Regional Comprehensive Economic Partnership (RCEP)

BACKGROUND

Source: MITI Malaysia

• The Regional Comprehensive Economic Partnership (RCEP) negotiation was launched during the 21st ASEAN Summit in Phnom Penh, Cambodia in November 2012. The 16 participating countries are 10 ASEAN nations, Australia, China, Japan, Korea, India and New Zealand.

• The RCEP is an ASEAN driven initiative that aims to integrate economically the 16 countries in Asia and Oceania countries. The Leaders of the 16 RCEP participating countries agreed that RCEP shall involve broader and deeper engagement with significant improvements over existing ASEAN Free Trade Agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPs) with these countries.

• The RCEP negotiations are based on the Guiding Principles and Objectives for Negotiating RCEP which was endorsed by the leaders at the time of launching the negotiations. The Guiding Principles is as attached.

Market Snapshot: AEC; RCEP; and TPP (2015/2016)

RTAs	AEC	RCEP	TPP
Population (million)	620	3,534.4 (50%)	789.2 (11.3%)
GDP (US$ trillion)	(US$2.5)	US$22.5 (30.4%)	28.55 (37%)
Total Trade and  % of World Trade	2,259.5 billion (6.8%)	9,547.2 billion (28.7%)	8,728.0 billion (26.3%)
Exports and % of World Exports	US$1,164.5 (7.0%)	5,077.4 billion (30.8%)	3,961 billion (24%)
Imports and % of World Imports	US$1,095.0 (6.5%	4,469.8 billion (26.7%)	4,767 billion (28.4%)

 

• Collectively, the AEC and RCEP account for combined output amounting to US$22.4 trillion or 30.6% of world output. Total trade of RCEP in 2015 was significant at US$11.9 trillion and total FDI inflows to the 16 countries amounting to US$329.6 billion.

 

ASEAN Plus 1 FTAs/CEPs

FTA	Entry into Force	Scope
ASEAN-China	2005	Goods, Services, Investment, DSM
ASEAN-Korea	2007	Goods, Services, Investment, DSM
ASEAN-Japan	2008	Goods, Services, Investment, DSM
ASEAN-India	2010	Goods, Services, Investment, DSM
ASEAN-Australia-New Zealand		Goods, Services, Investment, DSM, MNP, E-Commerce, IPR, Competition and Economic cooperation.

Interest Schemes - Prospects for 2019 and beyond

Since 2016, the Interest Schemes sector in Malaysia has been regulated under the Interest Schemes Act 2016 (Act 778). 

What has changed between the previous guise when the Interest Schemes sector was regulated under Part IV Division 5 of the Companies Act 1965?

Not much at all except that the regulator has set the benchmark for new applicants at a higher level in terms of specifying requirements for prior industry experience by promoters for any proposed Interest Schemes and augmented by relevant audited financial history for the corporation intending to manage and operate the proposed Interest Scheme or any related, associated or affiliate corporate entity. 

The range of possible applicants for Interest Schemes are businesses that are involved in holiday and leisure timeshare, golf and recreational clubs and memorial parks. Broadly, these businesses are involved in the right of use and enjoyment category.

The segment that has the greatest potential in Interest Schemes are in the investment schemes category where financial returns are offered and also a possible hybrid category that may combine financial returns with right of use and enjoyment.

In the hybrid category it may be possible for a promoter to offer ownership of a slice of the business enterprise by way of contractual rights to any surplus proceeds or financial returns from the business enterprise operations together with a right to use and enjoy retail goods and services or holiday accommodations forming part of the enterprise.

For SMEs that are in need for corporate finance solutions Interest Schemes may still offer a medium term mezzanine financing solution. We have advised on several such solutions that has proven to be very useful to the SME clients.

One of the SME clients is being advised by us on graduating to the Capital Market regulated by the Securities Commission of Malaysia and Bursa Malaysia en route for an initial public offering either in the LEAP Market or the ACE Market.

