The Companies (Amendment) Bill 2023 was passed by the Dewan Rakyat on 28 November 2023 and by the Dewan Negara on 13 December 2023. It constitutes an amendment of the Companies Act 2016 which primarily introduces a framework for the reporting of beneficial ownership of companies and enhances the existing provisions on restructuring of companies as well as corporate rescue mechanisms.
I. Changes regarding reporting of beneficial ownership of companies
The current legal framework for the reporting of beneficial ownership is founded on the revised Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons issued by the Companies Commission of Malaysia on 17 December. The Revised Guideline is based on Section 56 of the Companies Act which confers a right on a company to require members and other persons to disclose beneficial ownership in voting shares of the company. The following changes will come into effect with the Companies (Amendment) Bill 2023:
a.) Expansion of criteria of a beneficial owner
The definition of a beneficial owner now relates to both ownership of shares in the company and control over the company itself:
- In relation to shares, the beneficial owner is the ultimate owner of the shares and does not include a nominee of any description.
- In relation to a company, the beneficial owner is a natural person who owns or controls a company and includes a person who exercises ultimate effective control over a company.
Section 60A (2) empowers the Registrar of the Companies Commission of Malaysia to issue guidelines for identifying beneficial owners.
b.) Register of Beneficial Owners
It is compulsory to keep a Register of Beneficial Owners of the company which includes identifying information of the owners (e.g. ID card number). The Register is – in general – to be kept at the company’s registered office. Any changes are to be registered with the Companies Commission of Malaysia within 14 days from the day the owner information is recorded.
Violation of these obligations constitutes an offence and is liable to a fine not exceeding RM 20,000 and, in the case of a continuing offence, to a further fine not exceeding RM 500 for each day during which the offence continues after conviction.
The information in the Register of Beneficial Owners may be accessed by several entities. The new Section 60B of the Companies Act gives the Minister of Domestic Trade and Cost of Living the authority to prescribe any person or class of persons, including law enforcement agencies and competent authorities, to access (a) the Beneficial Owner Register of a company that is kept at the company's registered office; or (b) Beneficial Owner information that is lodged with the Companies Commission.
Section 68 (3) of the Companies Act which sets out the information to be included in an annual return will be amended to include the information on beneficial owners and the address at which the register is kept if it is not kept at the company’s registered office.
c.) Mandatory requirement to obtain information on beneficial owners
Each company must send a notice in writing to any of the following persons below to inform the company of whether such person is a beneficial owner of the company and require them to provide information as is required for the Beneficial Owner Register:
- Any members of the company;
- Any person whom the company knows or has reasonable grounds to believe is a beneficial owner of the company;
- Any member or any person whom the company knows or has reasonable grounds to believe knows the identity of a person who is a beneficial owner of the company;
- Any beneficial owner, where the company has reasonable grounds to believe that a change has occurred to the particulars stated in the Register of Beneficial Owners;
- Any beneficial owner, where the company has reasonable grounds to believe that particulars as stated in the Register of Beneficial Owners are not correct.
The notice to be issued under Section 60C (1), 60C (2) or 60C (3) is to be in writing and the person to whom it is issued is required to respond to the notice within such reasonable time and manner as specified in the notice. Any person who receives such notice from a company and provides a statement which they know to be false or recklessly makes any false statement, commits an offence.
f.) Obligations of beneficial owners
The requirement for the company to obtain information on beneficial owners corresponds with an obligation of such beneficial owners. Any person who has reason to believe that he or she is a beneficial owner of a company must notify the company and provide the required information. Any changes must be made known to the company, which includes the ceasing of being beneficial owner. The violation of these obligations equally constitutes an offence.
e.) Foreign companies
For the purposes of registration as a foreign company the provision of information on beneficial owners will become mandatory. Additionally, a new Section 573A will extend the provisions on the reporting of beneficial ownership in Division 8A of Part II of the Act to any foreign company. Foreign companies will thus be equally required to comply with the abovementioned provisions.
II. Changes regarding restructuring and insolvency laws
a.) Amendments relating to scheme procedure
There have been several amendments relating to the procedural side of a scheme of arrangement. These include a new provision, whereas instead of a chairperson appointed by the scheme company, the scheme meeting is now to be chaired either by an insolvency practitioner appointed by the Court or if none has been appointed by a person elected by the majority in value of creditors to ensure impartiality. Courts will now have the power to order a revote in respect of a scheme meeting to allow creditors to approve a scheme of arrangement. Also, the procedure to be followed in the proof of debt process for creditors is now extensively regulated and clarified.
b.) Amendments to provisions pertaining to restraining order under a scheme of arrangement
- The types of proceedings and actions which can be prevented by obtaining a restraining order are now specifically set out and limited.
- Upon filing an application for a restraining order an automatic restraining order will take effect until either a two-month-period has elapsed or the Court has decided on the application, whichever is earlier.
- No pre-conditions need to be met for obtaining the initial automatic restraining order.
- The Bill codifies case law under which a restraining order may also be extended to a related company if the related company is central to the proposed scheme.
- No further restraining order may be granted during the following 12 months (cooling off period).
c.) Introduction of new mechanisms in corporate rehabilitation framework
- A pre-pack scheme of arrangement, which allows the Court to approve a scheme of arrangement without a prior scheme meeting.
- A cross-class cramdown mechanism in schemes of arrangement, which allows for an application to the Court to bind all classes of creditors to the proposed scheme of arrangement if at least one class of creditors has voted in its favour.
- Introduction of super priority rescue financing under schemes of arrangement and judicial management, which allows rescue financiers to obtain better priority or security than other creditors of the company in distress.
d.) Involvement of insolvency practitioner in schemes of arrangement
Under the current section 367(1) of the Act, the Court may, on an application for approval of a scheme, appoint an approved liquidator to assess the viability of the proposed scheme and the approved liquidator shall prepare a report for submission to the applicant. Under the proposed Section 367(3), it will be mandatory for the Court to appoint an insolvency practitioner in cases involving the following:
- Super priority financing;
- Cross-class cramdown;
- Pre-packed scheme of arrangement; or
- Restraining order by a related company of the scheme company.
e.) Widened eligibility for corporate voluntary arrangement mechanism and judicial management
The list of companies which were previously excluded from undergoing a corporate voluntary arrangement is more restrictive and will now only include:
- A company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia;
- A company which is approved or registered under Part II, licensed, or registered under Part III, approved under Part IIIA, or recognised under Part VIII of the Capital Markets and Services Act 2007; and
- A company which is approved as a central depository under Part II of the Securities Industry (Central Depositories) Act 1991.
The same new list of entities is precluded from applying for judicial management under the new Companies (Amendment) Bill 2023.
f.) Restriction on the exercise of rights to terminate a contract
Contracts commonly contain a termination clause with regards to the counter-party being involved in insolvency proceedings. The Companies (Amendment) Bill 2023 introduces a restriction on the right to contractually allow termination in these cases, where essential goods and services are concerned. There is a list of essential goods and services within this meaning contained in a schedule to the Bill. Essentially, it includes those goods and services like water, electricity, computer hardware and software etc. which are essential for the company to continue its rehabilitation efforts.