Companies Act Amendments

KAMLESH MENON

How does it affect you?

Malaysia is well known for being one of the fastest developing nations in Southeast Asia.

As such, you would assume that the laws and regulations will be keeping up with the pace of the development of the nation in order to regulate and sometimes create some leeway to cope with the progress and advancement of the social, ethics and even commercial culture here in Malaysia.

To be fair, there have been many changes recently in terms of laws with the introduction of the Personal Data Protection Act 2010 and Competition Act 2010 which follows other countries such as the United Kingdom in giving more protection to citizens’ rights. However, there was one act which needed a resurrection of sorts; The Companies Act 1965 (CA 1965).

From a logical standpoint, the commercial world has changed leaps and bounds since 1965. The United Kingdom has understood the need for change and in 2006 introduced their new Companies Act which superseded the Companies Act 1985 and so have countries such as India which created a new act in 2013 to supersede their 1956 Act and South Africa that passed a new act in 2008, superseding their 1973 Act.

Recently, Malaysia has hopped on the bandwagon electing to change, or to put it more accurately, modify our Companies Act to incorporate some new amendments that is seen to create a better and less rigid set of laws. This article shall highlight some of the key changes in the new Act.

The Companies Bill 2015 was given royal assent on 31 August 2016 and was further gazetted on 15 September 2016 as the Companies Act 2016 (CA 2016). The CA 2016 however is set to be implemented in stages commencing this year. The new CA 2016 appears to encourage young or small entrepreneurs by making corporate vehicles much easier to form with less legal processes which previously made forming companies a little bit of a hassle for people who are not very regulatory and compliance savvy. Here are some changes brought by the CA 2016:

The CA 1965 prohibited a company from conducting or carrying out any businesses with less than two shareholders. This of course does not include a company owned by a parent company holding the entire shares in its wholly owned subsidiary. Under the new proposed CA 2016, the requirement for a minimum of 2 shareholders has been removed whereupon a company can be formed with a single shareholder and a single resident director. Therefore, any businessman or entrepreneur can have absolute control over their company.

The CA 2016 dispenses the requirement for a private company to hold an Annual General Meeting (AGM) unlike the CA 1965 and to further circulate the audited accounts to the shareholders during this period. Ultimately, this move will lower a company’s maintenance cost and the hassle of organising a meeting more so when you have shareholders who are on the move constantly due to today’s business conditions.

Written resolutions by shareholders in a private company will no longer be required to be unanimous. Written resolutions may be passed with the same majority as would be passed during general meeting.

Under the CA 2016, a company is no longer required to have a Memorandum of Association and Articles of Association (M&A). The Act is supposed to have all the provisions and processes for the efficient running of a company. However, companies that wish to deviate and create its own processes are allowed to adopt a constitution provided that such deviations do not directly or indirectly conflict with CA 2016. Companies formed prior to the enforcement of the CA 2016 which already has a M&A, then that M&A shall be treated as the constitution of the Company and the Constitution may be altered or removed by the Company if the company deems that the processes and provisions of the Act are sufficient.

One thing to note is that a company will have a much bigger capacity to conduct businesses without restrictions of the objects as contained in the M & As. Companies which have incorporated the current M&A as their constitution will however be limited as to the capacity of their business scope due to the provisions of the objects in the M&A.

The proposed CA 2016 contains two new mechanisms which are remotely similar to the ones contained in the UK known as Judicial Management and Corporate Voluntary Arrangement which aims to facilitate the rehabilitation of financially distressed companies.

The Judicial Management mechanism works where the shareholders, directors or creditors of the company may apply to the court to place the management of the company in the hands of an independent judicial manager if there is a reasonable probability of rescuing the company.

A moratorium will be granted if the judicial management is approved by the courts whereupon the company will be safe from legal proceedings for a period of time to allow for the judicial manager to prepare a workable restructuring plan. The restructuring plan has to be approved by 75{17537d436ed2421b601d4e8347a4bca0113a3bc001127a695927b11585f47eb2} of the present creditors at a creditors meeting and with the sanction of the Court, the plan may be implemented.

The Corporate Voluntary Arrangement however is slightly cheaper with minimal involvement of the courts where the management of the company will create a restructuring plan that will be assessed by an independent insolvency practitioner which, upon approval will also have to be approved by 75{17537d436ed2421b601d4e8347a4bca0113a3bc001127a695927b11585f47eb2} of the creditors present during a creditors meeting.

These five examples are among the many other changes that are introduced under the new CA 2016. As with any new legislation, there will be a period of time needed for the changes to take effect and for a proper understanding but no such period of leisure can be given to lawyers and company secretaries who will have to get up to date with the latest amendments in order to advise their clients on the necessary changes needed to conform with the latest amendments to the CA 2016.

From our brief understanding, the CA 2016 is one that will be better placed for the type of era we are currently in to allow some flexibility to a generation of less rigid and less process based corporate entities.