PART 2(iv) – CONTINUATION OF PART 2(iii) - NEW COMPANIES ACT

PART 2(iv) – CONTINUATION OF PART 2(iii)

A Film Director or an election director etc does not carry the meaning of Director as defined in the Companies Act but a film director can be Director of a company and a company director can as well be come a film director or an election director. :)

In another word the term director as defined by the Companies Act 1965 ie  "director" includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the (majority of)directors of a corporation are accustomed to act and an alternate or substitute director; s.4

Just sharing : à The common question asked ; Can anyone who hold no shares/interest in a company be appointed as director of a company?

The answer is yes,  provided the articles of Association (Constitution ) of the company allows it.  If the articles of association/constitution of the company provide that a person must have qualifying shares/interest in the company before he is appointed, then the articles/constitution must be complied with.

Now let move on with the proposed amendment to the Companies Act 1965, Malaysia.

(7)    RELATED PARTY TRANSACTION

A company is prohibited from transacting with substancial shareholder, director ora person connected with them if the value exceeds certain threshold unless has been given prior approval at general meeting. Only disinterested shareholders can vote (s.132E)

The current law - s.132E of the Companies Act 1965

“Section 132E. Substantial property transaction by director or substantial shareholder.“

(1) Subject to subsection (2) and section 132F, a company shall not carry into effect any arrangement or transaction where a director or a substantial shareholder of the company or its holding company, or a person connected with such a director or substantial shareholder—

(a) acquires or is to acquire shares or non-cash assets of the requisite value, from the company; or

(b) disposes of or is to dispose of shares or non-cash assets of the requisite value, to the company.

(2) An arrangement or transaction which is carried into effect in contravention of subsection (1) shall be void, unless there is prior approval of the arrangement or transaction—

(a) by a resolution of the company at a general meeting; or

(b) by a resolution of the holding company at a general meeting, if the arrangement or transaction is in favour of a director or substantial shareholder of its holding company or person connected with such director or substantial shareholder.

(3) The resolution of the company or its holding company at the general meeting of the company or its holding company to consider the arrangement or transaction shall be subject to the director, substantial shareholder or person connected with such director or substantial shareholder, as the case may be, abstaining from voting on the resolution whether or not to approve the arrangement or transaction.

(4) Where an arrangement or transaction is carried into effect by a company in contravention of subsections (1) and (2) that director, substantial shareholder or person connected with such director or substantial shareholder and any director who knowingly authorized the arrangement or transaction shall, in addition to any other liability, be liable—

(a) to account to the company for any gain which he had made directly or indirectly by the arrangement or transaction; and

(b) jointly and severally with any person liable under this subsection, to indemnify the company for any loss or damage resulting from the arrangement or transaction.

(5) The Court may, on the application of any member or director of the company, restrain the company from carrying into effect an arrangement or transaction in contravention of subsection (1).

(6) A director or substantial shareholder of a company or its holding company, or a person connected with such director or substantial shareholder, in whose favour the company carries into effect an arrangement or transaction and who knows that such arrangement or transaction is carried into effect by a company in contravention of this section, or a director who knowingly authorized the company to carry into effect such arrangement or transaction, in contravention of this section, shall be guilty of an offence against this Act.

Penalty: Imprisonment for seven years or two hundred and fifty thousand ringgit or both.

(7) For the purposes of subsection (1)—

(a) "person connected with a substantial shareholder" shall have the same meaning as that assigned to a "person connected with a director" in section 122A save that all references therein to a director shall be read as a reference to a substantial shareholder;

(b) "requisite value", in the case of a company where all or any of its shares are listed for quotation on the official list of a Stock Exchange as defined under the Securities Industry Act 1983, shall be the same value as the value prescribed by the provisions in the listing requirements of the Exchange—

(i) which relates to acquisitions or disposals by a company or its subsidiaries to which such provision applies; and

(ii) which would require the approval of shareholders at a general meeting in accordance with the provisions of such listing requirements;

(c) in the case of any company other than a company to which paragraph (b) is applicable, non-cash asset is of the requisite value if, at the time of the transaction, its value exceeds two hundred and fifty thousand ringgit or, if its value does not exceed two hundred and fifty thousand ringgit but exceeds ten per centum of the company's asset value provided it is not less than ten thousand ringgit, where—

(i) the value of the company's assets is determined by reference to the accounts prepared and laid under Part VI in respect of the last financial year prior to the arrangement or transaction; or

(ii) no accounts have been so prepared and laid before that time, the amount of the company's called up share capital.

      Penalty: Imprisonment for seven years or two hundred and fifty thousand ringgit or both.

