14 May 2020
The Malaysian Companies (Amendment) Act 2019 (“Amendment Act”) and the Companies (Company Auditor and Liquidator Fees) Regulations 2020 (“Companies Regulations”) came into force on 15 January 2020. The Amendment Act amends the Companies Act 2016 (“Companies Act”) whilst the enactment of the Companies Regulations revokes the Fees (Company Auditors and Liquidators) Regulations 1966.
This article highlights the key changes and practical implications of the Amendment Act and Companies Regulations which will be of interest to companies and its stakeholders.
Definition of subsidiary and holding company
The Amendment Act amends section 4(1)(a)(iii) of the Companies Act to substitute “issued share capital” with “total number of issued shares”.
Practical implication: A company will be deemed to be a subsidiary of another company if the other company holds more than half of the total number of issued shares, excluding any part of the share capital which consists of preference shares of the company instead of the total value of issued shares, excluding any part of the share capital which consists of preference shares. This amendment is in line with the application of the no par value regime which emphasises the total number of shares owned instead of the value of shares in determining a shareholder’s shareholding in a company.
Formalities for execution of documents
The Amendment Act clarifies that the formalities for execution of “documents” by a company under section 66 of the Companies 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, or in the case of a sole director, by that director in the presence of a witness) apply only to documents which are required to be executed by any written law, resolution, agreement or constitution.
Practical implication: Documents which are not required to be executed pursuant to any written law, resolution, agreement or constitution (e.g. invoices, notices or letters) are not subject to the strict execution formalities set out in section 66 of the Companies Act. This amendment enables companies to operate their day to day affairs in a more efficient and effective manner.
Redemption of preference shares
The Amendment Act amends sections 72(4) and (5) of the Companies Act to provide that only preference 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.
Practical implication: The redemption of preference shares out of capital of the company or out of the proceeds of a fresh issue of shares is not subject to this requirement under section 72(5) of the Companies Act. It is unclear what the “amount” represents; whether it represents the carrying amount of the preference shares in the books or the entire carrying amount of the preference shares redeemed at the redemption date.
Alteration of share capital
The Amendment Act amends section 84(1) of the Companies Act by stipulating 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; or
- sub-divide its shares.
Prior to the coming into force of the Amendment Act, this could only be done via a special resolution, unless otherwise provided in the constitution.
Practical implication: A company is now able to alter its share capital by passing an ordinary resolution. This is without prejudice to the reduction of share capital which is still subject to section 115.
Appointment and remuneration of auditors of public companiesThe Amendment Act amends section 340(1)(c) of the Companies Act by substituting the words “the fee of directors” with “the remuneration of auditors” to provide that the appointment of auditors and the fixing of their remuneration must be transacted at the annual general meeting (“AGM”) of a public company in every calendar year. Prior to the coming into force of the Amendment Act, section 340 of the Companies Act which sets out the list of business to be transacted at an AGM of a public company was silent on the requirement of appointment and remuneration of auditors. Although section 271 of the Companies Act does provide that an auditor must be appointed by the shareholders by ordinary resolution at the AGM, section 274 of the Companies Act is silent on the remuneration of an auditor being fixed by the shareholders at the AGM; it merely says by ordinary resolution.
Practical implication: This amendment requires the appointment and the fixing of the remuneration of auditors of a public company to be tabled at its AGM for shareholders’ approval. The amendment results in fees and any benefits payable to directors of a public company being subject to shareholders’ approval at a general meeting (without stipulating that it must be at an AGM) pursuant to section 230 of the Companies Act. D
Dismissal of applications for judicial management order
The Amendment Act amends section 409(a) of the Companies Act to clarify 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.
Prior to the coming into force of the Amendment Act, both criteria in 1 and 2 above had to be satisfied in order for the High Court to dismiss an application for a judicial management order.
Practical implication: The High Court is now empowered to dismiss an application for a judicial management order if either criteria listed in 1 and 2 is satisfied. This gives greater protection to secured creditors as a mere objection by any secured creditor may be sufficient to defeat an application for judicial management order.
Sufficient security for costs
The Amendment Act inserts a new section 580A into the Companies Act to re-introduce the provision under the Companies Act 1965 regarding security for costs, which was inadvertently omitted under the Companies Act.
Practical Implication: If there is reason to believe that a company initiating legal proceedings (“Plaintiff Company”) will be unable to pay the defendant’s costs in the event that the defendant is successful in its defence, the High Court may make an order for the Plaintiff Company to provide sufficient security for all costs and to stay all actions or proceedings until such security is given. The court also has the discretion to direct the costs of any action or proceedings to be borne by the party to the action or proceedings.
The Companies Regulations provide the new fees payable under the Companies Act for the following applications:
- approval as a company auditor;
- approval as a liquidator;
- renewal of approval as a company auditor; and
- renewal of approval as a liquidator.