corporations
Understanding how the major amendments
the implication of the new amendments to the Companies Act 1965 vide the amending law; Act A1299, known as the Companies (Amendment) Act 2007 which came into force on 15.8.2007
Categories of Amendment
The amendments shall fall into the
following categories:
a. Reviewing the Companies Act in relation to
Directors and Officers Sections to be addressed: S131, S132, S132A, S132B, S132, S132C, S132E, S134
Categories of Amendment
b. Meetings and Proceedings
every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company, shall, as soon as practicable after the relevant facts have come to his knowledge, declare the nature of his interest at a meeting of the directors of the company
Lee Swee Seng & Co
or
Director takes reasonable steps to ensure it is brought up and read at the next directors meeting
A Consultative Document on Review of Provisions Regulating Substantial Property Transactions, Disclosure Obligations and Loans toLee Swee Seng & Corporate Law Reform Committee for the Directors by the Co Companies Commission of Malaysia, Vol 9, July 2007 at page 86
have to declare his interest in a company contract if the interest is of him being a shareholder or creditor of a corporation, which is interested in a contract or proposed contract with the company and where such interest may be regarded as not material
For the purpose of this section, an interest of the spouse of a director of a company (not being herself or himself a director of the company) and an interest of a child, including adopted child or stepchild, of a director of the company (not being himself or herself a director of the company) in the shares or debenture of the company, shall be treated as an interest in the contract and proposed contract Lee Swee Seng & Co
Where interests in shares and debentures shall treated as interest in the contract and proposed contract: Directors
spouse
Interest of
Directors child
Stepchild
Adopted Child
couple materiality of interest with the 5% threshold derived from S69D Companies Act 1965
the CLRC noted that the interpretation is a matter of convenience and should not be stated as a principle of law
& Co (Port Weld) Sdn Bhd [1995] 4 CLJ 795, if the director proves that the other directors are aware of his interest, then, that director need not formally declare his interest.
The Facts (contd): The Defendant was charged under S131(1) CA, 1965 for failing to declare the nature of his interest at the Directors Meeting of UMSM, that he is interested in a contract between UMSM and BG
Lee Swee Seng & Co
Sessions Court: Convicted the Defendant based on the following circumstantial evidence: i) in the Companies concerned, the Defendant was shown to have direct or indirect influence through his family members;
Lee Swee Seng & Co
Sessions Court: Convicted the Defendant based on the following circumstantial evidence: ii) at or about the time of execution of the contract, the defendant and his family agreed to sell their shares in UMSM and agreed to acquire shares in BG
Lee Swee Seng & Co
Sessions Court: Convicted the Defendant based on the following circumstantial evidence: iii) the Defendant resigned from the Board of UMSM just before the demand for specific performance of the contract was received by BG
Lee Swee Seng & Co
Sessions Court: Convicted the Defendant based on the following circumstantial evidence: iv) the secret profits that would accrue to BG on the execution of the contract
Lee Swee Seng & Co
High Court Quashed the conviction as the circumstantial evidence did not point irresistibly to the guilt of the accused i) The Sessions Court President failed to consider the personal guarantee given by the defendant to UMSM
Lee Swee Seng & Co
High Court Quashed the conviction as the circumstantial evidence did not point irresistibly to the guilt of the accused ii) The Sessions Court President failed to consider that the sale price in the contract was fixed by the government
Lee Swee Seng & Co
Where a contract or proposed contract is entered into in contravention of this section, the contract or proposed contract shall be voidable at the instance of the company except if it is in favour of any person dealing with the company for any valuable consideration and without actual notice of the contravention.
Lee Swee Seng & Co
The word voidable suggests that the contract or proposed contract entered into in contravention of S131 can be ratified by the company
S131(8)
Penalty:
Imprisonment for seven years or one hundred and fifty thousand ringgit or both
Section 131A
Interested director not to participate or vote
Lee Swee Seng & Co
Subject to Section 131, a director of a company who is in any way, whether directly or indirectly, interested in a contract entered into or proposed to be entered into by the company shall be counted only to make a quorum at the board meeting but shall not participate in any discussion while the contract or proposed contract is being considered at the board meeting and shall not vote on the contract or proposed contract
Lee Swee Seng & Co
Interested Director
Section 131A-Interested
director not to participate or vote
the meaning of shall not participate PP v Dato Haji Mohamed Muslim bin Haji Othman [1983] 1 MLJ 245 Held: Hashim Yeop A Sani J The accuseds physical presence at the EXCO meeting was sufficient for him to be regarded to have used his public position for his advantage.Swee Seng & Co Lee
Section 131A-Interested
director not to participate or vote
the meaning of shall not participate PP v Dato Haji Mohamed Muslim bin Haji Othman [1983] 1 MLJ 245
The accused was charged under Section 2 of the Emergency (Essential Powers) Ordinance, No 22 of 1070 for corrupt practice.
Section 131A-Interested
director not to participate or vote
the meaning of shall not participate PP v Dato Haji Mohamed Muslim bin Haji Othman [1983] 1 MLJ 245 Punishment for corrupt practice
Section 2(1) of the Emergency (Essential Powers) Ordinance, 1970 ..guilty of an offence and shall be liable to imprisonment for a term not exceeding fourteen years or to a fine not exceeding twenty thousand ringgit or to both.
Lee Swee Seng & Co
Section 131A-Interested
director not to participate or vote
the meaning of shall not participate PP v Dato Haji Mohamed Muslim bin Haji Othman [1983] 1 MLJ 245 Definition of corrupt practice
Section 2(2) Emergency (Essential Powers) Ordinance, 1970 any act done by any Member or officer, whereby he has used his public position or office for his pecuniary or other advantage.
Lee Swee Seng & Co
Section 131A-Interested
director not to participate or vote
the meaning of shall not participate PP v Dato Haji Mohamed Muslim bin Haji Othman [1983] 1 MLJ 245 Definition of corrupt practice
Now, Section 2(2) Emergency (Essential Powers) Ordinance, 1970 is superceded by the Anti-Corruption Act 1997
Section 131A-Interested
director not to participate or vote
S58 Anti-Corruption Act 1997 (General Penalty):
shall be liable to a fine not exceeding ten thousand ringgit or to imprisonment for a term not exceeding two years or to both
Director of Forest & Co [1991] 1 MLJ 211 The Facts: The interested directors were absent from the meeting which passed the resolution on the subject matter.
Director of Forest & Co [1991] 1 MLJ 211 Haidar J: The absence of certain directors from the meeting did not mean that their absence gave the other directors the licence to proceed with the meeting and to pass the purported resolution..
Lee Swee Seng & Co
Director of Forest & Co [1991] 1 MLJ 211 Haidar J: (contd) ..their presence was necessary to constitute proper quorum if they had interest in any contract or arrangement, they shall not vote. If they vote, their votes shall not be counted..
companies. Therefore, the situation where all directors, due to their interest, are conflicted out from voting does not arise
Subsection (1) shall not apply to(a) a private company unless it is a subsidiary to a public company; (b) a private company which is a whollyowned subsidiary of a public company, in respect of any contract or proposed contract to be entered into by the private company with the holding company or with another whollyowned subsidiary of that same holding company;
Lee Swee Seng & Co
where a contract or proposed contract is entered into in contravention of subsection (1), shall be voidable at the instance of the company except if it is in favour of any person dealing with the company for a valuable consideration and without actual notice of the contravention
The word shall be voidable seem to suggest that the contract entered into in contravention of subsection (1) can be ratified by the company.
A director who knowingly contravenes this section shall be guilty of an offence against this Act Penalty: Imprisonment for five years or one hundred and fifty thousand ringgit or both.
Lee Swee Seng & Co
Section 131B
Functions and Powers of the Board
Lee Swee Seng & Co
(1) The business and affairs of a company must be managed by, or under the direction of, the board of directors.
Section 132
Duty and Liability of Officers
Lee Swee Seng & Co
Section 132(1)
Fiduciary Duty of Loyalty
Lee Swee Seng & Co
Re Smith & Fawcett Ltd [1942] Ch304 Directors must exercise their discretion bona fide in what they consider - not what a court may consider - is in the interest of the company.. Directors must not exercise their powers for any collateral purpose
Lee Swee Seng & Co
Fiduciary duty of loyalty comprises of duties bona to: Act Exercise AND fide in the
interest of the Company powers for proper purpose
AND
Ltd [1994] 2 SLR 282 Held: The word 'honestly' does not mean that a director would only be in breach of duty if he had acted fraudulently. It means to act bona fide in the interests of the company. In exercising their discretion, the directors should only act to promote or advance the interest of the company.
Lee Swee Seng & Co
AND
For proper purpose
because: i) the word honestly is replaced with the statement exercise his powers for a proper purpose and in the best interest of the company
Lee Swee Seng & Co
the best interest of the company BUT the transaction was motivated by some improper purpose: Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 The Facts: The Directors allotted shares to a company which had made a takeover bid. The Directors argued that the allotment& was made to obtain Lee Swee Seng Co
Ltd [1974] AC 821 Held: The power to issue shares may be exercised for reasons other than raising capital provided those reasons relate to a purpose benefiting the company as a whole.
