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With effect of 31 January 2016, the Companies Act 2016 (CA 2016) repealed the Companies Act 1965 (CA 1965) and changed the landscape of company law in Malaysia. Ushering in sweeping reforms, the Companies Act 2016 (CA2016) consists of 600 sections and 12 schedules.

Section 9(b) CA 2016 Act stipulates that A company shall have two or more members. This provision allows the incorporation of a company with two members or more.

Section 10(1) CA 2016 states that a company may be incorporated as (a) a company limited by shares; (b) a company limited by guarantee; or (c) an unlimited company. Where the company is a company limited by shares, the members liability is limited to the amount they agreed to contribute in the event the company is wound up, and where the company is a company limited by guarantee, a members liability is limited to the amount paid on their shares. There is no limit placed on the liability of a member of an unlimited company.

Under s15(1) of the CA 1965, a private company is allowed to invite the public to subscribe its shares or debentures.

Under the CA 1965, every company was required to have a memorandum and articles of association. The memorandum and articles of association are now collectively known as the constitution, and it is expressly stated in s31 and 38 CA 2016 that only a company limited by share shall have a constitution; other types of company may or may not have a constitution. It is optional for them. If a company has no constitution, the company, each director and each member of the company shall have the rights, powers, duties and obligations as set out in the Act.

For companies which were registered prior to the coming into operation of the CA 2016, s619(3) provides that the memorandum and articles of association of a company existing before the operation of the Act shall have effect as if made or adopted under the Act unless otherwise resolved by the company. Thus, a companys existing memorandum and articles shall form the companys constitution until the company alters it by passing a special resolution.

Under CA 2016, all unlimited companies with share capital migrated to no par value regime. Section 74 CA 2016 reads, All shares issued before or upon the commencement of this Act shall have no par or nominal value.

In general, the different classes of shares can be categorised into ordinary shares and preference shares. Preference shares is defined in s2(1) to mean a share by whatever name called, which entitle the holder to the right to vote on a resolution or to any right to participate beyond a specified amount in any distribution whether by way of dividend, or on redemption, in a winding up, or otherwise.

As a companys memorandum and articles are now combined to form its constitution, the CA 2016 allows the rights attached to the preference shares to be modified or varied. If the companys constitution has provided the procedure for the variation of class rights, then the procedure is to be followed (section 91(1)(a)). If the constitution does not prescribe the procedure, then the company may do so with the consent of the holders of the shares in that class (section 91(1)(b)). The consent of the holders may be obtained as follows:

First the approval may be by way of written consent representing not less than 50% of the total voting rights of the holders of shares of that class. Second, the approval may be given by passing a special resolution of the holders of shares of that class.

Generally, a company is not permitted to purchase its own shares or that of its holding company (s123 and 22) unless it is (1) a redemption of preference shares (s72); (2) a cancellation of shares (s. 116 and 177); (3) a share buyback by public listed companies (s127); or (4) a remedy awarded by the court in a case of oppression (s346).

In the CA 2016, the dividend rule is found in s131. It has two principles ie (1) the dividend is to be paid out of the companys reserve for example revaluation reserve; and (2) the dividend should not be paid if the payment will cause the company to be insolvent. A company is regarded as solvent if it is able to pay its debts (as and when the debts become due) within 24 months from the date of dividend distribution. The companys director or manager who will fully phase out any dividend in contravention of Section 131 or 132 of the CA2016 will also be liable to the company to the extend of the amount exceeding the value of any distribution of dividend that could properly have been made.

The CA 2016 also prescribes the new liability imposed on the member. Section 133(1) states that the company may recover the amount of distribution received by a shareholder which exceeds the amount which could properly have been made unless the shareholder (1) has received the distribution in good faith; and (2) has no knowledge that the company did not satisfy the solvency test.

The CA 2016 reforms the requirement for an AGM. Section 340 provides that every registered company is required to hold an AGM.

The CA2016 mandates partial compliance to the applicable approved accounting standards issued by the Malaysian Accounting Standards Board (MASB). This supports full convergence of local and international accounting practices into a single source of reference with the force of law.

The key areas impacting financial statements under the CA 2016 included:-

The par value regime, viewed as a misleading practice riddled with complications, as abolished retrospectively along with its related concepts such as the ordinary share account and the capital redemption reserve and the authorised share capital which will no longer be relevant.

In relation to the issuance of bonus shares, there is no specific requirement in the CA2016 except for a provision under Section 84 which merely allows a company to subdivide its shares. For example, if a company were to issue bonus shares to its shareholders, double entry is required and the value of the share capital reflected in the financial statement remains unchanged. The companys officers would need to put through a memorandum of entry to record the bonus issue exercise as well as to disclose the increased number of shares in circulation.

The CA2016 enhances accountability and transparency by requiring the appropriate disclosure of directors remuneration and/or compensation for loss of office as well as loans provided to directors.

In addition to vesting additional duties and responsibilities on directors and officers of the company, the CA2016 imposes substantially more severe punishments for breach of .For example, a breach under Section 591 of the CA2016 which covers false or misleading statements, is punishable (upon conviction), by a fine not exceeding RM1 million or imprisonment for a term not exceeding 5 years, or both.

Read the following article carefully. There are fifteen (15) wrong information in the article. Highlight the wrong information and rectify the wrong information using the following format. No. Wrong information Correct information eg With effect of 31 January 2016 With effect of 31 January 2017 [30 marks]