Interest Schemes Act 2016 and Companies Act 2016 commences on 31.1.2017

 The Companies Commission of Malaysia has decided that the new Interest Schemes Act 2016 and the Companies Act 2016 will come into operational force on 31.1.2017. The regulatory framework will be implemented in stages. Below is the CCM Press Statement-

ANNOUNCEMENT ON THE ENFORCEMENT DATE OF COMPANIES ACT 2016

The Companies Commission of Malaysia (SSM) hereby notifies that the Companies Act 2016 (CA 2016) will be implemented on staggered basis with the first phase to be effective from 31 January 2017. With the enforcement of the first phase of the CA 2016, the Companies Act 1965 is repealed.

2.Several provisions in the CA 2016 which have yet to be effective are as follows:

(a)Section 241 – provision relating to the requirement for company secretaries to register with Registrar; and

(b)Division 8 of Part III – provisions relating to corporate rescue mechanisms on corporate voluntary arrangement and judicial management.

3.With the effective of the enforcement date, SSM would like to draw your attention to the following:

(a)Introduction of single member/director company

Beginning from the date the CA 2016 becomes effective, a company may be incorporated by or have only one member and that single member can also be the sole director of the company. However, for public companies, the CA 2016 still retains the minimum requirement of 2 directors.

(b)Change of “certificate of registration” to “notice of registration”

Effective from the enforcement of the CA 2016, SSM will issue a notice of registration for the incorporation of a new company to confirm that provisions relating to the requirements for registration have been complied with in line with the requirement of the law. 

(c)Abolition of the authorized capital concept

Under the CA 2016, a company is no longer required to state its authorized capital. Instead, a company is required to notify its issued share capital and paid up capital and the related changes through the return of allotments.

(d)Abolition of concept of shares with nominal value

With effect from 31 January 2017, any newly issued share will no longer be tied with the nominal value when the company was incorporated. A company may issue shares at a price depending on the factors affecting the current circumstances and needs of the company.

(e)Companies are no longer required to have constitution or memorandum & articles of association

For a company which is incorporated beginning from 31 January 2017, the company has the option whether to adopt a constitution or otherwise. For a company which was incorporated before the CA 2016 came into effect, the existing constitution (memorandum & articles of association) will continue to be applicable to such companies until the companies resolve otherwise. However, it is still mandatory for a company limited by guarantee to have a constitution.

(f)Companies are not required to have a common seal

Effective from 31 January 2017, a company has the option to have a common seal. Execution of documents must comply with the procedures outlined under Division 9 of Part II including situations when a company decides to have a common seal.

 

(g)Abolition of the requirement for annual general meeting for private companies

Beginning from 31 January 2017, all private companies are no longer required to hold annual general meetings. Instead all decisions of private companies can be fully made through circular resolutions.

(h)Decoupling of lodgement of Annual Return and Financial Statements

Under the CA 2016, the requirement to lodge Annual Returns is based on the anniversary of the incorporation of a company, and the date for the lodgement of Financial Statements is no later than 7 months from the financial year end of the company.

4.SSM seeks the cooperation of YBhg. Tan Sri/Datuk/Dato’/Datin/Tuan/Puan to take into account of the changes stated above when reviewing, formulating or implementing policies and procedures which may affect companies when dealing with your Ministry/Department/Agency/Organisation. This is to ensure that the business friendly policies which are contained in the CA 2016 can be implemented efficiently and the benefits could be enjoyed by the business community in general.

5.Apart from the CA 2016, SSM will also enforce the Interest Schemes Act 2016 effective from 31 January 2017. The Interest Schemes Act regulates the offering of interest schemes as an alternative to fundraising activities for companies. The provisions in the Interest Schemes Act were previously contained in the Companies Act 1965.

Companies Act 2017 - Commentary

Below is an interesting set of observations made by a fellow legal practitioner-

THE Companies Act 2016 (Act 777) and The Companies Commission (Amendment) Malaysia Act will come into operation on Jan 31 this year. There are two major exception provisions found in Division 8 (Corporate Rescue Mechanism) relating to corporate voluntary arrangement and judicial management (JM) which is pursuant to S.1(2) where the Minister “may appoint different dates for its coming into operation”. 

The Winding Up provisions Pt IV (Cessation of Companies) will also be effective as of Jan 31.

