodge Form 75

(S281)) – statement of the position of the WU within one month◦ After expiration of the period of 6 months from

the date of his appointment◦ Of every subsequent period of 6 months after his

appointment; and◦ After he ceases to act as a liquidator

Liquidator’s account (S281) Be audited by an approved co auditor. For the

purpose, liquidator shall furnish the auditor with such vouchers and information required.

Auditor may inspect any book of accounts kept by liquidator.

Cost of audit fixed by official Receiver and be part of expenses of winding up.

A copy of account shall be kept by liquidator and shall be open to the inspection by any creditor or any person interested at the office of the liquidator

Statutory Duties of Liquidator Annual meeting (S271)- if VWU

continues for more than a year, within 3 month of each anniversary of the commencement of WU summon a ◦ GM of co -in a members’ WU◦ GM of co and creditors - in creditors’ WU

Statutory Duties of Liquidator Lodge return (S280) for changes of

address (Form 73) and vacation of office (Form 74) within 14 days after the events.

Unclaimed asset (S286)- pay all unclaimed dividend and other money which remained unclaimed for more than 6 months the moneys become payable; and all unclaimed money arising from the property after making final distribution.

Statutory Duties of Liquidator To recover in respect of certain sales to or

by co (S295)

Invest surplus funds on general accounts (S285)

Contributories◦ S4(1) – defined as a person liable to

contribute to the assets of the co in the event of its being wound up, includes the holder of fully paid shares in the co

◦ S214(1) – every present and past members for a WU co shall be liable to contribute to the assets of the co to an amount sufficient to meet its debt, costs, charges and expenses of the WU

Contributories- past/present members◦ Past member shall not be liable to

contribute if he ceased to be a member for 1 yr or more prior to the commencement of the WU

◦ Past member shall not be liable to contribute in respect of any debt of the co contracted after he ceased to be a member

◦ Past member shall not be liable to contribute unless it appears to Court that the existing members are unable to satisfy the contribution required to pay debts and costs and adjusting the rights of the contributories

Contributories- past/present members

◦ Co limited by shares, no contribution required from any member whether present or past exceeding the amount of their unpaid shares.

Committee of inspection

◦ Functions to assist and supervise the acts of the liquidator

◦ In creditors’ VWU, the creditors may appoint a committee of inspection consisting < 5 persons and the co is entitled to appoint 5 persons to act as members of the committee

◦ A member of the committee is in a fiduciary position and cannot, for example, buy any of the co’s assets from the liquidator except with the leave of the Court