deloitte taxmax - the 46th series future of finance

Ho Sai Weng l 25 November 2020

Deloitte TaxMax - The 46th seriesFuture of Finance

Deloitte TaxMax – The 46th series© 2020 Deloitte Tax Services Sdn Bhd 2

With the level of development in finance being disrupted by the introduction of new technologies, the need to rethink and transform the role and value-add of finance has become increasingly significant.

The role of finance is rapidly changing

AThe gap between the lowest and leading functions has never been larger.

Ad

ded

valu

e

Lowest

quartile

performed

(Leading)

Finance of

tomorrow

Desktop computing

Decentralorg.Data

capture

Accountingmindset

Manual

Hin

dsig

ht

Accounting

THE SHIFTIn

sig

ht

Performance &profitability

tracking

Big data &analytics

Mobileservices

Sharedservice

BusinessPartnering

mindset

Business partnering

THE BIG SHIFT

Fo

resig

ht

Robotics

Analytics

B

Cognitivecomputing

FinanceFactory

Businesstransformation

mindset

Business transformation

1340 1970 1980 1990 2000 2005 2020 20252010 2015

The current development is exponential – the next step is an even greater jump.

B

Activity focus

Double entrybook-keeping


The composition of finance responsibilities is likely to change significantly in the years to come, with greater emphasis on Business Partnering and providing business insights to company management.

Finance needs to adjust to be able to meet increasing demands

Data managem

entSilos and

disorganized

data

Transactional processing

Manual processing

Business controllingFinance-centric business controlling

Data managementStructured data across the

value chain

Transactional processingFinance Factory

Financial reporting

Backward-looking static reporting

Foundation Leading

Business insightAnalytical insights and

financial and operational data

Common ERP

Robotics

Outsourcing

Automation

E2E process

CentralizationContinuous improvements

Self-service

StandardizationGBS

High valueprocesses

Master datamanagement

Global COA

Standard master data

MDM CoE

BI investments

Transformational levers

Business partneringNew perspectives,

constructive challenge and catalyst for business

performance management

Mobile devicesDashboards

Front-end

Predictive analytics

Reporting factory

Real time

Visualization

Combineddata

Optimized performancemanagement

Established BPorganization

Business acumen

Consulting skills

Focused value opportunities

Value maps

Cost transparency

Data scientist


Finance in a digital world - Lifting the fog of uncertainty


Finance of the future: Digital finance

Integrated data governance across

systems

Periodic reporting will no longer drive decisions

Touchless transaction

processing will be enabled through automation

Work is completed through a combination of

People, Robots and Algorithms

Self-service to become the norm

Organisations will be

insight-driven enabled

through connected data sets and analytical tools

What we will see MORE of

Simplification of processes and reduction of unrewarded complexity

Blurring of functional borders and common data usage as finance moves deeper into other functional areas for data & insights

Automated monthly close and forecasting activities

Technology that supports a nimble and dynamic culture

What we will we see LESS of

Decentralised processes relying heavily on spreadsheets

Siloed systems which are built for one-off tasks, and supplemental data from outside systems

Automation

Data governance

Insights & Analytics

Self-service

Real time finance

Operating Model


Digital finance technologies

Advanced analyticsAnalytics has long been partof the finance arsenal, butnew techniques are helpingbusiness people tackle thecrunchy questions withinsightful answers.

Process roboticsProcess robotics automatestransaction processing andcommunication across multipletechnology systems.

Cognitive computingCognitive computing and artificial intelligence (AI) simulate humanthinking. This technologyincludes machine learning, natural language processing,speech recognition, andcomputer vision.

VisualisationVisualisation refers to theinnovative use of images andinteractive technologyto explore large, high-densitydata sets.

BlockchainBlockchain is a digital distributedledger, where transactions areverified and securely stored on anetwork of distributed andconnected nodes, without agoverning central authority.

Core modernisation

Exponentials

Digital tools designedto deliver new anddifferent capabilitiesto finance

Natural Language Processing NLP refers to systems where users can communicate either orally or through written dialogue using spoken natural language leveraging artificial intelligence and computational linguistics


A new class of digital technologies is reshaping the finance function

Technology enabler – Robotic Process Automation (RPA)

Opening email and attachments

Logging into web/ enterprise applications

Moving files and folders

Copying and pasting

Filling in forms

Reading and writing to databases

Scraping data from the web

Making calculations

Connecting to system APIs

Extracting structured data from documents

Collecting social media statistics

Following “if/then” decisions/rules

What RPA can do

Robotic Process Automation (RPA) in its basic form is the automation of manual processes by replicating repetitive tasks with a computer-based application.

