The Government of Brunei Darussalam has introduced the Insolvency Order 2016 to consolidate all insolvency provisions previously located in the Companies Act (Chapter 39). This development is part of the Government’s initiative to help restructure companies that are either unable to pay off their debts or have liabilities that exceed the value of their assets.
Besides this, the Insolvency Order 2016 also incorporates several additional provisions adopted from the United Kingdom and Singapore.
Ultimately, the refined administrative and procedural provisions of the Insolvency Order are expected to boost the country’s ease of doing business (“EODB”) index and incentivise foreign investments.
These efforts by the Brunei Government have been praised by the World Bank Group for its comprehensiveness in addressing EODB issues that arise from introducing new reforms.
Company voluntary arrangements
Company Voluntary Arrangements (“CVAs”) is one of the major changes introduced by the Insolvency Order 2016.
CVAs allow companies the opportunity to restructure and revive themselves by arranging their repayment of debt plans with their creditors. Section 8 of the Insolvency Order 2016 provides further guidance on this matter.
Under section 8, companies may exercise one of the following restructuring options:
(i) A composition in satisfaction of its debts;
(ii) Restructuring of debts through restatements of assets and liabilities and agreement with creditors on maintaining payments;
(iii) Reorganising the company by restructuring the ownership and management of the company to lead to better decision making and execution; or
(iv) Any other acts as may be necessary for the rehabilitation or rescue of the company.
One of the key objectives of introducing CVAs is to protect the interests of both debtors and creditors and ultimately encourage better working relationships between the parties. Debtors, for instance, are protected from losing their businesses while creditors are ensured repayment of debts made.
Despite the existence of this new provision, however, it will be difficult to guarantee whether such restructurings will actually succeed in practice as such arrangements would only be ideal to creditors when debtor-companies may realistically be saved.
Companies that are applying for CVAs under the Insolvency Order 2016 may exercise the option of applying for a moratorium.
A moratorium is a legally authorised period of delay in the performance of a legal obligation or payment of debt. The moratorium essentially buys the company’s management some time to introduce a rescue plan to the company’s creditors.
A moratorium period lasts until the nominee summons the meeting of creditors which shall be within 28 days from the date when the moratorium comes into force. It may be extended but for not more than 2 months from the date the moratorium comes into force.
If you have any questions or require any additional information, you may contact Rozaiman Abdul Rahman or the ZICO Law partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice.