Companies Act to be amended to improve company procedure and governance
27 September 2019
On 31 July 2019, the Dewan Negara (the Upper House of Parliament) of Malaysia passed the Companies (Amendment) Bill 2019 (“Bill”). The Bill has not come into force. The Bill represents the first substantial amendment to the Companies Act 2016 (“Act”).
The Companies Commission of Malaysia (“CCM”) explained that it had received feedback from stakeholders on the need for several provisions of the Act to be amended with a view to better practices and compliance. The CCM has stated that the proposed amendments aim to improve internal procedures of a company towards a more organised and effective governance.
Some of the key amendments set out in the Bill are discussed below.
- Formalities for execution of documents: The Bill clarifies that the formalities for executing documents by a company under section 66 of the Act (i.e. by way of the affixing of common seal or with the signature of at least two authorised officers, one of whom must be a director) apply only to documents which are required to be executed by any written law, resolution, agreement or constitution.
- Redemption of preference shares: The Bill seeks to amend sections 72(4) and (5) of the Act to provide that only shares redeemed out of profits which would otherwise have been available for dividend would require a transfer of a sum equal to the amount of the shares redeemed into the share capital accounts of the company. The redemption of preference shares out of capital will not be subject to this requirement under section 72(5) of the Act and will only be subject to the solvency statement obligation.
- Alteration of share capital: The Bill seeks to amend section 84(1) of the Act to clarify that, unless otherwise provided in the constitution, there is no requirement for a company to pass a special resolution to alter its share capital. A company may alter its share capital by passing a resolution to, among other things:
- Consolidate and divide all or any of its share capital
- Convert all or any of its paid-up shares into stock
- Subdivide its shares
- Appointment and remuneration of auditors of public companies: The Bill clarifies section 340(1)(c) of the Act by providing that the appointment and the fixing of the remuneration of auditors must be transacted at the annual general meeting of a public company.
- Dismissal of applications for judicial management order: The Bill clarifies that the High Court is empowered to dismiss an application made by a company, its directors or creditors for a judicial management order (that is, an order to place the management of a company in the hands of a qualified insolvency practitioner known as a judicial manager) if it is satisfied that:
- a receiver or receiver and manager has been or will be appointed; or
- the making of the order is opposed by a secured creditor.
This provision of the Bill amends section 409 of the Act so that there will no longer be a requirement for both (a) and (b) to be satisfied for the High Court to dismiss an application for a judicial management order.
- Sufficient security for costs: The Bill seeks to include a new section 580A in the Act, to re-introduce the provision under the Companies Act 1965 regarding security for costs. The provision regarding security for costs was inadvertently omitted under the Act. Where there is reason to believe that the company initiating legal proceedings (“Plaintiff Company”) will be unable to pay the defendant’s costs if the defendant is successful in his defence, the High Court is empowered to order the Plaintiff Company to provide sufficient security for all costs and to stay all actions or proceedings until such security is given. This amendment also seeks to provide that the court may direct the costs of any action or proceedings to be borne by the party to the action or proceedings.
The Bill is available on the website of the Malaysian Parliament www.parlimen.gov.my, or by clicking here.