• programmed to perform repeatable tasks

• operates effectively in the User Interface layer

• replicates human interactions with proven technology

Flexibility

• Enables focus on value-add activities

• RPA can integrate with most applications in use

Efficiency & Quality

• Accurate processing & reduced errors

• Improved transparency and data quality

Governance & Compliance

• 15 – 50% cost reduction opportunity

• Improved productivity• Can work 24/7

Cost Reduction

• Embedded controls• Run pre-defined processes with

complete audit trail

Benefits


Analytics and visualisation supports decision making by redesigning reporting workflow and dashboard using the latest analytics technologies

Technology enabler – Analytics and visualisation

Standardise management reports and analysis as much as

possible

Only prepare reports and analysis that are useful with clear

purpose

Use graphs / charts to present relationships between data

Standardised

Purpose driven

Timely & reliable

Data visualisation

Report close to real-time / frequently

with no material error

Insightful & predicative

Linking financial & operational data

Segmenting & benchmarking

Automated

Draw insight from data for better forecast & future

opportunities

Connect financial and operational data together for

business review

Automate reports to the extent possible with

dashboard functions

Allow data to be segmented and benchmarked for in-

depth analysis

Leading practices to consider

Country: Hong Kong Type: Premium Facility A Period: Jun-16 Analysis: YTD

0% 20% 40% 60% 80% 100%

Revenue - Actual vs. Budget

Actual Budget

Gross Area Rented (Sq. M)

118 (PY:95)

Net Promoter Score (NPS)

42 (PY:37)

Tenants by Industry

Accounting

Banking / Trading

Beauty & Care

Interior Design

Software Development

0

50

0%

50%

100%

A B C D E

Capital Cost Effectiveness (By Facility)

Revenue / Sq. M Capital Costs / Sq. M NPS

0%

5%

10%

15%

20%

25%

30%

35%

74%

76%

78%

80%

82%

84%

86%

88%

90%

A B C D E

Market Expense Effectiveness(By Facility)

Occupancy Rate Marketing Expenses to Revenue

0

50

100

0%

50%

100%

A B C D E

Customer Satisfaction vs. Operational Costs(By Facility)

Customer Satisfaction Operational & Cleaning Costs

0%

20%

40%

60%

80%

100%

120%

0

20

40

60

80

100

1 2 3 4 5

Maintenance Cost Effectiveness (By Facility)

Ad-hoc Maintenance

Planned Maintenance

Maintenance Costs to Revenue per Sq M.

0%

10%

20%

0%

50%

100%

A B C D E

Net Margin Analysis (By Facility)

Salaries & wages Marketing Operational & cleaning

Maintenance Administrative Net Margin

Type: Trade Show Industry: Health Science Event Name: A Period: Jun-16 Analysis: YTD

0% 20% 40% 60% 80% 100%

Revenue - Actual vs. Budget

Actual Budget

No. of R. Exhibitors

95 (PY:88)

No. of R, V is itors

1.2K (PY:1.1K)

Visitors by Country

US

UK

HK

China

India

Japan

Korea

Malaysia

Thailand

0

20

40

60

80

FY11 FY12 FY13 FY14 FY15 FY16

Revene Growth (By Events)

A B C D E

0

200

400

600

800

1000

A B C D E

Revenue per Net Space (By Events)

0

100

200

300

0

20

40

60

80

A B C D E

Venue Expenses Effectiveness (By Events)

Venue Expenses per Booth Booth Numbers

76

100

Space Sales (To Date)

Space Sold

Space Remained

0

100

200

300

400

500

600

700

800

900

0%

20%

40%

60%

80%

100%

120%

A B C D E

Marketing Effectiveness

(By Events)

Marketing expenses Revenue Revenue per net space

0

2

4

6

0%

50%

100%

A B C D E

OMS Revenue Analysis (By Events)

Other Market ing Services Event Revenue OMS Revenue / Client

Net P romoter Score

38 (PY:36)

0

10

20

30

40

50

0%

20%

40%

60%

80%

100%

A B C D E

NPS Analysis (By Events)

Revenue / Sq. M Venue Operating Costs / Sq. M NPS

0%

100%

A B C D E

Procuremtn Saving Opportunity Analysis (By Events, per Exhibitor)

