The Companies (Amendment) Bill 2019 (“Bill”) was passed by the Dewan Rakyat (House of Representatives) and the Dewan Negara (Senate) of the Malaysian Parliament on 10 and 31 July 2019 respectively. The Bill will now be presented to the Yang di-Pertuan Agong for His Majesty’s assent. After His Majesty’s assent, the law will be gazetted and come into operation on a date to be appointed by the Minister of Domestic Trade and Consumer Affairs by notification in the Gazette.
The Companies Commission of Malaysia (“CCM”) has uploaded on its website, a set of Frequently Asked Questions relating to the Bill (“FAQs”). These FAQs are helpful as they explain and clarify the rationale for each of the proposed amendments.
This article highlights the main changes that will be made to the Companies Act 2016 (“Principal Act”) under the Bill and explains the rationale behind the amendments.
Section 4 (Definition of “subsidiary” and “holding company”)
Section 4(1)(a)(iii) of the Principal Act will be amended by replacing the words “issued share capital” with “total number of issued shares” as one of the circumstances in which a corporation is deemed to be a subsidiary of another. The “total number of issued shares” does not include preference shares. This aligns the provision with the no par value share regime that was introduced under the Principal Act.
Section 66 (Execution of documents)
The Bill introduces a new sub-section (6) to section 66 of the Principal Act which states that for the purposes of section 66, a “document” means “a document which is required to be executed by any written law, resolution, agreement or constitution in accordance with subsection (1)”. Arising from this amendment, the wider meaning assigned to the word “document” under section 2(1) of the Principal Act will not apply to section 66. This will limit the scope of section 66 and enable companies to carry on their daily business more effectively by adopting other methods of executing documents that do not come within the definition of a “document” under section 66(6).
Section 72 (Preference shares)
Section 72(5) of the Principal Act will be amended to make it clear that the requirement to transfer an equivalent amount of distributable profits to the share capital account upon the redemption of preference shares only applies when preference shares are redeemed out of profits pursuant to section 72(4)(a) of the Principal Act. The existing requirement to transfer profits to the share capital account when preference shares are redeemed out of the capital of the company under section 72(4)(c) of the Principal Act will be dispensed with.
Section 84 (Power to alter share capital)
Section 84(1) of the Principal Act will be amended so that the power of a company to alter its share capital in the manner specified in section 84(1) of the Principal Act, namely by –
- consolidating and dividing all or any share capital on the basis that the proportion between the amount paid and the amount, if any, unpaid on each subdivided share remains the same as it was in the case of the share from which the subdivided share is derived;
- converting all or any paid-up shares into stock and vice versa; or
- subdividing its shares or any of its shares, whatever is in the subdivision, on the basis that the proportion between the amount paid and the amount, if any, unpaid on each subdivided share remains the same as it was in the case of the share from which the subdivided share is derived,
may be effected by an ordinary resolution instead of a special resolution (unless otherwise provided in the company’s constitution). According to the CCM, the rationale for reducing the approval threshold is that the changes in share capital described in paragraphs (a) to (c) above do not result in a change in the percentage of shareholding and the voting rights held by the shareholders of the company.
Section 93 (Application to disallow variation of class rights)
The inconsistency between sections 93(1) and 93(2)(b) of the Principal Act is removed by amending the latter to make it clear that an application to Court to have the variation disallowed may be made on behalf of shareholders representing at least 10% of the voting rights in the class.
Section 247 (Accounting periods of companies within a group)
Section 247(3) of the Principal Act will be amended to require any application to the Registrar for an order to authorise any subsidiary to have, or to adopt, a financial year which does not coincide with that of its holding company to be made not less than 30 days before the circulation of the financial statement of the holding company. The CCM has explained in the FAQs that the amendment will give time to the Registrar to process the application and avoid abuse of process whereby applications are submitted too close to the financial statement deadlines.
Section 340 (Annual general meeting)
Section 340(1)(c) of the Principal Act will be amended to provide that one of the matters to be transacted at an annual general meeting of a public company is the appointment and fixing of the remuneration of auditors. This amendment will align the requirements under the Principal Act in relation with the appointment and remuneration of auditors to the provisions of the repealed Companies Act 1965.
Section 386 (Powers of receiver or receiver and manager upon liquidation)
Section 386 of the Principal Act will be amended to make it clear that the exercise by a receiver and manager appointed under a debenture of his powers as receiver in respect of property and assets secured under the debenture does not require consent of the liquidator or the Court after the commencement of winding up.
Section 409 (Dismissal of application for judicial management order)
Presently, the effect of section 409 of the Principal Act is that only a debenture holder who can appoint a receiver or receiver and manager over the whole or substantially the whole of the company’s property may veto the appointment of a judicial manager. This provision will be amended to also allow a secured creditor to veto the application for a judicial management order. According to the CCM, the amendment aligns the provision with one of the policy objectives of the Principal Act which is to confer a right on other secured creditors of a company to oppose the appointment of a judicial manager. This proposed amendment may significantly curtail the ability of the Court to grant a judicial management order.
Section 433 (Qualification of liquidator)
Section 433(2) of the Principal Act will be amended to allow two additional categories of persons, namely a person who is (a) a partner, employer or employee of an officer of the company (section 433(1)(d)), or (b) a partner or employee of an employee of an officer of the company (section 433(1)(e)), to be appointed as interim liquidator or liquidator without leave of Court in a members’ voluntary winding up or, subject to approval of a majority of the creditors, in a creditors’ voluntary winding up.
In addition, new provisions will be introduced to (i) confer discretion on the Minister of Finance to impose such limitations and conditions as he deems fit on any person who is approved to be a liquidator under section 433(4) of the Principal Act and to revoke such appointment (new section 433(4A)); and (ii) limit the duration of the approval (and any renewal of such approval) of a person approved under section 433(4) to two years (new section 433(4B)).
New Section 580A (Security for costs)
A new section 580A will be introduced into the Principal Act to confer discretion on the Court to order a plaintiff company to give sufficient security for costs and to direct that the costs of any action or proceedings be borne by the party to the action or proceedings. According to the FAQs, the objective of this provision, which is substantially similar to section 351 of the repealed Companies Act 1965, is to protect the interests of defendants in proceedings under the Principal Act as the safeguards under Order 23 rule 1 of the Rules of Court 2012 may be inadequate for this purpose.
The Bill is the first time that amendments will be made to the Principal Act since it came into operation. In particular, the proposed amendments to sections 66, 72 and 386 of the Principal Act are welcomed as they clarify the requirements under those provisions. Similarly, the reinstatement of the discretion of the Court to grant security and costs is also welcomed. However, the proposed amendment to section 409 may curtail the effectiveness of the provisions for judicial management under the Principal Act.