memo by ashrafp


(A Company Limited By Guarantee – Incorporated Under The Companies Act, 1965)

                 MEMORANDUM TO




               AUDITED ACCOUNTS
To:   The Chief Executive Officer,
      Companies Commission of Malaysia


1. Introduction

1.1 First and foremost, we would like to congratulate Encik Abdul Karim Abdul
    Jalil on your recent appointment as Chief Executive Officer (CEO) of the
    Companies Commission of Malaysia (CCM).

1.2 We are as pleased as CCM to note that the compliance rate in terms of annual
    returns lodged with CCM has improved significantly from 44% in 2003 to
    64% in 2004. The improvement is attributed to the various initiatives
    undertaken by CCM, notably the striking-off activities under Section 308 of
    the Companies Act, 1965, the enforcement drive, public awareness campaign
    through media advertisements complemented by numerous surveillance
    operations and statutory inspections to enhance the compliance rate, as
    stipulated in CCM’s 2004 Annual Report. Such publication by CCM, which
    contains various initiatives to enhance the compliance rate, is undoubtedly a
    laudable effort.

2 Purpose of the Memorandum

2.1 This Memorandum is initiated in response to views from our members who
    represent their corporate clients regarding the imposition of heavy fines for
    non-tabling of audited accounts at their Annual General Meetings. The
    Institute of Approved Company Secretaries (IACS) is deeply concerned
    about this development. We understand that CCM has imposed the revision
    of fines upon companies for non-tabling of audited accounts in exercise of
    the power conferred by Section 371A(1) of the Companies Act, 1965. We
    believe that it would be more reasonable for CCM to regularize such revision
    of fines on companies by informing company secretaries in advance.

2.2 At the Inaugural Corporate Practice Consultative Form (CPCF) No.1/2005
    held on 4 October 2005, when you have set as your prime objective in the
    Terms of Reference for CPCF, being Company Secretarial Practitioners and
    CCM to work together on matters pertaining to the Companies Act, 1965 and
    other specific corporate practice issues.

2.3 The Terms of Reference of CPCF are:

     a. to provide a platform among the representative of the professional bodies
        and other selected organizations with the Companies Commission of
        Malaysia, specifically to deliberate on matters pertaining to the
        Companies Act 1965 and its subsidiary legislations dealing with specific

     b. to promote active joint consultation, co-operation and assistance among
        CPCF members and senior officers of the Companies Commission of
        Malaysia on matters pertaining to company law practice issues;

     c. to promote discussion and recommendations from the participants on
        matters pertaining to any pressing issues in company law and practice;

     d. to discuss issues or provide inputs in relation to improvements that could
        enhance the Companies Commission’s services delivery to the public.

3. Rationale

3.1 Firstly, the exercise of this power at this time is in fact problematic as many
    company secretaries are not made aware of such notification in advance. The
    rationale for such an argument is that their clients will need to be notified of
    such revision of fines to be imposed and the consequences of non-compliance
    of the relevant provisions of the Companies Act, 1965.

3.2 We also wish to seek clarification whether it is appropriate for CCM to
    embark on this revision of fine, which would ultimately enhance the level of
    compliance rate across the board?

3.3 Arising from the above, we therefore wish to enlighten you on the following
    problems: -

     a. The compounds for non-tabling of audited accounts at AGMs are
        excessive without taking into account the period of delay in lodgement of
        the audited accounts.

     b. This move is not in line with the concept of business-friendly as
        advocated by CCM.

     c. We wish to bring to the notice of CCM the predicaments and problems
        faced by companies. In view of the present economic adversity and

        environment, they are facing numerous business problems ranging from
        poor cash flow, escalating operational costs, statutory costs to
        complement the enhancement of compliance rate, high labour turnover
        including debt collection problems. Presently, many companies are
        operating under very difficult business conditions.

     d. There is no prior warning to us to enable our Association to take a pro-
        active step to disseminate all relevant information on such revision of
        fines to our members.

4. Suggestions

4.1 We therefore make the following suggestions to CCM: -

     a. If enhancement of compliance rate is one of the objectives which CCM
        wishes to achieve at the end of the day, may we suggest that CCM
        focuses on encouraging companies to come forward to lodge their Annual
        Returns by taking the following initiatives: -

        i) To be lenient on the penalties levied on companies for various
        ii) Reducing the RM150.00 annual prescribed fees for lodgement of
             Annual Return. This is in line with CCM’s objective of reducing cost
             of doing business; and
        iii) Getting the co-operation of company secretaries, auditors and
             directors to solve this problem of non-compliance. By so doing, we
             should be able to beef up responses of defaulters to pay their
             compounds accordingly. As we have stated in para 2.3., we are of the
             opinion that this matter be discussed and agreed in the CPCF meeting
             before implementation. As such we propose to convene an urgent
             CPCF meeting for this purpose.

     By so doing, we are confident that implementations, actions and process on
     the compliance rate would improve tremendously. Non-compliance
     companies will then be filtered out and dealt with subsequently. We further
     wish to reiterate that the compounded effects of the matter can be felt only
     after several years, if implemented.

4.2 From our understanding, the Corporate Law Reform Committee (CLRC) for
    CCM is looking into the possibility of abandoning the audit requirements for
    small and medium-sized companies as was adopted by other South East

     Asian (S.E.A) countries. Malaysia is the only country in S.E.A where
     compulsory audit is required. In view of this, the present revised fines for
     non-tabling of audited accounts will be redundant in the future, whilst
     making its implementation now as questionable.

4.3 To encourage defaulters to come forward to comply with the provisions of
    the Companies Act, 1965 and Companies Regulations 1966, we wish to
    suggest that CCM reduce the compound rate and review the present system
    of penalising companies. A scale rate system with increasing time for
    repeated default would be preferred.

   Offence             Year of audited Present Rate (RM)       Proposed Rate (RM)
   Non-tabling of      2001            1,000                   400
   audited accounts
                       2002              1,000                 300
                       2003              1,000                 200
                       2004              1,000                 100
   No violation                          0                     0

   Previous Rates:
   Offence             Period            Previous Rate (RM)    New Rate (RM)
                       8 days – 3        50                    150
   Non-tabling of      3 months – 6      100                   250
   audited accounts    months
                       6 months – 12     150                   500
                       More than 12      200                   1,000

4.4 A comprehensive study on violations can be carried out to identify the
    reasons of non-compliance, the information of which can be used in the
    formulation of penalties taking into account the feedback of auditors,
    secretaries and directors in your quest to enhance the compliance rate across
    corporate industry.

5. Conclusion

5.1 We applaud the fact that many company secretaries from all backgrounds are
    giving their views on this matter and offering various opinions on this
    subject. In view of this, a special committee can be established by CCM to
    carry out this comprehensive study, which include but not limited to a survey
    questionnaires. These questionnaires can be circulated to all stakeholders and
    compliance officers concerned and thereafter to make necessary
    recommendations to CCM.

5.2 We propose that a CPCF meeting be convened to study and implement the
    recommendation of the committee as referred in para 4.3(a)(iii).

5.3 We propose that CCM provide a concession period during which the old
    rates should remain in force.

We look forward to your reply in respect of the aforesaid matter in due course.

Dated at Kuala Lumpur this 13 January, 2006.

Thank you.

Submitted by:

Name: Bahari Bin Johari
Designation: President


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