Common Offences under the Companies Act 1965

By Lee Swee Seng LLB, LLM, MBA, Certified Mediator
sweeseng@tm.net.my
©Copyright Lee Swee Seng

Offences by Company

• A company is a separate legal entity from its Directors and Shareholders
• Who is liable for offences of a Company?
• Can Directors be jointly and severally liable? Eg S.46 EPF Act 1991

Infringement of the Act by Directors

• The Company and every officer of the company who is in default is guilty of an offence under the Act
• Default
• Knowingly and wilfully is guilty of the offence
• Authorizes or permits the commission of the offence

Infringement of the Act by Directors

• Cases

Manning v Cory [1974] ACLC 28015 (WA)

the words 'knowingly and wilfully… require that the prosecution to establish a case to answer must lead evidence upon which, if accepted, it could be held that the accused knew the thing not done was not done and in the free exercise of his will authorized or permitted the non-doing…'

need not to prove that the accused knew there was a law in force which made the failure to do the act unlawful.

No. of Companies Incorporated

Year 2001 - 31,967 companies
Year 2003 (Jan) - 2,974 companies
Total as at 31 January
609,144 Companies

source: Companies Commission Malaysia

Infringement of the Act by Directors

January 2002-December 2002
41,979 compound notices =RM8.12Million

January 2003
3,144 compound notices = RM657,750.00

source: Companies Commission Malaysia

Invitations to the public to lend money or to deposit money with a corporation.

• An invitation to the public to deposit money with or lend money to a corporation or proposed corporation can be issued provided that:-
  - a prospectus contains an undertaking by the corporation to issue acknowledgement of the indebtedness of the corporation has been registered by the Registrar
• Penalty:
  - Imprisonment for five years or
  - Fine RM100,000

Criminal liability for statement in prospectus

• Any person who authorized or caused the issue of a prospectus with untrue statement or wilful non-disclosure shall be guilty of an offence against this Act
• Exception- he proves either that:
  - the statement or non-disclosure was immaterial or
  - he had reasonable ground to believe and did, up to the time of the issue of the prospectus, believe the statement was true or the non-disclosure immaterial.
• Penalty: - Imprisonment for five years or - Fine Rm100,000

Power of company to alter its share capital

• A company may in general meeting increase its share capital beyond the registered capital
• shall within 14 days after the passing of the resolution authorizing the increase
• lodge with the Registrar notice of the increase
• Penalty:
  - Fine RM100,000
  - Default penalty

Purchase by a company of its own shares, etc.

• A public company with a share capital may purchase its own shares provided:

- it is solvent at the date of the purchase
- will not become insolvent due to the obligation to pay the share
- the purchase is made through the Stock Exchange
- good faith and in the interest of the company
• within 14 days lodge a notice with the Registrar and the Stock Exchange
• Penalty:
  - Imprisonment for five years or
  - Fine RM100,000

Furnishing of information and particulars of share holding.

• Request by the Registrar in writing to furnish all the necessary information and particulars of shareholding and have them verified by statutory declaration
• shall within 7 days of the receipt of such notice furnish all the necessary information requested
• Penalty:
  - Imprisonment for five years or
  - Fine RM50,000
  - Default penalty.

Company to keep register of substantial shareholders

• A company shall keep a register of substantial shareholders
• The Registrar may require the company to furnish the register
• shall furnish the same within 14 days after the receipt of the notice
• Penalty : Fine RM5000
  Default Penalty: Fine RM500

Obligation of a substantial shareholder

• A substantial shareholder shall notify company of:
  - his interests, change in his interest
  - the date he ceased to be a substantial shareholder
• Penalty : Fine RM5000
  Default Penalty: Fine RM500

Duty to register charges

• May be lodged for registration by the company concerned or by any person interested in the documents
• Penalty: RM1,000
• Default penalty

Undischarged bankrupts acting as directors

• Every person who being an undischarged bankrupt acts as director of, or directly or indirectly takes part in or is concerned in the management of, any corporation except with the leave of the Court shall be guilty of an offence against this Act
• notice of intention shall be served on the Minister and on the Official Receiver
• Penalty:
  - Imprisonment for five years or
  - Fine RM100,000

Disqualification of directors of insolvent companies

• Where on an application under s.130A of the Act and it appears to the Court:

- a person is a director of
• a company which has gone into liquidation
• such other company which has gone into liquidation whithin 5 years of the date of liduidation of the 1st company
• The Court may make an order that that person shall not, without the leave of the Court, be a director or take part in the management of a company for a period of 5 years
• Penalty:
  - Imprisonment for three years or
  - Fine RM10,000 or both

Dealings by officers in securities

• In or in relation to a dealing in securities of the corporation by an officer or any other person
• makes improper use to gain an advantage for himself or any other person of specific confidential information acquired by virtue of his position
• Penalty:
  - compensate any person for loss suffered by him by reason of the payment by him or to him of a consideration in respect of the securities
  - Imprisonment for five years or
  - Fine RM30,000

Prohibition on abuse of information obtained in official capacity

• In or in relation to a dealing in securities of a corporation
• Has information which if generally known might reasonably be expected to affect materially the price of the subject matter of the dealing on a Stock Exchange
• Reasonable to expect a person in his official capacity not to disclose
• Penalty:
  - Imprisonment for five years or
  - Fine RM30,000 or both

Loans to directors.

