INSOLVENCY & GOING CONCERN: THE PRECURSOR TO COPRORATE RESCUE

This article was first published in The Malaysian Corporate Secretary Journal in Volume 80. This article is Part 1 of 4 of a piece on Corporate Rescue under the Companies Act 2016.

Introduction

Every company is conceived and created by entrepreneurs; from defining its purpose or raison d'etre, coming up with its guiding principles and values for its existence right down to its operating structures. The company has a life of its own in the eyes of the law quite distinct from the entrepreneur that conceived and created it. Its life can only be ended in the same manner it was created; through the operation of the law. Technically, companies can exist forever. However, its fate rests entirely in the hands of directors who operate and run the organization in accordance with the constitution of the company. In order to meet the purpose of the company, the company will need to face all the challenges that may come in its path, whether that may be from internal or external sources. The company either succumbs to these challenges or prevails over them.

A company does not operate in a vacuum but operates in a dynamic environment where there are many moving parts or variables - both internal and external. At the macro level, it consists of 'global forces' i.e. economical developments, demographics, politics, technological developments and social developments. The transactional level is the meso level and consists of 'market forces' such as suppliers, supply and demand, distribution, competitors and strategic alliances. And finally at the macro level - the organizational level involves forces that address the internal environment of the firm; vision, mission, strategy, resources, processes, products and services. A graphic representation of the complexity of this dynamic environment is shown in Figure 1.