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INTRODUCTION
STRIKING OFF A COMPANY
Striking-off process is a process in which the Registrars exercises his discretionary
power to strike the name of a defunct company off the register if the Registrar has reasonable
cause to believe that:
the company is not in operation or is not carrying on business as under Section
308 (1) of the CA 1965;
The company has been wound up but no liquidator is acting under Section 308
(3)(a) of the CA 1965;
the liquidators failed to lodge any return and the Liquidators Account of the
wound up within the stipulated period as required by the law under Section 308
(3)(b) of the CA 1965; or
the company has no asset or insufficient funds to pay the costs of obtaining an
order from the Court to dissolve the company under Section 308 (3)(c) of the CA
1965
ARTICLES OF ASSOCIATION
The foundation of a company is its Articles of Association and Memorandum of
Association. Often, Table A of the Companies Act 1965 is widely adopted in verbatim by most
companies in Malaysia as the Articles of Association of their company. This goes on without
putting much thought to the actual effect of the regulations in the Articles of Association, the
consequences of any breach or alteration, nor the application of the Articles.
SECTION 308 OF THE COMPANIES ACT 1965
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Strike off falls under Section 308 of the Companies Act 1965. The Companies
Commission of Malaysia or SSM in short, issued guidelines and procedures that a company
need to follow to be qualified for Strike Off. Conditions mentioned in the guidelines are as
follows.At the point of applying for strike off, the company:
Must be dormant, ie. neither carrying on a business nor operations. Even if the
company was in operations in the past, it is most important that at the point of
application, the company is already dormant.
Has no bank account. Again, even if the company has bank accounts
previously, all bank accounts have to be closed before proceeding with the
application.
Has no assets or liabilities. All assets would have been written off, and all
liabilities have been settled or waived by the creditors, before the application.
Ideally, the balance sheet will be showing the cash in hand amount to be the
same as the share capital.
Does not have any charges in the Register of Charges. This means the
company does not pledge any assets for financing or other commitments, in
other words, free from encumbrances.
Settled all penalties and compounds under the Companies Act 1967.
Has no outstanding tax or other liabilities with any government department or
agency.
Is not involved in any legal proceedings within or outside Malaysia.
Is not a holding company of another corporate body.
Did not guarantee or agreed to guarantee to make payment to any other third
parties following a certain event or non-event.
The legal principle of striking off a company has been laid in the case of Greenlinx Sdn
Bhd & Anor v Suruhanjaya Syarikat Malaysia1. Dato' Mohamad Ariff Bin Md Yusof J stated that :
Section 308 (5) allows "any person [who] feels aggrieved by the name of the Company having
been struck off the register" to make an application at any time within 15 years after the striking
off for an order of the court to have the name of the Company restored to the register. On its
wording, the court "may" order the restoration of the name of the Company to the register if the
Court is satisfied (a) that the Company was, at the time of the striking off, carrying on business
or in operation, or (b) "otherwise that it is just that the name of the Company be restored to the
register".
The court is therefore vested with the discretion to order the restoration of the name of
the Company to the register and in so doing the court "may by the order give such directions
and make such provisions as seem just for placing the Company and all other persons in the
same position as nearly as may be as if the name of the Company had not been struck off." The
section also says that upon an office copy of the order being lodged with the SSM, "the
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[2012] MLJU 464
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Company shall be deemed to have continued in existence as if its name had not been struck
off."
CONDITIONS TO BE MET
According to Section 308, Companies Commission of Malaysia is empowered to cancel
the name of a company from the register if he is satisfied that the company is not in business or
is inactive. The company can be strike off by the following conditions :
a) Must be inactive, no longer in business or inoperative.
b) The company has no assets
c) The company does no bear any liabilities, if the company has liabilities the persons
who hold interest in the company must agree to set aside their rights and will not
make any claim.
HOW STRIKE OFF MAY HAPPEN
Strike off may happen by :
a) Companys registrar own initiative
b) In request of writing by the company.
c) The company is winding up but has no assets.
APPLICATION BY THE COMPANY
The company must deliver a written application to the Companies Commission of
Malaysia. The application may be delivered by the director, secretary, shareholders,
accountants or legal advisors for the company. When the company is no longer active, the
company may apply for cancellation immediately as soon as its stop its business. This means
that the company does not have to wait for 6 years to strike off the company to make an
application.
The liquidator has not delivered any documents relating to the companys winding up
within six months period after the companys affairs have been settled. If this case happens, the
company can apply for strike off instead of winding up the company.
