In our previous article, we discussed the Companies (Exemption) Order 2020 (“Exemption Order No. 1”), which was gazetted by the Minister of Domestic Trade and Consumer Affairs (Minister) on 22.4.2020. On 23.4.2020, the Minister gazetted the Companies (Exemption) (No. 2) Order 2020 (“Exemption Order No. 2”), which revoked the Exemption Order No. 1. The Minister also gazetted a Direction under Section 466(1)(a) of the Companies Act 2016 on 23.4.2020 (“Direction”), which increased the winding-up and/or indebtedness threshold amount.

Exemption Order No. 2

The Exemption Order No. 2 provided much-needed clarification to the Exemption Order No. 1. Exemption Order No. 2 states that “all companies” are exempted from the application of Section 466(1)(a) of the Companies Act 2016.  In addition, the Exemption Order No. 2 provides that a company will only be deemed unable to pay its debt in the event the company fails to pay the debt stipulated in a statutory notice of demand within six months from the date of its service. However, it is important to note that the Exemption Order No. 2 only applies to statutory notices of demand which are served between 23.4.2020 and 31.12.2020.

Briefly, the Exemption Order No. 2 confirms that all companies which are served statutory notices of demand between 23.4.2020 and 31.12.2020 have six months to satisfy such notices of demand. This provides financial breathing space for many companies whose businesses and financial sustainability were affected by the COVID-19 pandemic.

Differences between Exemption Order 1 & Exemption Order 2

The key difference between the Exemption Order No. 1 and Exemption Order No. 2 are as follows:

  1. While the Exemption Order No. 1 provides that the order “comes into operation on 23.4.2020 until 31.12.2020”, the Exemption Order No. 2 clearly provides that the order applies to any statutory notice of demand “which is served within the period from 23.4.2020 and 31.12.2020”.
  2. The Exemption Order No. 2 states that the Minister” exempts all companies from Section 466(1)(a) of the Companies Act 2016”. This is opposed to the phrase used in Exemption Order No. 1, which states that the Minister “exempts the provision which determines that any company shall be deemed unable to pay its debt if the company neglects a notice of demand to pay its debt within 21 days from service of the notice of demand ”. This change in wording reiterates the fact that all companies are exempted from Section 466(1)(a) of the Companies Act 2016, rather having the provision itself exempted.
  3. The Exemption Order No. 2 explicitly mentions that the exemption is “subject to the condition that any company shall be deemed to be unable to pay its debts under paragraph 466(1)(a) of the Companies Act 2016 if the company neglects any notice of demand by any creditor to pay its debt” within six months from the date of its service. While the Exemption Order No. 1 included a similar provision, it did not make clear that it was an express condition to the exemption, unlike Exemption Order No. 2. Ultimately, this means that companies are now given six months to respond to a statutory notice of demand.

Increase of the Winding-Up Threshold

In addition, the winding-up and/or indebtedness threshold amount was increased from RM10,000 to RM50,000 pursuant to the Direction of the Minister under Section 466(1)(a) of the Companies Act 2016. This, again, is applicable only between 23.4.2020 and 31.12.2020.

Conclusion

In light of the above, companies now have additional time to consider different alternatives to keep afloat, instead of being subject to potential winding-up petitions by creditors. Ultimately, Exemption Order No. 2 provided clarification to the uncertainties surrounding Exemption Order No. 1.

By Tommy Wong and Ryan Cheong

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