Ltd [1974] AC 821 Held: However, on the facts, the Directors had improperly exercised their powers, as the effect of the share issue was to reduce the majority holding of two other shareholders who made a rival bid. The power to issue shares was used for a purpose of maintaining control of the company in the hands of the
Lee Swee Seng & Co
S132(3) provides that an officer or agent or officer of the Stock Exchange who commits a breach of this section shall be(a)liable to the company for any profit made by
him or for any damage suffered by the company as a result of the breach; and (b)guilty of an offence against this Act Penalty: Imprisonment for five years or thirty thousand ringgit
Lee Swee Seng & Co
Section 132(1A)
Duties of Care, Skill and Diligence
Lee Swee Seng & Co
standard of care, and skill required of a director. It merely prescribes that a director has a duty to act honestly and use reasonable diligence.
Lee Swee Seng & Co A Consultative Document on Clarifying and Reformulating the Directors Role and Duties, by the Corporate Law Reform
New Zealand Companies Act 1993 provides that a company director must carry out his directorial functions with such care, skill and diligence that would be exercised by a reasonable director in the circumstances of the former.
A Consultative Document on Clarifying and Reformulating the Directors Role and Duties, by the Corporate Law Reform Lee Swee Seng & Co Committee
objective assessment of the standard of care required of directors, as reflected in section 174 of the UK Companies Act 2006 which codifies Norman v Theodore Goddard (1991) BCLC 1028 and Re DJan of London Ltd (1993) BCC 646
A Consultative Document on Clarifying and Reformulating the Directors Role and Duties, by the Corporate Law Reform Lee Swee Seng & Co Committee
in Malaysia remained to be Re City Equitable Fire Insurance, as the court in Abdul Mohd Khalid v Datuk Haji Mustapha Kamal (2003) 5CLJ 85, had cited obiter Re City Equitable Fire Insurance as the applicable authority for directors duty of care and skill.
Lee Swee Seng & Co A Consultative Document on Clarifying and Reformulating the Directors Role and Duties, by the Corporate Law Reform
A Consultative Document on Clarifying and Reformulating the Directors Role and Duties, by the Corporate Law Reform Committee for the Companies Commission of Malaysia, August 2006 at pages 44-48 Lee Swee Seng & Co
a director has additional knowledge, skill and experience, that director will be assessed against a reasonable person who has that additional knowledge, skill and experience.
Section 132(1B)
Business Judgment Rule
Lee Swee Seng & Co
The Malaysian model is taken from: S180(2) Australian Corporations Act 2001
A director who makes a business judgment is deemed to meet the requirements of the duty under subsection (1A) and the equivalent duties under the common law and in equity if the director-
decision or exercise a conscious judgment, the Business Judgment Rule will not extend its protection. Lee Swee Seng & Co
mean: any decision on whether or not to take action in respect of a matter relevant to the business of the company
expert advice but that reliance would only be considered reasonable if the director has made an independent assessment of the reports, advice, opinions and data received from the experts and consultants employed to provide them
Otis & Co. v Pennsylvania R.Co., 61 F. Supp. 905 (D.C Pa. 1945) and was affirmed in Aronson v Lewis (1984) In Otis, a shareholders derivative action alleged that corporate directors failed to obtain the best price available in the sale of securities, resulting in the loss of nearly half a million dollars.
Lee Swee Seng & Co
liable to the shareholders mistakes or errors in the exercise of honest business judgment do not subject the officers and directors to liability for negligence in the discharge of their appointed duties
Lee Swee Seng & Co
re The Walt Disney Company Derivative Litigation, 2003 WL 21267266 (Del. Ch. May 28, 2003), concerned claims arising out of the hiring and termination of The Companys former president, Michael Ovitz. The plaintiff shareholders alleged that the defendant directors knowingly or intentionally breached their fiduciary duty of care to the corporation in both approving Ovitzs employment arrangement and failing to consider the terms of Ovitzs termination that were negotiated exclusively by Disneys Chief Executive Officer, and closeLee Swee Seng[of Ovitz] for over 25 friend & Co
failed to make any good faith attempt to fulfill their fiduciary obligations in the hiring and termination of Ovitz.
increasingly displayed an apparent willingness to review the substance of business decisions, contrary to the Business Judgment Rule
Lee Swee Seng & Co
http://encyclopedia.thefreedictionary.com/American+Law+Institute
persuasive.
http://encyclopedia.thefreedictionary.com/American+Law+Institute
For the rule to apply, the director must: i) have made a decision; ii) be free of self interest in the judgment; iii) adopt the decision under informed basis; and iv) have rational basis for the decision
Lee Swee Seng & Co
Differences between American Institutes Law Formulation and Delaware Case Laws
American Institutes Law Formulation
the burden of proving the elements of the rule lies on the directors
the rule acts as a presumption in favor of the directors, it is for the plaintiff to rebut the existence of those elements. Delawares doctrine is more generous to directors.
