Kok Chee Kheong highlights some of the significant changes under the Companies Bill 2013.
 
On 2 July 2013, the Companies Commission of Malaysia (“CCM”) released an exposure draft of the long awaited Companies Bill 2013 (“the Bill”) for public consultation. After an extension, the period for public consultation closed on 10 August 2013.
 
The Bill consists of 631 clauses and 12 schedules as compared to the Companies Act 1965 (“CA”) which is made up of 449 sections (including those sections that are identified by a number and a capital alphabet) and 10 schedules.
 
The Bill will usher in many changes to the principal legislation that governs the formation, operation and regulation of companies in Malaysia. In this first of a series of articles, we will highlight some of the more significant and interesting changes that will be introduced under the Bill.
 
In this article, the “Act” refers to the Bill when it has been passed and comes into operation.
 
INCORPORATION RELATED MATTERS
 
Formation by one member
 
The Bill permits a company to be formed by a single person and to have only one director (Clause 13(1)). The CA requires a company to be formed by two or more persons (although shares may subsequently be transferred to a corporation so that the company becomes a wholly-owned subsidiary of another corporation).
 
Certificate of incorporation
 
Under the Bill, a certificate of incorporation will no longer be issued upon the incorporation of a company. Instead, the CCM will issue a notice of registration which, inter alia, is conclusive evidence that the company has been duly registered under the Act (Clause 15). A certificate of incorporation will only be issued upon application and payment of a prescribed fee (Clause 16).
 
Constitution
 
The other main incorporation documents under the CA, namely the memorandum and articles of association, are replaced by a constitution under the Bill. Interestingly, the Bill dispenses with the requirement for a company (other than a company limited by guarantee) to have a constitution (Clauses 30(1) and 37(1)). If a company elects not to adopt a constitution, the rights, powers, duties and obligations of the directors and members will be governed by the Act (Clause 30(3)).
 
If a company adopts a constitution, the rights, powers, duties and obligations of the directors and members will be as set out in the Act save insofar as they are modified by the constitution (Clause 30(2)). The Bill further provides that the constitution has no effect to the extent that it contravenes or is inconsistent with the provisions of the Act (Clause 31(2)).
 
Capacity of a company
 
Clause 20 of the Bill states that upon incorporation, a company shall have full capacity to carry on or undertake any business or activity, do any lawful act and do or enter into transactions (Clause 20(1)). This is a major departure from the existing regime under the CA where a company may only undertake activities which are within, and in furtherance of, the objects specified in its memorandum of association. According to Recommendation 1.10 of the Review of the Companies Act 1965 by the Corporate Law Reform Committee, this provision seeks to clothe a company with the full capacity of a natural person.
 
Where a company has adopted a constitution which sets out the objects of the company, it shall be restricted from carrying on any business or activity which is not within those objects (Clause 34(2)(a)).
 
Existing company
 
In relation to a company incorporated under the CA, clause 33(c) of the Bill provides that the company’s memorandum and articles of association are deemed to be the company’s constitution. The Bill further provides that the company shall have unlimited capacity under clause 20. It is unclear whether this provision means that a company incorporated under the CA ceases to be bound by the object clauses specified in its memorandum of association upon the Act coming into force.
 
It is submitted that the objects should continue to apply to a company that is incorporated under the CA as that would be consistent with the new regime which permits a company which adopts a constitution to restrict its objects to those specified in its constitution. Perhaps this issue should be clarified in the Bill.
 
Common seal and incidental matters
 
Unlike the CA, the Bill does not impose an obligation on a company to adopt a common seal. Instead, it confers discretion on a company to do so (Clause 60(1)).
 
If a company does not adopt a common seal, it can make a contract, written or oral, through a person acting under its express or implied authority and execute documents by having the same signed by two authorised officers, i.e. a director or secretary, of whom at least one must be a director, or where the company has only one director, by that director in the presence of a witness who attests the signature (Clauses 63(1), 65(2) and 65(5)).
 
Amendment of constitution
 
The Bill provides a procedure for amending a constitution which is similar to the procedure in the CA, that is by way of a special resolution of the members in general meeting. In addition, clause 36(1) of the Bill introduces a new procedure which allows the court, on application of a director or member, to make an order to amend the constitution if the court is satisfied that it is not practicable to do so using the procedures specified in the Bill or the constitution.
 
DOCTRINE OF CONSTRUCTIVE NOTICE
 
The Bill abolishes the doctrine of constructive notice. Clause 38 provides that no person shall be deemed to have knowledge or notice of the contents of a constitution or any other document of the company by reason that the constitution or document has been registered by the Registrar of Companies (“Registrar”) or is available for inspection at the registered office of the company.
 
