by Ranjit Singh
THE government has extended the statutory period for a company to be declared insolvent from 21 days to six months. Through a Government Gazette issued today, it said the Companies (Exemption) Order 2020 comes into force effective immediately.
The Order reads: “A Company shall be deemed unable to pay its debts under paragraph 466(1)(a) of the Act if the company neglects any notice of demand by any creditor to pay its debt or to secure its debt or compound its debt to the satisfaction of the creditor within the period of six months after the notice of demand is being served upon him.”
One of the issues that arises from the issuance of the Order is whether the Minister (of Domestic Trade and Industry) is empowered to make the Order.
Prominent constitutional lawyer Gurdial Singh Nijar told FocusM that for an Act of Parliament to be amended, it must be tabled in the Dewan Rakyat and Dewan Negara and be passed with a simple majority.
“The law requires that for an Act of Parliament – in this case, for the Companies Act 2016 – to be amended, it requires the amendment to be passed with a simple majority in both houses of Parliament, unless there is a clause in the Act which provides or empowers the Minister to make an amendment,” said Gurdial.
Section 615 (1) of the Companies Act 2016 says: “The Minister may, upon the recommendation of the Commission, order exempt any person, corporation or class of corporations from all or any of the provision of this Act.”
Balvinder Singh Kenth, partner at Kenth Partnership, told FocusM that Section 615 of the Companies Act 2016 provides for the Minister to make an Order by circumventing the need to go to Parliament to effect an amendment.
“Section 615 clearly empowers the Minister to issue an Order which makes an amendment to the Companies Act 2016 after obtaining advice from the Companies Commission of Malaysia,” said Balvinder.
According to website themalaysianlawyer.com, there could have been a clearer usage of Section 615 of the Companies Act 2016 by the Minister.
“Rather than exempting ‘the provision’, there could have been a clearer use of Section 615 of the CA 2016. The Minister could have exempted ‘all companies served with a notice of demand set out in section 466(1)(a) of the Act’ from the period of 21 days for the purposes of being deemed unable to pay its debts,” said lawyer Lee Shih in a comment.
“This Exemption Order will have to be read together with a subsequent notice where the Minister will increase the prescribed statutory demand from RM10,000 up to RM50,000. As at the time of writing, this other gazetted notice is not out yet. The increase to RM50,000 may not be that significant but this six-month protection does provide breathing room for companies.
“But companies have to be aware that it is merely a six-month window in relation to one form of winding up. Other legal proceedings can still be taken out against the company,” he said.
The usage of Section 615 to circumvent Parliament would still be open to challenge in the courts.
“There have been some legal views questioning whether such an Exemption Order made under Section 615 of the CA 2016 can effectively amend clear language in the CA 2016. I can understand the need to utilise all urgent tools to provide essential breathing space for distressed companies. But it may be that the wording of the Exemption Order may still be tested in the courts,” said Lee Shih.
The amendment is seen as providing some ‘breathing space’ to debtors amid the disruption brought about by the Covid-19 outbreak and the Movement Control Order from March 18.
There have been massive business losses as supply chains have been severely affected during the pandemic. Businesses suffered from drastic losses in demand and the situation is expected to worsen if the pandemic lasts for a longer time. – April 23, 2020
