Company Law Reform in Malaysia: A red herring? (PART 1)

Long has many awaited for a new and improved Companies Act here in Malaysia, however there were only piecemeal and sporadic amendments made to the old Companies Act 1965, which was based upon the ancient English Companies Act of 1940, left much to be desired. With the passing of the new Companies (amendment) Act 2007 (W.E.F. 15th of August 2007), questions that beg answering are, who are the amendments made for? Is it, prima facie, just to make it “seem” as though our Company Law is going places, but in truth it’s just a dog after its own tail?

Although intentions may be genuine, legislators and professional bodies who play an active role on advisory still seem to fail to address many potholes and shortcomings of the old Companies Act 1965. To paraphrase Section 172 of the UK’s Companies Act 2006, it states that the Directors acting in good faith owe their duty to promote the success of the company for the benefit of its members and must have “regard” to other stakeholders (ie. employees, creditors, environment etc.). For Malaysia, we have no equivalent of Section 172, which compels directors to at least consider their duties to the company’s stakeholders, and at the least, entrenches their “quasi-rights” therein.

Mohammad Rizal Salim noted that “director’s duties to creditors are underdeveloped and inadequate”, although we can say that with regards to secured creditors in general, the directors themselves have to personally undertake to secure the credit. For employees, they are inadequately protected by Company Law, since there are no entrenchments of their rights in the Companies (Amendment) Act 2007, however there are other forums for them to voice their dissatisfaction such as via the Employment Act 1955. Public stakeholders such as NGO’s, Environmental watchdogs and societies affected by acts of companies, however, are not so fortunate. They are at the mercy of these companies due to the lack of enforceability of their rights against such companies who have flaunted and continue to flaunt the law due to lack of enforcement imposed by the government and relevant authorities.

However, as of all pieces of legislation, it is humbly opined that there are 2 purposes of law. Firstly to recognise the existence of whoever or whatever it is legislated for, or confers “quasi-rights” ie. It looks like a right, but in actual fact, not. Secondly, is legislation that genuinely entrenches rights, that gives rise to a cause of action, ie. It is actionable upon. The former is therefore known as the red-herring of the law.

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