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the current statutes were not efficient enough to allow companies to detect problems
at the earliest possible stage and to avoid their collapse. In addition, financial and
private sectors also contributed to corporate failures and hence the law and
government‟s policies need to be reformed in order for the businesses to remain
competitive in the global market.
In response to the crisis, the government made some amendments to the provisions
of the Companies Act 1965. The purpose of these amendments was to ensure
transparency in the transactions and to overcome weaknesses identified in corporate
governance. One of the shortcomings of the current company legislation is the lack
of rescue mechanisms for companies in financial difficulties. The only such
mechanism is available under section 176 of the Act which stipulates the power to
compromise with creditors and members. Companies in financial difficulties had
resorted to section 176 to avoid liquidation due to the dearth of any other
alternatives. 211
To remedy these weaknesses, the provision in section 176 was amended with the
objectives to:
a) Ensure transparency in obtaining protection orders;
b) Ensure creditors are protected by having strict time periods for applications to
extend protection orders;
c) Prevent disposition of assets; and
d) Enable creditors to decide the viability of the proposals by requiring the
company to make full disclosure at an early stage. 212
211
CLRC above n58 at 12. Although heavily relied on during the financial crisis, the mechanism in
section 176 has several weaknesses;,
a) The provision did not specify the timeframe for companies to make with proposals. The
companies have thus used this as an opportunity to delay obligations towards creditors rather
than making any proposals in a genuine attempt to compromise;
b) The management which was responsible for the company‟s financial difficulties was allowed
to take charge and manage the company which might result in disposition of its assets to the
detriment of creditors; and
c) The provision did not specify the period of protection accorded to the company.
212 Ibid.
59