http://www.javeriana.edu.co/Facultades/C_Juridicas/pub_rev/documents/6-Laguado.pdf
does not contemplate a statutory Business Judgment Rule. The duties of directors in UK is now expressed in very broad terms as reflected in S172 and S173(1) of the UK Companies Act 2006 (c.46)
Directors Duties in UK
S172 (1) UK Companies Act 2006 provides
that a director has a duty to promote the success of the company having regard to (a) the likely consequences of any decision in the long term (b) the interests of the companys employees
Directors Duties in UK
S172 UK Companies Act 2006
(c)
the need to foster the companys business relationships with suppliers, customers and others, the impact of the companys operations on the community and the environment
(d)
Directors Duties in UK
S172 UK Companies Act 2006
(e)
The desirability of the company maintaining a reputation for high standards of business conduct, and The need to act fairly members of the company as between
(f)
Directors Duties in UK
S173(1) of the UK Companies Act 2006 provides that : A director of a company must exercise independent judgment.
The court should be slow to interfere with commercial decisions taken by directors and should not substitute its own decisions in place of those made by honest directors. ..it is not the function of the court to punish and censure director, who have, in
Lee Swee Seng & Co
Section 132(1E)
Clarifying the Position of a Nominee Director
Lee Swee Seng & Co
within the common law in relation to nominee directors duties and obligations.
Overseas-Chinese Banking Corp Ltd & Anor v Justlogin Pte Ltd & Anor [2004] 2 SLR 675 A nominee director is required to act in the best interest of the company which they serve.
Lee Swee Seng & Co
Overseas-Chinese Banking Corp Ltd & Anor v Justlogin Pte Ltd & Anor [2004] 2 SLR 675
Nominee Director can only act in the interest of his appointor where: Interest of appointor
Walker v Winbourne[1976] 50 AJLR 446; Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62 In a corporate group structure the best interest of the company may include the interest of the members of the corporate group or the holding company
Lee Swee Seng & Co
Companies Act
to
corporate
group
structure
Extended to joint venture company
if
provides that a director of a wholly-owned subsidiary can act in the interest of the holding company and will be taken to have acted in the best interest of the subsidiary if the Constitution of the subsidiary expressly authorises the director to act in the best interest of the holding company and the director acts in good faith in the best interest of the holding company; and the subsidiary is solvent or will not become insolvent because of that directors act.
Lee Swee Seng & Co
his position as an employee of a company, or who was appointed by or as a representative of a shareholder, employer or debenture holder, shall act in the best interest of the company and in the event of any conflict between his duty to act in the best interest of the company and his duty to his nominator, he shall not subordinate his duty to act in the best interest of the company Co his duty to his to Lee Swee Seng &
Section 132(2)
Duties to avoid Conflict of Interests
Lee Swee Seng & Co
i) When a director makes a personal profit while acting in his position. Regal (Hastings) Ltd v Gulliver [1942] 1 ALL ER 378 Held: Directors are fiduciary and is not allowed by equity to profit from his position.
ii)Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 The Facts: The company entered into a contract to purchase goods from a business in which one of the Directors was a partner.
ii)Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 Held: The contract was void. Conflict arose when the company enters into a contract, arrangement or transaction in which a director has interest in, and that director does not disclose his interest to the company. Lee Swee Seng & Co
Yusof [1995] 4 MLJ 146 Facts:The director had set up another firm to compete for contracts with the company.
Yusof [1995] 4 MLJ 146 Held:Conflict arose where a director uses or exploits an asset (including business opportunity and corporate information) treated as the companys property, for his own purpose or the purpose of any one else
Lee Swee Seng & Co
iv) Mahesan v Malaysian Government Officers Co-operative Housing Society [1978] 1 MLJ 149 Held: conflict arose where a director receives a benefit in some other way in connection with the exercise of his powers as a director (eg bribe)
Lee Swee Seng & Co
v) Yukilon Manufacturing Sdn Bhd v Dato Wong Gek Meng & Ors [1998] 7 MLJ 551 Held: conflict arose where a director competes with the company.
The old S132(1) CA 1965 provides that: A director shall at all times act honestly and use reasonable diligence in the discharge of his duties of his office
A director or officer of a company shall not, without the consent or ratification of a general meeting(a)use the property of the company; (b)use any information acquired by virtue of his position as a director or officer of the company;
Lee Swee Seng & Co
New S132(2)
(c) use his position as such director or officer; (d) use any opportunity of the company which he
became aware of, in the performance of his functions as the director or officer of the company; or
(e) engage in business which is in competition with the company to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company
New S132(2) This new provision amounts to a restatement of the common law conflict of interest situation.