REGISTRARS INITIATIVE
The Registrar of Companies will take the initiative to strike off the company if the
company has failed to file an annual report and other statutory report for six (6) continuous
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years. An investigation conducted by the Companies Commission of Malaysia find out the
company is inoperative. The company also can be strike off if the there is a disconnection of the
relationship between the Companies Commission of Malaysia and the directors of the company
through the companys registered office.
All companys affairs have been settled but the company assets are insufficient to
finance the application for an order of liquidation from the court. Therefore, the company can
apply for strike off of the company.
Benefit of closing a company via strike off
Benefit of closing a company via strike off as compared to winding up or liquidation:1. Cost The fee for strike off is just a fraction of winding up and liquidation fees. In
general, members voluntary winding up fees charged by a liquidator is already in the
range of RM5,000.
2. Time The time taken to close a company is very much quicker. From my
experience, the strike off process from the point of submitting the application to SSM
until receiving the letter from SSM gazetting the company as deregistered is an
average of 7 months. However, this timeline should not be used as a point of
commitment as there are many factors that can affect the delay.
3. Documentation there is very much less documentation required by SSM as
compared to winging up. The basic documentation for strike off are:
a) Statement by the applicant to strike off the company.
b) Members Resolution supporting the strike off.
c) Latest management accounts or audited accounts (if required by SSM).
ARTICLES OF ASSOCIATION
Articles of Association are contracts between a company and its members. Article is a
binding contracts between the members among themselves.
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In Hickman v Kent2, is a UK company law case, concerning the proper interpretation of a
company's articles, and whether a company member could be bound by its terms. Astbury J
held that the articles prevented Mr Hickman: there was a contract. He was bound. The
predecessor to the Companies Act 2006 section 33 creates a contract, which affects members
in their capacity as members, though not in a special or personal capacity (e.g. as director). As
a member, Mr Hickman was bound to comply with the company procedure for arbitrating
disputes and could not resort to court.
Also, in Pioneer Motor Service Co V Chin Cheng Hong Sdn Bhd 3, The directors of the
appellant company had approved the transfer of 156,400 shares to Constant Aim Sdn Bhd (a
non-member), disregarding art 31 of the articles of association of the appellant company which
provide that where a member wished to transfer his shares, all other members were to be given
an opportunity to acquire the shares before they could be transferred to a non-member. The
respondent company, a member of the appellant company sought in the High Court the
cancellation of the directors' resolution and rectification of the register of members under s 162
of the Companies Act 1965. The respondent's application was allowed. The appellants
appealed. The court held that it is clear from s 162(1) of the Companies Act 1965 that the power
to order rectification is discretionary, because even if a situation giving cause for rectification
exists, the section says that the court may refuse the application or may order the rectification of
register. On the facts of the case, the directors had blatantly disregarded art 31 of the articles of
association without giving notice to the respondent and this was tantamount to riding roughshod
over the rights and privileges of the respondent company as a member of the appellant
company. There was there for a basis for the rectification of the register by virtue of s 162 of the
Companies Act 1965.
LEGAL STATUS FOR ARTICLES
Memorandum and Articles for Association once it is registered, it becomes a binding
contract for the company and its member or any future members.
Section 33 of the Companies Act 1965 stated that :
Effect of memorandum and articles.
(1)
Subject to this Act the memorandum and articles shall when registered bind the
company and the members thereof to the same extent as if they respectively had been
signed and sealed by each member and contained covenants on the part of each
member to observe all the provisions of the memorandum and of the articles.
(2)
All money payable by any member to the company under the memorandum or articles
shall be a debt due from him to the company.
[1915] 1 Ch 881
[2003] 3 MLJ 513
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As to effect of alterations on members who do not consent
(3)
Notwithstanding anything in the memorandum or articles of a company no member of
the company, unless either before or after the alteration is made he agrees in writing to
be bound thereby, shall be bound by an alteration made in the memorandum or articles
after the date on which he became a member so far as the alteration requires him to
take or subscribe for more shares than the number held by him at the date on which the
alteration is made or in any way increases his liability as at that date to contribute to the
share capital of or otherwise to pay money to the company.
CHANGES TO EXISTING COMPANYS ARTICLES OF ASSOCIATION
Section 31 stated that
(1)
Subject to this Act and to any conditions in its memorandum, a company may by
special resolution alter or add to its articles.
