There are several changes made with regards to the capital under Company’s Act 2016 compared

to the Company’s Act 1965.

Par value can be defined as the lowest price at a share can be issued and also known as nominal
value. Under old Companies Act 1965, a company in Malaysia are compulsory to issue a par
value to share capital. However, the Company Act 2016 effectively repels this concept.
According to Section 74 CA 2016, shares issued before or upon the commencement of this Act
shall have no par value. Meanwhile, companies no need set any minimum value for the shares
issued. This will enable company to raise capital more flexibly. Under CA 2016, share premium
and capital redemption reserve are converted into share capital.

Under the Company’s Act 2016, the share premium and capital redemption reserve are converted
into share capital. This means the new act expressly supplies for this transition in which there
will be no need for them to pass any resolutions. Moreover, this transitional provision under the
new act permits a 24-month period in which the current existing amounts in the share premium
account and capital redemption reserve can be utilized for purposes stated only under the terms
and conditions set out in the act. Authorized share capital represents the maximum amount of
share capital that a company can issue. However, it would be represented by the number of share
a company can issue multiplied by its par value under the 1965 Act. Share premium can be
defined as the additional amount shareholders have to pay for their issued shares which was in
excess of the par value of those shares. Capital redemption reserve is a reserve created when
preference shares are redeemed or where a company purchases their own shares in scenarios that
causes the reduction of share capital.
The Company’s Act 2016 introduces solvency tests which will apply to categories such
as capital reduction, buyback or redemption of shares and providing financial assistance. There is
also a completely different form of solvency test which relates to the declaration of dividends. In
addition, the recognized procedure for the reduction of capital under the old Companies Act
1965 requires special resolutions as well as being followed up by court order. The new act on the
other hand introduces an effective alternative procedure which bases on a solvency test, and
devoids the requirement of having to go through the courts. The solvency test is satisfied
immediately after the transactions if there are the occurrence of scenarios such as, when there are
no justifications in which the company could be found unable to pay their debts and when their
assets are greater than their liabilities. A solvency statement can be defined as a statement to be
executed by the directors stating their opinion that the company can effectively satisfy the
solvency test as described above.

A listed company is permitted to buy back its own shares if a majority number of their
directors declares that the company is solvent on the date of purchase and will not become
insolvent after the buy-back transaction. Furthermore, the new act of 2016 expands on this aspect
and will also require a solvency statement to be made. However, only a majority number of
company’s directors need to make a solvency statement for buy-back of shares compared to
reduction of share capital.

On the other hand, the Companies Act 1965 had straight out prohibited a company or any
of its subsidiaries from providing any sort of financial assistance regarding any transactions
relating to the purchasing of its own shares or any other shares under its holding company.
However, the new act loosens this prohibition and further introduces a gateway for exemption
which is technically a ‘whitewash’. Other than public listed companies, a company may be given
permission to provide financial assistance for the acquisition of its share. However, this is only
permitted under the circumstances of the purpose is to reduce or discharge liability incurred,
provided that the required requirements are met:–

a) Approved by at least 75% of the shareholders of the company;

b) Approved and resolved by a majority of company directors that it is in the best

interests of the company;

c) Company to satisfy the solvency test and each director who voted in favour of the
financial assistance will be required to make a solvency statement on the same day
this resolution is passed;

d) The aggregate amount of the assistance and any other financial assistance
previously given that has not been repaid does not exceed 10% of the company’s
current shareholders funds;

e) Company must receive fair value in connection with giving the financial assistance;
and
 f) The financial assistance must be given not more than twelve (12) months after the
day on which the solvency statement is made.

It is specified in the new Act that any contravention of this provision will not invalidate
any financial assistance given by the company nor any transaction in relation to the financial
assistance. However, the company and every officers (including directors) may be held liable for
the contravention and the maximum penalty may amount to RM3 million or imprisonment for a
term not exceeding 5 years or both, if convicted.

https://www.cclc.com.my/legallink/share-capital-maintenance-companies-act-2016/
https://www.accaglobal.com/an/en/student/exam-support-resources/fundamentals-exams-study-
resources/f4/technical-articles/mys-comp-act.html
http://www.ccalaw.com/index.php/home/knowledge/article/item/no-par-value-regime