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Enforcement of Companies (Amendment) Act 2024

The Companies (Amendment) Act 2024 (“Amendment Act 2024”) came into operation on 1.4.2024. Following the Amendment Act 2024, the Companies Commission of Malaysia (“CCM”) had issued some guidelines pertaining to the amendments introduced by the Amendment Act 2024. In this article, we will address and highlight some salient amendments to the Companies Act 2016 (“CA 2016”) brought by the Amendment Act 2024.

1) Introduction of new Beneficial Ownership Reporting Framework
The new Division 8A of Part II introduced by the Amendment Act 2024 brought in the new beneficial ownership reporting framework. The new sections 60A, 60B, 60C, 60D, 60E and 60F of the CA 2016 cover the following: –
i) The criteria of a beneficial owner;
ii) Register of beneficial owners;
iii) Company has power to obtain beneficial ownership information from its members and any person identified as beneficial owner or has information relating to a beneficial owner of the company; and
iv) The obligation of beneficial owners to notify companies of their status as beneficial owners of the companies including any changes to the beneficial ownership information recorded in the register of beneficial owners kept by the companies at the registered office.

According to the “Guidelines For The Reporting Framework For Beneficial Ownership Of Companies” issued by CCM, the introduction of the new beneficial ownership reporting framework aims to promote corporate transparency through a disclosure regime. This is due to the rising cases where businesses are misused to carry out illicit activities such as money laundering, terrorism financing, proliferation financing and other serious crimes and that the individual perpetrators hiding behind such businesses employ devious means to avoid their identity from being easily detected.

What is a “beneficial owner”? Section 60A of the Companies Act 2016 defines a beneficial owner as “a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company.” Based on the “Case Studies and Illustrations of the Guidelines For the Reporting Framework For Beneficial Ownership of Companies” issued by CCM, an individual is a beneficial owner in a company limited by shares if he meets one or more of the following criteria:
a) Criteria A
If he holds directly or indirectly in not less than 20% of the shares of the company.

b) Criteria B
If he holds directly or indirectly in not less than 20% of the voting shares of the company.

c) Criteria C
If he has the right to exercise ultimate effective control whether formal or informal over the company or the directors or the management of the company.

d) Criteria D
If he has the right or power to directly or indirectly appoint or remove a director(s) who holds the majority of the voting rights at the meeting of directors.

e) Criteria E
If he is a member of the company and, under an agreement with another member of the company, controls alone a majority of the voting rights in the company.

f) Criteria F
If he has less than 20% of shares or voting shares but exercises significant control or influence over the company.

For company limited by guarantee (without shares), the assessment will be based on Criteria C, D and E stated above only.

Pursuant to Section 60B of the CA 2016, it is mandatory for companies to maintain a register of beneficial owners which must be kept at the registered office of the company, or any other place in Malaysia, as notified to the CCM.

Section 60C of the CA 2016 provides that a company has power to require its members to disclose their beneficial owner of company and to provide certain information as specified in the Act. A failure to disclose or the provision of false information is an offence under the CA 2016.

In addition, Section 60D of the CA 2016 requires any person who has the reason to believe that he is a beneficial owner of a company to notify the company as well as to provide the necessary information prescribed by the Act to the company. Any person who contravenes this section commits an offence.

It shall be highlighted that at the time of this article is written, no company is exempted from the application of new Division 8A of the Companies Act 2016. The beneficial ownership reporting framework is a necessary requirement under the new Division 8A of the Companies Act 2016, which all companies must comply with even though they may incur more cost and take more time. Once again, any non-compliance with the beneficial ownership reporting framework is an offence.

2) Amendments to the Corporate Rescue Mechanism Provisions
According to the “Frequently Asked Questions – Companies (Amendment) Act 2024” issued by CCM, there are two policies underlying the amendments to the Companies Act 2016:

Policy 1: Widening the Application of Corporate Rescue Mechanism – Corporate Rescue Arrangement (CVA) and Judical Management (JM)

Policy 2: Strengthening the Corporate Rehabilitation Framework

Policy 1
The amendment to Section 395 of the Companies Act 2016 aims at widening the application of CVA to all companies including public listed companies and companies which have created a charge over their property or undertaking.

AmendmentsPre-Amendment Amendment Act 2024  
Section 395 –   Substitution for Section 395Non-application of this Subdivision 395. This Subdivision shall not apply to— a)a public company; b)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; c)a company which is subject to the Capital Markets and Services Act 2007; and d)a company which creates a charge over its property or any of its undertaking.Non-application of this Subdivision 395. This Subdivision shall not apply to— a)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; b)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 c)a company which is approved under Part II of the Securities Industry (Central Depositories) Act 1991.

