The new Code replaces The Malaysian Code on Take-overs and Mergers 1987 which was enacted under section 179 of the Companies Act 1965 and subsequently adopted by the SC after section 179 of the Companies Act was repealed by the Securities Commission Act 1993.
The legal framework for the introduction of the new Code was put in place by the Securities Commission (Amendment) Act 1995. Thereafter, work on the new Code and accompanying Practice Notes was initiated by the SC.
In preparing the new Code and Practice Notes, the SC has had extensive discussions with selected market participants and advisers. A consultative group comprising individuals from merchant banks, listed companies and the legal profession, was formed in August 1997 and has since provided input and comments at various stages of the preparation of the Code and Practice Notes.
Similarly, the SC has also worked very closely with the Kuala Lumpur Stock Exchange (KLSE), as some of the changes introduced require consequential changes to the KLSE Listing Requirements.
The economic turmoil experienced by the country over the past 18 months, particularly several notable corporate activities that took place during this period, has brought into even sharper focus, various deficiencies in the old Code. The SC had, on several occasions over the past one-year reiterated that these deficiencies would be addressed to enhance transparency and to protect the interests of minority shareholders. "The new Code is indeed a testimony of the commitment of SC towards ensuring higher standards of disclosure and corporate behaviour and greater professionalism from all involved in mergers and acquisitions," according to SC Chairman, Dato' Dr Mohd Munir Majid.
The new Code thus seeks to ensure that minority shareholders are given a fair opportunity to consider the merits and demerits of an offer and to enable them to decide whether they should retain or dispose of their shares. The new Code also requires offer documents, board of directors circulars and independent advice circulars to include all relevant information required by shareholders and their professional advisers to make informed assessments of the merits and risks of accepting or rejecting a take-over offer.
The SC expects market participants and advisers, who are already familiar with the requirements of standards of disclosure and due diligence for corporate submissions, to comply with the disclosure and due diligence requirements under the new Code without difficulty.
New Provisions
The SC also wishes to highlight that the new regulatory framework on take-overs and mergers includes provisions imposing criminal liability on the relevant parties to a take-over offer for providing false or misleading information to the SC and shareholders. In particular, section 33E of the Securities Commission Act 1993 and section 38 of the new Code now impose requirements that are similar to those found in section 32B of the Securities Commission Act 1993.
Additionally, provisions relating to "creeping" take-overs have been amended to allow an acquirer who holds between 33% and 50% of the voting shares in a company to acquire 2% within a period of six months instead of 12 months and hence, effectively reduce the time taken to "creep" into control of the company.
Previously, such persons were not allowed to acquire more than 2% of the voting shares in the company in any 12-month period. The purpose of a creeping provision is to restrict the time frame whereby a person can obtain statutory control of a company. The amendment is made in order to be more consistent with international practices such as those of Hong Kong, Singapore and Australia. The SC wishes to emphasise that while the creeping provision in the new Code has been relaxed, the Securities Commission Act 1993 has provided for stricter penalties against participants for breaches of the Code.
SC as sole authority for matters relating to take-overs and mergers
In addition to the new Code, the Minister of Finance has also brought into force section 11 of the Securities Commission (Amendment) Act 1995. This section replaces the existing section 33 and 34 of the Securities Commission Act 1993 with new sections 33A, 33B, 33C, 33D, 33E, 34A, 34B and 34C.
Among others, section 33C of the Securities Commission Act 1993 makes the SC as the sole authority to grant exemptions from provisions of the new Code. The SC emphasises that it must and will observe the principles and objectives that are specified in subsection 33A(5) of the Securities Commission Act 1993 in exercising its powers under the Act, including when granting an exemption. That subsection requires the SC to ensure that take-overs and mergers take place in an efficient, competitive and informed market. In this respect, the SC will have to ensure that:
- the shareholders and directors of an offeree and the market for the shares that are the subject of the take-over offer are aware of the identity of the acquirer and offeror, have reasonable time in which to consider a take-over offer, and are supplied with sufficient information necessary to enable them to assess the merits of any take-over offer;
- all shareholders of an offeree have equal opportunity to participate in benefits accruing from the take-over offer, including in the premium payable for control;
- shareholders, in particular, minority shareholders, are treated fairly and equally; and
- directors of the offeree and acquirer act in good faith to meet the objectives that are specified in subsection 33A(5) of the Securities Commission Act 1993 and that minority shareholders are not oppressed or disadvantaged by the treatment and conduct of the directors of the offeree or the acquirer.
Practice Notes
The Practice Notes to the new Code govern the treatment of specific situations or elaborate on the interpretation of certain sections of the Code. The Practice Notes also list the circumstances or transactions which the SC would consider granting exemptions to. The SC wishes to stress that the Practice Notes are deemed to be rulings made by the SC pursuant to subsection 33A(4) of the Securities Commission Act 1993 and that the breach of any ruling, as with a breach of the Code, is an offence punishable under section 33B(4) of the Act with a fine not exceeding one million ringgit or imprisonment not exceeding ten years.
SC approves amended KLSE Listing Requirements
Meanwhile, the SC also would like to announce that it has approved a proposal submitted by the KLSE to amend its Listing Requirements. The Listing Requirements, part of the regulatory framework governing take-overs and mergers, are amended consequential to the coming into force of the new Code.
Copies of the Malaysian Code On Take-overs and Mergers 1998, Practice Notes and the Securities Commission (Amendment) Act 1995 (Appointment Of Date Of Coming Into Force) Order 1998 can be obtained from Percetakan Nasional Malaysia Berhad at Jalan Satu, Off Jalan Chan Sow Lin, 50554 Kuala Lumpur.