It assists directors in appreciating situations
of conflict which may cause them to act in breach of their duty to the company.
A Consultative Document on Clarifying and Reformulating theCo Lee Swee Seng & Directors Role and Duties by the Corporate
Law Reform Committee for the Companies Commission of Malaysia August 2006 at page 66
the misuse of corporate information and was directed at various insider trading conduct.
The CLRC is of the view that S132A and
S132B is redundant and should be deleted because of:Lee Swee Seng & Co
S132B
Capital Markets and Services Act 2007
Part V Market Misconduct and other Prohibited Conduct Section 174(a) This Part shall apply to(a) in respect of securities(i) acts and omissions occurring within Malaysia in relation to securities of any body corporate which is formed or is carrying on business or is listed within or outside Malaysia; and
Lee Swee Seng & Co
S132B
Capital Markets and Services Act 2007
Part V Market Misconduct and other Prohibited Conduct Section 174(a) This Part shall apply to(a)in respect of securities(ii) acts and omissions occurring outside Malaysia in relation to securities of any body corporate which is formed or is carrying on business orSeng & Co is listed within Lee Swee
(1) A person is an insider if that person(a) possesses information that is not generally available which on becoming generally available a reasonable person would expect it to have a material effect on the price or
Lee Swee Seng & Co
Section 132CApproval of company required for disposal by directors of companys undertaking or property
Lee Swee Seng & Co
Section 132C-Approval of company required for disposal by directors of companys undertaking or property
Old S132C(1):
notwithstanding anything in a companys memorandum or articles, the directors shall not carry into effect any proposal or execute any transaction for(a) the acquisition of an undertaking or property of a substantial value; or (b) the disposal of a substantial portion of the companys undertaking or property
Section 132C-Approval of company required for disposal by directors of companys undertaking or property
Old S132C(1):
which would materially and adversely affect the performance or financial position of the company, unless the proposal or transaction has been approved by the company in general meeting
Section 132C-Approval of company required for disposal by directors of companys undertaking or property
Mischief behind the Old S132C(1):
i)
Directors were not prepared to say that a transaction would adversely affect the performance or financial position of a company.
ii) The old S132C permitted adverse transaction as long as the transaction has been approved by the company in a general meeting.
Section 132C-Approval of company required for disposal by directors of companys undertaking or property
Mischief behind the Old S132C(1):
Dato Toh Kian Chuan v Swee Construction and Transport Company (Malaya) Sdn Bhd [1995] 1 LNS 317
The Facts: A minority shareholder sought to set aside an agreement for the sale of a piece of land. He alleged that the land was sold at an undervalue.
Lee Swee Seng & Co
Section 132C-Approval of company required for disposal by directors of companys undertaking or property
Mischief behind the Old S132C(1):
Dato Toh Kian Chuan v Swee Construction and Transport Company (Malaya) Sdn Bhd [1995] 1 LNS 317
Held: The old S132C permitted such transactions as the approval of the company in general meeting had been obtained.
Lee Swee Seng & Co
Section 132C-Approval of company required for disposal by directors of companys undertaking or property
requirement that the transaction must adversely affect the performance or financial position of the company
For the purpose of subsection (1), in the case of a company where all or any of its shares are listed for quotation on the official list of the Stock Exchange as defined in the Securities Industry Act 1983, the term substantial value or substantial portion shall mean the same value prescribed by the provision in the listing requirements of the Exchangewhich relates to acquisition or disposals by a company or its subsidiaries to which such provisions applies; and (b) which would require the approval of shareholders at a general meeting in accordance with the provisions of such listing requirements
Lee Swee Seng & Co
(a)
10.06 (1) of the Listing Requirements of Bursa Malaysia provides that: For a transaction where any one of the percentage ratios is equal to or exceeds 25%, the listed issuer must obtain the approval of its shareholders in general meeting..
