On 14 February 2020, Myanmar’s Parliament (Pyidaungsu Hluttaw) enacted the new Insolvency Law (“the Law”)[1]  which came into force on 25 March 2020 except for Part X relating to cross border insolvency which shall be effective only when the President issues a notification. The Law modernises the legal framework for corporate insolvency and individual bankruptcy in Myanmar and repeals the archaic Yangon Insolvency Act 1909 and the Myanmar Insolvency Act 1920. The passing of the Law is lauded as a welcomed moved which follows the trend of modernisation of pre-independence laws in Myanmar that have happened in recent years such as the Myanmar Companies Law in 2017 and the suite of intellectual property laws being the Trademark Law, Industrial Design Law, Patent Law and the Copyright Law in 2019.

The objectives provided under the Law inter alia states that it is to:

• provide an appropriate structure for supervision and administration of insolvency proceedings and to develop insolvency practitioners who can administer the regime effectively;
• provide predictable and consistent outcomes for parties involved in insolvency proceedings;
• provide timely, efficient and impartial resolution of insolvencies’
• facilitating the rescue and rehabilitation of viable businesses notably for micro and small to medium enterprises (“MSMEs”); and
• provide an efficient liquidation process for non-viable businesses.

The Law is in its very nascent stages having only been recently passed and implementing agencies would likely require more time to be set up. Notwithstanding this, we set out some key features which may be useful for persons seeking to understand some salient features of the new Law.

Meaning of Insolvent and Bankrupt under the Law

The definitions provided under the Law are straightforward and relate to an inability to pay debts. It notably distinguishes between corporate insolvency and individual bankruptcy that was not previously apparent under the old regime.

“Insolvent” means unable to pay debts as and when they become payable.

“Bankrupt” means a person against whom a bankruptcy order has been made under Part VIII due to inability to repay their debts.

“Bankruptcy Order” means order adjudging a natural person bankrupt due to him or her being unable to repay their debts.

For purposes of this article, being Part 1 in a two part series, we will be focusing on corporate insolvency matters particularly on the new feature under the Law for corporate rescue and rehabilitation proceedings.  Part 2 will be released in the ASEAN 10/10 September issue which will discuss in detail the winding up processes and the liquidator’s powers and duties under the Law.

Regulation of Insolvency Practitioners and Formation of Insolvency Practitioners’ Regulatory Council

Firstly, we find it useful to set out that a new Insolvency Practitioners’ Regulatory Council (“Regulatory Council”) will be formed as an independent body to regulate persons defined as “Insolvency Practitioners” who are intended as a whole to administer the new regime effectively.

Person who are appointed as Insolvency Practitioners include:

1. receiver;
2. rehabilitation manager;
3. rehabilitation adviser;
4. supervisor of a rehabilitation plan;
5. liquidator including provisional liquidator; and
6. trustee.

The Law provides for a registration framework where the Insolvency Practitioner is required to obtain a Practicing Certificate which may be renewed annually provided that such person is not disqualified pursuant to the Law, such as the person may not be an undischarged bankrupt or have committed any offences.

The Regulatory Council will be comprised of both public and private sector representatives such as the Auditor General, Chairperson of the Central Bank of Myanmar, the Registrar (being the Directorate of Investment and Company Administration), Chairperson of the national level business chambers in Myanmar being the Union of Myanmar Federation of Chambers of Commerce and Industry, Chairperson of the Myanmar Bar Council, Chairperson of the Myanmar Securities Exchange, Chairperson of the Insolvency Practitioners Association (“IPA”) together with five other members (when formed) and prior to such formation of the IPA, the Chairperson of the Myanmar Institute of Certified Public Accounts (“MICPA”) together with five other members of the MICPA.

The role and function of the Regulatory Council are set out in section 16 of the Law. The Regulatory Council largely functions as the regulator with inter alia the following powers:

1. the issuing authority of Practicing Certificates;
2. to hear and determine complaints against Insolvency Practitioners; and
3. to prescribe practice standards, ethical standards, programs, guides, standards, manuals and quality control programs for insolvency practice.

Corporate Rescue and Rehabilitation

A new key feature in the Law is the ability for companies and MSME’s to opt for rehabilitation proceedings instead of the traditional winding up/liquidation route. This feature is a powerful mechanism as it essentially grants a lifeline for viable business to restructure and maintain itself as a going concern or if this is not achievable, to ensure that as much as possible, parts of the business continues. The Law also balances rehabilitation proceedings against the objective of ensuring that if the aforesaid going concern and continuity of business cannot be achieved, then such rehabilitation proceedings are intended to achieve a better result for the company’s creditors as a whole than if the company were to be wound-up (collectively “Rehabilitation Objectives”).

The nature of rehabilitation proceedings include:

1. Rescue Stage: options for rehabilitation are explored and a decision on the future of the company is made by creditors; and
2. Plan Stage: creditors resolve to approve a rehabilitation plan and the plan is implemented.

Rescue Stage

The Rescue Stage commences with the appointment of a “Rehabilitation Manager” and may be commenced by:

• the company itself;
• a secured creditor who holds security over all or a majority of the company’s property; or
• by an order of Court.