Revenue Venue Rental Booth Construction

Marketing Expenses Venue Operating On-site Support

Event Business Facility Management Social Media

• Repeated exhibitors / visitors• Revenue growth• NPS analysis• OMS ratio• Venue expense ratio

• Occupancy rate• Customer satisfaction analysis• Maintenance costs ratio• Marketing costs effectiveness• Capital cost ratio

• Internet traffic• Browsing application ratio• Impression rating by:

• Advertisers• Devices• Country


Moving from historical to predictive analysis

Technology enabler – Analytics and visualisation

Advanced analytics

Reporting and data

exploration

Predictive forecasting

Descriptive analytics

External reporting

Management reporting

Operational reportingHindsight

(Descriptive)

Foresight(Predictive)

Insight(Diagnostic)

Amplified intelligence and automation(Prescriptive)

Cognitive

Decision support

High

Low

Cap

abili

tie

s

Foundational elements

Delivery model DataTechnologyTalent GovernanceData literacy


Getting started

Join an immersive experience (e.g., Digital Finance Lab) to explore the “art of the possible” and determine a future state

vision, goals, and benefits

Immerse Yourself in Innovation

Use an agile, iterative piloting approach to move from strategy to prototyping as quickly as possible –“fail fast” and achieve rapid results

Prove it Works (Quickly)

Evolve your finance organisation by collaborating with other business

functions and vendors

Build Your Ecosystem

THINK BIG

Disconnect from the core business and set up a digital leadership team to

assess disruptive opportunities within the organization

Scaling the Edges

START SMALL ACT FAST

ESTABLISH A DIGITAL LEADERSHIP TEAM

Identify a visionary program leader and assemble a team to accelerate your digital goals. Determine a governance model and policies that might need to be adapted to execute successful change management and ensure the solution is absorbed into the business.

Prioritise your desired tactics and pick just one or two to get started in order

to establish proof of concept

Pick One or Two Plays

Seek opportunities to share digital experiences with other functions –

knowledge share

Market Your Own Success


ERP Implementation Complete

LoB #1 ERPImplement

Pilot Wave 1 NLG Reports

Waved FP&A Reporting CoE

Digital Finance Acceleration Office

Launch BA Analytics CoE

Enable Bot Factory

LoB #1 ERPDesign & Build

Strategy, Roadmap & Case for Change

Design Business Analytics CoE

Digital Maturity Assessment

Blockchain Proof of Concept

Waved ERPImplementation

Pilot Wave 1 Bots

Q3

2017

Q3

2017

Q3

2018

Q1

2018

Q4

2017

Q2

2022

2015

Q1

20172016

Q2

2017

Q2

2018

Q4

2018

Q4

2018

Q2

2019

Central FinanceWaved Waved Implementation

Undertook an accelerated approach to capture value from emerging and disruptive technologies and disciplined execution of an innovation lifecycle across various use cases and applications of technology to reach the desired transformed potential of the finance organisation

Impetus for change

Significant time spent chasing, manipulating, and massaging data / reports

High cost of ownership due to varying system functionalities and legacy systems

Overlapping, duplicative, and redundant responsibilities, activities, and reports

Talent programs did not reflect a tangible digital talent model

Questions addressed

What is the right time to deploy a finance transformation?

What should be our priorities / focus areas as we begin this journey?

Are there benefits to infusing digital tools into the existing infrastructure?

What is the best approach to implementing a new core financial system?

How can advance analytics be used to enhanced decision making and allow for insight-driven collaboration?

What can we do to build digitally and analytically inclined talent / skill-sets?

Sample outcomes

20 Natural Language Generation reports

144 “bots” deployed across all delivery channels

50k+ hours of manual activities automated

90 Days to establish RPA Center of Excellence

$100B Global 100 Company: Successful accelerated transformational journey

Situation


Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities(collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and re lated entities are legallyseparate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm andrelated entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please seewww.deloitte.com/about to learn more.

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About Deloitte MalaysiaIn Malaysia, services are provided by Deloitte Tax Services Sdn Bhd and its affiliates.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firmsor their related entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional advice or services. Beforemaking any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in thiscommunication, and none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damagewhatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its member firms, and theirrelated entities, are legally separate and independent entities.