Lee Swee Seng & Co
percentage ratios
Rule 10.02(h) provides that percentage ratios means the figures, expressed as a percentage, resulting from each of the following calculations:(i) the value of the assets which are the subject matter of the transaction, compared with the net assets of the listed issuer;
Lee Swee Seng & Co
(ii)
percentage ratios
net profits (after deducting all charges and taxation and excluding extraordinary items) attributable to the assets which are the subject matter of the transaction, compared with the net profits of the listed issuer;
Rule 10.02(h)
percentage ratios
Rule 10.02(h)
(iii) the aggregate value of the consideration given or received in relation to the transaction, compared with the net assets of the listed issuer; (iv) the equity share capital issued by the listed issuer as consideration for an acquisition, compared with the equity share capital Lee Swee Seng & Co previously in issue;
(v)
percentage ratios
Rule 10.02(h)
the aggregate value of the consideration given or received in relation to the transaction, compared with the market value of all the ordinary shares of the listed issuer;
percentage ratios
Rule 10.02(h)
(vi) the total assets which are the subject matter of the transaction compared with the total assets of the listed issuer;
percentage ratios
Rule 10.02(h)
(vii) in respect of joint ventures, business transactions or arrangements, the total project cost attributable to the listed issuer compared with the total assets of the listed issuer or in the case where a joint venture company is incorporated as a result of the joint venture,
Lee Swee Seng & Co
percentage ratios
the total equity participation of the listed issuer in the joint venture company (based on the eventual issued capital of the joint venture company) compared with the net assets of the listed issuer. The value of the transaction should include shareholders loans and guarantees to be given by the listed issuer; or
Lee Swee Seng & Co
percentage ratios
aggregate original cost of investment of the subject matter of the transaction divided by the net assets of the listed issuer, in the case of a disposal and where the acquisition of the subject matter took place within last 5 years;
In the case of any company other than a company to which subsection (1A) is applicable, an undertaking or property shall be considered to be of a substantial value and a portion of the companys undertaking or property shall be considered to be a substantial portion if(a) its value exceeds twenty-five per centum of the total assets of the company
Lee Swee Seng & Co
A transaction entered into in contravention of subsection (1) shall, in favour of any person dealing with the company for valuable consideration, and without actual notice of the contravention be as valid as if that subsection has been complied with
Where an agreement or transaction is carried into effect in contravention of subsection (1), the arrangement of transaction shall be void except in favour of any person dealing with the company for valuable consideration and without actual notice of the contravention.
previously the transaction is presumed valid in favour of any person dealing with the company for valuable consideration, and without actual notice of the contravention.
ratified, except in favour of any person who deals with the company for valuable consideration and without actual notice of the contravention
Lee Swee Seng & Co
Section 132E
Substantial Property Transaction by director or substantial shareholder
..a company shall not carry into effect any arrangement or transaction where a director or substantial shareholder of the company or of 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 from the company; or (b) disposes of or is to dispose of shares or non cash assets of the requisite Lee Swee Seng & Co value, to the company
Requirements of Bursa Malaysia, it has the same meaning as S69D Companies Act 65
S 132E(7) provides that: for the purposes of subsection (1)(a) persons 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
Lee Swee Seng & Co
for an employee share scheme or pension scheme) under which that director or member of his family is a beneficiary; or
(d) a partner or that director or a partner of a
spouse
parent s
broth er
Lee Swee Seng & Co
sister
Brother - in-law
Sisterin-law
Child
Including adopted child and step child
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
Lee Swee Seng & Co
contravention of subsection(1) is voidable and can be ratified by the Company within a reasonable period.
Now,
the transaction is entered into in contravention of subsection (1) is void and cannot be ratified by the company
Notwithstanding the provision of S132C and 132E, a company shall not enter into any arrangement or transaction to acquire the shares or assets of another company in which a shareholder or director of the acquiring company, or a person connected to such shareholder, or director, has a substantial shareholding.. unless the arrangement or transaction was entered into three years after such shareholder, director or connected person as the case may be, first held the shares in that other company or after the assets were first acquired by the said company, as the case may be
Lee Swee Seng & Co
transactions are stifled since shareholders approval in general meeting could not save such transactions.
was aimed at can be found in the other provisions of Companies Act such as S131, S131A and S132C
Lee Swee Seng & Co
Section 134
Register of Directors Shareholdings
Lee Swee Seng & Co
A company shall keep a register showing with respect to each director of the company particulars of(a) shares in the company or in a related corporation being shares in which the director has an interest and the nature and extent of that interest;
Lee Swee Seng & Co
following: (c) a reference to an interest of the spouse of a director of a company (not being herself or himself a director of the company) and an interest of a child, including adopted child or stepchild, of a director of the company (not being himself a director of the company) in the shares or debentures of the company, shall be treated as the interest of the director in the shares or
Lee Swee Seng & Co
including adopted child and stepchild is included in the interests that a director must disclose
S135 (1) A director of a company shall give notice in writing to the company(a) of such particulars relating to shares, debentures, participatory interests, rights, options and contracts as are necessary for the purposes of compliance with section 134;
Lee Swee Seng & Co
S135 (1)A director of a company shall give notice in writing to the company(b) of particulars of any change in respect of the particulars referred to in paragraph (a) of which notice has been given to the company including the consideration, if any, received as a result of the event giving rise to the change;
