Corporate Rescue in Malaysia — Before You Close the Company

Ask most Malaysian business content what to do about a company that cannot pay its debts and you get one answer: close it. The Companies Act 2016 built an entire Division for the other answer, and the Companies (Amendment) Act 2024 rebuilt large parts of it. Almost none of that reaches the pages founders actually read.

The reason this matters is a single subsection. Section 405(6): a judicial management order shall not be made in relation to a company after the company has gone into liquidation. Rescue is a door that closes. Every week spent deciding whether to wind up is a week spent walking towards it.

The three mechanisms at a glance

	Scheme of arrangement (ss.366–368)	Judicial management (ss.404–430)	Corporate voluntary arrangement (ss.395–402)
Who runs the company	Existing management	Court-appointed judicial manager	Existing directors, supervised by a nominee
Court involvement	Central — Court orders the meeting and approves	Central — Court makes the order	Minimal — filing and reporting only
Protection from creditors	Restraining order under s.368	Automatic moratorium under s.411(4)	Moratorium under s.398 and the Eighth Schedule
Duration of protection	3 months, extendable by 9	6 months, extendable	28 days, extendable by 60
Approval threshold	Court approval after the s.366 meeting	Creditors’ meeting on the s.420 proposal	75% by value of creditors, simple majority of members
Secured creditors	Bound only as the scheme provides	Restrained, but see s.409	Cannot be affected without consent (s.400(4))
Blocked by	—	Opposition by a secured creditor (s.409)	Regulated-entity exclusions in s.395

Scheme of arrangement — the court-driven route

Section 366(1), as substituted by Act A1701, lets the Court order a meeting of creditors or members on the application of the company, a creditor or class of creditors, a member or class of members, a liquidator where the company is being wound up, or a judicial manager where it is under judicial management. The last two are new — a scheme is now expressly available inside a liquidation or a judicial management, not only as an alternative to them.

New s.366(2A) requires every meeting ordered under s.366(1) to be chaired by an insolvency practitioner appointed under s.367(3), or by a person elected by the majority in value of the relevant class where none has been appointed.

Section 367 was substituted entirely. The Court may appoint an insolvency practitioner to assess viability and table a report at the meeting, and shall do so where the company applies under the new ss.368B, 368D or 369C, or a related company applies under s.368A. That practitioner has a right of access to all the company’s records.

The restraining order, and what changed

Section 368(1) now allows the Court to grant a restraining order for not more than three months, with s.368(2) permitting an extension of not more than nine months. That much survived the amendment.

Three things are new and consequential:

• Automatic interim protection (s.368(1A)). From the filing of the application until it is decided, or two months from filing, whichever is earlier, no winding-up order or resolution, no receiver appointment, no proceedings, no execution, no enforcement of security, no repossession under hire-purchase or retention-of-title, and no re-entry or forfeiture under a lease — each of the last four subject to leave of the Court. Previously the company was exposed during the gap between filing and hearing.
• A menu, not a block grant (s.368(3A)). The Court may include one or more of those same restraints in the order it eventually makes, rather than all of them automatically.
• A twelve-month bar (s.368(3B)). No restraining order may be granted if one was already granted to the company under s.368(1), s.368B, s.368D or s.369C, or to a related company under s.368A, within the preceding twelve months. Act A1701 added definitions of “related company” and “subject company” to s.365 specifically to make that bar work across a group.

Judicial management — and the veto everyone forgets

Section 404 lets the company or a creditor apply where the company is or will be unable to pay its debts and there is a reasonable probability of rehabilitating it, preserving all or part of the business as a going concern, or otherwise serving creditors better than a winding up would. The Court may make the order under s.405(1) if satisfied on inability to pay debts — using the s.466 definition — and that the order would likely achieve the survival of the company or its undertaking, the approval of a s.366 compromise, or a more advantageous realisation of assets. The order directs that the affairs, business and property be managed by a judicial manager (s.405(3)).

Then s.409 does the damage. The Court shall dismiss the application if satisfied that a receiver or receiver and manager has been or will be appointed, or that the making of the order is opposed by a secured creditor — subject only to s.405(5), which preserves the Court’s power where the public interest so requires. A single opposing debenture holder ends the application. Any realistic judicial management plan starts with the secured lender, not the Court.

Duration. Section 406(1) as amended keeps the initial term at six months from the date of the order, but replaces the old fixed single extension of another six months with a power for the Court, on the judicial manager’s application, to extend the period subject to such terms as it imposes. The judicial manager must notify all directors, members, creditors and anyone entitled to appoint a receiver (s.406(2)), and notify the Registrar of the application (s.406(3)).

Effects. From the making of the order, s.411(1) requires any receiver to vacate office and any winding-up application to be dismissed. During the order, s.411(4) bars winding up, receiver appointments, proceedings, execution, distress, enforcement of security, repossession under hire-purchase or chattels leasing, and share transfers, except with the judicial manager’s consent or leave of the Court. Act A1701 added s.411(5), letting a secured creditor — after notifying the judicial manager — enforce security over movable property or repossess goods where the judicial manager confirms they are not needed, where the order puts them at high risk, or where their value is falling.

The clocks. Order to the Registrar and company within 7 days, newspaper notice in both languages, notice to known creditors within 30 days (s.418(1)). The company’s statement of affairs within 14 days of receiving the order, extendable to no more than 60 days (s.418(2)). The judicial manager’s statement of proposals to the Registrar and all creditors within 60 days, laid before a creditors’ meeting on not less than 14 days’ notice (s.420).