Farrukh Khan l 25 November 2020

Deloitte TaxMax - The 46th seriesTransforming finance and digitising businesses

Deloitte TaxMax – The 46th series© 2020 Deloitte PLT 2

CFO role

Digital controllership

• Harness technological capabilities

• Improve on the traditional focus on proficient accounting, reporting and effectiveregulatory compliance

• Provide insightful and strategic partnership from finance to business

Digital tools designed to deliver new and different capabilities to finance

Core modernisation

Process robotics Visualisation Natural Language Processing

Exponentials

Advance analytics Cognitive computing Blockchain


Current state of play: Hybrid digital / analog operation


Solution: Virtual finance operation

Rethinking finance operations from the ground via 4 steps to empower teams to work from anywhere, collaborate in real-time, and

minimise tedious, manual processes while increasing quality and timeliness.

1) Go paperless

• Encourage suppliers to issue electronic invoices

• Establish central portal for uploading and matching

• Utilise e-payments to perform transactions

3) Go automation• Embrace Optical Character Recognition (OCR) and

Natural Language Processing (NLP) technology to

automate the data capture of physical documents

• Leverage Robotics Process Automation (RPA) technology

to automate repetitive, rule-based accounting activities

2) Go mobile• Replace desktops with laptops

• Enable invoices, receipts and expense claims to be

captured electronically and processed on-the-go via

mobile devices with expense management apps,

embedding approval workflows integrated with theERP

4) Go cloud

• Move to cloud-based ERP systems

• Implement a cloud-based financial close platform

• Utilise cloud-based analytics and reporting

solutions


Accounting and finance process


Case 6: After Connected Reporting Process

Automated Reporting Process

Report Preparation & Real - Time Update

Source Data

Source System Connections, Integration, Additional Mapping/Grouping

Data Assembly & Consolidation Time

ERP Consolidation, Reconciliation, Planning

Other Structured Systems• HR• CRM• Data Warehouses• Marketing, Procurement

Unstructured Data• Divisional Entities• EHS• Narratives• Tax Provisioning• Capital Lease

Spreadsheets

Stress Testing/Capital Planning

Global Statutory Reporting

Management & Performance Reports

Investor Relations

Financial Reporting

Structured Systems

PLAN RECORDCLOSE &

CONSOLIDATEANALYZE REPORTExample of automated report


Our Partners

BLACKLINE - Terry Smagh

CONCUR - Chua Li Li

- Eric Saito




About Deloitte MalaysiaIn Malaysia, services are provided by Deloitte PLT (LLP0010145-LCA) (AF0080), a limited liability partnership established under Malaysian law, andits affiliates



Thin Siew Chi l 25 November 2020

Deloitte TaxMax - The 46th seriesConsidering tax as part of your digital journey


Tax administrations are digitising across the globe


What should tax functions be considering during their digital journey?

Common challenges faced by

tax function in practice today

• High number of manual

processes (e.g. extract from

data sources to populate an

excel sheet, etc.)

• Pressure to reduce costs while

improving efficiencies

• External pressure from tax

administrations

Drivers to drive tax digital

transformation

• Reduce manual processing time

with data

• To create a more flexible and

strategic workforce

• Enhance efficiencies, providing

more streamlined access to the

data across the organisation

Unlocking benefits in adopting tax digital transformation

• Enhance better decision

making by leveraging on real

time tax data for scenario

planning, effective tax rate

analysis, etc.

• Reduce human error

• Unlock time and manage tax

risks particularly in responding

to tax administrations

Today’s pressures and challenges for tax departments are increasingly evolving, resulting in the need for new

operating models that add more value, while maintaining quality and transparency, and reducing costs.

Yap Kong Meng l 25 November 2020

Deloitte TaxMax - The 46th series

Defensive M&A


Yap Kong Meng, Executive Director, Deloitte corporate finance

Introduction

Lead Financial Adviser

Advised shareholders of Jaya Grocer on an investment from AIGF

Malaysia

Lead Financial AdviserAdvised Fraser & Neave Holdings

Berhad on its divestiture of Malaya Glass Products Sdn Bhd to BJC and OI

for USD 345 million

Malaysia & Singapore


Advised shareholders on the sale of 100% equity stake of TCRS Restaurants Sdn Bhd

