Myanmar Insolvency Law 2020

Introduction to Myanmar Insolvency Law 2020

The replacement of the Yangon Insolvency Act 1909 and the Myanmar Insolvency Act 1920 was made with the Myanmar Insolvency Law 2020 on 14, February, 2020. Thus, it came into effect on 25, March, 2020¹ and is followed up with the Myanmar Insolvency Rules 2020. The law was developed in cooperation with the Asian Development Bank (ADB), the Central Bank of Myanmar (CBM), the Ministry of Planning and Finance and the Directorate of Investment and Company Administration (DICA). The areas of which the Myanmar Insolvency Law2020 covers are 1) Rescue and rehabilitation of corporate enterprises, 2) insolvency of MSMEs, 3) winding up of a company, 4) Personal insolvency, and 4) Cross border insolvency by adopting the United Nations Commission on International Trade Law (UNCITRAL) Model Law². It must be noted that this Myanmar Insolvency Law 2020 only may be applied in the insolvency case of a company although the means of insolvency is also provided in Myanmar Companies Law 2017.

Definition of the Terms Hence, the body corporate or related body corporate refers those holding company of the body corporate, a subsidiary of the body corporate or a subsidiary of a holding company of the body corporate³.

The term ‘Company’ means a company incorporated and registered under the Myanmar Companies Law 2017⁴.

Moreover, the interpretations of the terms used under the Myanmar Insolvency Law 2020 are as follows-

(e) ‘bankrupt’ means a person against whom a bankruptcy order has been made under Part XIII because they cannot repay their debts

(f) ‘bankruptcy order’ means an order adjudicating a natural person bankrupt due to him or her being unable to repay their debts

(x) ‘insolvent’ means unable to pay debts as and when they become payable

(y) ‘liquidator’ means a person appointed under Part VII of this Law to wind up a company⁵

The law mainly provides three steps for the company facing insolvency, thus, generally;

1. Rescue of corporate enterprises
2. Rehabilitation of corporate enterprises
3. Winding-up of a company

Corporate Rescue and Rehabilitation Mechanism (CRPM)

The main crucial part of the law is to provide an alteration for the companies facing insolvency to proceed the following instead of being insolvent immediately:

1. To rescue the company to enables to continue operating its business
2. If not possible, to law enables the continuation of the existence of the company
3. If not, to have a better result other than being the company liquidated⁶

The law provides two stages in the rehabilitation proceedings as 1) the company Rescue Stage, 2) the company Plan Stage.⁷ In the Rescue Stage, the most suitable means of rehabilitation is to be resolved and creditors decides the future of the company.⁸ In the Plan Stage, the chosen rehabilitation plan is approved by the creditors and the plan is implemented.⁹ The rehabilitation plan commences when the rehabilitation manager is appointed in accordance with Section 47 and ends when the Plan Stage initiates or only when the liquidation of the company initiates if there is no Plan Stage.¹⁰ The Plan Stage commences when the creditors approved and concludes by the filing notice to the Registrar or by the order of the Court to terminate the rehabilitation plan under Section 87 or by the decision of creditors to wind-up under Section 85 or 86. The company itself or the liquidator or the directors or the creditors may appl to the Court to initiate the rehabilitation plan.¹¹ The Rehabilitation Manager may call the meeting of the creditors within three months of his appointment in order to draw up the rehabilitation plan.¹² The rehabilitation plan may be implemented when the creditors approve the plan at the meeting.¹³

The rehabilitation plan may be terminated by two means;

• by fulfilling the claims of the creditors have been and notice of the termination will be delivered to the registrar¹⁴
• if there is a breach of plan or omit to conduct as provided under Section85(a) or fail to remedy for the breach by the meeting of the creditors¹⁵

The rehabilitation plan may be varied by receiving the request letter from the bord of directors of the company or when the plan supervisor is of the opinion that there is or there might be a breach of material stipulations.¹⁶

The court may terminate the rehabilitation plan by its order as follows;