However the existing Winding Rules which was passed under the 1965 Act will still be applicable (reliance is placed on S.35 (2), Interpretation Act). 

There will be a new set of Company Regulations 2017.

This new Act replaces the 1965 Act which has governed for over 50 years the rules and framework of business organisation that has sought limited liability status.

In the 617 provisions of the Act 777 (the old Act has only over 350 provisions) inter alia major new areas that has been reformed include: 

• one shareholder entity, 
• setting up a company without a constitution, 
• non-application of doctrine of constructive notice, 
• no par value shares, 
• solvency test, 
• liberalisation of financial assistance prohibition for company to purchase its own shares, 
• continuing enhancement of directors’ duties and governance responsibilities, 
• AGM for private companies can be dispensed with; 
• provision for convening of a meeting of members at more than one venue by use of technology, 
• proxy can be appointed without them having qualifications (eg advocate, approved company auditor), 
• approval for directors remuneration, 
• share buyback regime amendments.

In terms of enforcement regime the Act 777 introduced civil and administrative proceedings for selected types of breaches of the Companies Act alongside penalty sanctions. Such sanctions to be imposed against the officers as personal liabilities. 

Act A1478 also introduces a plethora of provisions enhancing to levying of compound fines on offenders who contravenes provisions of Act 777. Also significant is the introduction of the presumption that officers who are in management control could also be fastened with personal liabilities if a company has been found to have committed a company law offence unless the officer could rebut the presumption. 

Business people will baulk at the length of company laws and this is before taking into account stock exchange regulatory rules, corporate governance codes, accounting standards and practices issued by various boards and bodies. 

Company laws are not known to be brief legislation. But is brevity an end in itself?

The true issue is whether a law reform is based on sound principles which conduce to clarity, certainty and simplicity. A brief law that does not assist corporate decision makers in aligning their decisions with what is proper and legal will in fact lead to higher costs and efforts in dealing with the complexity of market choices. 

Legislators and reformers are faced with unenviable choices as there are users who clamour for more detailed guidance and those who urged for less prescriptive directions and more principled based norms.

As a practitioner, we are often asked by clients to look for and exploit loopholes when a provision is not crafted adequately to deal with issues at hand. There is therefore an inexorable tension between certainty and simplicity. 

Since 1965, there has been piecemeal reform which has created a patchwork of amendments. The major amendments then were often made in reaction to perceived gaps in law dealing with directors’ duties and insolvency which demanded corporate restructuring. 

The new Act is a comprehensive undertaking implementing recommendations which a Corporate Law Reform Committee (CLRC) set up under the auspices of Corporate Commission Malaysia (SSM) in December 2003. The SSM established the Corporate Law Reform Committee as part of SSM’s strategic direction to establish a dynamic regulatory environment for business in Malaysia while dealing with corporate accountability and governance that is in line with global standards. 

The law reform committee in turn had a number of working committee and devoted hundreds of hours in deliberation and consultation with relevant stakeholders in arriving at their recommendations. It was heartening for us members to see the fruition of their work in form of the Act.

It must be pointed out however that the CLRC has been functus officio upon tabling its report and the recommendations. The CLRC is neither involved in the actual drafting of the Act nor responsible for any infelicities. Kudos or brickbats should be directed to SSM and the Attorney General Chambers.

The new Act drew its lessons from various Commonwealth jurisdictions including the UK, Canada, New Zealand, Australia, Singapore and Hong Kong. 

Whether Act 777 will fulfill its laudable objectives remains to be seen.

Sourced from here.

Features of the new Malaysia Companies Act 2016

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In a nutshell, the new Malaysian Companies Act 2016 will contain the following new features that were previously not available in the old Companies Act 1965-

• Allowing unlimited capacity for companies;  
• Single shareholder and single director companies;  
• Removal of mandatory Annual General Meetings for private companies;  
• Removal of the unanimity rule for written shareholder resolutions for private companies; 
• Removal of the par value regime;  
• New financial assistance treatment;  
• New reduction of capital and share buy-back procedures;  
• Increased oversight over directors' remuneration;  
• Relaxation of restrictions against indemnification of directors; and  
• Introduction of alternative corporate rescue mechanism e.g. corporate voluntary arrangement and judicial management schemes.

