Ownership transparency and enhanced company rescue mechanisms – highlights of the new Companies (Amendment) Bill 2023

       

The Bill proposes amending the definition in section 2 of the Act to include a person as a beneficial owner of a company as outlined in the new section 60A. This new provision defines a beneficial owner as a natural person who ultimately owns or controls a company, including someone exercising ultimate effective control. The Registrar is empowered to issue guidelines for identification purposes.

      

New section 60B requires companies to maintain a register recording detailed information about beneficial owners, including names, addresses, nationality, identification, residence, and dates of becoming or ceasing to be a beneficial owner. Changes must be lodged with the Registrar within 14 days.

     

New section 60C imposes obligations on companies to obtain information from members and beneficial owners, confirm changes, and seek confirmation of information accuracy. Failure to comply constitutes an offense.

    

Under new section 60D beneficial owners must notify companies of their status, provide information, and report changes promptly. Non-compliance is considered an offense.

    

The Minister has the authority to exempt certain classes of companies from complying with the reporting framework under Division 8A, subject to conditions outlined in an order published in the Gazette (see new section 60E). Companies which are exempted are required to notify the Registrar of the exemption status together with the information of their senior management.

    

In the future, companies will be required to include beneficial ownership information in their annual returns.

    

The Bill addresses concerns with the existing reporting framework, aiming to rectify issues with the Revised Guideline. The proposed amendments provide some clarity on beneficial ownership definitions and reporting obligations. The impact will become even clearer once subsidiary regulations and guidelines provide further details on key aspects of the amendments.

      

Proposed section 366(2A) specifies the scheme meeting chairperson, addressing concerns of impartiality that existed before. Section 369A(1) grants the court power to order a revote with specified conditions. Section 369B outlines the proof of debt process, section 369C) allows a court sanction without an otherwise required scheme meeting and section 369D grants the court the power to clarify scheme terms and issue orders in case of scheme breaches.

    

Proposed sections 368(1A) and 368(3A) specify which types of proceedings and actions may be restrained. In addition, the restraining order will be granted automatically by law upon application for two months or until the court decides on it, whichever occurs earlier. There are no pre-conditions required for the initial automatic restraining order. Furthermore, a waiting period of 12 months will be added to the Act before the lapse of which a further restraining order cannot be granted against the company. The new section 368(A) introduces an extension of the restraining order to related companies. 

    

Proposed section 368D introduces a mechanism giving power to the court to bind dissenting classes if one class approves. This is only possible if the approving majority accounts for at least 75% and the court is satisfied that such a decision is fair and equitable towards the dissenting minority.

    

The Bill introduces so-called super priority for rescue financing in the context of scheme of arrangements (section 368B) and judicial management (section415A).  The term ‘rescue financing’ refers to financing that is necessary for the survival of a company or to achieve a more advantageous realisation of the assets of the company than on a winding. Three types of priority or security available to rescue financiers. Super priority can be granted to a rescue financing claim by order of the court in the case of, in particular, winding-up proceedings.

     

Amendments to section 403 align the types of companies precluded from judicial management with those excluded from a corporate voluntary arrangement. Proposed amended section 406 grants the court discretion to extend judicial management beyond six months.

    

Proposed section 430A restricts a counterparty's right to terminate contracts related to essential goods and services (such as water, electricity, IT, etc.) in insolvency proceedings.

    

In summary, the amendments in the Bill appear to be, for the most part, suitable to strengthen the restructuring and insolvency framework in Malaysia, aligning it with international practices and addressing concerns related to schemes of arrangement and corporate rehabilitation. Corporate practice after implementation will show whether the changes can achieve their intended effect.