Reform

Jennifer Lopez explains the Strategic Framework for the Corporate Law Reform Programme of the Companies Commission of Malaysia

Recognising the need to review the Malaysian Companies Act 1965 to reflect the current and future needs of the business environment, the Companies Commission of Malaysia (CCM) has initiated the Corporate Law Reform Programme. As part of this initiative, CCM issued a consultation paper entitled Strategic Framework for Corporate Law Reform Programme of the Companies Commission of Malaysia in August 2004 for review and comment from the business community.

The paper sets out, among other things, the objectives and scope of the Corporate Law Reform Programme and the Reform Programme Process and the establishment of the Corporate Law Reform Committee and its powers.

Since its enactment in 1965, the Malaysian Companies Act has been amended several times on a piecemeal basis. Some of the changes were due to developments in the regulatory structure arising from the issuance of new securities legislation and the establishment of Bursa Malaysia, formerly known as the Kuala Lumpur Stock Exchange and Securities Commission (SC). And the most recent changes were the legislative amendments made to complement measures to revive the economy after the Asian financial crisis in 1997-1998.

CCM believes it is timely for Malaysia to carry out a systematic and coherent corporate law reform programme as most of the amendments in the past lacked this in terms of current corporate law and practice. This view is supported by the Minister of Domestic Trade and Consumer Affairs, Datuk Hj Mohd Shafie Apdal, as stated in his foreword in the consultation paper.

'In order to enable Malaysian businesses to be competitive and better equipped in dealing with future challenges in the local and global environment, a comprehensive revamp to the corporate law is timely and welcomed.'

The objectives of the corporate law reform programme in Malaysia are:

• creation of a legal and regulatory structure that will facilitate business, and
• promotion of accountability and protection of corporate directors and members taking into account the interest of other stakeholders, in line with international standards.

Scope

The scope of the review of the corporate law reform programme is to carry out an extensive study of core company law governing the formation, management and termination of companies.

Focus of review of Companies Act 1965
The primary source of company law and the main statute on company law determining the company's formation, management and termination in Malaysia is the Companies Act 1965.
The review of the act will consider law reform initiatives that are being conducted internationally, particularly the UK's Company Law Review, Modern Company Law for a Competitive Economy. These international initiatives will be adapted and refined to suit the Malaysian corporate and business environment.

Reduction of compliance cost
The review aims to reduce compliance cost in general and in particular for private companies, mainly in relation to company formation and simplification of reporting obligations to ease administrative burdens. It is anticipated that there may be recommendations that will provide rules for private companies, with additional or different provisions for public companies; a similar approach to the UK and Singapore.

Forms of business
The review will consider whether the existing forms of business organisations (e.g. company limited by shares, company limited by guarantee) in Malaysia are adequate to enable Malaysian companies to be competitive.

Corporate governance
The review will include, among other things, the domestic and international developments on corporate governance and its impact on the appropriate legal and regulatory structure for company law, taking into consideration not just shareholders' interests but also those of all stakeholders. The review will also consider codes of conduct and best practices as well as self regulation, which are now considered as complementary to statutory regulations, to determine and ascertain the boundary of the law and self-regulation on company operations and decision-making in general, and on corporate governance in particular.
The Report of the Finance Committee on Corporate Governance and the Malaysian Code on Corporate Governance'two existing authoritative documents will also be considered in the review.

Enforcement and investigation powers of regulators
Currently, there are overlaps, conflicts and duplication of the current enforcement and investigation powers given to the three main corporate regulators in Malaysia: the CCM, the SC and Bursa Malaysia. The scope of review will consider identifying the activities of these regulators and the overlaps in current enforcement and investigation powers, as well as determining whether enforcement actions and rule making authority can be reallocated, particularly in relation to the appropriate mix of legal and self regulatory rules to ensure compliance.

Impact of information and communication technology (ICT)
The review of the development of ICT will form an integral part of the reform process. The impact of ICT on company law will be considered based on the approach that the legal and regulatory structure should facilitate the use of new technologies, be flexible to changes in technology and maintain integrity and security of information.

Corporate Law Reform Committee

To ensure that the programme is conducted effectively and objectively, the Corporate Law Reform Committee (CLRC) was formed on 17 December 2003. Members of the Committee comprise representatives from CCM, SC, Bursa Malaysia, the Prime Minister's Department, legal and accounting practitioners and academics. The powers exercisable by CLRC include the following:

• to form working groups entrusted with the task of formulating and/or drafting detailed content of proposed amendments to existing laws or proposing new laws
• to carry out consultations with professional bodies, industry groups, experts, regulatory authorities and other persons in relation to the proposed amendments
• to publish key documents and exposure drafts for consultation, and
• to propose and develop corporate law policies for consideration.

Jennifer Lopez is manager of technical services, ACCA Malaysia.