(8) In this section—

(a) a reference to the acquisition or disposal of a noncash asset includes the creation or extinction of an estate or interests in, or a right over, any property and also the discharge of any person's liability, other than liability for a liquidated sum;

(b) "cash" includes foreign currency;

(c) "director" includes the chief executive officer, the chief operating officer, the chief financial controller or any other person primarily responsible for the operations or financial management of a company, by whatever name called;

(d) "non-cash asset" means any property or interest in property other than cash

PROPOSED NEW LAW

• Companies are prohibited from carrying into effect any transaction with “related parties” – Directors, substantial Shareholders and connected persons without prior approval from the general meeting.

For Public Companies (Company Listed on the Bursa Saham), only uninterested shareholders can participate in the voting for the approval of the transaction at the general meeting however in private companies Shareholders can take part or approve the transaction.

So let us see, what the amendment is trying to emphasize here?

The emphasis here is to facilitate private companies in carrying out transaction involving directors/substantial shareholder and connected persons but at the same time provide adequate safeguard to protect the public interest at large.

So one cannot simply make decision or  just bulldoze things when it comes to related party transaction. I suppose any decision made without it could render the transaction null and void.

In Public Company (Public Listed Company), only disinterested party ie party not having interest in the transaction can make decision on the transaction. Those who are related (as dfined by the law) will have to get out of the meeting and leaving it to the disinterested one to make decision for them on the transaction.

In shorts you may also say…. No confict of interest  should exist in the transaction.

That is it !

(8) CURRENT Section 169 of the Companies Act 1965

Here is another long section that comes with subsections and sub of sub sections about law governing Profit and loss account, balance sheet and directors' report.

Well,  I have to copy and paste the long section.

Profit and loss account, balance sheet and directors' report.

(1) The directors of every company shall, at some date not later than eighteen months after the incorporation of the company and subsequently once at least in every calendar year at intervals of not more than fifteen months, lay before the company at its annual general meeting a profit and loss account for the period since the preceding account (or in the case of the first account, since the incorporation of the company) made up to a date not more than six months before the date of the meeting.

(2) Notwithstanding subsection (1) the Registrar on application by the company, if for any special reason he thinks fit so to do, may extend the periods of eighteen months and fifteen months referred to in that subsection and with respect to any year extend the period of six months referred to in that subsection, notwithstanding that period is so extended beyond the calendar year.

(3) The directors of every company shall cause to be made out, and to be laid before the company at its annual general meeting with the profit and loss account required by subsection (1) a balance sheet as at the date to which the profit and loss account is made up.

(4) The profit and loss account and the balance sheet of a company shall be duly audited before they are laid before the company at its annual general meeting as required by this section.

(5) The directors of a company shall cause to be attached to every balance sheet made out under subsection (3) a report made in accordance with a resolution of the directors and signed by not less than two of the directors with respect to the profit or loss of the company for the financial year and the state of the company's affairs as at the end of the financial year and if the company is a holding company also a report with respect to the state of affairs of the holding company and all its subsidiaries.

(6) Each report to which subsection (5) relates shall state with appropriate details—

(a) the names of the directors in office since the date of the last report;

(b) the principal activities of the company in the course of the financial year and any significant change in the nature of those activities during the period;

(c) the net amount of the profit or loss of the company for the financial year after provision for income tax;

(d) the amounts and particulars of any material transfer to or from reserves or provisions;

(e) where, during the financial year, the company has issued and shares or debentures—the purposes of the issue, the classes of shares or debentures issued, the number of shares of each class and the amount of debentures of each class, and the terms of issue of the shares and debentures of each class;

(f) whether at the end of that financial year—

(i) there subsist arrangements to which the company is a party, being arrangements with the object of enabling directors of the company to acquire benefits by means of the acquisition of shares in, or debentures of, the company or any other body corporate; or

(ii) there have, at any time in that year, subsisted such arrangements as aforesaid to which the company was a party, and if so the report shall contain a statement explaining the effect of the arrangements and giving the names of the persons who at any time in that year were directors of the company and held, or whose nominees held, shares or debentures acquired in pursuance of the arrangements;

(g) in respect of each person who, at the end of the financial year, was a director of the company—

(i) whether or not (according to the register kept by the company for the purposes of section 134 relating to the obligation of a director of a company to notify such company of his interests in shares in, or debentures of, the company and of every other body corporate, being the company's subsidiary or holding company or a subsidiary of the company's holding company) he was at the end of that year, interested in shares in, or debentures of the company or any other such body corporate and , if he was so interested, the number and amount of shares in, and debentures of, each body (specifying it) in which, according to that register, he was then interested;

(ii) whether or not, according to that register, he was, at the beginning of that year (or, if he was not then a director), when he became a director, interested in shares in, or debentures of, the company or any other such body corporate and, if he was so interested, the number and amount of shares in, and debentures of, each body (specifying it) in which according to that register, he was interested at the beginning of that year or, as the case may be, when he became a director; and

