Major reform as new Companies Bill 2015 passed
The Companies Bill 2015 (“the Bill”) was passed by the Dewan Rakyat (House of Representatives) on 4 April 2016. When it comes into effect, it will replace the existing Companies Act 1965 and bring major reforms to our corporate landscape in line with international trends. The Bill aims to ease doing business in Malaysia, facilitate the management and restructuring of share capital, strengthen corporate governance, modernise insolvency laws as well as simplify and refine existing laws.
10 key points about the Bill
- Easier incorporation for private companies which will be allowed to have a single director and single shareholder.
- Abolishment of annual general meetings for private companies.
- Written resolutions of shareholders of private companies will no longer be required to be unanimous. Such resolutions can be passed by the same majority as required at general meetings.
- Migration to a no-par value regime. New shares issued by a company will have no par or nominal value. The adoption of a no-par value regime will remove the need for share premium accounts and reserves and enable a company to issue shares at a discount.
- No requirement for companies to have memoranda and articles of association (“M&A”). A company may adopt a constitution if it wishes to tailor provisions for itself and its members. Existing companies with M&As will be deemed to have constitutions.
- New alternative procedure for capital reduction based on a solvency test and which dispenses with the need for a court order. This will encourage quicker implementation of capital reduction exercises provided that the company is able to demonstrate that it satisfies the solvency test.
- New financial assistance whitewash procedures that liberalises existing prohibitions. Under these whitewash procedures, a company (which is not quoted on an exchange) may give financial assistance for the purpose of the acquisition of its shares if: (a) the financial assistance is approved by a special resolution of shareholders and by a majority of the directors of the company; (b) each director who voted in favour of the financial assistance makes a solvency statement; (c) the aggregate amount of the assistance and any other financial assistance previously given that has not been repaid does not exceed 10% of the company’s current shareholders funds; and (d) the company receives fair value in connection with the giving of assistance.
- Refinement of the share buyback regime, including a new requirement that the company satisfies a solvency test that is similar to the one for capital reduction.
- Increased sanctions on directors for breaches under the Act, which include heavier fines and longer terms of imprisonment. The more serious offences can result in a 5-year imprisonment and a RM5 million fine, or both, if there is a criminal conviction.
- Two new corporate rescue mechanisms, Corporate Voluntary Arrangement and Judicial Management, to help financially distressed companies remain as a going concern and avoid winding-up.
What happens next?
It is expected that the Bill will be submitted to the Dewan Negara (Senate) for approval when it sits from 18 April 2016 to 4 May 2016. Once it is approved and Royal Assent is obtained, the Act will come into operation on a date to be notified in the Gazette. New regulations, rules and guidelines for the new Act will also need to be drawn up.
This alert is for general information only and is not a substitute for legal advice.