The Companies Act 2016: Good Housekeeping
The Companies Act 2016 (“CA 2016”), which came into effect on 31 January 2017, introduces changes to ease the doing of business and to simplify administration requirements for companies. Companies need to consider the impact of these changes and how best to take advantage of them.
Checklist of administrative matters
- Consider whether you need a constitution.
- For a company with an existing constitution, consider making amendments to the constitution to be consistent with and to take advantage of the administrative ease under the CA 2016.
- For a company with a significant amount in its share premium or capital redemption reserves prior to the abolition of such reserves, consider utilising such amounts within the 24-month grace period from 1 January 2017.
- Review existing constitution and contracts and consider if amendments should be made to reflect the abolition of par value and related concepts to avoid confusion.
- Familiarise yourself with the new requirements relating to changes in share capital, including the ability of directors to allot new shares in certain circumstances without the need for shareholder approval.
Meetings and resolutions
- Ensure that all procedures on company meetings and resolutions are updated based on the requirements of the CA 2016. Written resolutions may no longer be passed by public companies. For private companies, written resolutions need only be passed by the requisite majority (and not unanimously) and annual general meetings are no longer mandatory. Any express requirement contained in the constitution of a private company that written resolutions must be passed unanimously or that annual general meetings must be held should be amended or deleted if the company wants to take advantage of the relaxation.
Records and filings
- Review all registers and records and ensure that these comply with the CA 2016.
- Review the new requirements for lodgement of annual returns and financial statements which have been decoupled under the CA 2016, and comply with the new filing deadlines.
- Review the requirements under the CA 2016 relating to the entry into and execution of contracts, documents and deeds.
- Familiarise the company secretarial team and other relevant personnel with the new statutory forms, electronic filing procedures and fees.
- Review new procedures for applications for incorporation which are now made online via the MyCOID Portal, using a “super form” electronic template.
- Be aware that a notice of registration issued by the Registrar of Companies is conclusive evidence of the incorporation of a company, and not a certificate of incorporation (which is no longer mandatory).
- Be aware that under the CA 2016, a company is no longer required to issue a share certificate unless an application has been made by a shareholder. The Register of Members is prima facie evidence of shareholders’ legal title in the shares vested in them under the CA 2016.
- Consider whether there are reasons why a common seal should be adopted, even if it is now no longer mandatory under the CA 2016.
- Educate the directors on the stricter standards and higher responsibilities that they are subject to under the CA 2016, including heavier fines and longer terms of imprisonment for breaches under the CA 2016.
- Educate the directors on solvency tests that companies must take into account prior to undertaking certain corporate exercises, such as non-court capital reduction exercises, share buybacks, redemption of preference shares and financial assistance. Directors are required to confirm the satisfaction of these solvency tests in a solvency declaration.
- Educate the directors on the requirements relating to distribution of dividends which now impose an additional obligation on directors to ensure that the company is solvent both at the time of declaration as well as distribution of the dividends and which also provide for a claw-back in the event of an improper distribution.
- Review the new approval requirements for fees and benefits to directors.
- For public companies, be aware that a copy of every director’s service contract is required to be kept for inspection at the registered office of the company.
- Re-assess current practices relating to directors’ indemnity and taking up Director and Officer (D&O) insurance policies to ensure that these comply with the restrictions under the CA 2016.
On a separate note, the Securities Commission Malaysia recently released, on 26 April 2017, the new Malaysian Code on Corporate Governance (“MCCG”), which is a set of best practices to strengthen corporate culture based on accountability and transparency. The new MCCG places greater emphasis on the internalisation of corporate governance culture. Apart from listed companies, the new MCCG also encourages non-listed entities including state-owned enterprises, small and medium enterprises and licensed intermediaries to embrace the code. We will elaborate further on this in our next client alert. So watch this space!
This alert is for general information only and is not a substitute for legal advice.