Morphing the Malaysian corporate landscape
THE 51-year old legislation governing the corporate landscape in Malaysia will receive a facelift as the new Companies Act 2016 (new Act) has received Royal Assent and will replace the existing Companies Act 1965 (Act) as it is expected to come into force on Jan 1, 2017. The following are a few key changes under the new Act:
Ease of incorporation The Act presently requires a minimum of two individuals for the incorporation of any company. It also prohibits a company with less than two shareholders from carrying on business for more than six months, except in the case of a company wholly owned by a holding company. Moving forward, the new Act departs from this position by allowing a single individual (resident in Malaysia) to incorporate a company as the sole shareholder and director of the company. This is a move towards business efficacy as entrepreneurs could save on overhead costs such as the appointment of additional directors and shareholders.
Abolishment of the par value regime All shares, whether issued before or after the coming in force of the new Act, will no longer have a par value. This means that share certificates would no longer state the nominal value of the share in relation to the number of shares owned (e.g. 1 ordinary share of RM1 each). Under the no-par value regime, the share premium account and capital reserves are abolished. Future funding from share issuance shall become part of a “share capital” account. Companies are not required to take any steps to comply because this conversion will be automatic upon expiry of the grace period under the new Act.
The new Act provides a 24-month transitional period for, among other things, companies to: (a) expend the funds in its share premium account for purposes prescribed under the Act, such as paying up unissued shares to be issued to shareholders as fully paid bonus shares, or to pay in whole or in part the balance unpaid on shares; and (b) utilise funds in the capital redemption reserve for the payment of bonus shares to shareholders.
Changes in corporate governance There are also many aspects that will see reform in relation to corporate governance. First, the new Act does away with the requirement for private companies to have annual general meetings. It will also be easier to pass a shareholders written resolution as the new Act now only requires the consent of a majority of shareholders.
The new Act also puts in place mechanisms and processes to govern the running of a company, i.e. a unified constitution in lieu of the memorandum and articles of association (M&A). When the new Act is in force, current M&A’s will be deemed to be the company’s constitution, whereas new companies may choose to fully adopt or tailor the constitution to suit their needs. Conclusion In light of these changes, regulators such as the Companies Commission of Malaysia, Bursa Malaysia and the Securities Commission are expected to issue new regulations and guidelines in enforcing the new regime. For example, the Securities Commission recently published a public consultation paper on the Malaysia Code on Corporate Governance 2016 that reflects the same vein of enhanced accountability and corporate governance advocated by the new Act. Therefore, corporates, both big and small, would benefit from familiarising themselves with the new regime and implementing the necessary changes required by the new Act before it comes into force. These steps could range from providing training to the directors and senior management of the company regarding the new Act, to taking legal advice in revamping the company’s corporate governance structure. Aside from the reputational damage arising from an enforcement action, non-compliance with the new Act attracts hefty fines. The changes brought about by the new Act are significant and, while there is a sensible sun-rise period of 24 months, it would be prudent for companies to start taking steps to comply with the new regime now, given the numerous changes to the law.
Contributed by Nick Yap Han Lun of Christopher & Lee Ong (www.christopherleeong.com).