Now that Najib has announced the disbanding of the Foreign Investment Committee (FIC), and the ending of the FIC Guidelines, I’m sure many of us have our personal thoughts on the issue.
Some may think that the doing away of the 30% bumiputera requirement is a good thing; others may think its replacement with requirement of 50% stake of public offering in listing companies makes the whole exercise redundant and superfluous.
However, I’m not going to touch on those issues. I want to highlight some revelations on the FIC which I think most Malaysian knows not of.
The FIC was set up on 20th February 1974 to promote and protect the New Economic Policy that has just been implemented then.
The FIC comes under the auspices of the Economic Planning Unit (EPU). The EPU itself is not a ministry or government department – but as the namesake suggests – it is the economic planning unit of the Prime Minister’s Department. Over the years, this subsection has become increasingly powerful, overshadowing even that of other Ministries. In fact, some Ministries have become indirectly subservient to the EPU, waiting for directions before implementing or embarking on any governmental projects.
The FIC is merely a committee – albeit a powerful one – consisting of senior civil servants led by the Director-General of the EPU.
The FIC has – over the years – issued many guidelines, commonly known as the FIC Guidelines, to regulate and coordinate matters on foreign investment, acquisition of assets or interest, mergers and takeovers of companies and businesses by both local and foreign investors.
Once the FIC Guidelines is imposed to a particular transaction, the parties would have to apply to FIC for approval. The FIC will then impose conditions for approval. The conditions include: –
• for companies with less than 30% Bumiputera equity, to increase the Bumiputera equity to at least 30%;
• for companies with more than 30% Bumiputera equity but less than 50%, to maintain the Bumiputera equity at least at 30%;
• for companies with more than 51% Bumiputera equity, to maintain the Bumiputera equity at least at 50%;
What we need to understand is this – the FIC is not a proper ministry or body set up under the law. It is merely a committee. It is, to put it crudely, a working group; or at most, a board, with no real executive powers given in law.
Consequently, the FIC Guidelines also do not have force of law. It is not an Act of Parliament. It is not a law or by-law. It is merely a guideline, or garispanduan. None of us need to follow it.
This issue has been taken up in the courts. In the case of Ho Kok Cheong Sdn Bhd & Anor v Lim Kay Tiong & Ors (1979) 2 MLJ 224, the High Court confirmed that the FIC Guidelines have no force of law. The judge, Justice Wan Hamzah said: –
“The guidelines were issued not pursuant to any power given by law, and in my opinion they have no force of law but are of advisory character merely. I do not think that non-compliance with the guidelines can be taken as an act opposed to public policy. The guidelines reflect the government’s political policy but government’s political policy is not public policy.”
In a later case of Malaysia Overseas Investment Corporation Sdn Bhd v Sri Segambut Supermarket Sdn Bhd (1986) 2 MLJ 383, the High Court again re-affirmed its stand on the FIC Guidelines when Justice Siti Norma Yaacob held that the guidelines have: –
“… no force of law but of advisory character only and non-compliance whatsoever will have no effect as to the legality or otherwise of the contract.”
If the FIC Guidelines have no force of law, what happens if we don’t comply with it? The answer is nothing.
In the case of Thong Foo Ching & Ors v Shigenori Ono (1998) 4 MLJ 585, the Court of Appeal held that non-compliance of the FIC Guidelines would have no effect on the parties and the transaction. Justice Siti Norma Yaacob, now sitting in the Court of Appeal, explained the court’s decision as follows: –
“A reading of the guidelines shows that there is no penalty imposed for non-compliance of any of their provisions. From the nature of the document itself and its purpose to eradicate poverty by restructuring the Malaysian society so as to correct any racial economic imbalance, at most I would say the guidelines impose a moral obligation only on those affected to comply with their provisions.”
So, in the midst of all the hullaballoo of the end of the FIC and the de-regularisation of the Guidelines, let us pause to think of all the Malaysians that have been hoodwinked into complying with a 30% equity requirement that was never valid or legal in the first place.