This change not only complements the new regime that accords a company with the full capacity of a natural person but goes further in that in relation to a company which has adopted a constitution, a person who deals with that company is not deemed to have constructive notice of the objects and other provisions contained in the constitution by reason of that document being lodged with the Registrar.
 
COMPANY LIMITED BY GUARANTEE
 
The Bill introduces two radical changes to the formation of a company limited by guarantee (“CLBG”). First, the Bill only permits a CLBG to be formed as a public company and not as a private company (Clause 10(2)).
 
Second, a CLBG may only be formed for the purposes of providing recreation or amusement or promoting commerce and industry, art, science, religion, charity, pension or superannuation schemes or any other object that is useful for the community (Clause 44(1)). In other words, a CLBG can no longer be incorporated for profit-making purposes.
 
Consistent with the objectives set out above, the Bill prohibits a CLBG from paying any dividend to its members (Clause 44(2)(b)). Further, in the event that a CLBG is wound up, the Bill requires its assets to be transferred to another body that has objects similar to those of that CLBG or objects which are for the promotion of charity (Clause 44(2)(c)).
 
The requirements relating to a CLBG that are introduced by the Bill are not entirely new and represent a codification of the CCM’s present requirements in relation to a CLBG that is formed for charitable purposes.
 
DISCLOSURE OF INTEREST
 
Clause 56 of the Bill enables a company to require a member to disclose to the company as to whether the shares which are registered in the name of that member are held by him as beneficial owner or as trustee; and in event of the latter, to provide the company with particulars sufficient to identify the beneficial owner and the nature of his interest in the shares. The new provision is substantially similar to section 69O of the CA but is wider in scope as the new provision applies to any member whilst section 69O only applies to a substantial shareholder of the company.
 
REGISTER OF MEMBERS
 
As in the case of the CA, the Bill requires a company to maintain a Register of Members. However, clause 50(1) of the Bill imposes an additional requirement for a company to notify the Registrar within 30 days from the date of (i) any change in the prescribed particulars of a member; or (ii) any person becoming or ceasing to be a member of the company; or (iii) any information received from a member that he holds shares as trustee of another person.
 
This requirement will ensure that the CCM's records as to the members of a company are updated promptly. It is hoped that the up-dated information will be made available in searches that are carried out on companies at the CCM.
 
ANNUAL RETURN
 
The Bill retains the obligation of a company under the CA to file an annual return ("AR") in each calendar year with the Registrar. The Bill introduces two new features. First, if there is no change in the prescribed particulars since the filing of the last AR, a company may lodge a statement to certify that there has not been any change since the filing of the last AR, instead of filing a new AR that replicates the same information (Clause 67(6)).
 
Second, the Bill gives the Registrar the right to strike a company off the register if it does not file an AR for three or more consecutive years (Clause 67(9)).
 
NO PAR VALUE SHARES
 
One of the most significant changes to be introduced under the Bill is the introduction of the no par value regime. Clause 72(1) provides that shares of a company shall have no par or nominal value. All subscription moneys received by a company for each share will be credited to the share capital account. This follows the trend set in New Zealand, Australia and Singapore and is expected to be followed by Hong Kong in 2014.
 
Transitional provisions for existing companies
 
All existing companies will be converted to the no par value regime. Upon the coming into force of clause 72 ("commencement date"), all amounts credited to the share premium account and the capital redemption reserve of an existing company will become part of the company's share capital.
 
The Bill also provides a 24 months’ time frame for an existing company to utilise the credit in its share premium account for the purposes prescribed in the Bill, including (i) paying premium on redemption of redeemable preference shares issued before the commencement date; or (ii) paying for unissued shares which are to be issued on the commencement date as fully paid bonus shares pursuant to an agreement made before the commencement date; or (iii) paying up in part or in whole the balance unpaid on shares issued before the commencement date; or (iv) paying for shares which are to be issued in satisfaction of dividends declared before the commencement date (Clause 73(3)).
 
SHARE CAPITAL
 
Rights attached to shares
 
Unlike the CA, clause 68(2) of the Bill expressly provides that a holder of shares has the right to (i) one vote for every share held on a poll; and (ii) a pro-rated share of any dividend and distribution of the surplus assets by the company.
 
However clause 68(2) is qualified by clauses 68(3) and 69(1) which inter alia provide that the constitution of a company may (i) negate, alter or add to the right to dividend; (ii) permit the issue of redeemable shares; (iii) confer preferential rights to distribution or income; (iv) confer special, limited or conditional voting rights; or (v) not confer voting rights.
 
Hence, notwithstanding the general declaration in clause 68(2), the Bill is similar to the CA in that a company may, if so authorised by its constitution, issue different classes of shares that have different voting rights or entitlements.
 