(iii) the total number of shares in or debentures of the company or any other such corporate bought and sold by him during that financial year;

(h) the amount, if any, which the directors recommended should be paid by way of dividend, and any amounts which have been paid or declared by way of dividend since the end of the previous financial year, indicating which of those amounts, if any, have been shown in a previous report under this subsection or under a corresponding repealed provision of this Act;

(i) whether the directors (before the profit and loss account and balance sheet were made out) took reasonable steps to ascertain what action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts, and satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts;

(j) whether at the date of the report the directors are aware of any circumstances which would render the amount written off for bad debts or the amount of the provision for doubtful debts inadequate to any substantial extent and, if so, giving particulars of the circumstances;

(k) whether the directors (before the profit and loss account and balance sheet were made out) have taken reasonable steps to ensure that any current assets which were unlikely to be realized in the ordinary course of business including their value as shown in the accounting records of the company have been written down to an amount which they might be expected so to realize;

(l) whether at the date of the report the directors are aware of any circumstances—

(i) which would render the values attributed to current assets in the accounts misleading; and

(ii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the company misleading or inappropriate;

and, if so, giving particulars of the circumstances;

(m) whether there exists at the date of the report—

(i) any charge on the assets of the company which has arisen since the end of the financial year which secures the liabilities of any other person and, if so, giving particulars of any such charge and, so far as practicable, of the amount secured; and

(ii) any contingent liability which has arisen since the end of the financial year and, if so, stating the general nature thereof and, so far as practicable, the maximum amount, or an estimate of the maximum amount, for which the company could become liable in respect thereof;

(n) whether any contingent or other liability has become enforceable, or likely to become enforceable, within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may affect the liability of the company to meet its obligations when they fall due and, if so, giving particulars of any such liability;

(o) whether at the date of the report the directors are aware of any circumstances not otherwise dealt with in the report or accounts which would render any amount stated in the accounts misleading and, if so, giving particulars of the circumstances;

(p) whether the results of the company's operations during the financial year were, in the opinion of the directors, substantially affected by any item, transaction or event of a material and unusual nature and, if so, giving particulars of that item, transaction or event and the amount or the effect thereof, if known or reasonably ascertainable; and

(q) whether there has arisen in the interval between the end of the financial year and the date report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the company's operations for the financial year in which the report is made and, if so, giving particulars of the item, transaction or event.

(7) In subsection (6) of this section, the expression "any item, transaction or event of a material and unusual nature" includes but is not limited to—

(a) any change in accounting policies adopted since the last report;

(b) any material change in the method of valuation of the whole or any part of the trading stock;

(c) any material item appearing in the accounts or consolidated accounts for the first time or not usually included in the accounts or consolidated accounts; and

(d) any absence from the accounts or consolidated accounts of any material item usually included in the accounts or consolidated accounts.

(8) The directors of a company shall state in the report whether a director of the company has since the end of the previous financial year received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by the directors shown in the accounts or the fixed salary of a full-time employee of the company) by reason of a contract made by the company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, and, if so, the general nature of the benefit.

(9) Every statements, report or other document relating to the affairs of a company or any of its subsidiaries attached to, or included with, a report of the directors laid before the company at its general meeting or sent to the members under section 170 (not being a statements, report or document required by this Act to be laid before the company in general meeting) shall, for the purposes of section 364 be deemed to be part of that last-mentioned report.

(10) Where at the end of a financial year a company is the subsidiary of another corporation, the directors of the company shall state in, or in a note as a statement annexed to, the company's accounts laid before the company at its annual general meeting the name of the corporation regarded by the directors as being the company's ultimate holding company and if known to them the country in which it is incorporated.

(11) Where any option has been granted during the period covered by the profit and loss account to take up unissued shares of a company the report required by subsection (5) shall state—

(a) the name of the person to whom the option has been granted;

(b) the number and class of shares in respect of which the option has been granted;

(c) the date of expiration of the option;

(d) the basis upon which the option may be exercised; and

(e) whether the person to whom the option has been granted has any right to participate by virtue of the option in any share of any other company.

(12) Each report required by subsection (5) shall specify—

(a) particulars of shares issued during the period to which the report relates by virtue of the exercise of options to take up unissued shares of the company, whether granted before or during that period; and

(b) the number and class of unissued shares of the company under option as at the end of that period, the price, or method of fixing the price, of issue of those shares, the date of expiration of the option and the rights, if any, of the persons to whom the options have been granted to participate by virtue of the options in any share issue of any other company;

(c) (Deleted by Act A616).

(13) Paragraph (11)(a) shall not apply in any case where the option to take up shares of the company has been conferred generally on all the holders of a class of shares or debentures of the company.

