Introduction

In an effort to improve Malaysia's corporate legal framework, a series of amendments to the Companies Act 2016 have been proposed by the Companies Commission of Malaysia ("CCM"). CCM has drafted a bill containing several proposed amendments, designed to address corporate rehabilitation, insolvency, and beneficial ownership reporting, and these proposed changes were tabled in the Dewan Rakyat (i.e. House of Representatives) this October 2023 and have just recently been passed on 28 November 2023.

In this article, we focus on the changes proposed on the beneficial ownership ("BO") reporting framework.

Click here to access the Companies (Amendment) Bill 2023 ("Bill") and the BO Guidelines issued by the CCM updated in 2020.

What are the proposed changes?

Under the Bill, a new comprehensive beneficial ownership reporting framework is introduced through a new Division 8A of Part II in the Companies Act 2016 ("Act") which covers:

  • The expanded criteria of a Beneficial Owner
    Currently, Section 2 of the Act defines BO as "ultimate owner of the shares and does not include a nominee of any description".Now, the new Section 60A expanded the original definition in Section 2 to include also any natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company (see proposed Section 60A(1)). This goes beyond merely share ownership, and includes anyone who exercises control over a company as a beneficial owner.
  • Register of Beneficial Owners ("RBO")
    It is now compulsory for company to keep and maintain a register of beneficial owners (see proposed Section 60B). This includes lodging a notice with the particulars of the beneficial owner with CCM (see proposed Section 60B(3)). NB: This was also required under the BO Guidelines but it was not codified under the Act.
  • Power of a company to obtain BO information
    A company is required to send a written notice to its members, individuals believed to be beneficial owners, as well as those who might possess knowledge or has information about the identity of beneficial owners (see proposed Section 60C).
  • Declaration of BO status
    The proposed changes also include the duty of an individual who has reason to believe that he is a beneficial owner to notify a company of his status as a beneficial owner of the company and the obligation includes to notify any changes to the individual's status as the beneficial owner and particulars recorded in the register of beneficial owners (see proposed Section 60D).This notification obligation also extends to the cessation of their BO which must be notified to the company as soon as practicable.

Failure to comply with these notification requirements constitutes an offence. The general penalty provision under the Act applies to such breaches, potentially resulting in a fine not exceeding RM50,000, a maximum 3-year jail term, or both (see Section 588).

What are the penalties for non-compliance?

In addition to existing penalties related to BO reporting obligations, non-compliance with the provisions outlined in the new Section 60B – specifically, the maintenance of the RBO and notification to the CCM regarding BO details entered in the RBO will incur a separate penalty.

Upon conviction, both the company and any implicated officer could face a fine, not surpassing RM20,000. For persistent violations, an additional fine, not exceeding RM500 per day, may be imposed for each day the offense persists post-conviction (see proposed Section 60B(6)).

Now – what are the implications?

Whilst the proposed changes aim to ensure that companies adhere to international reporting standards and requirements, this transparency measure has far-reaching implications:

1. Administrative burden: Companies employing intricate ownership structures and nominee arrangements, whether to satisfy the resident director requirement or securing preferential tax rates for a local-owned company, will face a dilemma. Companies will now need to take active measures with the BO reporting obligations and any persons who know themselves, or has reasonable grounds to believe others to be beneficial owners are required and duty bound to notify the company regarding their beneficial ownership.

2. Spreading of disclosure responsibilities: In light of the increasingly onerous requirements to disclose BO, the growing obligations to disclose BO shifts the responsibility to not just the company and its officers, but also to shareholders and real BOs to comply.

In conclusion, while the Bill aims to fortify Malaysia's corporate governance against misuse for illicit activities, it remains to be seen how businesses will adapt with this newfound transparency and whether these changes will strike a balance between enhanced transparency and maintaining investor confidence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.