Khairul Ismail and Lim Wei Chien of Naqiz & Partners in Kuala Lumpur look at the latest legislative and wider changes affecting business in Malaysia
There is no bigger news in 2014 for Malaysia than the disappearance of one of its national airline’s aircraft reportedly to be somewhere in the Indian Ocean. The aircraft widely known by its flight number - MH370, was en route from Kuala Lumpur to Beijing carrying 227 passengers. As at the writing of this article, the search for the missing flight continues.
The Malaysian Government’s continuous and relentless efforts in locating the missing flight shows persistence and faith on the part of Malaysia. Similarly, in its quest for reaching high income nation status by 2020, nothing could dampen Malaysia’s continuous efforts to transform the mind set and culture of the government machineries and traditional economic fundamentals to pursue its objectives under its Economic Transformation Plan (ETP) and Government Transformation Plan.
Although the transformation plans have experienced some hits and misses, they are widely acknowledged by professionals and the industry as being key to Malaysia achieving its Vision 2020. Despite the tragedies and the misses, the Government shared some good news in 2014 when they announced that Malaysia had experienced a 6.2% economic growth for the first quarter of 2014. This pleasant surprise would augur well for the Government, which has targeted an economic growth rate of between 5-5.5% in 2014. Thus the journey continues.
To assist Malaysia in achieving the objectives of the ETP and GTP, the Government has continued to introduce and announce new laws, which would bring Malaysia in line with other developed economies.
Companies Bill 2013
Most business entities in Malaysia are governed by the Companies Act 1965 (CA 1965). While its provisions mirror the UK Companies Act, the CA 1965 lags behind in undergoing reforms as experienced by its UK counterpart and most of its provisions are rather archaic. So it is up to the Malaysian courts and judges to interpret the provisions of CA 1965 to suit the current business environment.
In 2012, the Companies Commission of Malaysia (CCM) published a draft Companies Bill 2013 (the “Bill”) for public consultation. The main objective is to replace the CA 1965 and to make it more current.
Some of the significant changes introduced by the Bill are:
(i) Companies may be formed by a single person holding a single share in a company. Companies may also have only one director.
(ii) Companies are no longer required to have a memorandum and articles of association and may choose whether to adopt a constitution. In the absence of a constitution, the rights and powers, duties and obligations of the company’s members and directors will be as provided in the Bill.
(iii) Companies shall have full capacity to carry on or undertake any business or activity, do any lawful act and do or enter into any transactions suggesting the redundancy of the doctrine of ultra vires.
(iv) Shares of a company shall no longer have a par value under the Bill and all subscription monies received for the shares of the company will be credited into a share capital account as the company will not be required to have a share premium account.
(v) A company may reduce its capital without the court’s sanction under the Bill and may now reduce its capital based on a solvency test as provided in the Bill.
(vi) Companies may, by special resolution, give financial assistance for the acquisition of its shares or the shares of its holding company or for the purpose of reducing or discharging a liability incurred for such acquisition if:
(a) the directors resolve, before the assistance is given, that the company may give the assistance and it is in the best interest of the company and the terms and conditions under which the assistance is to be given are fair and reasonable to the company;
(b) directors who vote in favour of the financial assistance must make a solvency statement that complies with the provisions of the Bill;
(c) the aggregate amount of the assistance and any other financial assistance given that has not been repaid does not exceed 10% of the aggregate amount received by the company in respect of the issue of shares and the reserves of the company;
(d) the company receives fair value in connection with the giving of the assistance; and
(e) the assistance is given not more than 12 months after the day on which the solvency statement is made.
There is wide support for the new Companies Bill due to the outdated nature of the CA 1965. However, there are also calls from certain quarters to expand the scope of the Bill and to revamp the CA 1965 totally. It remains to be seen whether the Companies Bill, once passed would propel Malaysia towards a more efficient and competitive business environment.
Construction Industry Payment And Ajudication Act 2012
One of the major drivers for economic growth for 2014 is the construction industry whereby numerous mega projects were approved and undertaken by the Government and private sector to pump the economy. To support the efficiency of the construction industry, effective April 15 2014, the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012) came into force. The enforceability of CIPAA 2012 also witnessed the setting up of the Specialised Construction Court to implement the CIPAA 2012. CIPAA 2012 is an Act to facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for the recovery of payment in the construction industry and to provide for connected and incidental matters.
CIPAA 2012 applies to every written construction contract, which is carried out wholly or partially in Malaysia except for a natural person entering into a construction contract for a building less than four storeys high and intended for his own occupation. Unlike arbitration or mediation, adjudication does not require the consent of the contracting parties for the process to begin. As such, parties will not be able to contract out of the provisions of CIPAA 2012.
Section 29 of the CIPAA 2012 provides for remedies for successful claimant. The ‘winning party’ may suspend performance or reduce the rate of progress of performance of any construction work or construction consultancy services under a construction contract. A party who obtained the adjudication decision in his favour may make a written request for payment of the adjudicated amount direct from the principal of the party against whom the adjudication decision is made.
The adjudication decision is binding unless, (a) it is set aside by the High Court, (b) the subject matter is settled by a written agreement between the parties; or (c) the dispute if finally decided by arbitration or the court. Both parties to a construction contract are required to comply with an adjudicator’s decision and a party may enforce the adjudication decision through the High Court as if it is a judgment or order of the High Court.
Partner
Naqiz & Partners
Kuala Lumpur
About the author
Khairul Ismail is currently head of our corporate and commercial practice group. He has been involved in various headline transactions relating to M&A, capital markets, projects and infrastructure, finance and debt instruments.
Khairul is also a former licensed company secretary and therefore also brings with him extensive knowledge on corporate governance and various other company related issues such as conduct of meetings, code of ethics, document retention policies, corporate disclosure policies and related party transactions.
Partner
Naqiz & Partners
Kuala Lumpur
About the author
Lim Wei Chien heads our fund asset management and capital markets team. Over the years, he has s advised clients on a wide range of issues relating to capital markets, corporate and commercial law, and even in some banking and finance as well as acquisitions and listing exercises. He also has extensive experience in conducting due diligence exercises in connection with mergers and acquisitions and listing exercises