1. businesses of the company, assets, financial conditions and the other vital information has been delivered falsely, or left out the information with the intention to mislead the creditor
2. there was a misconduct as there was a material irregularity at the meeting of the creditors
3. only the related persons of the associates of the company vote at the resolution to enter into the rehabilitation plan
4. conditions of the plan is oppressive or discriminate or is contrary to the creditors of the company
5. the person bound by the plan conducts contrarily to the rehabilitation plan
6. the rehabilitation cannot be effected without injustice or undue delay
7. the plan supervisor has acted by the means that is inconsistent with the rehabilitation plan¹⁷

The rehabilitation plan may be conversed to wind-up due to;

1. creditors resolve that the plan to be terminated
2. if the rehabilitation commences without the agreement to enter into the plan of the creditors or no rehabilitation plan within the time period specified in Section 75.
3. The creditors decide to liquidate the company at the meeting
4. The Court resolves the company to wind-up ¹⁸

Transitions to the winding-up is taken once the rescue or rehabilitation plan is terminated as follows;

Transition to Winding- Up

Transition to the creditor’s voluntary winding-up of a company commenced when creditors resolve that the rehabilitation plan to be conversed¹⁹or terminated²⁰ when the creditors do not agree to enter into a rehabilitation plan or agree to commence winding up or if there is no execution of the rehabilitation plan²¹, when the creditors resolve the company to be wound up according to the order of the Court²². In the case of voluntary liquidation, it does not bar the right of any creditor or contributory to submit application for the liquidation of the company.²³

Then, the liquidator is to be appointed in order to wind up the company’s affairs and distributing its assets. The liquidator can be the Rehabilitation Manager or Plan Supervisor before the commencement of the Transition if the creditor is unable to appoint different liquidator²⁴ and the liquidator shall lodge a written notice [^Form 3(Notice of Appointment)] under the Insolvency Rules 2020 (which rules) with the Registrar within five business days of the Transition²⁵.

Winding-up of a Company

The institutions can be wound-up under are those (i) registered under the Myanmar Company Law, (ii) a body corporate registered under Section 3 of the Myanmar Companies Law, (iii) unregistered companies provided under Division 10 of the Myanmar Insolvency Law 2020.²⁶

The company commences voluntary winding-up (1) when the stipulated terms provided under the constitution of a company ends, or (2) by the means of special resolution of the company to wind-up.²⁷The Myanmar Insolvency Law 2020 provides the following three means that can be used by a company in order to liquidate namely;

1. Member’s voluntary winding-up
2. Creditors’ voluntary winding-up
3. Winding-up by the Court

Therefore, a company can be wound-up by voluntarily or by the order of the Court.

A. Member’s voluntary winding-up

In order to wind-up a company voluntarily by its members, a statutory declaration of solvency has to be made by the majority of the directors the circumstances stipulated in Section147 (a)(i) or (ii) occurs. The declaration must be made after the full inquiry into the company’s affairs by the directors and if they are of the opinion that the company will be able to pay its debts in full, within a period not exceeding one year from the commencement of the winding-up²⁸ .

However, the declaration have no effect either if it is not made within 3 weeks before passing the resolution for the winding up or omission to make a statement consisting of the company’s assets and liabilities before making of the declaration of the solvency²⁹ .

In a process of members’ voluntary winding up, the liquidator must be appointed at the general meeting in order to wind-up the company or to distribute the company’s assets. The liquidator must file the letter of confirmation to the appointment³⁰. If the liquidator is of the opinion that the company is unable to pay its debt in full, the liquidator is to issue the notification letter to commence the creditor’s meeting within 5 days³¹.

When it is found the company to be wound-up at the creditor’s meeting, the members’ voluntary winding up will be altered to a creditor’s voluntary winding-up³².

B. Creditor’s voluntary winding-up

A creditors’ voluntary winding-up falls upon the calling for a meeting of its creditors on the day which the company is to pass the resolution for a voluntary winding-up. The letter of notification of the meeting shall be sent to the company’s creditors not less than 14 days before the meeting. The directors have the liabilities to issue the declaration related to the company matters³³. The directors shall be fined no more than MMK1,250,000 if there is any omissions to fulfill the duty stipulated under sub-section (a). A liquidator shall be appointed by the creditor, if not the company shall appoint one.

