Corporate Rescue Mechanisms: Considerations for Creditors [Part 1 of a 2 Part Series]

In an environment where cash flow and liquidity challenges will likely threaten most enterprises, it seems almost inevitable that some will seek the protections afforded by the corporate rescue mechanisms under the Companies Act 2016 (“Act”) namely, corporate voluntary arrangement and judicial management. 



The provisions concerning CVA are set out in Part III Division 8 Subdivision 1 of the Act and came into force on 1 March 2018. 

Essentially, the legislation provides a mechanism whereby distressed companies can obtain temporary  protection from creditors, in the form of a statutory moratorium (“Moratorium”) while attempts are made to reach an arrangement with the creditors.

A key feature of a CVA is that court orders are not required to enable a company to enjoy the Moratorium, neither is the sanction of a court required for any arrangement a company may agree with its creditors. 

In fact, save for arranging for the filing of specific documents at the court registry, a company seeking Moratorium protections does not have to deal with the courts at all.

In simple terms, all that is required in order for a company to avail itself of the statutory protections under a CVA is to: 

  1. propose an arrangement to its creditors; 
  1. appoint an insolvency practitioner (“Nominee”) to inter alia opine on the prospects of the proposed arrangement, call and preside over creditors’ meetings; and 
  1. comply with filing, lodgement and notice formalities. 

Availability of CVA

Fortunately from a creditor’s perspective, the availability of CVA is limited to debtors that are private companies which have not given a charge or debenture over their assets and are not subject to the Capital Markets and Services Act 2007. Companies which are licensed institutions or designated payment system operators are also excluded.


The full list of Moratorium protections is set out under paragraph 17 of the Eighth Schedule of the Act. The following protections are particularly relevant to creditors who either have commenced or are about to commence legal proceedings:

  1. no petition may be presented for the winding-up of the company;
  1. no resolution may be passed or order may be made for the winding-up of the company; 
  1. no other steps may be taken to impose any security over the company’s property, or to repossess goods in the company’s possession under any hire-purchase agreement, except with the leave of the Court and subject to such terms as the Court may impose; and
  1. no other proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the company or its property except with the leave of the Court and subject to such terms as the Court may impose.

The Moratorium protections last for 28 days and may be extended, with the consent of creditors, by up to 60 days. 

Commencement of Moratorium

Whilst the CVA provisions in the Act require notification of a Moratorium in the manner prescribed, there may be a significant lag between the commencement of a Moratorium period and that moment when a creditor becomes aware of said Moratorium.  

Given the wide scope of proceedings and other matters affected by a Moratorium, creditors must put in place monitoring protocols to alert them at the earliest juncture of a debtor who has availed itself of a Moratorium under the CVA.

Furthermore, limitation periods continue to run during a Moratorium and as creditors may have to urgently instruct lawyers to apply to court for leave to commence proceedings (against a Moratorium-protected company), robust monitoring protocols must be adopted and implemented. 

Creditors’ Meetings

A key element of the CVA process is the meeting of creditors which must be held within the Moratorium period of 28 days, with the Nominee being required to give 14 days’ notice of the meeting.

At said meeting, the creditors will vote on the proposed voluntary arrangement which, in order to be approved, requires a majority of 75% of the total value of creditors present and voting in favour of the said proposal, in person or by proxy.

Apart from voting on the proposed voluntary arrangement, the creditors’ meeting may agree to extend the Moratorium for a further 60 days.  At this meeting, the Nominee must report to the creditors on inter alia the actions and steps taken in order to form his or her opinion as to whether the proposed voluntary arrangement has a reasonable prospect of being approved and implemented and whether the company will have sufficient funds available during the proposed moratorium to enable the company to carry on its business.

As the relatively short (28 days) Moratorium period limits the efficacy of going to court to inter alia compel disclosure of information and details, the meeting represents the best and most effective forum for creditors to ask questions about and seek information concerning the company and the proposed arrangement.   For this reason, all creditors should arrange to attend the meetings whether by proxy or otherwise.

[End of Part 1]

Contributed by the Dispute Resolution Practice Group of Raja, Darryl & Loh.

Ng Sai Yeang (Partner)
(T):+603-2632 9877

Mark La Brooy (Partner)
(T): +603-2632 9865

Teoh Chye Yi (Senior Associate)
(T): +603-2632 9913

Wong Chee Chien (Associate)
(T): +603-2632 9930

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