Rescue financing. New s.415A lets the Court grant super priority: rescue financing paid immediately after the winding-up costs in s.527(1)(a), notwithstanding s.527(1), or secured over unencumbered property or by a subordinate security interest. It is what makes lending into a Malaysian judicial management commercially thinkable.

Corporate voluntary arrangement — light, fast, and narrower than it looks

A CVA is the closest thing Malaysia has to a debtor-in-possession restructuring. The directors of a company that is neither in judicial management nor being wound up may propose an arrangement to the company and its creditors (s.396(1)), and the proposal must include the appointment of a nominee as trustee or supervisor. A judicial manager or liquidator may also propose one under s.396(3). The nominee opines under s.397(2) on whether the arrangement has a reasonable prospect of approval and implementation, whether the company will have funds to trade through the moratorium, and whether the meetings should be summoned.

The moratorium starts on filing, not on an order. Section 398(1) commences it automatically from the time the company files the specified documents with the Court — the terms, the statement of affairs, a statement of eligibility, the nominee’s consent and statement, and disclosure of any previous CVA attempts.

Its length is the catch. Under paragraph 3 of the Eighth Schedule the moratorium runs 28 days, extendable at a meeting — with the nominee’s and members’ consent and a 75% majority in value of creditors present and voting — by not more than 60 days. Paragraph 17 bars winding-up petitions and resolutions, judicial management applications, forfeiture by re-entry, new security, repossession, proceedings, execution, distress and share transfers except with leave.

Approval. Section 400(2) requires 75% of the total value of creditors present and voting in person or by proxy; s.400(3) requires only a simple majority of members. Once approved, s.400(5) binds all creditors, whether or not they voted in favour. But s.400(4) prevents any proposal that affects a secured creditor’s right to enforce, without that creditor’s concurrence — and s.400(6) forbids modifications at the meeting, so the proposal must be right before it is tabled.

Act A1701 added s.398A, letting a secured creditor take possession of secured movable property during the moratorium — with notice to and the consent of the nominee — where it is not required for the arrangement, where the moratorium puts it at high risk, or where its value is falling.

The s.395 change, and the schedule nobody amended

Before 31 January 2025, s.395 excluded public companies, regulated financial institutions, companies subject to the Capital Markets and Services Act 2007, and — the killer — any company which creates a charge over its property or any of its undertaking. Since virtually every trading Sdn Bhd with a bank facility has registered a charge, the exclusion emptied the mechanism of most of its intended users.

Act A1701 s.14 substituted s.395 with a much shorter list: Bank Negara licensed institutions and designated payment system operators, entities approved, registered, licensed or recognised under the specified Parts of the CMSA 2007, and companies approved under Part II of the Securities Industry (Central Depositories) Act 1991. The public-company and charge-creating exclusions are gone. That provision commenced on 31 January 2025, separately from the main body of A1701, which commenced on 1 April 2024.

Here is the part no commentary mentions. Paragraph 1 of the Eighth Schedule — which governs eligibility for the moratorium, not for the arrangement itself — still reads that a company is eligible if it is a private company, is not a Bank Negara licensed institution or designated payment system operator, is not a financial market institution under the CMSA 2007, or has not created a charge over its property or any of its undertaking. Act A1701 does not amend the Eighth Schedule anywhere. The moratorium is the only reason to use a CVA rather than a private workout, so treat the availability of the moratorium to a charge-creating or public company as an open question and take advice before filing.

What else Act A1701 added

Protection for essential goods and services (new Division 9, s.430A). An insolvency-related clause in a contract for the supply of essential goods and services — a clause allowing automatic termination or variation merely because the company enters a compromise, a voluntary arrangement or judicial management — cannot be exercised against the company. A supplier who wants to preserve those rights must communicate that intention in writing at least 30 days before exercising them. The supplier keeps every other right, including the right to be paid. Essential goods and services are those specified in the new Ninth A Schedule.

That provision quietly solves the oldest problem in Malaysian restructuring: the utility or key supplier who terminates on day one and ends the rescue before it starts.

Common mistakes

• Deciding to wind up before testing rescue. Section 405(6) bars a judicial management order once the company is in liquidation, and s.396(1) excludes a company being wound up from proposing a CVA through its directors.
• Filing for judicial management without speaking to the secured lender. Section 409(b) makes the application fail on the lender’s opposition alone.
• Assuming the restraining order protects you from the day you file. It now does, but only for two months and only under s.368(1A). If the application is not decided in that window, the protection lapses before the order arrives.
• Applying again within twelve months. Section 368(3B) bars a repeat, and it reaches related companies through the new s.365 definitions.
• Reading a pre-2024 guide. Anything written before 1 April 2024 describes a materially different Division 8, and anything written before 31 January 2025 describes a CVA that excluded charge-creating companies.
• Expecting a CVA to bind a secured creditor. Section 400(4) does not permit it without that creditor’s concurrence, however the vote goes.

What’s next

Establish two facts this week: whether a secured creditor will oppose, and how long the company can trade. Those two answers select the mechanism far more reliably than any comparison table. If the business is not viable and only the shell remains, the correct pages are creditors’ voluntary winding up where the company cannot pay its debts, and members’ voluntary winding up where it can. And if you are a director still placing orders while this is being decided, read the personal-liability section of the creditors’ winding-up page first.