Malaysia’s Companies Bill Passed: The 7 Upcoming Changes

Parliament passed the Companies Bill 2015 this evening. It was first tabled for Second Reading on Thursday 31 March 2016 and Parliament continued and concluded its debate on 4 April 2016.

[update: The Bill has received Royal Assent on 31 August 2016 and has been gazetted on 15 September 2016 as the Companies Act 2016. I have written briefly about this in my latest post.]

SSM 2

Upcoming Changes

I had previously written on some of the upcoming changes, especially on the challenges that directors may face and I was also featured on The Edge TV.

The new Companies Act will undoubtedly transform Malaysia’s corporate landscape. Underpinning the changes are the aims of spurring entrepreneurship, making the corporate vehicle more attractive for businesses, deregulating certain aspects of the corporate process, and to introduce the concept of corporate rescue for ailing companies.

It is anticipated that the new Companies Act itself will not be brought into force until a year’s time or so. This is because the new regulations, rules and guidelines will still need to be drawn up.

I set out below 7 of the more significant areas we will see in the new Companies Act.

1. Easier Incorporation of Companies

The Act will introduce the ability to incorporate a company with one individual being the single shareholder and single director. This will make incorporating a company more attractive for businesses, entrepreneurs and the businessman. A single individual can have complete control of the company, and still enjoy the separate liability of the corporate entity.

2. Lower Costs of Running Companies: No AGM for Private Companies

In line with this, there will be no more need for an annual general meeting (AGM) for private companies. Some important things flow from this. For private companies, audited accounts are no longer put before the AGM. Instead, there will be a timeline to circulate the audited accounts among the shareholders. There is also a mechanism for the automatic reappointment of auditors, unless the shareholders decide otherwise.

3. Easier Passing of Written Resolutions for Private Companies

With the move away from physical general meetings, private companies will also find it easier to pass written shareholder resolutions. A majority of shareholders can sign off on the written resolution to pass it as an ordinary resolution. There is no more need to have the unanimous written resolution.

4. No More Memorandum and Articles of Association

Under the Act, the company will no longer have a Memorandum and Articles of Association. The new Act aims to provide all the processes and provisions necessary for the smooth-running of a company. However, if a company wishes to tailor certain provisions for itself, it can then adopt a Constitution. Existing companies will have its Memorandum and Articles of Association deemed to be the new Constitution.

5. Added Safeguards: New Solvency Test Requirement

Going hand-in-hand with making corporate processes easier, certain safeguards will be put in place. This is to protect third parties doing business with companies and where their rights as creditors should not be prejudiced.

There will be different varieties of a new ‘solvency test’ that will be applied for different situations. Directors must sign on the equivalent of a statutory declaration to verify that the company is solvent when the company undertakes the following:

(i) Declaration of dividends;

(ii) Capital reduction without a court order, financial assistance and redemption of preference shares; and

(iii) Share buyback.

Where there is a breach of this solvency test, the directors then face personal liability and may face criminal sanctions.

6. Increase in Sanctions on Directors

There is a general increase in the sanctions that directors will face for breaches under the Act. The more serious infractions can result in a 5-year imprisonment and RM3 million fine or both, if there is a criminal conviction.

7. Corporate Rescue: Corporate Voluntary Arrangement and Judicial Management

The new Act will introduce two new corporate rescue mechanisms to help financially distressed companies. The aim is to allow these companies to restructure their debts, to remain as a going concern and to avoid winding up.

Firstly, there will be the new corporate voluntary arrangement process, adopting the provisions from the UK. This is meant to be a quick and cheaper process, with minimal Court involvement. The company’s management will have its debt restructuring proposal assessed by an independent insolvency practitioner. 75% in value of the company’s creditors will then vote on whether to accept this proposal. If passed, it then binds all the creditors.

Secondly, judicial management is a mechanism based on the Singapore provisions and UK’s administration model. The management of the company itself is ceded over to an independent insolvency practitioner i.e. a Court-appointed judicial manager. The company will enjoy a very wide moratorium which gives it protection from legal proceedings. This is to give the company and the judicial manager breathing room and to maintain the company as a going concern. The judicial manager formulates a restructuring plan and presents it to the creditors for their approval.

