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A lot of business has started since the CMCO was announced by the Government of Malaysia. The business in the market is just starting to resume back the business volume they had before the pandemic and MCO started during March 2020.

A lot of business owner have indicated they are still not breaking even yet and foresee a tough year ahead especially this coming 6 to 12 months. What the businessman should do? We list down 3 main options available for the businesses.

The Companies Exemption Order, Corporate Rescue Mechanism & Sell The Business

1. The Companies (Exemption)(No. 2) Order 2020

As one of the initiatives to reduce the burden of corporate arising from the Movement Control Order (MCO) and the pandemic Covid-19, the Ministry of Domestic Trade and Consumer Affairs have on 23 April 2020 exercise its powers conferred under section 615 of the Companies Act 2016 [Act 777] by gazetted a blanket exemption that applies to all companies incorporated under Companies Act 2016 or under any corresponding previous written law. The blanket exemption is known as the ‘Companies (Exemption) (No. 2) Order 2020’ (“the Order”).

The key features of the Order are as follows:

  1. applies to all notices of demand under paragraph 466 (1)(a) of the Companies Act 2016 served between 23 April 2020 until 31 December 2020;
  2. the threshold of indebtedness is now increased from RM10,000 to RM50,000; and
  3. the company will now have a period of six months, as oppose to twenty-one days under normal circumstances, to respond to their creditors on the notice of demands.

Companies can negotiate with their existing creditors to restructure the payment details if foresee business difficulties.

2. Corporate Rescue Mechanism

The Corporate Rescue Mechanism is a great rehabilitation tools that enable a financially distressed company to resolve existing distress and move forward as a going concern.

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.

There are two types of Corporate Rescue Mechanism implemented under the Companies Act 2016:

a. Corporate Voluntary Arrangement (“CVA”)

CVA is applicable to companies who fulfill the following criteria:

  • Not a public company;
  • Not a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia;
  • Not subject to the Capital Markets and Services Act 2017;
  • No charge created over its property or any of its undertaking

b. Judicial Management (“JM”)

JM is applicable to the companies who fulfill the following criteria:

  • Not a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia;
  • Not subject to the Capital Markets and Services Act 2017;
  • Not under liquidation
  • A receiver or receiver and manager has not been or will not be appointed
  • Not oppose by a secured creditor
  • Not in striking-off process
  • No pending query with Suruhanjaya Syarikat Malaysia
  • All company’s information with SSM are up to date

Either as Influence of the Order or the Companies Rescue Mechanism discussed above, a company while enjoying a moratorium will also facing difficulties in its debt collections, and hence affect their cash flows. Re-negotiation on payment terms as well as incentives offered to clients for cash terms or shorter credit terms are some examples to improve cash flows.

3. Sell The Business

Selling the non-core business will enable you to focus on your core businesses. If after careful consideration, you have decided to sell the business, you should perform business valuation before engaging with a potential buyer.  It will be advisable to appoint a business consultant or agent to assist in the sales process of identifying, managing, facilitating the communication between lawyers, the buyers, financial auditors performing the due diligence for the disposal of the business to be effective and successful.

Cheng & Co besides having the above services as a corporate advisor and liquidator, together with our partner, www.idealbiz-my.com where the business for sale is connected to International buyers and investors.

 

Cheng & Co is the leading home-grown International Accounting Firm provide one-stop professional centre with innovative solutions for excellence. Our team is specialized in providing insightful advice to assist your company to get through the business difficulties.

If you have further query, please do not hesitate to contact us via enquiry@chengco.com.my or WhatsApp to +60127017918

The contact details of Cheng & Co Regional office personnel are as follows: or

 

Read more:

Dealing with Creditors after Lockdown (Covid19)

Post MCO Series 1 – What To Do For Business In Post-MCO?

Post MCO Series 2 – CMCO Extended To 9th June 2020, How Can You Increase Company Cash Flow

 

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The information provided by CHENG & CO (“we,” “us” or “our”) on www.chengco.com.my (the “Site”) [and our mobile application] is for general informational purposes only. All information on the Site [and our mobile application] is provided in good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information on the Site [or our mobile application].

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