Lee Swee Seng & Co
S135 (1)A director of a company shall give notice in writing to the company(c) rights or options of the director or of the director and other person or persons in respect of the acquisition or disposal of shares in, debentures of or participatory interests made available by the company or a related corporation; and
Lee Swee Seng & Co
S135 (1)A director of a company shall give notice in writing to the company(d) contracts to which the director is a party or under which he is entitled to a benefit being contracts under which a person has a right to call for or to make delivery of shares in, debentures of or participatory interests made available by the company or related corporation
Lee Swee Seng & Co
S134(5) Within 3 days after receiving notice from a director under 135(1)(a), the company shall enter in its register in relation to the director the particulars in S134(1) including the number and description of shares, debentures, participatory interests, rights, options and contracts to which the notice relates and in respect of shares, debentures, participatory interests, rights, or options acquired or contracts entered into after he Lee became a director- Swee Seng & Co
S134(5) (a) the price or other consideration for the transaction, if any, by reason of which an entry is required; and (b) the date of(i) the agreement of the transaction or if it is later, the completion of the transaction; or (ii) where there was no transaction, the occurrence of the event by reason of which an entry is required to be made under this section. Lee Swee Seng & Co
Section 140
Directors and Officers Insurance (D&O Insurance)
Lee Swee Seng & Co
personal liabilities for directors and officers. The issue is whether an insurance contract taken by the company or by the director is void under S140 CA 1965
Lee Swee Seng & Co
D&O insurance is valid: i) It may be taken by a company where the company purchases and maintains insurance to insure against any loss or damage suffered by the company as a result of claims taken by third parties arising out of an officers or directors act or omission, as seen in S199A Corporations Act 2001;
A Consultative Document on Clarifying and Reformulating the Directors Role and Duties by the Lee Swee Seng & Co
A Consultative Document on Clarifying and Reformulating the Directors Role and Duties by the Lee Swee Seng & Co Corporate Law Reform Committee for the Companies Commission of Malaysia, Vol 5 at pages 82-84
iv)
CLRC recommends that D&O Insurance should be clarified in the Companies Act , that the company may be allowed to purchase or maintain insurance or to indemnify its officer or auditor for cost, expenses and liability incurred by that officer or auditor in defending an action commenced by a third party (the third party being a person other than the company)
A Consultative Document on Clarifying andSwee Seng & Co Directors Role and Duties by the Lee Reformulating the Corporate Law Reform Committee for the Companies Commission of Malaysia, Vol 5, at pages 82-84
allowed to purchase or maintain insurance for officers in relation to any liability or breach of duty owed to the company.
The
CLRC is also of the view that shareholders should be informed of the insurance or indemnity given.
A Consultative Document on Clarifying and Reformulating the Directors Role and Duties by the Corporate Law Reform Committee for the Companies Commission of Malaysia, Vol 5, at pages 82-84 Lee Swee Seng & Co
not incorporated into the Companies (Amendment) Act 2007, as Section 140 remain unchanged.
Section 145
Meetings and Proceedings
Lee Swee Seng & Co
145 Companies Act 1965 confers power upon shareholders to convene a general meeting if two or more members holding not less than 1o per cent of the issued share capital desire the holding of a general meeting.
A Consultative Document on Engagement with Shareholders by the Corporate Law Reform Lee of Malaysia, & Co Committee for the Companies Commission Swee Seng February 2006 at page 21
A meeting of a company or of a class of members, other than a meeting for the passing of a special resolution, shall be called by notice in writing of not less than fourteen days or such longer period as is provided in the articles
Lee Swee Seng & Co
In the case of an AGM, 21 days notice in writing passing a special resolution, 21 days
Lee Swee Seng & Co
an AGM nor a meeting for the passing of a special resolution, 14 days in writing where the company is other than a limited company and 7 days notice in the case of an unlimited company
A Consultative Document on Engagement with Shareholders by the Corporate Law Reform Committee for the Companies Commission of Malaysia, February 2006 at page 27 Lee Swee Seng & Co
Act 2001 prescribes that at least 21 days notice must be given for a meeting of a companys members.
Section 249HA Australian Corporations
Act 2001 prescribes that a minimum period of 28 days notice is required to be given notwithstanding anything in the companys Lee Swee Seng & Co constitution
Position in Malaysia
The
Finance Committee on Corporate Governance recommended that the Companies Act 1965 and the Listing Requirements of Bursa Malaysia Securities Berhad be amended to extend the notice period for Annual General Meetings from 14 days to 21 days.1 This is to enable nominees to obtain and submit proxy votes and assist in greater participation in such meetings
2
Malaysia, Report on Corporate Governance, (February 1999), Chapter 6 at paras 2.1.7 to 2.1.11
2 A Consultative Document on Engagement with Shareholders by the Corporate Law Reform Committee for the Companies Commission of Malaysia, February 2006 at page 27 Lee Swee Seng & Co
Notwithstanding subsection (2), the annual general meeting of a public company shall be called by a notice in writing of not less than twenty-one days before the annual general meeting or such longer period as is provided in the articles
Lee Swee Seng & Co
A meeting shall, notwithstanding that it is called by a notice shorter than is required by subsection (2) or (2A) be deemed to be duly called if it is so agreedin the case of a meeting called as the annual general meeting, by all the members entitled to attend and vote thereat; or
Lee Swee Seng & Co
(a)
(b)
S145A
Location of Annual General Meeting
Lee Swee Seng & Co
Where any meeting (including an adjourned meeting) is required to be held under this Division it shall be held in the State where its registered office is situated
Therefore, AGM can only be held in the
to the Companies Act 1965 to facilitate the use of technology that allows shareholder a reasonable opportunity to participate in the conduct of general meeting at two or more locations.
