The Corporate Voluntary Arrangement (‘CVA’) is one of the Corporate Rescue Mechanisms under Division 8 of the Companies Act 2016 (‘Act’). This is one of the steps taken by the government to provide more rescue mechanisms to companies in Malaysia to avoid potential winding-up petitions, now especially relevant with post pandemic of Covid-19.
Section 396 of the Companies Act 2016 (Act 777) provided that the CVA may be proposed by a director of a company, judicial manager (if the company is under a judicial management order) or a liquidator (if a company is being wound up).
The CVA is governed under Section 400 of Act 777, which reads as follows:
“S. 400 Decisions of meetings.
(1) A meeting summoned under section 399 shall decide whether to approve the proposed voluntary arrangement or otherwise.
(2) The required majority to approve a proposal for voluntary arrangement in the creditors’ meeting shall be seventy-five per centum of the total value of creditors present and voting at the meeting either in person or by proxy.
(3) A simple majority is required to pass a resolution to approve the proposal for voluntary arrangement in a meeting of members.
(4) A meeting summoned under section 399 shall not approve any proposal which affects the right of a secured creditor of the company to enforce his security, except with the concurrence of the secured creditor concerned.
(5) Once approved by the required majority under subsections (2) and (3), the proposed voluntary arrangement shall take effect and be binding on all creditors of the company whether or not the creditors have voted in favour of the proposal.
(6) A modification in respect of the proposal shall not be allowed to be made in any of the meeting under section 399.
(7) After the conclusion of each meeting held under subsection (2) and (3), the nominee shall report the result of the meeting to the Court and shall give notice of that result to the Registrar and to such other persons or bodies as the Court may approve.”
Referring to subsection (5) above, the CVA once approved and accepted by the majority members and creditors of the company in the Creditors Meeting (meeting under section 399), shall take effect and is binding on all creditors of the company, regardless whether the creditor had voted against the proposal and where the creditor does not agree with the CVA.
After the filling of CVA, the moratorium will take effect for 28 days and during the period, no legal proceeding shall be made against the company and freeze any current proceedings in order to protect the company from any legal actions. The moratorium period can be extended for not more than 60 days.
There is no settled legal principle for the creditor to intervene in the CVA, but for Judicial Management under Division 8 Subdivision 2 of Part III (Management of Company) of Act 777, in any event if the creditor wishes to oppose the Judicial Management, may intervene by filing an intervener’s application under Order 15 rule 6(2)(b)(ii) of the Rules of Court 2021. A decided case of High Court Goldpage Assets Sdn Bhd v.Unique Mix Sdn Bhd [2020] 1 LNS 18 ruled that:
“40. Based on the said rule, it is a settled legal principle that the Court will allow an interested party to intervene if his legal rights and interest in relation to the subject matter of the action would be directly affected by any order which may be made in the action. See: (i) Pegang Mining Co Ltd v. Choong Sam & Ors [1968] 1 MLRA 925; [1969] 2 MLJ 52, and (ii) Pilecon Engineering Bhd v. Malayan Banking Berhad & Ors [2012] 3 MLRH 639…”