KUALA LUMPUR – The Companies Act 2016, which is expected to be implemented in stages in 2017, will simplify incorporation procedures for companies and bring significant cost savings for businesses through the creation of a more business-friendly environment.
Legal firm Munhoe & Mar partner Christopher Mar Sze Wei said the big changes are in the incorporation procedure of companies, the omission of authorised share capital and par value for shares, as well as a corporate rescue mechanism for companies.
“The new act makes incorporating a company more attractive for businesses and entrepreneurs. It creates an environment that is more cost-effective that would also encourage the corporatisation of businesses,” Mar told SunBiz in an interview recently.
He pointed out that the changes in the new act will apply more to private companies, while for public companies, it will not be too much of a change.
Significant cost savings can be derived when the new act comes into play such as, a businessman does not have to pay to appoint a company secretary at the point of incorporation. One can appoint a company secretary within 30 days from the date of incorporation and for other documentation and follow-ups.
“In the running of the company as well, you (private companies) don’t need to hold an AGM as it can be simplified by passing written resolutions, which are cost-effective measures, while notices for meeting can be sent electronically,” said Mar.
The Companies Act 2016 replaces the Companies Act 1965, which has been around for more than half a century.
“It (new act) goes with the improvements in the companies law of other jurisdictions, which Malaysia made reference to, such as the UK and Singapore,” said Mar.
He said companies should prepare themselves for the new act, as many are unaware of the amendments and changes.
“For example, businesses need to review their existing memorandum and articles of association (M&A) to ensure compliance with the new act as a constitution that contravenes or is inconsistent with the new act would be of no effect. If you don’t do anything to the M&A, it would automatically become the constitution.
“For new companies to be incorporated under the new act, to decide whether to adopt or draft a fresh constitution to restrict the unlimited capacity to carry on or undertake business or activity under the new act. Advice from a lawyer is always recommended with respect to the areas on which a company will be allowed to opt in or opt out of, and the mandatory provisions under the new act,” said Mar.
The new act also provides a corporate rescue mechanism to businesses with corporate voluntary arrangement process and judicial management.
“These aim to help companies restructure their debts rather than to be wound up when facing financial difficulties. It also tries to negotiate, come up with schemes for creditors approval and minimise involvement of the court. It is more cost-effective and can help financial distressed companies,” said Mar.
“We encourage entrepreneurs to consult a legal person to come up with a checklist, speak to accountants and auditors. The new act will affect (the works of) legal personnels, accountants, company secretaries and auditors.”
Mar said the new act promotes self governance, encourages shareholders involvement in the daily running of the business, compared to previously, where shareholders have limited rights. It also imposes more obligations on directors and there is an increase in the sanctions on the directors with more severe penalties.
“A lot of companies do away with legal consultation due to the (wrong) mindset that consulting lawyers could be expensive. Many that come to us are already in trouble because they didn’t consult lawyers when they first draft the documents. If they go for a dispute resolution, they actually pay more for litigating the matters in court and resolving the dispute,” said Mar.