29 April 2020
On 25 March 2020, Myanmar’s new Insolvency Law (“Insolvency Law”) came into force, save for Part 10, which governs cross-border insolvency. The Insolvency Law brings the country’s insolvency regime up to date with personal, corporate and cross-border insolvency combined into a single, comprehensive legislation. Crucially, it presents companies facing insolvency with a new alternative to liquidation: rescue and rehabilitation. In light of the negative economic impact expected from the ongoing Covid-19 crisis, this enhanced insolvency regime may be a timely addition to Myanmar’s legal landscape.
Previously, the legislation governing the winding up of companies in Myanmar were the Companies Law 2017, the Yangon Insolvency Act 1909 and the Myanmar Insolvency Act 1920. The Yangon Insolvency Act 1909 and the Myanmar Insolvency Act 1920 have been repealed by and upon the enactment of the Insolvency Law.
The Insolvency Law augments the existing legislative framework with a modern insolvency regime that provides for the winding up, liquidation and rescue and rehabilitation of companies. It also introduces a separate rescue and insolvency regime for the micro, small and medium-scale enterprise (“MSME”) sector, which is intended to streamline the rehabilitation and liquidation process for a simpler and more cost effective system suitable for MSMEs.
This article focuses on the key features of the Insolvency Law which are expected to have an impact on companies in Myanmar.
Corporate rescue and rehabilitation
The Insolvency Law permits companies facing insolvency to choose between liquidation and a new option: corporate rescue and rehabilitation. The objectives of the new corporate rescue and rehabilitation proceedings are:
- rescuing the company as a going concern;
- if (1) is not achievable, ensuring that as much as possible of its business continues in existence; or
- if (1) and (2) are not achievable, achieving a better result for the company or MSME’s creditors as a whole than would be likely if the company were wound up.
Rehabilitation proceedings will be overseen by a rehabilitation manager (an insolvency practitioner required to be registered under the Insolvency Law) who will implement a rehabilitation plan approved by the company’s creditors. The rehabilitation plan constitutes a compromise between the company and its creditors and shareholders. If the rehabilitation proceeding concludes without creditors agreeing to enter into a rehabilitation plan or commence winding up, or no rehabilitation plan is executed within the time frame specified under the Insolvency Law, the company transitions to a creditors’ voluntary winding up.
Certain protections will apply to a company undergoing rehabilitation proceedings, for example:
- if a company is undergoing rehabilitation proceedings, no winding up proceeding may be commenced or proceed against it (except where permitted under Part V of the Insolvency Law);
- no action, proceeding or arbitration against the company or its property may be proceeded with or commenced without the leave of court or on such terms as the court may impose; and
- secured creditors may not enforce their security without the leave of court or the written permission of the insolvency practitioner.
MSME rehabilitation process
An “MSME” is defined under the Insolvency Law as an enterprise which has:
- if it is an incorporated MSME, at the time an application is made under Part VI of the Insolvency Law (which governs MSME insolvency), accumulated business debts to credits in a sum totalling not more 10,000,000 kyats (pursuant to the current draft of the Insolvency Rules 2020);
- if it is an unincorporated MSME, at the time an application is made under Part VI of the Insolvency Law, accumulated business debts of more than 1,000,000 kyats (pursuant to the current draft of the Insolvency Rules 2020).
The objectives and process of MSME rehabilitation are similar to those of corporate rescue and rehabilitation. However, a few key differences, which make the MSME rehabilitation process more flexible than that of corporate rescue and rehabilitation, are worth noting.
Under the corporate rescue and rehabilitation process, the function of the rehabilitation manager is to manage the affairs of the company, and he/she must take into his/her custody or under his/her control all the property to which the company is or appear to be entitled. The rehabilitation plan may be prepared by the rehabilitation manager or any interested party. The rehabilitation manager has personal liability in carrying out the obligations of the company under certain prescribed circumstances.
In contrast, under the MSME rehabilitation process, the function of the rehabilitation advisor is principally to advise and assist the MSME in the rehabilitation process. The rehabilitation plan must be prepared by the MSME, or by the rehabilitation advisor with the consent of the MSME. The rehabilitation advisor has no personal liability in respect of the debts and liabilities of the MSME subject to rehabilitation.
The Insolvency Law adopts the UNCITRAL Model Law on Cross Border Insolvency. In so doing, the Insolvency Law introduces a framework under which courts and other competent authorities in more than one state may cooperate in cases of cross-border insolvency, i.e. involving companies which have assets and/or creditors in more than one state. This development in the insolvency regime in Myanmar is a significant progression that brings it in step with international frameworks on corporate insolvency.