Sunday 19 April 2009

FAQ: Practice Note 2/2008 - Change of Financial Year

Question 1:
Following an approved application under section 143(2) of the Companies Act 1965 (CA 1965), can a company hold its Annual General Meeting (AGM) for the preceding calendar year and the current calendar year on the same date?

Answer:
A company is allowed to convene the AGM for the current calendar year on the same date the AGM for the preceding calendar year is held. However, the rules pertaining to the proper constitution of the AGM must be observed including the giving of proper notices to shareholders for each AGM to be held. Chronologically, the AGM for the preceding calendar year must first be convened before convening the AGM for the current year.

A separate notice must be given for the AGM of calendar year 2007 and another for AGM of calendar year 2008 by specifying the place, date and time of meeting. As far as public listed companies are concerned, they still need to strictly observe the requirements under paragraph 7.17 of the Listing Requirements of the Bursa Malaysia Securities Berhad pertaining to notices of meetings, including the requirement to advertise the notice of meetings etc.

Question 2:
Pursuant to the operation of section 143(2) of the CA 1965 (due to a change in the financial year), an AGM held beyond the calendar year will be deemed to be held in the calendar year it was supposed to be held. What is the AGM date to be stated in the annual return?

Answer:The date to be stated in the annual return shall be the date when the AGM was actually held.


Question 3:
In what circumstance will an annual return of a company need not be accompanied with an audited account?

Answer:
An annual return lodged must be accompanied with a copy of the audited accounts. However, if by operations of the provisions under sections 143(2) and 169(2) of the CA 1965, have resulted in a situation where there is no accounts to be laid before the AGM, the annual return shall be accompanied with a copy of the approval of the extension of time. An annual return which is not accompanied with a copy of audited accounts or approval of extension of time will not be accepted.

Question 4:
As Practice Note 2/2008 (PN2/2008) allows an annual return to be submitted without a copy of the audited account, will this pose an inconsistency with PN1/2008 that requires all annual returns to be accompanied with a copy of the audited account?

Answer:
There is no inconsistency between PN1/2008 and PN2/2008.

PN1/2008 reiterates the general rule that the submission of an annual return accompanied with a copy of the audited account following the laying of the audited accounts before an AGM in compliance with section 169 of the CA 1965.

PN2/2008 is an exception to the general rule where the submission of an annual return will be accepted without a copy of the audited account ONLY by virtue of the operations of sections 143(2) and 169(2) of the CA 1965 following a change in the financial year. Instead, the annual return must be substantiated with a copy of the approval for an extension of time.


Question 5:
How does a company determine the period in which the next AGM is to be held following an extension of time under section 143(2) of the CA 1965?

Answer:
Section 143(1) of the CA 1965 states that a company is required to convene an AGM once in a calendar year and not more than 15 months after the holding of the last AGM.

If an extension of time has resulted in an AGM being held beyond the calendar year, the period of 15 months runs from that date. Notwithstanding, the company must observe the requirement to convene an AGM for that current calendar year.

Question 6:
Will a compound be issued when no audited account is tabled at an AGM following an approved extension of time under section 143(2) of the CA 1965?

Answer:
Where no account is laid before the AGM pursuant to the operations of sections 143(2) and 169(2) of the CA 1965, no compound will be issued. This is because the audited account due for tabling for the extended period will be adopted at the AGM held pursuant to the extension granted.

Practice Note No. 2/2008 issued by the SSM on Change of Financial Year

COMPANIES ACT 1965: SSM’S PRACTICE NOTE NO 2/2008

RE: CHANGE OF FINANCIAL YEAR

1. This Practice Note serves to inform on the relevant actionsto be taken following a change in the financial year of a company.

Financial year of a company

2. Section 4 of the Companies Act 1965 (CA 1965) defines“financial year” in relation to any corporation as the period inrespect of which any profit and loss account of the company, laid before it at a general meeting is made up, whether that period isa year or otherwise.

3. As the CA 1965 does not specify the date in which a financial year shall commence or end, the decision to determine the financial year, including any changes thereof, is entirely at the discretion of the company.

4. Commonly, a company changes its financial year due to the following reasons:

(i) to coincide with the financial year of its holding company pursuant to section 168 of the CA 1965; or

(ii) pursuant to a change of its internal operations or policy.

Change of Financial Year Pursuant to Section 168 of the CA1965

5. Section 168 of the CA 1965 generally provides that the financial year of a subsidiary company must coincide with its holding company. A holding company that is not a foreign company shall take the necessary steps to ensure that within two(2) years after any corporation becomes a subsidiary of theholding company, the financial year of that corporation coincides with its financial year pursuant to section 168(1)(b) of the CA 1965. Notwithstanding, a holding company may apply in writingto the Registrar under section 168(3) of the CA 1965 if there is good reason for the subsidiary to continue having a different financial year.

6. To synchronize the financial year of the subsidiary with its holding company, the approval from the Registrar is not necessary. However the holding company or any of its subsidiaries shall not, without the consent of the Registrar, alter the financial year of any of the entities that would result in the financial years not coinciding.

7. A situation where the Registrar may make an order granting the application under section 168(3) of the CA 1965 is when a subsidiary company acquired is incorporated outside Malaysia.

