Mor­ph­ing the Malaysian cor­po­rate land­scape

The Sun (Malaysia) - - SUNBIZ -

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).

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