For the past two years, the SME has been facing business challenges due to change of government policy and the development of new technology. With the recent pandemic of Covid-19, the implementation of Movement Control Order (“MCO”) or Lockdown in major countries has further burden most businesses.
Most businesses are expected to face financial and operational distress after the crisis. While the distress may be just a short-term effect to the business, the company is expose to risk that its operation being affected due to delay or default in payments to its overdue debts. The debenture holder may enforce their rights to appoint a receiver to take control of their secured assets, resulting interruptions the business operations. Besides, the suppliers may also issue the letter of demand or petition notice to recover their debts.
While there are some assistances provided by the government as well as most of the financial institutions to assist the company to go through the tough period, not all businessman understand how these assistances works, or the company may not meet the requirement to benefit from these assistances. At worse scenarios, the business may not even survive until such assistances take effect.
There are several options available for a business to consider for recovery from the distress. The businessman should keep in mind that this is not the distress faced by the company itself, but it affect the whole industry and the global market. Thus, they should re-evaluate their business internally as well as amongst the industry performance and adopt the most suitable recovery options for their business.
Corporate Rescue Mechanism
When a company facing short-term distress but have potential to proceed as a going concern, or the directors are of the opinion that the company will achieve a more advantageous realization of assets than winding-up, the Company should consider the Corporate Rescue Mechanism implemented under the Companies Act 2016. This mechanism enables a sustainable company or a company at growth stage to resolve its short-term distress by implementing a rehabilitation plan that result a win-win situation between the Company and its creditors. The mechanism also grants a shield to the company from legal proceedings by third parties while preparing the rehabilitation plan. The insolvency practitioner will be appointed to temporary manage the affairs of the company, tabling a rehabilitation plan to its creditors and oversee its implementation, provide an opportunity to the business owner to focus on improving its operations without interruption from creditors.
The businessman should also take this opportunity to review their business structure to be adaptable to the market emergence. With the announcement of MCO on 16.3.2020, the businessman have face a dilemma which require them to make prompt decision or operation arrangement in less than 24 hours for the upcoming period until the end of the MCO. While some business able to adapt to the MCO, most business feel lost and panic that they do not have the ability and/or capability to adapt to this state of emergency. They are struggling to ensure its operations not compromised when comply to the MCO, as well as financially stable to settle its overdue debts. The businessman should now be alert that they should always be well-prepared to make prompt decision to cope with any outbreaks.
Going under receivership or winding up
A company may consider reorganize its business structure by consolidating the business functions and closing down the unnecessary or unprofitable company. A winding-up process can be carried out by appointing a liquidator to ensure the company incorporated be dissolved in a proper manner. With the appointment of liquidator, all director’s power will ceased. The liquidator will take control of the assets, ensure all assets be realized to settle the liabilities and fully dissolve the affairs of the company. In other words, the businessman can focus on its main business by appointing a corporate recovery expert to deal with its creditors and ensure the affairs of its unwanted company be fully wound-up and dissolved.
The pandemic of Covid-19 has actually provide a great signal to the business owner if they are well-prepared and adaptable to the rapid changes in the business environment and unforeseen circumstances. The business owners should take this opportunity to restructure its operation to increase flexibilities and maximize its value. There is common misconception on winding-up that it was the end of the business, while few perceive on the bright side that it actually provide a good opportunity for a distress business to resolve its current issues and rebuilding the business.