The Companies Amendment Bill 2019 has been issued and appears to have been tabled for First Reading before the Dewan Rakyat on 8 July 2019. The amendment Bill has also been passed by the Dewan Rakyat on 10 July 2019. The amendment Bill will make amendments to the Companies Act 2016 (CA 2016). I have since updated this article to take into account the Parliamentary debate of the amendment Bill.
I highlight seven of the more significant amendments. There will be welcome clarification of the effect of section 66 on the execution of what sort of documents, as well as the redemption of preference shares out of capital.
But I can see issues relating to the appointment of receivers or receivers and managers after liquidation. There is a severe dilution of the ability to apply for judicial management.
#1: Section 66 to Only to Apply to Specific Types of Documents
I had earlier written about the possible uncertainty of validity of signed documents under section 66 of the CA 2016. Would all documents executed on behalf of the company require at least one director to sign that document? Under the CA 2016, the term document meant a document referred to under the Evidence Act.
Under the Amendment Bill, it attempts to limit the scope of section 66 of the CA 2016. The term ‘document’ mean would only a document which is required to be executed by any written law, resolution, agreement or constitution in accordance with section 66(1) i.e. by the affixing of the company’s common seal only.
As explained on 10 July 2019 by the Deputy Minister moving the amendment Bill, the original section 66 could apply to a very wide variety of documents. This amendment will allow a company to carry out its day-to-day activities more effectively. The Ministry had received feedback from the business sector that the original section 66 was too wide. This amendment now allows an invoice or a delivery note to be signed by an employee and not requiring the signature of an authorised person set out in section 66.
#2: Redemption of Preferences Shares Out of Capital – Section 72
Section 72(5) of the CA 2016 will now be amended such that only shares redeemed out of profits would require a transfer of an equivalent sum into the share capital accounts of the company.
What this means is that this removes the ambiguity of redemption of preference shares out of capital. Under this amended section, redemption of preference shares out of capital will only need to meet the requirements of section 72(6) which essentially only requires the solvency statement. There is no need to further transfer profits into the share capital account.
#3: AGM of Public Company: Appointment of Auditor – Section 340
An amendment is made to section 340(1)(c) of the CA 2016 for the annual general meeting of a public company to substitute the words “the fee of directors” to the words “the remuneration of auditors”. This will make clear that for the AGM, one of the items must be for the appointment and the fixing of the remuneration of auditors.
#4: Appointment of Receiver or Receiver and Manager after Winding Up – Section 386
This relates to the appointment of a receiver or receiver and manager after winding up.
As explained below, this is going to be a significant and potentially detrimental amendment. Hopefully this can still be clarified in Parliament. This provision has since been clarified and amended in Parliament.
The existing section 386(1) of the CA 2016 states that after the commencement of winding up of a company, a receiver may continue as a receiver and exercise all the powers of a receiver. In addition, a receiver and manager may also exercise all the powers of a receiver and manager for the purpose of carrying on the business of the company with the consent of the liquidator or from the Court. Importantly, a receiver or receiver and manager holding office under this section section 386(1) shall continue to act as an agent of the company.
This allowed the receiver or receiver and manager, especially appointed under a debenture, to have the useful powers to act as the agent of the company and to sell the charged assets directly. There was no need to resort for an order for sale under the National Land Code.
The first amendment under the Bill makes clear that a receiver and manager may continue to act as a receiver as stated in section 386(1)(a) i.e. to act as a receiver in respect of property or assets secured under the debenture appointing the receiver. This helps in making clear that the receiver and manager exercising these receiver powers does not require consent of the liquidator or from the Court.
The second amendment appears to be detrimental. It proposes to replace the words “commencement of winding up of a company” with the words “appointment of a receiver or receiver and manager under section 385”. So, the amended section 386 is meant to now read that “After the appointment of a receiver or receiver and manager under section 385”, the receiver or receiver and manager could continue to exercise their powers and to continue as an agent of the company. But the appointment under section 385 of the CA 2016 is solely to allow for a Court appointment of a receiver or receiver and manager when the company is being wound up by the Court. Section 385 does not take into account the common situation of the debenture appointment of a receiver and receiver and manager. This then reverts the situation back to the Kimlin situation when there is a debenture appointment of a receiver or receiver and manager, and the agency of the receiver or receiver and manager under a debenture would terminate. The amended section 386 would require time and costs for the debenture holder or creditors to seek for a Court appointment of receiver or receiver and manager. It also calls into doubt whether there can be a Court appointment of receiver or receiver and manager when it is a non-Court winding up i.e. members’ voluntary winding up or creditors’ voluntary winding up.
The second proposed amendment has since been withdrawn in Parliament at the time of the tabling of the Second Reading of the amendment Bill. The effect of the withdrawal is that the wording of section 386(1) is maintained such that “after the commencement of winding up of a company”, the receiver and receiver and manager can continue to exercise certain powers and can continue to act as an agent of the company.
#5: Severe Dilution of the Power to Appoint Judicial Manager – Section 409
Section 409 of the CA 2016 provides that the Court shall dismiss an application for judicial management if essentially (i) a receiver or receiver and manager over substantially all the assets of the company has been appointed and (ii) the making of the order is opposed by a secured creditor.
The Bill proposes to amend the word “and” to “or”. This means that even the mere opposition by any secured creditor would defeat the judicial management application. This in turn renders the receiver or receiver and manager restriction superfluous. A debenture holder which can appoint the receiver or receiver and manager would already be a secured creditor.
This also runs counter to the general overarching aims of judicial management as part of a corporate rescue mechanism. The corporate rescue mechanism aims to save financially distressed companies. These distressed companies would almost inevitably have some form of secured creditor or secured debt.
#6: Recognised professional body, license and renewal of liquidator – Section 433
Section 433 of the CA 2016 will be expanded to cater for the Minister of Finance to impose limitations or conditions on the liquidator’s licence, to approve or to renew the liquidator’s licence for a period of two years, and to also delegate these powers to any person or body of persons.
This is with the aim of streamlining and making clear the process for the grant of the liquidator’s licence.
#7: Security for costs – section 580A
A new section will be introduced to the CA 2016 to re-introduce the provision for the grant of a security of costs. Where a company is the plaintiff in any action or other proceedings, and if it appears by a credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant, the Court may order the plaintiff to give sufficient security for costs.
This was an issue since the security for costs provision had been inadvertently removed under the CA 2016. This was taken note of in this case.
We can continue to monitor the Parliamentary debate of this amendment Bill to see if there are any further amendments made.