Malaysia


Advised on the divestment of a QSR beverage company

Malaysia


Buy-side exclusive advisor to consortium of investors from Saudi on acquisition of

franchising rights of McDonald’s operations

Singapore & Malaysia

Lead Financial AdviserBuy-side adviser to Red Sea Housing

Services Co Ltd on the acquisition of a 90% stake in AM Modular

Malaysia

Lead Financial Adviser Advised Cycas, a unit of PE firm Creador and GHL executive vice chairman on the divestment of their equity stake in GHL

Systems Bhd

Malaysia

M&A deal of the year

Lead Financial AdviserBuy-side adviser to Sanlam Ltd on the

acquisition of a 51% stake in MCIS Zurich Insurance Bhd for USD 119 million

Malaysia

Lead Financial Adviser Acted as buy side advisor to Zurich

Insurance Group on the acquisition of 80% in Adira Insurance and related long term

distribution agreements

Indonesia

Lead Financial AdviserDeloitte supported OMV AG in the

acquisition of 50% of Sapura Upstream with Corporate Finance and Due Diligence

services

Austria & Malaysia

Lead Financial Adviser Sell-side advisor to Pacific & Orient Insurance on its 49% sale to Sanlam

Insurance (South Africa)

Malaysia

M&A deal of the year

Lead Financial Adviser Advised Millennium Arena Sdn Bhd on

sale of 100% equity stake in Upeca Technologies Sdn Bhd to Senior plc

Malaysia

Sell-side Buy-side

May 2018

Lead Financial Advisor Advised shareholders on the sale of 100%

equity stake of Klang Hock Plastic Industries Sdn Bhd

Malaysia


Acquisition of 100% equity stake in Advend Systems Pte Ltd by Etika Holdings

Sdn Bhd

Southeast Asia

Lead Financial AdviserAdvised UEM Edgenta on acquisition of

UEMS Pte Ltd through a competitive process

Malaysia

September 2019

Financial Adviser

Investment in Series F of GoJek, a Southeast Asian unicorn

Asia Pacific

Overview of Deloitte’s Corporate Finance Advisory in Malaysia & Southeast Asia


India China United States United Kingdom Germany Japan Korea

Non-discretionary items

Household goods 49% 51% 20% 15% 13% 2% 15%

Groceries 55% 36% 32% 22% 21% 6% 25%

Utilities 41% 41% 20% 12% 5% -4% 7%

Medicines 44% 23% 11% 6% 1% 3% -3%

Internet/ mobile 52% 36% 15% 7% 7% 0% 11%

Healthcare 50% 39% 10% -3% 0% 3% -3%

Housing 24% 18% 9% 1% 1% -8% -2%

Discretionary items

Alcohol -2% 3% 1% 2% -11% -14% -23%

Apparel/ footwear 10% 25% -11% -12% -10% -21% -16%

Books 26% 33% -5% -5% -10% -9% -13%

Cable TV 34% 29% 12% 4% -7% -12% -1%

Electronics 15% 22% -9% -18% -21% -14% -27%

Entertainment 36% 28% 1% -4% -8% -12% -5%

Furnishings -1% 5% -15% -22% -30% -26% -42%

Restaurant/ takeout -6% 18% 0% -15% -6% -15% -9%

Travel -12% -5% -27% -25% -31% -35% -45%

Vehicle fuel/ oil 19% 23% -10% -17% -7% -15% -13%

Source: Deloitte State of the Consumer Tracker in the era of Covid-19 based on survey dated 11 July 2020. Under Consumers net spending intentions by country, figures under Less-discretionary products and More-discretionary products represent the percentage of respondents who selected “somewhat/a lot more” minus the percentage of respondents who selected “somewhat/a lot less” to the question, “How much do you plan to spend on each of the following items over the next four weeks compared to the last four weeks?”

Consumers net spending intentions by country(How to consumer plan to spend over next four weeks, compared to the previous four)

Current situation

How different economic sectors are weathering the pandemic storm


Current situation

M&A market is still have many potential buyers with dry powder

Global M&A deal volume has declined by 25% in 9M 2020 vs 9M 2019

Malaysia’s M&A deal volume has declined by 21% in the same period

M&A activities will have strong influence in shaping the “next normal” conditions. The S&P 1200 companies have a record USD3.8 trillion in cash reserves and the ability to service debt in a dovish monetary environment and the private equity sector has USD2.5 trillion worth of dry powder ready to be deployed on opportunities.