Redeemable preference shares
 
The introduction of the no par value regime will not affect the right of a company to issue redeemable preference shares (“RPS”), which is expressly permitted under the Bill (Clauses 69(1)(b) and 70(1)). In order to do so, a company must be expressly authorised by its constitution. This requirement in effect means that a company that proposes to issue RPS is required to adopt a constitution.
 
As in the case of the CA, RPS can be redeemed from the profits of a company or the proceeds from a fresh issue of shares. In addition, the Bill permits RPS to be redeemed out of the share capital of a company (Clause 70(3)(c)). Two conditions must be fulfilled in order for RPS to be redeemed from share capital. First, all directors are required to make a solvency statement in relation to the redemption and second, the company must lodge the copy of the statement with the Registrar (Clause 70(5) read with clause 112).
 
Share issuance process
 
Under section 132D of the CA, all issue of shares must be approved by the company in general meeting or alternatively, in the case of shares to be issued as consideration or part consideration for the acquisition of shares or assets by a company, after the expiry of at least 14 days from the date when it has notified its members in the manner prescribed in the CA of its intention to issue such shares.
 
The Bill permits directors to allot, or grant rights to subscribe for, shares or convert any security into shares in a company only with the prior approval by resolution of the company (Clause 74(1) read with clause 75(1)). However, the requirement for prior approval by members does not appear to be required for directors to issue shares in the following circumstances:
 
(i)      allot shares, or grant rights, under an offer made to the members in proportion to their shareholdings by way of a rights issue or bonus issue;
(ii)     allot shares to a promoter of a company in accordance with the agreement with the promoter;
(iii)    where shares are to be issued as consideration or part consideration for the acquisition of shares or assets by a company, after the expiry of at least 14 days from the date when it has notified its members in the manner prescribed in the Bill of its intention to issue such shares (Clause 74(2)).
 
From the above, it can be seen that the procedure for issue of shares by a company under the Bill is similar to that under the CA except that the Bill dispenses with the requirement for members approval where shares are to be allotted, or rights granted, pursuant to a rights issue or a bonus issue. The dispensation of the requirement for members’ approval in respect of rights issues and bonus issues will be welcomed by listed companies as it will reduce compliance costs.
 
Calls on partly paid shares
 
Under the CA, a company may differentiate between the timing and amount of calls as between shareholders only if it is permitted to do so under its articles of association. This requirement is liberalised under the Bill which permits a company to make such differentiation unless otherwise provided in its constitution (Clause 81(1)(a)).
 
Pre-emption over unissued shares
 
Clause 85(1) of the Bill provides that where a company issues shares which rank equally or in priority to existing shares as regards voting or distribution rights, those shares should be offered first to the holders of the existing shares to enable the shareholders who accept the offer to maintain their proportionate shareholding in the company.
 
This provision is potentially contentious as it appears to confer a personal right on each shareholder to a proportionate entitlement of the new shares and may only be waived by the shareholder concerned.
 
It is submitted that clause 85(1) should be qualified in a manner that is similar to regulation 41 of Table A (Fourth Schedule) of the CA so that the pre-emption right should be subject to, and qualified by, any direction given to the contrary by the company in general meeting. In other words, the pre-emption rights may be waived by a resolution of the company in general meeting rather than by each shareholder in respect of the pro-rated entitlement of new shares which are to be offered to him under this pre-emption clause.   
 
Formal procedures
 
The Bill retains the requirement under the CA for a company to lodge a return of allotment with the Registrar in relation to allotment of shares. However the Bill reduces the time frame for doing so from one month to 14 days (Clause 77(1)). Unlike the CA, the Bill prescribes a specific time frame, namely 14 days, within which a company is required to enter the details of the allotment of shares in its register of members (Clause 76(1)).
 
RESTRICTION ON TRANSFER OF STOCK
 
The provisions of Table A (Fourth Schedule) of the CA that govern the conversion of shares into stock and vice versa and for matters incidental to such conversion have been substantially incorporated into clauses 86 and 87 of the Bill.
 
In relation to the transferability of stock, clause 86(3) of the Bill provides that (i) the directors may fix the minimum amount of stock that is transferable; and (ii) such minimum “shall not exceed the issued (sic) price of the shares from which the stock arose”. It appears that the second requirement seeks to safeguard the interest of the members of a company by ensuring that the transferability of stocks will not be more onerous that the shares from which those stocks arose.
 
It is interesting to note that there is no similar safeguard in regulation 37 of Table A of the Singapore Companies Act and accordingly, the directors of a company incorporated in Singapore which adopts regulation 37 will have an unfettered discretion to determine the minimum amount of stocks that is transferable. 
 
If a company which proposes to convert its shares into stock has issued shares of the same class at different issue prices, the second requirement in clause 86(3) will mean that the minimum amount of stock that is to be transferable will have to be fixed at an amount that does not exceed the lowest price at which the original shares were issued as it is not possible for a company to impose different restrictions on different units of the same class of securities.