Consequences of a Change in Financial Year

8. If a company elects to change its financial year, it is still required to strictly observe the requirements relating to the holding of the Annual General Meeting (AGM) [section 143 of the CA 1965] and laying of a profit and loss account [section 169 ofthe CA 1965]. Principally, the crux of the two (2) provisions areas follows:

(i) A company is required to hold an AGM in every calendar year;

(ii) The AGM must be held not more than 15 months after the holding of the last preceding AGM;

(iii) A company must lay its audited profit and lossaccount and balance sheet (audited accounts) during the AGM where the audited accounts is made up to a date not more than six (6) months before the date ofthe AGM; and

(iv) The audited accounts must be laid at an interval of not more than 15 months.

Appropriate Actions Following a Change in Financial Year

9. When a company changes its financial year, proper planning must be exercised to ensure that the relevant provisions of the CA 1965 are complied with. In some circumstances, the change in the financial year may result in the inability to lay the financial statements at the AGM during the calendar year.

10. The following are potential scenarios of changes of a company’s financial year and the proposed course of action to be taken in furtherance to such changes:


Example I:

In the case of a change of financial year from 30 June to 31 December, it is advised that the company prepares a 6 month accounts (1 July – 31 December) to be tabled at the AGM of the next calendar year following the change of the financial year and a 12 month accounts (1 January – 31 December) to be tabled at the subsequent calendar years.

Illustration:

X Sdn Bhd has changed its financial year end from 30 June 2006 to 31 December 2006. Its last AGM was held in December 2006. Under these circumstances, X Sdn Bhd is advised to take the following actions:

• To prepare the accounts for six (6) months from1 July 2006 to 31 December 2006 and table it at the AGM for calendar year 2007;

• Subsequently, to prepare the accounts from 1 January 2007 to 31 December 2007 and table it at the AGM for calendar year 2008.

Example II:

In the case of a change of financial year from 31 December to 30 June, it is advised that the company prepares an 18 months accounts and to be tabled at the next calendar year following the change of the financial year.

Illustration:

Y Sdn Bhd changed its financial year from 31 December 2005 to 30 June 2006. Its last AGM held in June 2006. Under these circumstances, Y Sdn Bhd is advised to take the following actions:

• To prepare the account for 18 months from 1 January 2006 to 30 June 2007 and table it at the AGM for calendar year 2007;

• To apply for an extension of time under sections143(2) and 169(2) of the CA 1965 to enable the company to table the accounts that exceeds the interval of 15 months.


Application for Extension of Time to Hold an AGM Beyond the Calendar Year


11. Following a company’s decision to change a financial year, SSM noted that an application for an extension of time under sections 143(2) and 169(2) of the CA 1965 may result in the AGM
to be held beyond the calendar year. Section 143(1) of the CA 1965 however only allows for one (1) AGM to be held in any particular calendar year. As such, the approval given under
section 143(2) may result in a company having to convene two AGMs in the following calendar year.

Illustration:

Z Sdn Bhd changed its financial year from 30 June 2006 to 31 December 2006. The company held its last AGM on 15 November 2006.

Due to the company’s internal operations and policy, its next set of audited accounts was drawn up for a period of 18 months from 1 July 2006 to 31 December 2007. The company was due to hold its AGM in November 2007. However, since the audited accounts were not ready, the company applied for an extension of time under sections143(2) and 169(2) of the CA 1965 to hold its AGM beyond the calendar year and to table the audited accounts ending December 2007.

An extension of time was granted by the Registrar under sections 143(2) and 169(2) until 28 February 2008 for the AGM to be convened for the calendar year 2007.

As a result of the approval of extension of time until 28 February 2008, Z Sdn Bhd faces predicament as it still needs to comply with the requirement under section 143(1)for calendar year 2008.

12. To address this legal anomaly, an AGM convened following an approved application under section 143(2) of the CA 1965 resulting in it being held beyond the calendar year shall be deemed to have fulfilled the requirement of section 143(1) of the CA 1965 for the calendar year it was supposedly held. This is because compliance of section 143(1) of the CA 1965 is still required.

Illustration:

Following an approval for an extension of time under sections 143(2) and 169(2) until 28 February 2008 for the AGM for calendar year 2007, Z Sdn. Bhd. held its AGM on 20 February 2008. This AGM shall be deemed to be held for the calendar year 2007.

In calendar year 2008, Z Sdn Bhd is required to convene an AGM pursuant to section 143(1) but no audited accounts need to be tabled as the audited accounts for the relevant financial year has been duly tabled.

13. If and only if, by operations of the provisions under sections 143(1) and 143(2) of the CA 1965 has resulted in a situation where there is no audited accounts to be laid before the AGM, the annual return of the company shall be accepted without the inclusion of a copy of the audited accounts. However, the company must substantiate the lodgement of the annual return with a copy of the approval of the extension of time. It must be noted that this practice shall be applicable only to bona fide cases.


14. This Practice Note serves to reiterate SSM’s stance that although a company has the prerogative to decide its financial year, a company intending to change its financial year must
strictly adhere to the provisions of sections 143 and 169 of the CA 1965.


REGISTRAR OF COMPANIES
COMPANIES COMMISSION OF MALAYSIA
31 DECEMBER 2008

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