Enforcement of Companies Act 2016

The Companies Act 2016 (“the Act”) in Malaysia was passed by Parliament in April 2016 and gazetted on 15 September 2016. On 13 January 2017 the SSM (Companies Commission of Malaysia) announced that the Act will be enforced (for incorporation first) effective from 31 January 2017.

Below are some of the new or major changes to the Act affecting private companies.

1. Incorporation of a company
Formation is made simpler by allowing a single director and a single shareholder to incorporate a new company. (Only applicable to private, not public companies)

2. Constitution of a company
A company will no longer have to provide a memorandum and articles of association; they will be replaced by a constitution. A company may or may not have constitution, unless it is a company limited by guarantee.

3. Common seal and share certificates
Common seal and share certificates become optional.

4. Annual general meeting (“AGM”)
An AGM is mandatory for public companies, but private companies are no longer required to convene an AGM.

5. Decoupling of the annual return from the audited financial statements
For private companies, the financial statements have to be audited and circulated to shareholders within 6 months of financial closing and lodged with the SSM within 30 days of the date of circulation.

6. No par value regime
All shares issued before or upon commencement of this Act shall have no par or nominal value. Upon the commencement of the new Act, share premium accounts and capital redemption reserve will no longer be applicable; this will simplify accounts. Companies will have transitional period of 24 months to transfer any amounts standing to the credit of the share premium and capital redemption reserve to share capital in accounting records.

7. Removal of authorised capital regime
There will be no authorised capital regime upon commencement of the new Act.

8. Increase in sanctions of directors
There is a general increase in the sanctions that directors will face for breaches under the Act. The most serious infractions can result in 5 years imprisonment or a RM3 million fine or both, if there is a criminal conviction.

9. New solvency test requirement
There will be different varieties of new solvency tests applicable to different situations. Directors must sign the equivalent of a statutory declaration to verify that the company is solvent when the company undertakes the following:

9.1 Declaration of dividends
The company may declare the dividends out of profits and these can only be distributed if the company is solvent, i.e. if the company is able to pay its debts when they fall due within the 12 month period following the distribution of the dividends.

9.2 Solvency statement
A solvency statement is required to be signed by the directors whenever the company undertakes any of the following exercises:
(a) capital reduction without a court order
(b) financial assistance
(c) redemption of preference shares
(d) share buy back

10. Corporate rescue: corporate voluntary arrangement and judicial management
The Act introduces corporate voluntary arrangements and judicial management to help financially distressed companies. The aim of these two mechanisms is to allow these companies to restructure their debts, to remain as on-going concerns and to avoid having to wind up the business.

Author:
Winnie Cheng, Senior Manager, Company Secretary
Kuala Lumpur, Malaysia

Edited by:
Yin Lai Pat, partner, accountant, Ecovis, Kuala Lumpur, Malaysia, yinlai.pat@ecovis.com.my