Companies Bill 2015: Making the Transition

28
June
2016

New Companies Regime: Making the Transition

The Companies Bill 2015 (“the Bill”) was passed in both houses of Parliament in April 2016 and is expected to come into force soon.  The Bill is pending Royal Assent and the new Companies Act 2015 (“the new Act”) will come into force on a date to be notified in the Gazette. The new Act will replace the existing Companies Act 1965 (“the CA 1965”) and reform our corporate landscape, including simplifying the way companies are structured and run, improving corporate governance as well as modernising and refining existing laws.

In our earlier Client Alert, we highlighted 10 key points about the Bill.

Moving forward, Malaysian companies will need to consider how to smoothly transition to the new regime.

Key transitional issues

Constitution

The CA 1965 requires a company to have a memorandum and articles of association (M&A).

Under the Bill, the concept of M&A will be replaced by a constitution.  Further, it will not be mandatory for a company to have a constitution unless the company:

  1. is a company limited by guarantee
  2. issues preference shares or has different classes of shares
  3. is a company listed on Bursa, in which case, the relevant listing requirements provide that such company adopts articles of association to address specific matters.

A few questions arise from this change:

  • What is the consequence of not having a constitution?

Where a company elects not to have a constitution, the new Act becomes the de facto constitution.  The rights, powers, duties and obligations of the members will be governed by the new Act.

  • Even though it is optional, in what situations would it still be advisable for a company to have a constitution?

This will depend on a number of factors, for example, whether the company or its shareholders wish to take advantage of optional provisions in the new Act, or whether certain minority interest or other rights need to be carved out. If a constitution is adopted, it becomes a list of exceptions to the new Act.  The constitution has no effect to the extent that it contravenes or is inconsistent with the new Act.

  • What happens to the M&A of an existing company?

In relation to a company incorporated under the CA 1965, its M&A will be deemed a constitution on the date that the new Act comes into force, unless otherwise resolved by such company.

An existing company will therefore need to consider if it wants to elect not to have a constitution.  If it keeps its existing one, it would also need to consider whether it would be necessary to make changes to be consistent with the provisions of the new Act.

For example, the new Act will dispense with the requirement for a private company to hold an annual general meeting (AGM).  Furthermore, written members’ resolutions of a private company will no longer be required to be unanimously approved and the new Act will allow such resolutions to be passed by the requisite majority.  Existing companies may wish to update their constitutions to take advantage of these changes.

General transitional provisions

The Bill outlines general transitional provisions that will apply in relation to existing companies.  These include the following:

  • Any person appointed and still holding office remains in office
  • Actions or instruments validly madeunder the CA 1965 are preserved and continue to have effect
  • A company or foreign company registered under the CA 1965 is automatically deemed to be registered under the new Act and no further registration is required
  • A company in the course of winding up immediately before the commencement of the new Act shall continue to be wound up under the provisions of the CA 1965

All proceedings, judicial or otherwise commenced under the CA 1965 and pending shall continue under the CA 1965.

If you have any questions on the Companies Bill, please do not hesitate to contact:

Sharon Tan, Partner ()