Changes implemented by the Companies Act 2016
The Companies Act 2016 came into force in Malaysia on January 31, 2017. However, certain sections have yet to come into operation. These relate to: the company secretary’s registration with the Registrar of Companies; and the corporate rescue mechanisms. Effectively, all companies in Malaysia will now have to operate under the Companies Act 2016 framework. According to reports, the major changes are in relation to the incorporation procedure of companies, the omission of authorised share capital and par value for shares, as well as a corporate rescue mechanism for companies. Among the major changes highlighted by the Companies Commission of Malaysia include:
Introduction of single member/director company
Under the CA 2016, a company may be incorporated by or have only one member and that single member can also be the sole director of the company. However, for public companies, the CA 2016 still retains the minimum requirement of 2 directors.
Change of “certificate of registration” to “notice of registration”
Under the CA 2016, the CCM will issue a notice of registration for the incorporation of a new company to confirm that provisions relating to the requirements for registration have been complied with in line with the requirement of the law.
Abolition of the authorised capital concept
Under the CA 2016, a company is no longer required to state its authorised capital. Instead, a company is required to notify its issued share capital and paid up capital and the related changes through the return of allotments.
Abolition of concept of shares with nominal value
With effect from 31 January 2017, any newly issued share will no longer be tied with the nominal value when the company was incorporated. A company may issue shares at a price depending on the factors affecting the current circumstances and needs of the company.
Abolition of the requirement for annual general meeting for private companies
Beginning from 31 January 2017, all private companies are no longer required to hold annual general meetings. Instead all decisions of private companies can be fully made through circular resolutions. There is also a mechanism for the automatic reappointment of auditors, unless the shareholders decide otherwise. The CA 2016 also added new safeguards to protect third parties doing business with companies and where their rights as creditors should not be prejudiced. There will be different varieties of a new ‘solvency test’ that will be applied for different situations. Directors must sign on the equivalent of a statutory declaration to verify that the company is solvent when the company undertakes the following:
– Declaration of dividends;
– Capital reduction without a court order, financial assistance and redemption of preference shares; and
– Share buyback.
Where there is a breach of this solvency test, the directors then face personal liability and may face criminal sanctions.
However, some reports stated that some new provisions of the CA 2016 created some uncertainty relating to the signing of documents and contracts. There were questions whether documents which were executed on behalf of the company required at least one director to sign that document. There were those who argued that such a requirement would create certain logistical problems. Under Section 66 of the Act – Execution of Documents, Section 66(1) provides that a document is executed by a company either under common seal or by signature in accordance with Section 66. Section 66(2) meanwhile states that a document is validly executed by a company if it is signed on behalf of the company by at least two authorised officers, one of whom must be a director. In the case of a company with a sole director, then the document is to be signed by that director in the presence of a witness.
Reading section 66(2) alone could mean that a director would always have to be a mandatory signatory, and the word ‘document’ would mean a very wide category of physical and even electronic documents. The question was whether all documents would have to comply with this signature requirement in order to be validly executed by a company. In a clarification posted on the CCM’s website on March 6, 2017, it stated:
“Section 66 should be read in totality to which the scope is intended to cover the execution of documents which are required under any written law/regulations or agreement to be executed under common seal. This means where there is a requirement under any written law/regulations or agreement requiring the documents to be executed by affixing the common seal, the company has the following option:
– by affixing the common seal in accordance with the conditions or limitations in the constitution; or
– by signature in accordance with section 66, ie. signed by two authorised officers, one of whom must be a director or in the case of a single director, by that director in the presence of a witness. Any document which is executed without a common seal but in accordance with section 66 would have the same effect as if it was executed under the common seal.
The CA 2016 also introduced two new corporate rescue mechanisms to help financially distressed companies to restructure their debts and remain as a going concern and avoid winding up.