M&A strategy framework

M&A is a great tool to accelerate achievement of corporation objectives


Identify ways to raise capital

Improve operational efficiency or

increase business flexibility

• Divest non-core or distressed assets

• Wind down underperforming businesses

• Identify rapid turnaround situations to optimize portfolio

• Explore JVs and alliances with suppliers and partners

Defensive M&A

Salvage value

Potential responses M&A deal archetypes

During times of crisis and recovery, divestments tend to create greater shareholder returns for both buyers and sellers. One of the main reasons for out performance during uncertain conditions is because shareholders are looking to concentrating on their core businesses while buyers are investing strategically to deliver well defined growth plan

Companies with capital constraints should explore alliances and seek alternative forms of capital such as private equity and other pools of private to pursue new opportunities


Adjust operating models in

response to competitive dynamics

Prepare the business for the “new

world order”

• Pursue deep synergies from recent acquisitions

• Develop partnerships for non-core capabilities

• Pursue co-investment opportunities for capital intensive projects

• Pursue opportunistic deals to safeguard core markets

Defensive M&A

Safeguard markets to maintain competitive parity


For companies that has recently completed acquisition, accelerating business integration will be able to help free up valuable working capital to weather crisis.

Companies with capital constraints should explore alliances and seek alternative forms of capital such as private equity and other pools of private to pursue new opportunities


Rebalance your portfolio

Capture additional revenue in

adjacencies

Define “new world order” through

power of networks

Invest at scale at the “edge”

• Pursue acquisitions to facilitate vertical integration

• Close gaps in portfolio through strategic acquisitions

• Acquire distressed underperforming peers and early stage companies

• Acquire capabilities to accelerate digital transformation

• Orchestrate a web of multilateral partnerships and alliances

• Capture new opportunities resulting from sector convergence

• Acquire high growth businesses from the innovation ecosystem

• Curate a portfolio of investments on the “edge” of your core business

Offensive M&A

Salvage value



Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities(collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legallyseparate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm andrelated entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please seewww.deloitte.com/about to learn more.





Khoo Siew Kiat l 25 November 2020

Deloitte TaxMax - The 46th seriesLeveraging on Corporate Rescue Mechanisms (CRM) to reconstruct liabilities

Deloitte TaxMax – The 46th series© 2020 Deloitte Corporate Solutions Sdn Bhd 2

“The Pecking Order”

Members / Shareholders

Unsecured creditors

Secured creditors

Preferential payments(applicable to liquidation under Section 527 of the Companies Act 2016) &

Essential payments

Distribution of assets

Under an insolvency scenario


Financial restructuring & insolvency decision tree

Business review

Corporate rescue mechanisms1. JM / CVA / SOA2. CDRC / other forms of debt

restructuring or turnaround management

Company in financial difficulties?

YES

YES

Can the company be turned around / re-organized outside formal insolvency proceedings?

NO

Is there security?

1. Court receivership2. Voluntary liquidation3. Court liquidation4. Attachment – garnishee / charging order

Is there a surplus funds / assets?

YES NO

YES NO

Financial restructuring / Corporate Rescue Mechanism

Insolvency proceedings

1. Debenture Receivership2. Court Receivership3. Foreclosure

Hand back to the company Court liquidation


Corporate Rescue Mechanisms (CRM)


Broadly divided into two types

Overview of CRM

Formal process1 Informal process

• Judicial Management (JM)

• Corporate Voluntary Arrangement (CVA)

• Scheme of Arrangement (SOA)

• Corporate Debt Restructuring Committee (CDRC)

• Other forms of voluntary arrangement with some or all of the creditors

Note 1: Relates to rescue mechanisms which involve the Court.

Key note: The objective of CRM is to reconstruct / reorganise liabilities

of a company under distress so that the said company can continue to

operate as a going concern. However, the use of each type of CRM will

depend on the underlying situation / circumstances in which the

company is facing


CRM at a glance

Directors lose control / powers to manage

company ? Moratorium Duration Extension

Restructuring approval condition

JM Yes

(Note 1) Yes (automatic) 6 months

Up to further 6 months

(Note 2)75% in value of creditors

CVA No Yes (automatic) 28 days Up to further 32 days

(Note 2)75% in value of creditors

SOA NoYes (has to be applied /

subject to Court approval)3 months

Up to further 9 months

(Note 2) 75% in value of creditors

CDRC NoYes (standstill limited to

bank creditors only) Note 3 Note 3

Depending on agreement with bank creditors

Other forms No No Note 4 Note 4 Note 4

Note 1: The judicial manager may continue to work with the senior management of the company.

