In Part 1, we analysed the new corporate rescue and rehabilitation proceedings which is a key feature in the modernisation of Myanmar’s legal framework for insolvency. In Part 2, we will examine the next steps in the life-cycle of insolvency proceedings. Companies who were unsuccessful in the corporate rescue and rehabilitation plan, will transition to a winding-up processes. We also discuss other circumstances of a winding-up, namely members and creditors voluntary winding up, followed by a court-ordered winding-up. Finally, we will examine the liquidator’s powers in the context of his or her general functions in such a winding-up and liquidation process.

Transition to winding up from an unsuccessful rehabilitation plan

The rehabilitation Plan may be varied or terminated if a Double Majority vote is achieved or in the case of a Split Majority with the Plan Supervisor exercising the casting vote. If the Plan is terminated, the company will immediately be subjected to winding-up proceedings and transition is made to a creditors’ voluntary winding-up (“Transition”). In a Transition, the winding up is taken to have commenced at the time of commencement of the rehabilitation process, not at the time of the creditors’ voting. The next step is the appointment of the liquidator for the purpose of winding up the company’s affairs and distributing its assets. The liquidator shall be the Rehabilitation Manager or Plan Supervisor immediately prior to the Transition unless the creditors resolve to appoint a different liquidator.

Upon the appointment of the liquidator’s, he or she must, within five business days of the Transition, lodge a written notice (Form 3 (Notice of Appointment) provided under the Insolvency Rules 2020 (“Rules”)), with the Registrar and cause the notice to be published a daily newspaper in Myanmar within five business days of the date of the notice.

Once a liquidator has been appointed, the following consequences applies to the company:

• the corporate state and powers of the company continues until the company’s dissolution;
• the company must cease to carry on its business, except as required for its beneficial winding up;
• ceasing of all the Directors powers (except where the liquidator approves its continuance);
• no action, proceeding or arbitration against the company or its property may be proceeded with, or commenced, except by leave of the Court or on such terms as the Court may impose;
• any disposition of the company’s property without the consent of the liquidator is void unless the Court otherwise orders;
• any attachment, sequestration, distress or execution put in force against the company or its property after the commencement of the liquidation is void; and
• any transfer of shares, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the company’s members arising from the transfer, made after the appointment of the liquidator, is void.

It is also worthy to note that where any creditor has issued any execution or attachment against the goods or property of the company, the creditor is not entitled to retain the benefits such execution or attachment if the execution or attachment was not completed before the commencement of the winding up.

Other winding-up processes

Other than the Transition to a winding-up as stated above, a company may also be wound-up in other ways, namely a members’ voluntary winding up, creditors’ voluntary winding-up or a winding-up by Court. The salient point of each winding-up process is set out below.

A. Members Voluntary Winding-up

The process for a members’ voluntary winding-up are governed under Part VII – Division 2 of the Insolvency Law 2020 (“the Law”). Voluntary winding-up commences, (i) where the constitution fixed a period for the duration of the company, or, more commonly where (ii) a company resolve by special resolution that the company be wound up voluntarily.

Where voluntary winding-up is proposed, the majority of directors must make a statutory declaration that they have made a full inquiry into the company’s affairs and formed the opinion that the company will be able to pay all of its debts (with interest) within a period not exceeding one year form the commencement of the winding up (“Declaration of Solvency”). The Declaration of Solvency must:

• be made within three weeks before the passing of the special resolution for winding up; and
• include a statement of the company’s assets and liabilities as at that day before the making of the Declaration of Solvency.

In a general meeting, the company must appoint a liquidator for the purpose of winding-up the company’s affairs and distribution of its property. Once appointed, the liquidator must file the notice of appointment, together with the Declaration of Solvency, with the Registrar within two business days of his or her appointment. Where the liquidator comes to the opinion that the company will be unable to pay its debts within the period stated in the Declaration of Solvency or within a further period considered by the liquidator to be reasonable (“Finding of Insolvency”), the liquidator must summon a creditors meeting in accordance with the procedures under the Law. A statement of the affairs of the company must be provided to the creditors before the creditors’ meeting. Where a creditors’ meeting is held pursuant to the Finding of Insolvency, the members voluntary winding-up will be converted to a creditors’ voluntary winding-up.

B. Creditors’ Voluntary Winding-up

The distinction between a members and creditors’ voluntary winding up is when the Declaration of Solvency was made. If there is a Declaration of Solvency it is a members’ voluntary winding-up. Where there is no Declaration of Solvency, it is a creditors’ voluntary winding up (section 148 of the Law).

A creditors’ voluntary winding-up commences when the company calls for a meeting of its creditors, on the same day the company proposes to pass the resolution for a voluntary winding-up. Prior notice of the creditors’ meeting must be sent by post to all the company’s creditors (appearing in its books or otherwise known to the company) not less than 14 days before the date of the creditors meeting (Rule 31(g)). A notice given to a creditor must be accompanied by the following documents for completion by or on behalf of the creditor:

• draft form enabling the creditor to prove its debt or claim for the purposes of the meeting; and
• a draft proxy form for the appointment of proxies to attend and vote at any meeting convened under the Law.

A notice of the creditors’ meeting must be advertised in a daily newspapers in Myanmar. When the creditors’ meeting is convened, the directors of the company must provide a statement of affairs of the company before the creditors. Such statement shall be in the prescribed form and content as provided under the Rules.

