Interview On Focus Malaysia: New Law Gives Minorities, Auditors More Clout.
6 June, 2016
I was interviewed by Focus Malaysia and was featured in their 4 June issue. The article was titled ‘New law gives minorities, auditors more clout’.
- The article was on the Companies Bill 2015 and how it would impact public-listed companies in particular.
- I highlighted five key areas where public-listed companies can benefit from the Companies Bill:
- All companies, including PLCs, will benefit from the move to the no-par value regime.
- Certain corporate exercises may be easier but there will be additional requirements to be aware of.
- An increase in transparency and accountability on the issue of the directors’ fees and benefits, along with the service contracts that directors may have with PLCs.
In line with the increase in transparency, auditors of PLCs also have more powers when they resign.
Increased power for the shareholders to comment or make recommendations to the directors or management of the company.
To quote from the article, I did have one word of caution for the directors.
Greater personal liability
“In terms of whether there are any disadvantages to PLCs, I would only classify it as a word of caution to the directors,” suggests Lee. “That the directors in particular must be aware of all the new requirements and restrictions imposed under the Companies Bill 2015.” This is because the Bill imposes greater personal liability on each director and with a greater range of criminal and civil sanctions that the directors may face.
I didn’t expand on this point in the article but let me give an example based on the regular occurrence of a company declaring dividends to its shareholders.
In the future, when a company declares and pays out dividends, directors must satisfy themselves that the company has met a newly-imposed solvency test.
The new law spells out the definition of when a company will be solvent for the purposes of dividends. So this will be an additional requirement the directors must meet. The risk of not meeting this requirement will be three-fold:
- Directors will face higher sanctions if there is a criminal conviction for breach of this solvency test for dividends.
- The directors can also face civil liability where the company can sue the director to make good of the excessive dividend paid out in breach of the solvency test.
- The recipient shareholders who received the excessive dividend may also face civil liability where the company can sue for recovery, subject to certain conditions.
Underpinning this new requirement is to safeguard creditor interests. There should not be a situation where the company will risk failing to pay its debts, having paid out excessive dividends and impacting the company’s capital.