(2)
Any alteration or addition so made in the articles shall subject to this Act, on and
from the date of the special resolution or such later date as is specified in the
resolution, be as valid as if originally contained therein and be subject in like
manner to alteration by special resolution.
(3)
Subject to this section, any company shall have the power and shall be deemed
always to have had the power to amend its articles by the adoption of all or any
of the regulations contained in Table A, by reference only to the regulations in the
Table or to the numbers of particular regulations contained therein, without being
required in the special resolution effecting the amendment to set out the text of
the regulations so adopted.
PROCEDURES TO AMEND ARTICLES OF ASSOCIATION.
1) SPECIAL RESOLUTION FROM THE BOARD OF DIRECTORS
First, In order to amend articles of association of company, it requires a special
resolution of members. A company is free to incorporate under different articles of association,
or to amend its articles of association at any time by a special resolution of its shareholders,
provided that they meet the requirements and restrictions of the Companies Acts.
Subject to the provisions of this Act and to the conditions contained in its memorandum,
by special resolution, a company may alter its articles. However, it must provide that no
alteration made in the article under this sub-section which has the effect of converting a public
company into a private company, shall have effect unless such alteration has been approved by
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the CCM. For example, in a small company, the members may agree that amendments to the
articles require the written consent of all of the members. If such a requirement were included,
any purported amendment to the articles by special resolution would not take effect unless that
additional requirement was satisfied.
Any alteration so made shall, subject to the provisions of this Act, be as valid as if
originally contained in the articles and be subject in like manner to alteration by special
resolution. Where a company has passed a resolution to amend or repeal its articles, that
resolution will take effect on the day it is passed or on a later date specified in the resolution.
2) NOTICE CALL FOR A MEETING
A notice must be given to call for a meeting to make a special resolution. Articles
can be amended by special resolution section 21(1) but, in a new development, certain
provisions can be entrenched and can only be amended or repealed.
3) MAJORITY OF THE MEMBERS VOTE
Such requirements tend to be more onerous for public companies than for private ones. In
business or commercial law, special resolution is a resolution passed by the shareholders of a
company by a greater majority than is required to pass an ordinary resolution. The precise
figures vary in different countries, but commonly an extraordinary resolution must be affirmed by
not less than 75% of members casting votes, whereas an ordinary resolution only requires a
bare majority.
The alteration of companys articles is also subject to some limitation on the members
voting power. The member must vote in the best interests of the company as a whole. Although
a member may exercise his votes freely, it must not result in the oppression of other members
or be tainted with male fide. There are majority shareholders altering the articles due to the
prejudice of minority. To prevent this to happen, therefore alteration of companys articles had
subjected some limitation on members voting power. The court will not going to interfere the
freedom of voting of the shareholders, unless unreasonable decision is made.
SUBMIT FORM 11 TO CCM
Where any alteration such as is referred to in the proviso to sub-section (1) has been
approved by the Central Government, a printed copy of the articles as altered shall be filed by
the company with the Registrar within one month of the date of receipt of the order of approval.
Furthermore, a private company is also prohibited from altering its articles if the
alteration is inconsistent with the requirements of section 12 of the Companies Act. The
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provision relating to restriction on the right to transfer shares may be altered through some form
of the restriction must remain. In Kwality Textiles (Malaysia) Sdn Bhd Vs Arunachalam & Ors 4,
the court held that there must be some restrictions on the right to transfer shares of a private
company although the company cannot totally restrict the right of a shareholder to transfer his
shares. An example of a restriction on the right to transfer shares includes a pre-emptive right
clause.
In the case of Wong Kim Fatt V Leong & Co Sdn Bhd & Anor,5 the Company had two
shareholders. In exercise of the powers under the Articles of Association the majority
shareholder requisitioned for the purchase of the holdings of the other. The other resisted the
attempt. The court held that the Articles empowering the requisition of shares of the only other
holder is not repugnant to the Companies Act. It was purely a matter of contractual obligation
and the plaintiff must be held to the obligation he had undertaken.
CONCLUSION
In conclusion, articles of association are a binding contract that contains the regulations
of the company. It is an essential documents to set up a company. An example of a companys
article of association can be seen under The Table A, Fourth Schedule in the Companies Act
1965. In order to amend the articles of association, a special resolution by the Board of
Directors through a meeting is required.
(1990) MSCLC 90,575; [1990] 3 MLJ 361
[1976] 1 MLJ 140