Dewan Rakyat approves Companies Bill 2015 and Interest Schemes Bill 2015

It has been reported here that the Dewan Rakyat has approved the Companies Bill that was tabled for a Second Reading this week. With this, it appears that the new companies legislation is on track to be enacted within 2016.

In the same vein the Interest Schemes Bill was also approved by the Dewan Rakyat on 4th April 2016.

Crowdfunding - Some thoughts

Crowdfunding has morphed into many forms. Many crowdfunding initiatives have charitable or socio-political objectives. Such types of crowdfunding are not the focus here. It is the "investment-based crowdfunding" exercises that I wish to examine. 

Malaysia is one of the jurisdictions that has established investment guidelines on crowdfunding. As such, the current swirls of discussion on the matter of crowdfunding is highly relevant. 

On 21.12.2015 the International Organization of Securities Commissions (IOSCO) published a survey update on crowdfunding some key observations that I set out further down in this post. Disclosure-Based Regulations (DBR) versus Merit-Based Regulations (MBR). 

We have always maintained that Malaysia still needs a large degree of Merit-Based Regulations (MBR) largely due to the rustic mindset of many investors. The retail investor is still indolent and very susceptible to market noise. 

That is why Malaysia's regulators need to maintain guidelines and regulations that require regulatory scrutiny and some degree of regulatory prescription. 

HKex has an excellent paper that critically examines DBR versus MBR and there is, therefore, no need for me to delve too much into it. Read the paper here if you are interested to understand these policy principles in greater detail. 

In the past decade we have witnessed the Securities Commission (SC) make attempts to institute the Disclosure-Based Regime (DBR). Officially, the SC has shifted from the MBR to the DBR as stated in a guidance note here. 

But, with everything said and done, we have IOSCO reminding regulators and investors alike that while DBR still holds as the prevailing principle, I would submit that there is clearly a need for some degree of MBR-type prescription especially when the IOSCO has flagged the ever-present issue of "information asymmetry" which may be loosely defined as- 

A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Sourced here. 

 IOSCO's timely survey findings on Crowdfunding 

Here are excerpts of what IOSCO's report says-The goal (of the report) is to achieve a balance between promoting crowdfunding and ensuring investor protection and market integrity. Some of the regulatory measures described in the Crowdfunding Report include- 

The goal (of the report) is to achieve a balance between promoting crowdfunding and ensuring investor protection and market integrity. Some of the regulatory measures described in the Crowdfunding Report include-

• Customizing entry, registration, or licensing requirements;
• Setting disclosure requirements for issuers and funding portals;
• Limiting the services that may be provided by crowdfunding platforms;
• Requiring the appointment of a third party custodian to hold investor assets;
• Imposing measures to favour the channeling of resources into local businesses;
• Addressing crossborder issues.

The report also seeks to raise investors’ understanding of crowdfunding, e.g., that crowdfunding may differ from investing in more traditional securities products. In addition to take note of risks common in traditional finance such as conflicts of risks, data protection and fraud, it suggests that investors pay attention to certain key aspects, including-

• Information asymmetry: Risk of default or high failures is often associated with start- up businesses. The risk of fraud may be high in case of internet offers. Investors should review disclosure and education materials to further their understanding of the essential features and main risks of the crowdfunding offer and see if third party custodians are being used.

• Platform failure: There is risk of platform failure for crowdfunding portals. Portals should be evaluated based on their credibility and soundness, including if it has the proper IT systems, back-up facilities and procedures to ensure continued service.

• Investing limits: Investors should consider if the investment amount is appropriate for their net worth.

• Rescission, cancellation: Investors should be informed of and understand the investment terms including cancellation or rescission rights.

• Illiquidity: As restrictions could be put on the resale of crowdfunding securities, investors should pay attention on warnings and information regarding liquidity and the availability of secondary market.

• Suitability: Investors should consider that a crowdfunding offer may not be suitable and consistent with their investment objectives and risk profile.