• A company (other than an exempt private company) shall not make a loan to its director or enter into any guarantee or provide any security in connection with a loan made to such a director
• Exception:
  - expenditure incurred
  - a director who is engaged in the full-time employment of the company
• Shall obtain prior approval
• Penalty: Fine RM10,000

Exempt Private Co

• A Private Co in the shares of which no beneficial interest is held by any corporation and having not > 20 members and no members are corporations

Statutory meeting and statutory report.

• The directors shall at least 7 days before the meeting:
  - forward a report to every member of the company
  - lodge a copy with the Registrar
• Certified by not less than 2 directors of the company
• Penalty : Fine RM5000 Default penalty: Fine RM100

Annual general meeting

• Once every calendar year
• Not more than 15 months after the last AGM
• Can apply extension of time to hold AGM
• Penalty: Fine RM5000
• Default penalty: Fine RM100

Submission of Company's Annual return

• Return made up to the date of AGM/ not later than 14 days after the date of AGM
• Must be lodged within 1 month after AGM
• Must be accompanied with the audited accounts
• Penalty: Fine RM2,000
• Default penalty

Declaration of solvency

• to wind up a company voluntarily
• Make a written declaration confirms:
  - an inquiry into the affairs of the company has been done
  - the company is able to pay its debts within 12 months after the commencement of the winding up
• Penalty:
  - Imprisonment for 3 years
  - Fine RM10,000 or both

Penalty for falsification of books.

• Company being wound up
• Destroys, mutilates, alters or falsifies any books, papers or securities
• Makes any false or fraudulent entry in any register, book of account etc
• with intention to defraud or deceive any person
• Penalty:
  - Imprisonment for five years or
  - Fine RM30,000 or both

Liability where proper accounts not kept

• Throughout the period:
  - of two years immediately preceding the commencement of an investigation or winding up
    or
  - between the incorporation of the company and the commencement of the investigation or winding up (whichever is the lesser)
• unless he acted honestly and the default was excusable o Penalty: - Imprisonment for three years or - Fine RM30,000

Responsibility for fraudulent trading

• In the course of the winding up of a company
• Any business has been carried on intent to defraud creditors
• Any person who was knowingly a party to the carrying on of the business shall be personally responsible without any limitation of liability
• Penalty:
  - Imprisonment for three years or
  - Fine RM10,000

Prosecution of delinquent officers and members of company

• In the course of winding up by the Court
• Guilty of an offence for which he is criminally liable
• The Court may direct the liquidator to prosecute the offender or to refer the matter to the Minister

False and misleading statements

• In return,report, certificate, balance sheet or other document required by the Act
• Includes omission of any matter or thing which makes the document false or misleading
• Penalty:
  - Imprisonment for ten years or
  - Fine RM250,000

Dividends payable from profits only

• Wilfully pays or permits to be paid dividend which is not profits or not permitted or exempted
• Penalty:
  - liable to the creditors
  - Imprisonment for ten years or
  - Fine RM250,000 or both

Fraudulently inducing persons to invest money

• Promise or forecast which he knows to be misleading false or deceptive
• Dishonest concealment of material facts
• By the reckless making of any statement o Induces another person to enter into any agreement with any corporation
• Penalty:
  - Imprisonment for ten years or
  - Fine RM250,000 or both

Frauds by officers

• Has by deceitful or fraudulent or dishonest means induced any person to give credit to the company
• with intent to defraud creditors has made any gift or concealed the property of the company before the any judgment for payment of money
• Penalty:
  - Imprisonment for ten years or
  - Fine RM250,000 or both

Compounding of offences

• The Registrar may compound any offence committed under this Act, by making a written offer
• pay to the Registrar such sum of money within such times as may be specified in the offer
• When an offence has been compounded, no prosecution shall be instituted

Director's Personal Liability under other Laws

• Customs Act 1967
• Sales Tax Act 1972
• Banking and Financial Institution Act 1989
• Securities Industry Act 1983
• Securities Commission Act 1993