The Companies Commission of Malaysia released on 2 July 2013 a consultation draft of the much anticipated Companies Bill 2013 ("Bill"). The Bill seeks to reduce regulatory burden, compliance costs and provide greater flexibility for companies. One of the key areas that the Bill aims to address is Malaysia's corporate governance regime.
The Bill proposes to make it compulsory for remuneration of directors in public company to be approved at a general meeting. For private companies, the Bill stipulates that the Board of Directors ("Board") may approve the remuneration and other benefits of the directors, but the shareholders must first be notified prior to its approval. In the event that a prescribed percentage of the shareholders consider such remuneration as not fair to the company, they may require the Board to pass a resolution to approve the payment.
There are also some proposed changes in so far as payment to any director by way of compensation or consideration for loss of office or retirement, or payment in connection with the transfer of any undertaking or property of the company is concerned. Currently, the particulars of such proposed payments must be disclosed to the shareholders, who must approve such proposal at a general meeting. This position has been adopted in the Bill, with a qualification that the directors and substantial shareholders who have an interest in the payment are disqualified from voting on the resolution approving or disapproving the payment.
Changes in relation to transactions involving directors are also being suggested. The restriction on directors from effecting any: (i) acquisition of an undertaking or property of substantial value, or (ii) disposal of a substantial portion of the company’s undertaking or property, unless it is approved at a general meeting, has been maintained in the Bill. The addition that the Bill brings is that it defines “substantial value” and “substantial portion” as having the same value prescribed in the Capital Market and Services Act 2007 and Main Market Listing Requirements in the case of public companies. Public Companies will need to seek shareholder approval at a general meeting for transactions with a percentage ratio of 25% or more. The percentage ratio is based on a list of calculations laid down in the Listing Requirements, such as (i) the value of the assets subjected to the transaction compared to the net assets of the company; (ii) net profits attrituble to the assets in question compared to the net profits of the company; or (iii) the aggregate value of the consideration compared with the net assets of the company. As for private companies, a transaction will be caught by this restriction if it exceeds 25% of the company’s total assets, total net profit or issued share capital, whichever is the highest.
On the disclosure of directors' interest, the Bill will now require interests in the shares or debenture of a company: (i) of the spouse; and (ii) of a child or stepchild of a director, to be treated as an interest in the contract that necessitates disclosure. The present Companies Act does not require disclosure under these circumstances.
Good corporate governance is essential to continued business growth and investor confidence in Malaysia. With Malaysia looking to build on its continued recovery from the 2008 global financial crisis, the replacement of its present 49-year-old Act is indeed timely. The Bill puts emphasis on a robust corporate governance regime, and its proposal for better transparency and accountability amongst Malaysian companies is certainly cause for encouragement. Needless to say, the Bill places Malaysia in the right direction to maintain its competitive edge in the region.