 

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46 thoughts on “Malaysia’s Companies Bill Passed: The 7 Upcoming Changes

  1. Jowe 5 April 2016 / 9:02 am

    Thanks for the useful information. Well done.

    Like

  2. Paul 5 April 2016 / 9:30 am

    Thanks for the write up Lee Shih. Its much appreciated!

    Like

  3. alexktn 5 April 2016 / 8:38 pm

    Wonder how those existing companies shud act., with regards to reducing fr more than one directors/shareholders to one only ?

    Like

    • Lee Shih 5 April 2016 / 11:52 pm

      Existing companies would have Articles of Association requiring or assuming that there at least 2 directors/shareholders. With the new Act, the Articles would be deemed to be the company’s Constitution. You would have to amend the Constitution or you can remove the Constitution.

      Like

      • malique 31 January 2017 / 4:12 pm

        Hi Lee,

        what is the provision under the Companies Act that mentioned about the effect towards the existing company on its pre-amendment MnA?

        quote:

        4. No More Memorandum and Articles of Association

        Under the Act, the company will no longer have a Memorandum and Articles of Association. The new Act aims to provide all the processes and provisions necessary for the smooth-running of a company. However, if a company wishes to tailor certain provisions for itself, it can then adopt a Constitution. Existing companies will have its Memorandum and Articles of Association deemed to be the new Constitution.

        Existing companies will have its Memorandum and Articles of Association deemed to be the new Constitution.

        any section states this?

        Like

      • Lee Shih 31 January 2017 / 8:41 pm

        Have a read of sections 34(c) and 619 of the Companies Act 2016.

        Like

  4. aiman 5 April 2016 / 11:35 pm

    Just wondering, is this bill gonna affect company secretary?

    Like

    • Lee Shih 6 April 2016 / 4:25 pm

      The role of the company secretary remains the same. However, the new Act will greatly affect company secretaries since company secretaries must master all the new processes.

      Like

  5. Chuah Ei Ping 6 April 2016 / 4:09 pm

    Question: Can companies now issue shares below par value?

    Like

    • Lee Shih 6 April 2016 / 4:24 pm

      Once the Act is in force, par value will be abolished so that there will be no par value in the future. The share premium account will also form part of the share capital. There will be transitional provisions to cater for this.

      Like

  6. Ken. Chin 6 April 2016 / 6:20 pm

    An old company formed before this new Bill was passed can maintain its many directors and shareholders via its new constitution without much hassle? Any special procedure to follow? THANKS.

    Like

    • Lee Shih 7 April 2016 / 11:11 pm

      Yes, you can continue to maintain the present directors and shareholders without problems.

      Like

  7. D.lim 6 April 2016 / 10:54 pm

    Does this apply to foreigner for new company set up?

    Like

    • Lee Shih 8 April 2016 / 3:32 pm

      As a foreigner setting up a new company, you now need to have a minimum of one Malaysian resident director.

      Like

      • Daphne Leong 23 September 2016 / 10:39 pm

        What about a foreigner who has a permanent place of residence in Malaysia? Does the new Act provides clarity on this?

        Like

  8. Red_Vindicated 7 April 2016 / 10:51 pm

    Thanks for the article, but I think it is misleading to say that the Parliament has passed the Bill. It was only passed by the Dewan Rakyat (House of Representatives) and has yet to be passed by the Dewan Negara (House of Senate).

    Like

  9. Joey 16 April 2016 / 12:31 pm

    As mentioned in the article, “For private companies, audited accounts are no longer put before the AGM. Instead, there will be a timeline to circulate the audited accounts among the shareholders.”

    It is appreciated that if you could further elaborate more about this statement.
    Even under this Bill, a private company is still required to appoint its auditors, right?

    Like

    • Lee Shih 18 April 2016 / 8:54 am

      I will be writing more articles on TML to further elaborate on all these areas. Yes, even under the Companies Bill, private companies are required to have auditors and to have audited accounts.

      Like

  10. Mohd Rafie 30 April 2016 / 8:46 am

    Can you recommend any agents to setup foreign company in Malaysia?

