A new framework for fundraising

  • Business
  • Saturday, 03 Aug 2013

The proposed Interest Schemes Bill is set to change the industry. There’s still time to comment on it.

AMID the brouhaha early this year over the move to voluntarily terminate the Country Heights Grower Scheme (CHGS), the Companies Commission Of Malaysia (CCM) talked about introducing a “more dynamic, modern and responsive regulatory framework” for interest schemes.

In a press release issued on Feb 4, CCM chief executive officer Mohd Naim Daruwish said: “Recognising the role of interest schemes as the new catalyst of wealth generator, a separate new legal framework for interest schemes has been finalised.”

Five months later, the commission revealed the details of this framework by publishing an exposure draft on the proposed Interest Schemes Bill. The public has until Aug 10 to give feedback on the Bill.

Currently, interest schemes come under a division of the Companies Act 1965, whose proposed replacement is also the subject of an ongoing public consultation process initiated by the CCM.

In addition, there are four sets of policy guidelines and requirements that contain rules on certain types and operational aspects of interest schemes.

According to the regulator’s website, an interest scheme “involves the pooling of a financial contribution from the public in exchange for an interest in a particular scheme”.

If that’s not helpful enough, a CCM brochure supplies these pointers on how to tell if you have invested in an interest scheme:

  • You had to pay to participate in the scheme.
  • You’re not a shareholder of the company behind the scheme.
  • You’re not involved in the day-to-day management of the scheme.
  • You have interest in the business or the scheme offered.

In addition, an interest scheme should have one of the following characteristics:

  • You have interest in the profit, asset and realisation of a business or a scheme in Malaysia or elsewhere.
  • You’re promised that you will get returns from the payment you made.
  • You acquire the rights/interest in a property, including the right to use the facilities on the property for a period of more than 12 months.
  • You have the right to occupy any property for two or more times during tenure of the time-sharing scheme.

The most visible and marketable of the interest schemes in Malaysia are the oil palm plantation investment schemes. The palm oil industry here has a long and profitable history, and when palm oil prices are buoyant, it takes less persuasion to get investors to sign on.

The CCM says such schemes, centred upon plantation and aquaculture for commercial purposes, are known as sharefarming or grower’s plot schemes.

But that’s just one type. There are 175 registered interest schemes that are still active. More than a third are golf, recreational and marina clubs. Timesharing schemes form the second largest category, with 25. There are only 10 sharefarming schemes, of which half are for oil palm.

The rest of the interest schemes are memorial parks, property schemes and an equipment-sharing scheme.

The CCM argues that a standalone and forward-looking piece of legislation is needed to govern interest schemes so as to meet the needs of businessmen and the investing public, and to better regulate fundraising.

“As the fundraising activities increase, the interest scheme concept has also evolved whereby some of the interest scheme activities are more appropriately regulated under the securities laws, whilst some others may not necessarily be categorised as securities products,” says the commission in the consultation document on the Interest Schemes Bill.

“In cognisance of this fact, (the CCM) is of the view that a separate piece of legislation is necessary to provide certainty on activities, products or assets that are best regulated as non-securities.”

Safeguard mechanisms

The CCM says the draft Bill covers general requirements for the registration, administration and dissolution of interest schemes.

It adds: “To strike a balance between the objectives of interest scheme operators and investors’ protection, appropriate safeguard mechanisms are also proposed to ensure adequate safeguards and remedies are in place.”

Given the dissatisfaction and confusion over the early termination of the CHGS, this promise that the investors’ interests will be better shielded, is significant.

If volume is a measure, the 99-page Bill is already a huge source of comfort. In place of the 14 sections and a schedule in the Companies Act, there will eventually be a new Act (if all goes well) with 89 sections and three schedules. This suggests that there will be a lot more clarity and direction in the supervision of interest schemes.

The governance of the schemes will also be enhanced if the Bill becomes law. It will spell out the duties and responsibilities of the management companies of the schemes so that they act in the best interests of the interest holders. These include the obligations to prepare financial statements, appoint auditors and hold annual meetings.

In addition, the CCM can intervene in the management of a scheme if it is not run in a “fit and proper manner”.

And of course, there are eight sections devoted to the winding up of schemes.

At the same time, the new framework is meant to encourage the expansion of the interest scheme industry by simplifying the relevant laws and procedures, and by opening up the industry to smaller players and foreign schemes.

Hopefully, the consultation process will end with plenty of input from the stakeholders. The Bill is certainly needed if we want to see interest schemes contribute more towards the country’s economic growth. And comments that can improve the Bill are valuable.

As always, we need more than well-crafted legislation. The CCM will need to ensure that it has the resources, integrity and vision to enforce the law so that the good intentions will be matched by fair and fearless execution.

Executive editor ERROL OH is looking forward to seeing innovative (and honest) businessmen coming up with new types of interest schemes.

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