Note 2: Subject to existing conditions stipulated under the Companies Act 2016 and further conditions imposed by Court.

Note 3: Duration and extension subject to CDRC’s discretion i.e. as long as the file remains with CDRC.

Note 4: Subject to agreement with respective creditors.


Different stakeholders in a distressed scenario will have various corporate rescue options available to them

Who can initiate CRM?

Shareholders Directors Unsecured creditors Secured creditors

JM

CVA

SOA

CDRC

Other forms

(situational)


Key factors for a successful CRM

3. “Business case” for restructuringCome up with a viable proposal which demonstrates that the business has the prospect of operating as a going concern after restructuring / workout scheme.

4. Work with credible consultantsEngage consultants who have the relevant expertise, experience, track record and good relationship / network with the workout teams from banks / financial institutions.

1. CommunicationEngage in early communication

and discussions with creditors and stakeholders to manage their

expectations and get their buy-ins prior to embarking on a

restructuring exercise.

2. TransparencyBe transparent about the position of

the company when formulating a restructuring proposal, including

your consultants, to ascertain options available and execute the

best course of action.


Deloitte Malaysia – Restructuring Services Please contact us

Khoo Siew KiatExecutive Director+603 7610 [email protected]

Deloitte Corporate Solutions Sdn BhdLevel 16, Menara LGB 1 Jalan Wan KadirTaman Tun Dr. Ismail60000 Kuala LumpurMalaysiaTel : +603 7610 8888Fax : +603 7725 9442Website : www.deloitte.com/my

Kevin Lee Director+603 7610 8819 [email protected]

Hong Chee HinDirector +603 7610 8802 [email protected]

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Eddie GohAssociate Director +603 7610 8202 [email protected]




About Deloitte MalaysiaIn Malaysia, services are provided by Deloitte Corporate Solutions Sdn Bhd and its affiliates.



Toh Hong Peir l 25 November 2020

Deloitte TaxMax - The 46th seriesRestructuring of business during a pandemic


Restructuring of business during a pandemic

• Debt restructuring

• Deferment of loan repayment

• Refinancing

• Bad debts / waiver of loan

Financial restructuring

• Merging of business

• Flattening the group structure

• Sale of non-core assets

• New investor / White knight rescue

• Right sizing of employees

Operational restructuring


Debt restructuring


Tax considerations in debt restructuring

• Tax deduction allowed when the interest is due to be paid - Section 33(4) of the Income Tax Act 1967.

Deferral of loan interest payment

• Interest expense – takes on the same character as the original borrowing.

Refinancing



• Deductible under Section 34(2) of the Income Tax Act, 1967 - trade debt reasonably estimated to be irrecoverable either wholly or partially.

• Public Ruling 4/2019 – Issuing reminder notices, having a debt restructuring scheme, or entering into a debt settlement based on sound commercial considerations, legal action taken, etc.

Bad debt written off

• Section 30(4) of the Income Tax Act, 1967 - gross business income on amount of debt released if a tax deduction has been taken or any capital allowance has been claimed in respect of the original expense.

Waiver of debts/ loans



• Debt restructuring cost such as professional fee, loan agreement and etc.

Cost incurred in relation to debt restructuring



1. Reorganisation of holding structure


Reorganisation of holding structure

Income tax

• Sub A (Transferor) - Any gain from the transfer of shares held for long term investment purposes should be capital in nature

• HoldCo (Transferee)- Cost of acquisition not tax deductible.

Real property gains tax (RPGT)

• Sub A (Transferor) - If Sub B is a RPC, any gain from the share transfer is subject to RPGT at the rate of 10% to 30%

• No gain no loss – Sch 2, Para 17(1)(a),(b), (c)

• Would HoldCo (Transferee) be a RPC as a result of acquiring Sub B?

• Reorganisation is undertaken to make it easier for profitable subsidiaries to repatriate profits to holding company, and for holding company to inject cash into loss making subsidiaries

• The final outcome is a flat group structure

Overview of tax considerations

HoldCo

Sub A

Before After

Sub B

HoldCo

Sub A Sub B

Transfer of shares of Sub B


Reorganisation of holding structure

Stamp duty

• Transfer of shares in a non-listed company attracts ad-valorem stamp duty at 0.3% of value of shares

• Value of shares = Higher of net tangible assets or transfer consideration

• Availability of stamp duty relief

• Section 15A relief may be available, provided that the following conditions are fully met:-

a) HoldCo is a company incorporated in Malaysia;

b) Sub A and HoldCo continue to be at least 90% associated in terms of shareholdings for at least 3 years;

c) Sub B is not disposed of by HoldCo within 3 years;

d) The transfer brings about greater efficiency in operation.