    Like

  11. Narender 14 June 2016 / 6:54 pm

    what is the effective date of Companies Bill 2015??

    Like

  12. Yap Pak Leong 4 July 2016 / 8:05 pm

    Without AGM, how are directors reappointed or removed or new directors elected, dividends approved etc. ?

    Like

    • Lee Shih 10 July 2016 / 9:16 pm

      Under the Companies Bill, without AGMs for private companies, all the four items usually linked to AGMs can now operate independently.
      1. Tabling of accounts will be replaced by circulating the audited accounts to all members in a time frame, and then filed with CCM. Does not need to be laid before the AGM.
      2. Annual returns will be filed on the anniversary date of incorporation. It is not linked to the AGM or approval of accounts.
      3. Re-election of directors: it is up to the members to decide how long the directors will hold office. There is no automatic retirement or re-election.
      4. Re-appointment of auditors: There is a mechanism to allow for the automatic renewal of the auditors’ office. This process can be interrupted if enough shareholders decide that they want a formal resolution or they want to decide on a different auditor.

      Like

  13. vincent 13 July 2016 / 3:47 pm

    can i know the diffrent of company formation between companies bill 2015 and company act 1965?
    company formation which mean the procedure for registering a company both private and public and the role of company promoter. please reply me

    Like

  14. gor 9 August 2016 / 1:40 pm

    Can professionals like doctors or engineer form new company under this new act?
    Shan

    Like

    • Lee Shih 11 August 2016 / 1:11 pm

      Professionals like doctors, engineers and even lawyers, would still have to abide by the laws governing their profession. So there would still be prohibitions under those laws that would prevent such professionals from forming new companies to carry out their professional services.

      Like

      • Hjjh. Marilyn Ong Siew Ai 11 November 2016 / 3:06 pm

        GOR, professionals are now governed by the LIMITED LIABILITY PARTNERSHIP ACT 2012. Check that out online. The COMPANIES ACT does not apply to professionals.

        Like

    • Hjjh. Marilyn Ong Siew Ai 11 November 2016 / 3:12 pm

      Professionals are governed by the LIMITED LIABILITY PARTNERSHIP ACT 2012, not by the COMPANIES ACT. Prior to the 2012 Act, professionals were regulated by the PARTNERSHIP ACT 1961 which applies to GENERAL PARTNERSHIPS.

      Like

  15. syahrul izzuan 24 August 2016 / 7:39 am

    When it will be implemented?.I heard rumour this going to take effect around end of this year or early of next year.

    Like

    • Lee Shih 24 August 2016 / 8:52 pm

      So far, there is still no confirmed date when the Bill will come into force. It seems that it will take at least one more year from now.

      Like

  16. Clara 3 September 2016 / 2:14 pm

    will there be new financial assistance whitewash procedure and increase oversight over director’s remuneration ?

    Like

    • Lee Shih 17 September 2016 / 8:49 pm

      There will be a financial assistance whitewash procedure. Still quite a conservative whitewash. In terms of director’s remuneration, there are changes in store for both public and private companies.

      Like

  17. Bose Dasan 26 September 2016 / 6:45 pm

    Thank you Mr Lee Shin. Very informative. Wonder whose initiative this is and if this structure is more appropriate than LLPs. Tku

    Like

  18. Aaron 17 January 2017 / 6:57 pm

    Hi, in the previous CA 1965, company can issue shares at bonus through share premium account. When the new companies act comes in force, there will be no share premium account anymore. So can a company still issue bonus share? Thanks!

    Like

  19. sokefurn 16 March 2017 / 11:14 pm

    A company director is subjected to many legal duties. A breach of the duties would result in directors incurring liability. Recent developments in the Malaysian Companies Act show that changes have been made in the way which company directors are protected from liability.

    So, What’s the past restrictions and do you believe that the relaxations in the rules governing fraudulent actions of the parties involved in are not straightforward and analyse whether the recent developments in the Company Act 2016 will permit and advocate a better accountability of directors on the governance of a company.

    Like

  20. Liew Huei Qin 26 June 2017 / 5:20 pm

    What are the effect from company Act 1965 to company ACT 2016 about Memorandum of Association(MA) and Articles of Association(AA) ?

    Like

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