As Malaysians celebrate the 50th birthday of their nation, corporations and their advisers had another celebration amongst themselves. The ghastly convoluted and knotty Section 132G of the Companies Act 1965, which governed related party transactions, was finally abolished, following the passing of the Companies (Amendment) Act 2007 ("Amending Act"). Before its abolishment, Section 132G prohibited a company from transacting with a related party, occasioned by the substantial shareholding held in that related party by the acquiring company's directors and shareholders or persons connected to them. Contravening transactions were void. Even shareholders' blessings will not save such transactions. By abolishing Section 132G, it does not mean that companies can now freely enter into related party transactions. The Amending Act instils the requirement to obtain prior approval from shareholders of the company or shareholders of the holding company. Only failure to obtain the approval would render the transaction void.

Another significant change brought by the Amending Act was centred upon corporate governance and accountability of directors. A director is now refrained from participating in any discussion held on a contract or proposed contract which that director or his spouse or offspring has an interest in. Besides the restraint, that director's right to vote is also suspended. Conflicts surrounding nominee directors are also addressed. It is now law that where a conflict arises between the duty to act in the best interest of the company and the duty to his nominator, a nominee director must uphold the interest of the former.

The Amending Act is further testament of the Government's encouraging and positive steps to enhance the quality of Malaysian companies towards its serious bid to spur foreign direct investments into Malaysia with a promise of more encouraging steps, notably in the form of changes to the securities law in Malaysia.

Written by David Lee
Senior Associate

Tay & Partners
6th Floor, Plaza See Hoy Chan
Jalan Raja Chulan
50200 Kuala Lumpur
Malaysia

Phone: 03-2050 1888
Fax: 03-2072 6354
E-mail: david.lee@taypartners.com.my