The Malaysian Corporate Law Reform Program of the Suruhanjaya Syarikat Malaysia (SSM)

PART 1

The Malaysian Corporate Law Reform Program of Suruhanjaya Syarikat Malaysia (SSM) began end of 2003 when the review of the Companies Act 1965 was initiated as part of Suruhanjaya Syarikat Malaysia’s (SSM) strategic direction in facilitating the development of a conducive and dynamic business and regulatory environment for Malaysia. 

Suruhanjaya Syarikat Malaysia (SSM) established the Corporate Law Reform Committee (CLRC) to spearhead the review of the Companies Act 1965 with the objectives 

(1) to create a legal and regulatory structure that will facilitate business; and

(2) to promote accountability and

(3) protection of corporate directors and members taking into account the interest of other stakeholders, in line with international standards  to reviewing and recommending changes to the Companies Act 1965.

The SSM recognizes the need to review the Companies Act 1965 to reflect the current and future needs of the business environment at the same time to undertake a fundamental review of the current legislative policies on corporate law in order to propose amendments that are necessary for corporate and business activities to function in a cost effective, consistent, transparent and competitive business environment in line with international standards of good corporate governance.

The scope of review of the corporate law reform Program is to carry out an extensive review of core company law governing the formation, management and termination of companies;

Although there are various laws and statutes that may affect a company’s business operations, the primary source of company law and the main statute on company law that determines the

(1) company’s formation,

(2) the rules governing the relationship between participants in companies (shareholders, directors and other officers of the company, and sometimes employees) and between the company and its participants (in particular,

(3) rules relating to

(a) share capital,
(b) members rights,
(c) directors’ duties and
(d) other matters relating to the management of companies) and
(e) termination of a company is the Companies Act 1965.

As legal entities, albeit with artificial legal personalities, companies are subject to the law in the same way as a legal person.

This means that laws such as contract law, tort law, environmental law etc, apply to companies, sometimes with such necessary modification to take account of the fact that companies are artificial persons.

These laws are applicable because a company does not operate in a vacuum and must rely on other external relationships to carry on business.

The fact that these laws apply to companies does not make them part of what is generally considered as "company law".

Therefore, although such laws are important for a company’s business, they will not be the main focus of the review;

The review will consider law reform initiatives that are being conducted internationally, notably the UK Company Law Review "Modern Company Law for a Competitive Economy".

The approach is to adapt and refine these international initiatives to suit the Malaysian corporate and business environment;

The scope of review will cover the current law and practice on core company law issues with the aim of reducing compliance cost in general and in particular for private companies.

This approach will be adopted by all the working groups particularly in relation to company formation and simplification of the reporting obligations to ease the administrative burdens imposed upon companies.

It is anticipated that there may be recommendations or draft legislative texts that will provide rules for private companies with additional or different provisions for public companies.

This was the approach of the UK Company Law Review and the Singapore Company Legislation and Regulatory Framework Committee (CLRFC);

The focus given to reduction of compliance cost for companies will necessarily require a review of the administrative structure of SSM as the current regulatory authority administering the Companies Act 1965.

The review will also consider the existing forms of business organizations in Malaysia and whether these are adequate to enable Malaysian companies and businesses to be competitive.

It is anticipated that the outcome of the review will enable corporate and business activities in Malaysia to function in a cost-effective, consistent and competitive business environment;

An important aspect of core company law is corporate governance.

The current law and practice on corporate governance focus on the relationship between various corporate participants and directors’ accountability. However the two main approaches in the corporate governance debate on the issue of directors’ accountability are the shareholder theory and the stakeholder theory.

The shareholder theory considers that directors have a duty to consider shareholders’ interests in company’s management whilst the stakeholder theory allows, or requires directors to consider the interests of other persons who are involved in a company’s management for example creditors and employees.

SSM takes note of these theories in their review but will be guided by the shareholder theory whilst taking account of the interests of other stakeholders.

The scope of the review will include, amongst others, the domestic and international developments on corporate governance and its impact on the appropriate legal and regulatory structure for company law.

The corporate governance debate also considers the link between statutory and non-statutory standards of corporate conduct.

In Malaysia, the Report of the Finance Committee on Corporate Governance and the Malaysian Code on Corporate Governance are the two authoritative documents which will also be considered in the review;

Codes of conduct and codes of best practices as well as self-regulation are now considered as complementary to statutory regulation. The review will take this into account to determine and ascertain the boundary of the law and self-regulation on company operations and decision-making in general and on corporate governance in particular. The question of the boundary between law and self-regulation will also relate to the issue of sanctions and enforcement, particularly in determining the appropriate mix of enforcement action;

When the Companies Act 1965 was first enacted, the only corporate regulatory authority was the Registrar of Companies.

Presently, the main corporate regulators in Malaysia are the SSM, the SC and Bursa Malaysia. However, the current enforcement and investigation powers given to the three regulators often overlap since there has never been a systematic and coherent revision of the overlaps, conflicts and duplication.

Because of this, the scope of review will consider identifying the activities of the regulatory authorities, the overlaps in the current enforcement and investigation powers and determining whether enforcement actions and rule making authority may be reallocated especially in relation to the appropriate mix of legal and self-regulatory rules to secure compliance; and

The focus on modernization of core company law would not be complete without reviewing the impact of Information and Communication Technology (ICT) on company law.

Company law, to a large extent, relies on dissemination of and access to information.

The review of the development in ICT will form an integral part of the reform process.

The scope of the review includes the recognition of the new technologies in business, its use and potential abuses and the safeguards that need to be built into the legal and regulatory structure to accommodate the new technologies.

The impact of ICT on company law will be considered by all Working Groups based on the approach that the legal and regulatory structure should facilitate the use of new technologies, be flexible to changes in technology and maintain integrity and security of information.

Very soon the Bill  that came with some 188 recommendations will be tabled in Parliament.

I will go into the details on the 188 recommendation one by one in part 2.

Mohdar Ismail

(Writing in my capacity as Company Secretarial Practioner for the past 23 Years.)