• Reorganisation is undertaken to make it easier for profitable subsidiaries to repatriate profits to holding company, and for holding company to inject cash into loss making subsidiaries

• The final outcome is a flat group structure

HoldCo

Sub A

Before After

Sub B

HoldCo

Sub A Sub B

Transfer of shares of Sub B

Overview of tax considerations (cont’d)



2. Merger of businesses


Merger of businesses

Income tax

• Controlled transfer provisions

• Transfer of stock – Section 35(5) of ITA 1967

• Transfer of trade receivables – debts acquired and subsequently written off is not deductible

Real property gains tax (RPGT)

• Sub A (Transferor) – RPGT payable on transfer of real properties

• Sub B (Transferee) - To retain the entire amount of money consideration or 3% of total consideration, whichever is lower

• No gain no loss – Sch 2, Para 17(1)(a),(b), (c) • Merger of businesses may mitigate overall operational costs

by cutting redundant operations and improving overall efficiency


HoldCo

Sub A

Before After

Sub B

Transfer of business

HoldCo

Sub A Sub B


Merger of businesses

Stamp duty implications

• Transfer of certain assets, e.g. real property, receivables, goodwill attracts ad-valorem stamp duty of 1-4%

• Availability of stamp duty relief

• Stamp duty exemption for M & A carried out by SMEs (introduced under PENJANA) - 1 July 2020 to 30 June 2021

• Section 15 relief may be available, provided that all the following conditions are fully met:-

a) Sub B is a company incorporated in Malaysia;

b) The transfer of business (i.e. undertaking) is made in connection with a scheme of reconstruction or amalgamation;

c) The consideration is at least 90% in shares issued by Sub B to Sub A / HoldCo;

d) Sub A / HoldCo retains the beneficial ownership in the consideration shares (issued by Sub B) for at least 3 years.

• Merger of businesses may mitigate overall operational costs by cutting redundant operations and improving overall efficiency

Overview of tax considerations (cont’d)

HoldCo

Sub A

Before After

Sub B

Transfer of business

HoldCo

Sub A Sub B


Operational restructuring3. Sale of non-core or non-performing businesses


Outright sale

• Outright sale of non-core business to a third party buyer to generate cash flow

• The cash flow generated from the sale may then be injected into the core business carried on by the group

• The sale may be in the form of sale of shares of the subsidiary or sale of business by that subsidiary


HoldCo

(Seller)

Sub A

(Core)

Sub B

(Non-core)

Sale of shares Sale of business

Income tax(Seller)

(Buyer)

No income tax exposure if the shares were held for long term investment

Unabsorbed losses / capital allowances (CA) are preserved as long as Sub B is not dormant

Income tax issues depending on the assets sold (FA, debtors, stocks, etc.)

Unabsorbed losses / CA will not be transferred over

RPGT(Seller)

No RPGT implication unless Sub B is a RPC

RPGT on sale of real properties

Stamp duty(Buyer)

0.3% at 1-4%

Buyer


Operational restructuring4. New investor / White knight rescue


New investor / White knight rescue

• New investor may acquire a percentage of the shares owned by HoldCo

Overview of tax considerationsAcquisition of existing shares in Intermediate Co

Injection of capital by new investor in return for new shares issued by Intermediate Co

Income tax(Seller)

No income tax exposure if the shares were held for long term investment

No tax implications

RPGT(Seller)

No RPGT implication unless Intermediate Co is a real property company (RPC).

No tax implications at the point of issuance

If Intermediate Co is a RPC – RPGT payable by investor at the point of exit

Stamp duty(Buyer)

Stamp duty of 0.3%. N/A

Intermediate

Co

Sub A Sub B

HoldCo

(Seller)

New

investor

(Buyer)


Operational restructuring5. Right sizing of manpower


Right sizing of manpower


Employer

- Deductibility of severance payments

- Due to cessation of business or to enhance operational efficiency?

Employee

- Taxability of compensation for loss of employment

- Section 13(1)(e) / Paragraph 15(1), Schedule 6 of ITA 1967

deloitte taxmax - the 46th series future of finance

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