Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

An acquisition is commonly structured by way of:

  • an acquisition of shares in a company; or
  • an acquisition of a business or assets from a company.

Typically, the process for an acquisition involves:

  • execution of preliminary agreements (eg, a memorandum of understanding, exclusivity agreement and confidentiality agreement) outlining the parties’ understanding and principal terms of the transaction);
  • conduct of legal, financial and tax due diligence exercises by the buyer on the target company;
  • drafting and negotiation of definitive transaction documents;
  • execution of definitive transaction documents; and
  • satisfaction of conditions precedent and in some cases, an updated due diligence and completion of the acquisition.

In general, an acquisition may take three to six months to complete. Notwithstanding, the length of time required to complete an acquisition may vary depending on factors such as the size of the target company, complexity of the transaction and time taken for the fulfilment of conditions precedent especially where Malaysian regulatory approvals are required for the acquisition.

In the case of an acquisition of real estate or property, the time period required may take one to three months from the time of submission to the state authority for consent to transfer (if required) and the presentation of the memorandum of transfer to the relevant land office. The time period may also vary for land authorities in different states or federal territories.

In addition, mergers and acquisition can also be structured by way of a scheme of arrangement under section 366 of the Malaysian Companies Act, 2016 (the Companies Act). Such a scheme requires the relevant companies to apply for and obtain an order from court to convene a shareholders’ meeting, and to obtain approval from 75 per cent of the shareholders present and voting either in person or by proxy at the meeting.

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

The relevant statutes governing private acquisitions and disposals in Malaysia include the following:

  • the Companies Act 2016 for transfer of shares;
  • the National Land Code for transfer of real estates;
  • the Road Transport Act 1987 for the transfer of motor vehicles including commercial vehicles, such as trailers and prime movers;
  • the Copyright Act 1987, Trademark Act 1976, Patent Act 1983 and Industrial Design Act 1996 for the assignment or transmission of intellectual property rights;
  • the Factories and Machinery Act 1967 for the transfer of machinery, such as hoisting machinery; and
  • the Capital Market and Services Act 2007, Main Market Listing Requirements and Security Industry (Central Depositories) Act 1991 for transfer of listed shares.

The parties are free to decide on the governing law of the transaction documents. However, the legal formalities and procedures for the transfer of shares, business or assets will still be subject to Malaysian law.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

In respect of share acquisition, section 101 of the Companies Act provides that in the absence of evidence to the contrary, the entry of a person’s name in the register of members of a company as a shareholder constitutes prima facie evidence that legal title to shares is vested in that person.

In the case of a business or asset acquisition, title to assets (including plant, equipment and machinery) is transferred by delivery and in accordance with the terms of the underlying asset purchase agreement. Typically, an asset purchase agreement will include an ownership clause where legal and beneficial ownership of the business assets shall be deemed to have been transferred to the buyer by delivery on completion. Ancillary documents in support of ownership (such as bill of sales) will also be provided.

If the assets involve land, endorsement of the name of the buyer on the register document of title constitutes conclusive evidence that title to the land is vested in the buyer as proprietor. The register document of title held by the land registries or land offices is available for inspection by way of a public search.

There are distinctions between legal and beneficial title. A registered shareholder is deemed as the legal owner of the shares registered under its name, but it may be holding such shares for the interest and benefit of a beneficial owner pursuant to a trust or nominee arrangement. However, the constitution of most companies would provide that except as required by law, no person shall be recognised by the company as holding any share upon any trust, and the company shall not be bound by or be compelled in any way to recognise any equitable, contingent, future or partial interest in any share or any other rights in respect of any share.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

If the constitution or articles of association of a company or the shareholders’ agreement entered into among the shareholders provide for ‘drag-along’ provisions, then in such event the minority shareholders may be compelled to sell together with an existing shareholder.

If an acquisition is structured as a scheme of arrangement under section 366 of the Companies Act and if the scheme is agreed by a majority of 75 per cent of the total value of the members or class of members present and voting (in person or by proxy) at the meeting ordered by the court, the scheme shall be binding on all the members or class of members, including the 25 per cent shareholders.

