Legal Update: Winding Up Notice of Demand Period Extended to 6 Months – The Companies (Exemption) Order 2020

*This article is an update to an earlier article titled “Legal Alert: Temporary Measures Announced by the Companies Commission of Malaysia (SSM)” which was published on 11.04.2020 and which can be accessed here. 

We had earlier written on the various measures announced by SSM which would be implemented to aid Malaysian companies to navigate through the economic impact of the Movement Control Order. However, the announcement was unclear as to how the initiative in respect of the increase in the statutory time period to oppose a Section 466 Companies Act 2016 (“CA 2016”) demand was to be implemented and effective.

On 22.04.2020, the Federal Government moved to clarify the announcement by SSM by Gazetting the Companies (Exemption) Order 2020 (“the Order”) under Section 615 CA 2016. The Order exempts all companies from the provision which determines that a company is deemed “unable to pay its debt” if it fails to satisfy a statutory notice of demand within 21 days (Section 466(1)(a) CA 2016). Instead of the usual definition under Section 466(1)(a) CA 2016, the Order provides that a company would still be deemed “unable to pay its debt” if it fails to satisfy a statutory notice of demand for 6 months.

With the Order being Gazetted, the measure to extend the statutory demand time period which was earlier announced by SSM for all intents and purposes has been passed into law. This was done through the use of Section 615 CA 2016 wherein the Minister exercised his powers.

As such, Companies must keep in mind the following:

• The Order takes effect from 23.04.2020 until 31.12.2020. This means that the exemption would only apply to statutory demand which are served from 23.04.2020 up to 31.12.2020.  During this time, if a statutory demand is served, a company has 6 months to respond to it. (Note: a Winding Up Petition can still be filed in Court after the lapse of the 6 month period).
• The Order will not affect statutory demand or winding up petitions which are filed and served before 23.04.2020. In other words, companies must still oppose the said statutory demand within 21 days. The dissatisfied creditor can still file a winding up petition against the company after the expiry of the 21 days.
• Once the Order has lapsed, namely, on 01.01.2021, the usual time period of 21 days will be effective again (Section 466 (1)(a) CA 2016).

Whilst this Order gives companies some breathing space in the form of a 6-month protection from being wound up, other actions to recover debts purportedly due and owing or other means of execution are still available to creditors. We shall wait to see if the increase in the winding up threshold from RM 10,000.00 to RM 50,000.00 will be also gazetted. A copy of the Gazetted Companies (Exemption) Order 2020 can be accessed here.