The principal functions of the Rehabilitation Manager is to manage the affairs of the company whilst investigating options for achieving the Rehabilitation Objectives. Further, where a rehabilitation plan (“Plan”) is proposed to the creditors, the Rehabilitation Manager must investigate the viability of the proposed Plan, investigate the likely return to creditors if the Plan is approved, compare the likely return to creditors if the Plan is not approved against the returns if the company is wound up and issue a report setting out the Rehabilitation Manager’s views and opinions on each of the above matters, including a recommendation whether creditors should vote in favor of the Plan.

The Rehabilitation Manager’s duty to perform is not in the company’s interest but in the interest of the company’s creditors as a whole. The Rescue Stage sets out consequences for a company in that:

1. no actions, proceedings or arbitration against the company or its property may be proceeded with or commenced except by leave of Court or on such terms as Court may impose;
2. there can be no disposition of company’s property without consent of the liquidator (the Rehabilitation Manager exercises these powers during the Rescue Stage) or unless the Court otherwise orders;
3. no attachment, sequestration, distress or execution can be put in force against the company or its property; and
4. no transfer of shares or any alteration in the status of company members;

Given that Rehabilitation Proceedings are intended as a lifeline for the company, there are protections granted in favour of the company, such as that no steps may be taken during the Rescue Stage to enforce, or to continue to enforce, security over property of the company without leave of Court or written consent of the Rehabilitation Manager. This means that even secured creditors are barred from enforcing its security unless with leave of Court or written consent by the Rehabilitation Manager is obtained. Notwithstanding such requirement for leave or written consent, it is noted that secured creditors remain protected as section 61 states that the Rehabilitation Manager must not deal with property if it may prejudice the interest of the secured creditor. The Rescue Stage concludes when the Plan Stage is commenced or in the event the Plan Stage is not carried out, then with the commence of the company’s liquidation.

Plan Stage

Firstly a creditors meeting has to be convened where due notice of the Plan is required to be given and the requisite majority approves the Plan. The requisite majority in this case means:

1. creditors whose value of claims equal or exceed 50% of the total claims of creditors voting; and
2. creditors in number that equal or exceed 50% of the total number of creditors voting at the meeting.

The Plan Stage commences when the Plan is approved by the majority. The Rehabilitation Manager must prepare a formal document to record the Plan’s terms, make arrangements for such document to be signed on behalf of the company and the Plan Supervisor. Upon signing, the Plan Stage officially commences.

A Plan Supervisor is appointed pursuant to the Law whose role, functions and duties are to implement the Plan and in exercising his or her functions acts as an agent of the company. Notably, the Plan Supervisor is supervised by Court and may consequently apply to Court for any directions in relation any matters arising in connection with the performance of his or her functions as Plan Supervisor.

Similar to the Rescue Stage, there are protections afforded to the company which include:

1. if at the time the Plan take effect, winding up summons remain pending before the Court or winding up proceedings earlier commenced have been stayed, the Plan Supervisor must file a notice of his or her appointment and the Court must as appropriate, dismiss the winding up summons or set aside any winding up order; and
2. a Court may limit rights of a secured creditor to realise or otherwise deal with its security interest other than consistent with the terms of the Plan (provided that the Court is satisfied that the absence of such order would have a material adverse effect on achieving the purposes of the Plan and the terms of the order or any other relevant matter adequately protect the interest of the secured creditor).

The above protections afforded are significant as it essentially provides time for the company to achieve its Plan, which will not be possible if there are winding-up suits or orders standing against the company and/or secured creditors being able to realise security which may be vital to the operations of the company is order to execute the Plan.

Variation or Termination of the Plan

Having discussed some of the salient features of the Rehabilitation Proceedings, it is important also to consider whether the Plan may be varied or terminated if its objectives have not been met. The Law provides a framework for variation or termination of the Plan which are based on the requisite voting majority of the creditors whether being a:

1. “Double Majority” means that both of the following majorities are achieved:
   1. creditors the values of whose claims equal or exceed 50% of the total of claims of creditors voting at the meeting; and
   2. creditors in number that equal or exceed 50% of the number of creditors voting at the meeting.
2. “Split Majority” means a vote where one out of two of the majorities identified in the definition of Double Majority is achieved.

The Plan may be varied or terminated if a Double Majority vote is achieved or in the case of a Split Majority, the Plan Supervisor has a casting vote. If the Plan is terminated, the company shall immediately be subject to winding-up proceedings and a transition is made to a creditors’ voluntary winding-up and a liquidator is appointed for the purpose of winding up the company’s affairs and distributing its assets.

The introduction of the corporate rescue and rehabilitation mechanism provides companies with the option to restructure their commitments with the aim to allow the business to continue. It provides companies with an alternative to the traditional winding up/liquidation route. Part 2 will discuss in detail the winding up processes and the liquidator’s powers and duties under the Law.

If you have any questions or require any additional information, please contact Geraldine Oh or the ZICO Law Myanmar partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

[1] We note that as at the date of writing, there is no official English translation of the Insolvency Law 2020 and our article set out here is based on an unofficial English translation of the said Law.