Section 371 of the Companies Act provides for a compulsory acquisition exercise of the remainder of shares in a company where there is a transfer of shares involving the holders of not less than 90 per cent of the shares in the same company.

Similar compulsory acquisition rules apply under the Capital Markets and Services Act 2007 (CMSA), the Malaysian Code on Take-overs and Mergers 2016 (the Code) and the Rules on Take-overs, Mergers and Compulsory Acquisitions, 2016 (the Rules). The Code and the Rules must be read together with Division 2 (Take-overs, Mergers and Compulsory Acquisitions), Part VI of the CMSA. The Code and the Rules apply to Malaysian public companies, listed on Bursa Malaysia or otherwise. Section 222 of the CMSA provides that where a takeover offer has been made for all the shares or all the shares in any particular class in an offeree and has received acceptances of not less than 90 per cent of the shares not already held by the offeror and the persons acting in concert, the offeror may compulsorily acquire the remaining shares from the minority shareholders within four months of the date of the take-over offer, by issuing a notice in the form and manner prescribed by the Rules.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

In Malaysia, a buyer of assets or businesses can generally choose or select the assets or liabilities to be acquired and this will be specifically set out in the definitive transaction documents.

Consents from or notification to the following are commonly required:

  • landlords;
  • bankers or financiers with respect to any negative pledges or financing covenants;
  • counterparties for novation of contracts; and

regulatory authorities.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

There are restrictions in certain industries that require the licence holder to maintain a specific percentage of Malaysian or Bumiputera shareholding. For example:

  • logistics industry - the licensed operator for carrier ‘A’ licence is required to maintain at least 51 per cent Malaysian shareholding of which 30 per cent are held by Bumiputera;
  • oil and gas industry - companies that carry out business of marketing or distribution of petroleum or petroleum products are required to maintain at least 70 per cent Malaysian shareholding of which 30 per cent are held by Bumiputera;
  • retail trade - hypermarket operators are required to maintain at least 30 per cent Bumiputera shareholding;
  • tourism industry - companies that carry out overseas tour operating business are required to maintain 100 per cent Malaysian shareholding; and
  • insurance industry - insurance companies and takaful operators shall maintain at least 30 per cent Malaysian shareholding.

The above list is intended to provide general guidance and is not meant to be exhaustive.

Section 24(e) of the Contracts Act 1950 provides that if the Malaysian courts regard the object or consideration of an agreement as immoral or opposed to public policy, such agreement shall be void.

Are any other third-party consents commonly required?

See question 5.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

The requirements for regulatory filings and registration fees vary depending on the subject matter. For example:

  • Transfer of shares in a company: the following forms to be filed with the relevant regulators:
    • section 105 of Form of Transfer of Securities to be executed and stamped. The stamp duty is computed based on 0.3 per cent of the purchase price or book value of the shares, whichever is higher;
    • section 51 of Notification of Change in the Register of Members to be filed with the Companies Commission of Malaysia together with the filing fees of 100 Malaysian ringgit;
    • Form CKHT 1B to be filed by the transferor or vendor with the Inland Revenue Board of Malaysia (IRB) (if the target company is a real property company); and
    • Form CKHT 2A to be filed by the transferee or purchaser with the IRB (if the target company is a real property company).

For the transfer of shares in a real property company, the vendor is required to pay real property gain tax (RPGT) after assessment by the IRB. The computation of the RPGT is based on the disposal period and the entity of the vendor (eg, company or individual).

  • Transfer of real property: the following forms to be filed with the relevant regulators:
    • Form 14A to be stamped and filed with the relevant land authority. The stamp duty for Form 14A is computed based on the value of the property;
    • Form CKHT 1A to be filed by the transferor or vendor with the IRB; and
    • Form CKHT 2A to be filed by the transferee or purchaser with the IRB.

The vendor is required to pay RPGT after assessment by the IRB based on the above.