Malaysia: New Companies Bill Aims to Simplify Corporate Governance, Increases Liabilities of Directors

Malaysian parliament, the Dewan Rakyat, passed the new Companies Bill earlier this year. The bill will replace the 50-year-old Companies Act of 1965 and is expected to come in force by end of 2016.

Here are the five key changes proposed in the Companies Bill:

Incorporation gets easier: The new Companies Bill allows a single person to incorporate a company and that same person can be both the sole shareholder and sole director of the company.

Annual General Meetings (AGMs) not mandatory: Private companies will no longer need to hold an AGM, instead, a timeline will be set for companies to circulate the audited accounts among shareholders.

Passing of Written Resolutions gets easier. For private companies, written resolutions by shareholders will no longer be required to be unanimous. These can be passed by the same majority as required at general meetings.

Capital Reduction. The Bill also proposes new alternative procedure for capital reduction based on a solvency test. The new process dispenses with the need for a court order allowing companies to get quicker implementation of capital reduction exercises. However, the company must successfully clear the solvency test. Variations of a new solvency test will be applied for different situations. For the more common situation of declaration or pay-out of dividends, a company must be able to pay its debts within 12 months of becoming due to be able to release dividends.  In other situations, Directors must sign a Solvency Statement similar to a statutory declaration, verifying that the company is solvent. This new Solvency Statement is required when the company undertakes the following:

(i) Capital reduction without a court order

(ii) Financial assistance

(iii) Redemption of preference shares

(iv) Share buyback

Directors will be held personally liable if a company fails to meet the solvency test.

Increased sanctions on Directors. The new Bill includes heavier fines and longer terms of imprisonment with a serious offences resulting in a 5-year imprisonment and a RM5 million fine, or both, if there is a criminal conviction.

The information shared in the article provides general information only and not a professional or legal advice. If you like more information on doing business in Malaysia, please call +1-408-913-9130 to speak to our experts or contact us below.