In addition, the amendment to Section 403 of the Companies Act 2016 is aimed to clarify that judicial management can be applied by all companies including public listed companies.

AmendmentsPre-Amendment Amendment Act 2024  
Section 403 – Amendment to Section 403    403. This Subdivision shall not apply to— a)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; and   b)a company which is subject to the Capital Markets and Services Act 2007.403. This Subdivision shall not apply to— a)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; b)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 c)a company which is approved under Part II of the Securities Industry (Central Depositories) Act 1991.

Policy 2
The salient amendments to the Companies Act 2016 for the purpose of strengthening corporate rescue mechanism are as follows: –

SectionDescription / Remarks  
  368The new subsection 368(1A) will give companies applying for restraining order under a scheme of arrangement or compromise an automatic moratorium upon filing of such application for a maximum of two months or until the Court decides on the application, whichever is earlier.

To prevent abuse of process whereby the application for restraining orders can be used to continuously deprive the rights of creditors, Section 368(3B) provides that no restraining order would be granted by the Court if an order has been granted in the preceding 12 months involving a rescue financing, a cram down, an approval of the proposed scheme without a meeting of creditors or when a related company makes an application for a restraining order in relation to a proposed scheme.
368AIn some circumstances, restructuring does not involve just one company. In a larger restructuring of a group of companies, some other entities may be involved although they may not be part of the scheme of arrangement.

Section 368A provides that a related company can apply for a restraining order on similar terms with the company undergoing scheme of arrangement provided that the company plays an integral part in the scheme of arrangement.
368B   415A    ‘Rescue Financing’ is defined as financing that is necessary for the survival of a company that obtain the financing or that the financing is necessary to achieve a more advantages realisation of the assets of a company.

In cognizance of the fact that often financially distressed companies face higher cost of borrowing as banks or financial institutions become more wary to provide fresh loans without some of protection, a new policy is introduced to provide better protection to parties giving the rescue financing.

As such, under these sections, the Court is empowered to order the debt arising from any rescue financing to be secured against the property of the company on certain conditions. In the event the company is wound up, debts arising from rescue financing are given super priority over all other debts in the event of a winding up.
368DA cram down is a mechanism that will allow the Court to compel dissenting creditors to be bound by the proposed scheme of arrangement. The aim of a cram down is to ensure that companies in distress will have a successful scheme with less interference and at the same time accord protection to the dissenting creditors.

An application for cram down could be made to the Court provided that: –
i . The scheme i s approved by a majori ty of 75% of the t ot al value of the credi tors or
members present
i i . The scheme i s fair and equitable to each c lass of dissenting creditors
367The amendment to Section 367 of the Companies Act 2016 imposes a mandatory requirement for the appointment of insolvency practitioner to oversee the proposed scheme and report its status to the Court before the scheme is approved.

The objective of this amendment is to ensure higher chance that the proposed scheme would be successful.
430AFor a company that becomes subject to the proceedings in relation to a compromise or arrangement, a voluntary arrangement or a judicial management, Section 430A provides that an insolvency related clause in any contract for the supply of essential goods and services cannot be exercised against the company merely because the company becomes subject to those proceedings.

What this means is that under the new section 430A, suppliers will have to continue to fulfil their commitments under their contract so that companies can continue trading through the rescue process, including making it easier for companies to maintain supply of contracts that are essential for the continuation of the business. Essential supply of contracts proposed under this new section would include supply of water, electricity or gas.

Conclusion
The Amendment Act 2024 has brought many important amendments to the CA 2016. The new beneficial ownership reporting framework is introduced to enhance the gaps in the CA 2016 to be in line with the international standards i.e. the Financial Action Task Force (FATF) and the Organisation for Economic Co-Operation and Development (OECD) as well as international best practices. The main objective of those standards is to combat money laundering, terrorist financing and shall include other illegal activities such as corruption and tax evasion.

In addition, the amendments to the corporate rescue mechanism aim to facilitate the scheme of arrangement and judicial management. With the Amendment Act 2024, all the public listed companies are allowed to also apply for the corporate rescue mechanism available under the CA 2016.

About the author

Jessica Wong Yi Sing
Senior Associate
Dispute Resolution
Harold & Lam Partnership
jessica@hlplawyers.com


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