Not All Endings Are Final – The Power Of Section 556 Of The Malaysian Companies Act 2016

Introduction

“What’s done cannot be undone.” — William Shakespeare, Macbeth  

Although these famous words penned by Shakespeare may be true for many things in life, when it comes to companies that have been dissolved, such dissolution may not be the ultimate ending of their story or of their obligations to interested or affected third parties.  

Thanks to Section 556 of the Malaysian Companies Act 2016 (“Section 556”), a plot twist can still be introduced at the final chapter, allowing unfinished business of the dissolved company to be completed. 

So what is section 556 all about?

Section 556 enables the Registrar of the Companies Commission of Malaysia to represent dissolved companies or its liquidator, as the case may be, where it is proved to the satisfaction of the Registrar that the dealing, transaction or any matter to be carried out, completed or given effect to the benefit of third party is purely administrative in nature.  

Consequently, Section 556 provides the legal right for the Registrar to step in and execute or sign any relevant instrument or document that a dissolved company would have been bound to do, had it still existed, provided such acts are purely administrative in nature. Such execution by the Registrar will have the same force, validity and effect as if the dissolved company, if existing, had duly executed such instrument or document. 

It’s practical application [1]

One of the common applications of Section 556 is in matters involving the sale and purchase of immovable property. 

Imagine this scenario: 

A developer sells a house to a buyer, the strata or individual title is issued but before the memorandum of transfer is signed, the developer is dissolved! 

With the developer no longer in existence, the memorandum of transfer cannot be executed in the normal way. Without Section 556, the buyer would not be able to register their legal title at the relevant land office, hence being unable to become the registered owner of their own property. This may in turn hinder the buyer’s ability to sell or charge the property and may affect the buyer’s right to vote at the general meeting of their strata development. 

Pursuant to Section 556, the buyer may now be able to apply to the Registrar, who, upon being satisfied with the application, is empowered to sign the memorandum of transfer on behalf of the dissolved developer, thereby enabling the transfer of ownership to be effected in favour of the buyer.  

There may even be cases where the original title is lost or missing after the developer is dissolved. In this circumstance, the Registrar may also sign the necessary documents to support the application to request for a replacement title at the relevant land office. 

How to apply?

An application to request the Registrar to exercise his powers under Section 556 may be made by the buyer (as the applicant) through a statutory declaration, setting out substantial grounds and justification for the application. Such application must be supported by inter alia copies of the sale and purchase agreement and facility agreement/loan agreement, proof of payment, documents relating the property etc. 

In addition, the applicant must also provide an indemnity letter addressed to the Registrar, agreeing to indemnify the Registrar against any claims, liabilities or consequences arising from the execution of the memorandum of transfer or any other documents signed pursuant to Section 556.  

Such indemnity letter must also contain an acknowledgment by the applicant that the execution by the Registrar is in strict reliance on the documents provided by the applicant, and the Registrar is not presumed to have any other knowledge in relation to any matters beyond what is contained in the documents. 

If the Registrar is satisfied of the application and the justification provided by the applicant, it will then proceed to execute the relevant instrument or documents and such execution will have the same force, validity and effect as if the dissolved company, if still existing, had duly executed such instrument or document. 

Not all endings are final

Just because a company is dissolved, it does not mean that its obligations automatically cease to exist, especially those which are administrative in nature. This is where Section 556 comes in.  

Section 556 would certainly be beneficial to interested or affected party who urgently need need the dissolved company to perform administrative acts that would have been required of it, had it still been in existence.  

A company’s dissolution doesn’t always mean the end of its story or its final curtain, it might just be the beginning of a second act.