Any director failing to provide such statement of affairs without reasonable excuse commits a breach of statutory duty liable to a fine by the Registrar in an amount not exceeding MMK1,250,000. During the creditors’ meeting, a liquidator must be appointed for the purpose of winding-up the company’s affairs and distributing its assets. If the creditors fails to appoint a liquidator, then one may be appointed by the company.

C. Winding-up By Court

A Court ordered winding-up differs from a voluntary winding-up in the sense that there are a number of circumstances to which a court winding-up may occur. Section 161 of the Law sets out the following circumstances:

• the company has by special resolution resolved that the company be wound up by the Court;
• the company does not commence its business within a year from its incorporation or suspends its business for a whole year;
• the company is insolvent;[1]
• the Court is satisfied that it is just and equitable that the company should be wound up; or
• the Court is satisfied there are proper grounds of public interest. Grounds of public interest could be where the company has no directors or the company has carried on business with intent to defraud creditors of the company or any other person, or for any fraudulent purpose.

A Court ordered winding-up commences by the filing of a winding-up petition by a director or a creditor (including contingent or prospective creditor). During the hearing of the winding-up petition, Court may make the following orders:

• order the winding up of the company and appoint a liquidator;
• dismiss the petition;
• adjourn the hearing conditionally or unconditionally;
• make an interim order; or
• make any other order.

Once an order for the winding-up of the company has been made, the Court must also appoint a liquidator. The liquidator must be appointed from the following persons and their consent in writing must be tendered to the Court for the appointment to be effective:

• a nominee of the applicant for the winding up order; or
• where no person is nominated, the Official Receiver[2] must be appointed by the Court.

Liquidator’s powers and duties

Section 177 sets out the general functions of the liquidator:

• to ensure the property of the company is brought under his or her control and management and payments are distributed to the company’s creditors and where there is surplus, to its shareholders;
• use their discretion in the management of the company’s property and its distribution among the creditors within the limitations imposed by the Law; and
• summon general meetings of the creditors or contributories for the purpose of ascertaining their wishes. It is the liquidator’s duty to summon for meetings at such time as the creditors may direct, or whenever requested in writing to do so by creditors who hold at least one-tenth of the total value of creditors’ claims.

The liquidator has powers to apply to Court for an order that all or any part of the property of the company will vest in the liquidator under his or her official name. Further, section 179 sets out specific powers of the liquidator which inter alia includes, to:

• carry on the business of the company so far as is required for the beneficial management or winding up of that business;
• pay any class of creditors in full (subject to the general provisions under the Law);
• make any arrangement with creditors or persons claiming to be creditors or having any claim against the company; and
• make any arrangement, calls, debts,[3] liabilities and any claims between the company and a contributory or other debtor, and all disputes in any way relating to or affecting the property or the winding up of the company, and give a complete discharge in respect of, any such call, debt, liability or claim.

Other powers that the liquidator have includes, to:

• bring or defend any legal proceedings;
• sell or otherwise dispose of, in any manner, all or any part of the property of the company;
• execute, in the name and on behalf of the company, deeds, receipts and other documents and for that purpose use when necessary the seal of the company;
• obtain credit, whether on the security of the property of the company;
• take any act necessary for obtaining payment of any money due from a contributory or debtor;
• appoint an agent to do any business that the liquidator is unable to do, or that it is unsuitable for the liquidator to do, in person; and
• do all such other things for the company’s affairs as are necessary for winding up the affairs of the company and distributing its property.

The liquidator has a duty to report to the Registrar a statement in the Form prescribed in the Rules (Form 10 – Liquidator’s Annual Report), the particulars and status of the winding-up (if it is not completed within one year of the commencement of the winding up) and a report submitted annually until winding up is concluded. If the liquidator without reasonable excuse fails to comply with such reporting, the liquidator may be held personally liable to a fine of an amount not exceeding MMK100,000 or be directed by Court to make such reporting.

Conclusion

The trend of modernising archaic laws continues in Myanmar, and the Insolvency Law 2020 is no exception. With the ever increasing economic activity and continued development of Myanmar, a modern regime under the law is welcomed by stakeholders in Myanmar. It will however need to be ensured that the positive effects of the Law is achieved through effective and timely implementation of the surrounding framework, such as the formation of the Insolvency Practitioners’ Regulatory Council and the appointment of Insolvency Practitioners as envisaged under the Law.

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

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

[1] A company may be presumed to be insolvent if a creditor, whom the company is indebted to for a sum exceeding MMK1 million (approximately USD700), serves a payment notice and the company neglected payment for 21 days afterwards or a creditor submits an execution or other process issued on a judgment or order of Court, and it remains unsatisfied in whole or in part (section 161(c)).

[2] It is noted that the office of the Official Receiver has yet to be formed and this role may likely fall back on the private insolvency practitioners or that one must be nominated by the application for the winding-up order. Upon appointment of the liquidator, the liquidator will similarly summon a creditors meeting and, similar to a voluntary winding up, the duties of the liquidator commences for the winding up the company’s affairs and distributing its assets.

[3] It is however noted that a liquidator of a company must not compromise a debt to the company if the amount is more than a minimum amount prescribed by the Insolvency Rules 2020, which is MMK10 million (approximately USD7,200 at the time of writing).