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New Companies Act for Malaysian Business Community
“The secret of change is to focus all of your energy, not on fighting the old, but on building the new.” ---------Socrates
The Companies Bill, 2015 was passed by the Malaysian Parliament on 4 April 2016. When it comes into effect, it will replace the Companies Act, 1965 as a whole, which has been operative for 50 years since 1966. It is anticipated that the new Companies Act itself will be enforced next year after the new regulations, rules and guidelines have been drawn up.
The new Companies Act aims to revolutionize Malaysia’s entire corporate landscape by introducing a modernized corporate legal framework in line with current international trends and standards. It also targets to ease doing business, facilitate the management and restructuring of share capital, strengthen corporate governance, modernize insolvency laws as well as simplify, relax and refine existing laws, processes and procedures on doing business and substantially transform and create synergy in the way people conduct business in Malaysia.
Below are the 10 key features of the significant changes in the new Companies Act.
1. Easier Incorporation of Companies
The new Act allows an individual to incorporate a company i.e. allowing a company to have a single shareholder and a single director. This will make incorporation of a company much easier for businesses whereby a single individual can have full control of the company, yet enjoy the separate and limited liability status of a corporate entity.
2. Abolishment of AGMs for Private Companies
There are no requirements for annual general meetings (AGMs) for private companies; and audited financial statements need not be tabled before the AGMs. Instead, there will be a timeline for the company to circulate the audited financial statements among the shareholders.
There is also a provision for the automatic re-appointment of auditors, unless the shareholders wish or decide otherwise.
3. Easier Passing of Written Resolutions for Private Companies
For private companies, no physical general meetings are required; a majority of shareholders can sign off on the written resolutions and pass them as ordinary resolutions and there is no need of unanimous consent for written resolutions.
4. No Memorandum and Articles of Association
Under the new Act, the companies dispense with Memorandum and Articles of Association as the new Act has incorporated the provisions that are necessary for the smooth-running of a company. However, a company may adopt a constitution if it wishes to tailor certain provisions for itself and its members. Existing companies should thereby deem their Memorandum and Articles of Association as Constitutions.
5. Migration to a No-Par Value Regime.
The new Act allows a company to issue new shares with no par or nominal value. The adoption of a no-par value regime will remove the need for share premium accounts and reserves and enable a company to issue shares at a discount.
6. New Financial Assistance Whitewash Procedures
Under these procedures, a company (not quoted on any exchange) may give financial assistance for the purpose of the acquisition of its own shares if:
(i) the financial assistance is approved by a special resolution of shareholders
and by a majority of the directors of the company;
(ii) each director who voted in favor of the financial assistance makes a solvency
(iii) the aggregate amount of the assistance and any other financial assistance
previously given that has not been repaid does not exceed 10% of the
company’s current shareholders funds; and
(iv) the company receives fair value in connection with the giving of assistance.
7. New “Solvency Test” Requirements
To protect outside parties doing business with the companies and to ensure their rights are not being prejudiced or jeopardized, certain safeguards have been put in place.
There are a few types of “solvency test” that are to be applied under different situations. Directors shall make a statutory declaration verifying that the company is solvent while the company undertakes any of the following activities:
Declaration of dividends;
Capital reduction (dispensed with the need for a court order), financial assistance as mentioned above and redemption of preference shares; and
Where there is a breach of any of the above, the directors may face personal liabilities and/or criminal sanctions.
8. Increased Sanctions on Directors
There is a general significant increase in sanctions on the directors for breaches under the Act. The most serious offence may result in a longer jail term with 5 years imprisonment or a fine of Ringgit Malaysia 3 million or both especially for those serious criminal convictions.
9. Corporate Voluntary Arrangement and Judicial Management
The new Act provides two new alternative corporate rescue mechanisms to allow financially distressed companies to remain as a going concern by undertaking debts restructuring and avoid winding up:
(i) Corporate voluntary arrangement (CVA) adopting UK’s model:
This is a much quicker and cheaper rescue process with minimum Court’s
involvement. The company’s management could have its debt
restructuring proposal to be assessed by an independent insolvency
practitioner and then table it to at least 75% in value of the company’s
creditors for them to be present and voting on the proposal. If passed, it will
be binding all the creditors.
(ii) Judicial management based on Singapore’s provisions and UK’s
Under this mechanism, the management of the company is surrendered to
an independent insolvency practitioner i.e. a Court appointed judicial
manager. The company generally enjoys a moratorium period of protection
from all legal proceedings, while providing the judicial manager a larger
breathing room to formulate a viable restructuring plan and present it for
the creditors’ approvals.
10. Business Review Section in the Directors’ Report
The new Act introduces an optional business review section in the Directors’ Report of the audited financial statements.
This section includes information pertaining to the principal risks and uncertainties facing the company, the performance and position of the company's business, and key performance indicators. It may also include information on the company's policies on environmental, social and community issues.
Such comprehensive disclosure is in line with the annual report content requirements for Malaysian public listed companies to encourage robust disclosure of wider social economic and sustainability matters.
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