One by the Judicial Manager. If more than 50%

One of the problems within the scope of Insolvency system in which the Companies Act 2016 seeks to redress is, the issue of viable companies that are having financial distress especially due to economic crisis.Judicial Management gives a chance to the viable companies to rehabilitate and restore their profitability as provided under Section 404(b) of the Companies Act which states “the application to Court for a company to be placed under the administration of Judicial Management when there is a reasonable probability of rehabilitating the company or of preserving all or part of its business as a going concern or that otherwise the interests of creditors would be better served than by resorting to a winding up”.The question to be discussed at this juncture is, what are the functions of the debtors and creditors and whether their rights and interests are protected under Judicial Management.When the application of judicial management is made ,a moratorium will be in force to prevent any winding up order or any other legal proceedings against the company, including enforcement proceedings by secured creditors except with the leave of court.The company or debtor has the duty to comply with the the order and proposal made by the Judicial Manager.Besides that, the company or debtor will be restrained form doing certain activities in which the judicial manager has taken its place and to be managed by the judicial manager.Judicial Management’s main objective is to protect the debtor company against creditor claims.This mechanism is imposed to ensure security over the company by allowing the company to continue its business and provide it with a much needed reprieve while it attempts to nurse itself back to financial health. Since the running of the company is taken over by the Judicial Managers, it is viewed that the company will be placed into  the hands of creditor-friendly management.In Singapore, the creditors plays a role to decide whether to approve the proposal made by the Judicial Manager. If more than 50% in number and value of creditors approve,the judicial manager is obliged to manage the company’s affairs, business and property in accordance with the proposals. Similarly in Malaysia, under section 421 of the Companies Act 2016, provides the function of the creditors to decide whether to approve the judicial manager’s proposal after being summoned.The approval is done by 75 per centum of the total value of creditors whose claims have been accepted by the Judicial Manager, present and voting at the meeting either in person or by proxy.The protection of the creditors’ interests and rights can be seen under section 425 of the Companies Act 2016 that provides if the Company’s affairs, business and property are being managed in a manner that is unfairly prejudicial to the interests of its creditors or members generally or of some part of its creditors or members, or of a single creditor representing 25 per cent in value of the claims against the company or if there is any proposed act or omission of the judicial manager, the creditor may apply to the court for an order to regulate the future management by the judicial manager, require a meeting of creditors or members to consider such matters as the court may direct, or discharge the judicial management order.From this provision, it shows that the creditor’s rights and interests are protected from being prejudiced or omission during the administration of  the judicial management.Similarly in Singapore, the Judicial Management procedure will give the creditors a chance of obtaining a greater recovery of the debts owed as the Judicial Managers will try to nurse the company back to solvency. Thus, the imposition of  moratorium is to ensure , the risk of asset depletion from other creditor claims are controlled and supervised by the Judicial Manager. However, it may be a disadvantage for secured creditors who want to enforce their security during the moratorium period since the company’s assets are controlled by the Judicial Manager.But the creditors may do so with the leave of court.If the Court opines that there will be a greater loss to the company and  if the leave is granted to the applicant, then the Court will refuse to grant leave to the applicant who wants to enforce their security and thus the moratorium period stays.To conclude at this juncture, the debtors and creditors’ rights and interest are uphold during the imposition of Judicial Management to a certain extent.The Judicial Manager has to act impartially and fairly against both parties.This is to ensure that the company can be revived and the creditors can recover the debts owed by the company since the Judicial Manager will try to aid the company’s financial breakdown.

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