A profit guarantee is a contractual relationship between the guarantors, the stakeholders/guarantor bank and the company. Hence, any changes or disputes arising from the agreement would have to be resolved between the contracting parties.

To ensure that any variations made would be in the interest of the listed companies, minority shareholders and investors, the SC is introducing new requirements that must be met by the contracting parties before they may make revisions to existing profit guarantee agreements.

The new requirements stipulate, among others, that the guarantors and their related parties shall abstain from voting at the Extraordinary General Meeting (EGM) held to consider the revisions to the profit guarantee agreements. If the guarantors are in the management of the company, they must continue to manage the company with full responsibility until their guarantee obligation is discharged. In addition, the proposed variations must be approved as a special resolution whereby at least 75% of the shareholders present and are eligible to vote at the EGM, must concur. Applications to vary the terms of the profit guarantee are to be accompanied by a legal opinion stating whether the terms of the profit guarantee agreement can be varied and confirmation from the company's financial adviser to the SC that they are of the opinion that the revised terms are fair and reasonable to the company and its shareholders.

In addition to the above, the directors are now required to make certain disclosures in the company's annual report in respect of the status of the subsisting profit guarantee agreements. The additional disclosure requirements are particularly pertinent at this point in time with the SC's move towards a disclosure-based regime whereby the emphasis is on greater accountability, transparency and corporate governance.

These requirements are additions to the SC's current guidelines on profit guarantees, which shall remain in force, and are effective immediately. Full details on the new profit guarantee requirements will be conveyed to the merchant banks in due course.