Taking into consideration the financial difficulties that companies will be facing due to the Covid19 pandemic, the government recently introduced temporary changes to the winding-up laws to provide temporary relief from winding-up. This is in line with the development in other economies where similar measures have been implemented to help the recovery of businesses. The key measures were as follows.
Under sec. 466(1)(a) of the Companies Act 2016, a creditor may file a petition at the High Court to wind-up the debtor company when the debtor failed to comply with a statutory notice of demand to pay up a debt that was more than RM10,000 within 21 days from the date the notice was served on the debtor. The failure to comply with the notice would result in the debtor company being deemed as insolvent and unable to pay its debts even if the company may be of going concern with assets exceeding the debt amount.
On 23.4.2020, the Minister under the Act issued a gazette notification entitled “Companies (Exemption) (No. 2) Order 2020” that imposed a new compliance period of six months for statutory notices served on the debtor company between 23.4.2020 – 31.12.2020. This gazette was issued pursuant to sec. 615 of the Act that gives the Minister the power to exempt application of provisions of the Act.
On the same day the Minister also gazetted “Direction of the Minister under paragraph 466(1)(a)” prescribing that the threshold sum for the statutory notice served during the period 23.4.2020 to 31.12.2020 shall be more than RM50,000.
Essentially, this means that for winding up notices served between 23.4.2020 – 31.12.2020 the debt must be more than RM50,000 and the debtor’s compliance period with the notice shall be six months.
The key point to note from the above is that the changes would be applicable only for the notices served during the period between 23.4.2020 – 31.12.2020. This means that (unless there are further changes) come 1.1.2021 the position in respect of the notices to be issued after that date would revert to as it was before 23.4.2020 viz. RM10,000 and 21 days.
In practical sense this means that :
(1) a winding up notice that was served before 23.4.2020 (with the debt being more than RM10,000) still carries the 21 days compliance period failing which winding up petition may be filed immediately by the creditor;
(2) a winding up notice served at any time between 23.4.2020 – 31.12.2020 must be for a debt more than RM50,000 and to carry a six months compliance period; the creditor may not file the winding up petition until the expiry of six months from the date the notice was served. As an extreme example – a notice served on 31.12.2020 would still require six months compliance period till 30.6.2021 before the creditor may file the petition.
(3) a winding up notice to be served on 1.1.2021 would no longer be subject to the six months compliance period or the threshold sum that exceeds RM50,000. The position reverts to a sum exceeding RM10,000 and the compliance period of 21 days.
From the changes introduced, a much higher debt is now required before the creditor may resort to wind up the debtor company. The debtor is given more space and time to comply with the creditor’s demand. This temporary measure will provide a much needed relieve especially to the small medium businesses to focus in the short term on rebuilding their business and reorganize their finances instead of being preoccupied with their creditors.
However, it must be said that winding-petition is only one of the many means of debt recovery that may be utilized by a creditor. There are other means of recovery available to a creditor such as filing of a civil suit to claim for the debt, garnishment of bank accounts of the debtor and seizure and sale by way of public auction of the assets of the debtor. These alternative means of recovery remain unaffected by the changes stated above.
JAYABALAN RAMAN KUTTY