The primary venue must still be in Malaysia to
A company shall hold all meetings of its members within Malaysia and may hold a meeting of its members within Malaysia at more than one venue using any technology that allows all members a reasonable opportunity to participate
S167A
System of Internal Control
Lee Swee Seng & Co
Except as otherwise provided for in the listing requirement of a Stock Exchange in relation to companies whose shares are listed for quotation on the Stock Exchange, the directors of a public company or a subsidiary of a public company shall have in place a system of internal control that will provide a reasonable assurance thatLee Swee Seng & Co
unauthorized
use
or
that they are recorded as necessary to enable the preparation of true and fair profit and loss accounts and balance sheets and to give a proper account of the assets. Penalty: Imprisonment of six months or ten thousand ringgit or both
Lee Swee Seng & Co
S172A
Duty to inform upon ceasing to hold office as an auditor
Lee Swee Seng & Co
1965, an auditor who is to be removed from office may submit a written representation to the company and request that the written representation be sent to every member who is entitled to receive the notice of the meeting.
However, there is no similar provision in the
case of resignation
A Consultative Document on AuditorsLee Swee Responsibilities by the Corporate Law Reform Roles and Seng & Co
to the company and the company should to make the statement available to the shareholders
resignation or removal or where the auditor considers that there are no circumstances in connection with his ceasing to hold office that need to be brought to the attention of members or creditors
Lee Swee Seng & Co
Where an auditor has made written representations to the company pursuant to subsection 172(5) or if an auditor gives notice to the directors of the company of his desire to resign as auditor of the company pursuant to subsection 175(15),
Lee Swee Seng & Co
Section 174
Scope of Auditors Duties
Lee Swee Seng & Co
companys accounts give a true and fair view of the companys affairs
whether the companys accounts have been prepared according to the standards issued by the Malaysian Institute of Accountants (MIA)
If an auditor in the course of the performance of his duties as auditor of a company, is satisfied that(a) there has been a breach or nonobservance of any provisions of this Act; and
Governance has recommended that auditors should be placed under further obligation to report fraud, dishonesty and other serious breaches to the relevant authority.
If acting without malice, auditors should be
In addition to subsection (8), if an auditor in the course of performance of his duties as an auditor of a public company or a company controlled by a public company, is of the opinion that a serious offence involving fraud or dishonesty is being or has been committed against the company or this Act by officers of the company, he shall forthwith report the matter in writing to the Registrar
Lee Swee Seng & Co
No duty to which an auditor to a company may be subjected to shall be regarded as having been contravened by reason of his reporting the matter referred to in subsection (8A) in good faith to the Registrar
For the purpose of subsection (8A) (a) a company is presumed, unless the contrary is established, to be controlled by a public company if the public company is entitled to exercise or control the exercise of not less than fifteen per centum of votes attached to the voting shares of the company; and
Lee Swee Seng & Co
Section 174A
Auditors and other persons to enjoy qualified privilege in certain circumstances
Lee Swee Seng & Co
Section 174A Auditors and other persons to enjoy qualified privilege in certain circumstances
S174A is amended by inserting subsection
(2A) which provides that: No auditor shall be liable to be sued in any court or be subject to any criminal or disciplinary proceedings for any report under section 174 submitted by the auditor in good faith and in the intended performance of any duty imposed on the auditor under this Act
Lee Swee Seng & Co
Conclusion
The Companies (Amendment) Act 2007
has incorporated the following: i. codified Directors Duties as seen in Section 132 ii.laid down the functions and powers of the board iii.clarified the disclosure of interests in contracts, property, offices etc. iv.clarified the provision on substantial property transaction
Lee Swee Seng & Co
Conclusion
The Companies (Amendment) Act 2007
has incorporated the following: v. Amended the provision on calling of meetings and incorporated the holding of meetings using technology vi. Amended the auditing process and laid down a mandatory requirement for public companies to set up a System of Internal Control.
Lee Swee Seng & Co