This article is third in a series entitled A New Corporate Landscape: Key Changes under the Companies Bill 2015 that our clients should know about.
As alerted in our previous issue of The Legal Link, the Companies Bill 2015 has received Royal Assent and shall come into force next year. We continue our series setting out the key changes under the new Act, and this time round, will examine changes relating to the accountability of directors in the running of companies.
Key Change 5: Heavier penalties for directors under the Act
The new CA 2016 imposes harsher sanctions for directors who breach the Act. The RM30,000 fine under the present Companies Act 1965 has been raised to a whopping RM3,000,000.00. Hence, directors found guilty of breaches constituting serious offences, may find themselves facing a five year term of imprisonment, a fine of RM 3,000,000.00 or even both without the possibility of compound (the CA 2016 has taken away the power of the Registrar to compound offences).
Key Change 6: Directors’ remuneration requires sanction
The CA 2016 require the remuneration of directors of public companies to be sanctioned by shareholders at a general meeting. For private companies, the remuneration is to be sanctioned by the board of directors but at the request of shareholders holding at least ten percent (10%) of voting rights, the sanction of shareholders may be required.
Key Change 7: Wider definition of ‘directors’
The new Act refines the definition of a director – a person is regarded as a director of a company if the majority of directors of a corporation are acquainted to act in accordance with the person’s instructions and directions (under the previous CA 1965, the entire board had to act in accordance with the person’s instructions and directions before that person could be said to be a shadow director). There is thus a higher chance that ‘shadow directors’ or other non-director individuals in essence calling the shots, will come under this definition and similarly be subject to the duties and responsibilities of directors under the CA 2016 (including the penalties for breach).
Key Change 8: New solvency tests increases directors’ responsibilities
The CA 2016 introduces different versions of the solvency tests in relation to various activities such as declaration of dividends, capital reduction, financial assistance, share buyback and preference shares redemption (the solvency tests are discussed further in other Parts of this series). In relation to certain transactions, Directors are to sign the requisite solvency statements and failure or shortcomings in relation to the making of such statements may result in personal liabilities for the directors.
What do the above Key changes mean for you?
As directors of companies, now with the increased sanctions, awareness and compliance with your duties and responsibilities remain as crucial as ever. Your responsibilities are further amplified by further enhanced requirements and introductions throughout the CA 2016, for example, the various solvency tests. The CA 2016 moves corporate Malaysia towards a higher level of corporate governance and directors are advised to familiarize themselves with the changes brought about by the CA 2016 in order to ensure continued satisfaction of their duties.
In the next article of our series, we will be discussing on the Key Changes relating to insolvency rescue.
CCLC Corporate and Commercial advises and supports clients on an extensive range of matters including in mergers and acquisitions, takeovers, security dealings, capital and fund raising, restructuring, joint ventures, financial instruments, and general regulatory and compliance issues. Our team is ready to be of service to you.