(14) Every balance sheet referred to in subsection (3) shall give a true and fair view of the state of affairs of the company as at the end of the period to which it relates and every profit and loss account referred to in subsection (1) shall give a true and fair view of the profit or loss of the company for the period of accounting as shown in the accounting and other records of the company, and without affecting the generality of the foregoing, every such balance sheet and profit and loss account shall comply with the requirements of the Ninth Schedule so far as applicable thereto.

(15) The directors of a company shall cause to be attached to every balance sheet and profit and loss account laid before the company in general meeting (including any consolidated balance sheet and consolidated profit and loss account of a holding company) a statement made in accordance with a resolution of the directors and signed by at least two directors stating whether, in the opinion of the directors—

(a) the profit and loss account and, where applicable, the consolidated profit and loss account, is or are drawn up so as to give a true and fair view of the results of the business of the company and, if applicable, of all the companies the accounts of which are dealt with in the consolidated profit and loss account for the period covered by the account;

(b) the balance sheet, and where applicable the consolidated balance sheet, is or are drawn up so as to give a true and fair view of the state of affairs of the company and, if applicable, of all the companies the affairs of which are dealt with in the consolidated balance sheet as at the end of that period; and

(c) the accounts, and where applicable the consolidated accounts, have been made out in accordance with the applicable approved accounting standards.

(16) Every balance sheet and profit and loss account of a company laid before the company in general meeting (including any consolidated balance sheet and consolidated profit and loss account annexed to the balance sheet and profit and loss account of a holding company) shall be accompanied by a statutory declaration by a director or where that director is not primarily responsible for the financial management of the company by the person so responsible setting forth his opinion as to the correctness or otherwise of the balance sheet and profit and loss account and, where applicable, the consolidated balance sheet and consolidated profit and loss account.

(17) Any document (other than a balance sheet prepared in accordance with this Act) or advertisement published issued or circulated by or on behalf of a company (other than a banking corporation) shall not contain any direct or indirect representation that the company has any reserve unless the representation is accompanied—

(a) if the reserve is invested outside the business of the company—by a statement showing the manner in which and the security upon which it is invested; or

(b) if the reserve is being used in the business of the company— by a statement to the effect that the reserve is being so used.

(18) To the extent that any company registered under any written law relating to insurance is required to prepare balance sheets, revenue accounts and profit and loss accounts in the form prescribed by that law, the company shall be deemed to have complied with the requirements of subsections (5) to (17) and the Ninth Schedule if its balance sheet and profit and loss account is made out in accordance with that law but if the company carries on business other than insurance business so far as that law does not require the company to deal with any matters which are required to be dealt with under the Ninth Schedule, it shall be necessary for the company to comply with this section and the Ninth Schedule.

(19) The provisions of this Act relating to the form and content of the report of the directors and the annual balance sheet and profit and loss account shall apply to a banking corporation and a licensed finance company, a licensed discount house, a licensed money-broker, a scheduled institution in respect of which the Minister charged with responsibility for finance has made an order under subsection 24(1) of the Banking and Financial Institutions Act 1989 and a non-scheduled institution in respect of which such Minister has made an order under subsection 93(1) of that Act with such modifications and exceptions as are determined either generally or in any particular case by the Bank Negara Malaysia.

What is about to be added in the above section.?

A new Section will be inserted somewhere in the above section 

• Introduction of business review report ( internal control and corporate responsibility report) to be part of directors report.

Not many knows that we have not had this stuff in S.169 before and now companies have more things to disclose in their Profit and loss account, balance sheet and directors' report.  Now you know that the SMM and their Corporate Law Review Committees put it in to promote control and corporate responsibility initiative as well as corporate responsibility disclose and reporting for all types of companies.

(9) APPROVAL FOR REMUNERATION OF DIRECTORS

The introduction of Law relating to Approval for remuneration of director.

• Remuneration and benefit of directors of Public Companies or its subsidiaries must be approved at general meeting.
  
  
• For directors of private companies, the board may approve but shareholders must be notified accordingly. Shareholders may object on the basis that the payment is not fair to the company.

The existing law Company Law does not provide the above and director(s) can decide without the shareholder’s knowledge until the audited accounts are tabled in the company’s AGM.

This policy will ensure that transparency and promote accountability of person who sit as director of a company.

The tool provided to the shareholder here is that they must be notified of the decision as to the value/amount of remuneration to be paid to directors. 

Shareholder has the power to object on the basis that “payment is not fair to the company”.  Fair or not fair is a subjective matter.

This piece of law usurps or takes away a little bit of the directors power and hope that it will not dampen his spirit to work even harder for the company.

To be continued to Part2 (v)

Mohdarismail
Company Secretarial Practitioner