INTRODUCTION

This is the second Consultation Document to be issued under the area of law pertaining to Capital Maintenance Rules and Share Capital. This Consultation Document relates to an earlier Consultation paper on ‘Capital Maintenance Rules and Share Capital: Simplifying and Streamlining Provisions Applicable to Shares’ where the underlying premise of the review is to ascertain whether the existing capital maintenance rules serves its creditors’ protection purpose.

This Consultation Document is the result of the deliberation of the Working Group B of the CLRC which discusses the following capital maintenance rules, i.e., the share buy back, the financial assistance and the reduction of capital provisions in the Companies Act 1965. The CLRC wish to highlight that the capital maintenance rules reviewed in this Consultation Document are recommended with the intention of preventing dissipation of company’s funds that will prejudice creditors.

Whilst there is a need to protect creditors’ interests against any dissipation of available assets that may be used to pay creditors, the CLRC is of the view that some restatement and reform to the existing capital maintenance rules i.e., sections 64, 67 and 67A of the Companies Act 1965 should be made as there is a need for providing businesses with the regulatory framework which would make it easier for a company to rearrange the capital structure, to operate more efficiently and reduce unnecessary costs of compliance. As such, the CLRC is proposing the introduction of a ‘solvency test’ regime that would be based on the ‘balance sheet’ solvency and ‘cash flow’ solvency tests. There are certain criteria which have to be fulfilled when using the solvency test. It is hoped that the introduction of this test together with other new proposals, will simplify and streamline the provisions relating to the reduction of capital, share buy back and financial assistance.

We hope to continue receiving your support and to receive views and comments on the recommendations stated in this Consultation Paper. Please reply to Nor Azimah Abdul Aziz of the Companies Commission of Malaysia (SSM) before 25 July 2007.

Download consultation document “Capital Maintenance Rules And Share Capital: Simplifying And Streamlining Provisions Applicable To The Reduction Of Capital, Share Buy Back And Financial Assistance” (.pdf)