Thus, the distinction between the members’ voluntary winding-up and creditors’ voluntary winding-up is where the former has been done with the statutory declaration of solvency and later with no declaration.³⁴

C. Winding-up by the Court

In order to wind up a company registered under the Myanmar Companies Law, the District Courts of each State, Region, Self-Administered Division and Self-Administered Zone of the Union are vested jurisdiction to proceed. ³⁵A company may be wound up the Court (a) when the company has special resolution to wind up the company by the Court, (b) when the business cannot be commenced within a year or suspends its business for a whole year, (c) when the company is insolvent, (d) when the Court is of the opinion that it is just and equitable that the company should be wound up and (e) the Court is satisfied that there are proper grounds of public interest³⁶.

It shall be deemed that a company shall not be able to pay the debt of 1,000,000 when the debtor cannot pay the debt owed, secured or omit to reach the creditors’ satisfaction after receiving the written demand as prescribed in the Form 9³⁷.

A director or directors or a creditor shall present a petition for an application to the court for the winding up of a company. Additionally, the grounds provided in Section 161 also grants the contributories and the Registrar to apply a petition to the Court.

The Court is to appoint the liquidator once a court ordered to commence winding-up of a company. A nominee of the applicant or the official receiver must be appointed by the Court as a liquidator and they must consent in writing to be tendered to the Court for the appointment to be effective³⁸.

Contributories

Although a person who suspended his position as a member of the company for more than before the commencement of the liquidation do have any responsibility³⁹, they still have the liability to pay debt if the Court is of the opinion that the current members cannot repay the required debts they owed⁴⁰.

Winding-up of the Unregistered Companies

Other body institutions, corporations, overseas corporation, partnership, association or a body corporate established under any other existing law, without being registered under the Myanmar Company Law 2017 falls under the title of the ‘unregistered company’⁴¹.

The unregistered company can be wound up under the following conditions⁴²;

• The company is terminated or ceased to carry on a business or carrying out the business only to wind-up
• The company cannot pay the full amount of debt
• The court is of the opinion that it is just and equal to wind up the company

If the order to wind-up the unregistered company has been passed by the Court, the company shall not initiate or continue any measures upon its debtors, except with the permission of the Court and those rules stipulated by the court⁴³.

Case Study

Myanmar Economic Holdings Public Company Limited Vs. Myanmar Brewery Limited, 2021

In this case, the plaintiff (Myanmar Economics Holdings Public Company Limited) filed a complaint against the defendant (Myanmar Brewery Limited) at the court. The compliant to issue an order to the court to liquidate the company against Myanmar Brewery Limited as the company omits to pay taxes and profits to its partners. However, the court rejected the plaintiff’s complaint based on the following grounds;

1. The Plaintiff filed the case to the court by referring 298(f) of the Myanmar Companies Law, 2017
2. However, the defendant opposed by referring the new provision namely Myanmar Insolvency Law2020 was implemented and also due to the provisions stipulated under 1973 Interpretation of Expression Law
3. The discretion of the court is that;
   1. Myanmar Companies Law2017 was enforced on 1,8,2018 and Myanmar Insolvency Law 2020 was enforced on 25,3,2020
   2. So, according to Section 3 of the 1973 Interpretation of Myanmar Expression Law, the new laws shall be prevailed the old laws and thus the old laws shall become Defunt provision.
   3. According to Section 418(A) of the Insolvency Law, winding-up of the companies, incorporations, MSMEs and partnerships or unincorporated MSEMs must be carried out under this law, notwithstanding Part V of the Myanmar Companies Law 2017.

As the plaintiff refers only to Myanmar Companies Law 2017, not Myanmar Insolvency Law2020, Part V of the Myanmar Companies Law 2017 is a nullified provisions and the application is a Non-Maintainable Petition and thus the application is rejected.

Conclusions

The Myanmar Insolvency Law 2020 is the milestone for the betterment of the commercial law regime. The law is the result of the integration of Yangon Insolvency Act 190 and Myanmar Insolvency Act 1920. The new law provides the corporate rescue and rehabilitation mechanism instead of winding-up of the company immediately unlike the old laws. It also provides the means towards winding up of a company and vested jurisdiction to the Court in order to proceed9 the liquidation process if the debt owed by the creditors is unable to be paid by the company. The Myanmar Insolvency Law 2020 aims to help the jeopardized business and MSMEs and is thus crucial towards strengthening the market economy of the country, Myanmar.