By Bryan Boo
On 27 April 2020, it was reported that 7-Eleven Malaysia Holdings Bhd had issued a notice to the dissenting shareholders (“Notice to Dissenting Shareholders“) of Caring Pharmacy Group Bhd for the compulsory acquisition of their shares. This article highlights the mechanism of such notice to dissenting shareholders.
Capital Markets and Services Act 2007
The Notice to Dissenting Shareholders was issued pursuant to Section 222 of the Capital Markets and Services Act 2007 (“CMSA 2007“). The relevant portions of Section 222 reads as follows:
Section 222 Capital Markets and Services Act 2007
222. (1) Subject to section 224, where a take-over offer by an offeror to acquire all the shares or all the shares in any particular class in an offeree has, within four months after the making of the take-over offer, been accepted by the holders of not less than nine-tenths in the nominal value of those shares or of the shares of that class (excluding shares already held at the date of the take-over offer by the offeror or persons acting in concert), the offeror may, at any time within two months from the date the nine-tenths in the nominal value of those shares have been achieved, give notice in the manner prescribed under the Code to any dissenting shareholder that it desires to acquire his shares together with a copy of a statutory declaration by the offeror that the conditions for the giving of the notice are satisfied.
(2) Where an offeror has given notice to any dissenting shareholder that it desires to acquire his shares pursuant to subsection (1), the dissenting shareholder shall be entitled to require the offeror, by a demand in writing served on the offeror within one month from the date on which the notice is given, to supply him with a statement in writing of the names and addresses of all other dissenting shareholders as shown in the register of members and the offeror shall not be entitled or bound to acquire the shares of the dissenting shareholders until fourteen days after the posting of the statement of those names and addresses to the dissenting shareholder
(3) Upon the giving of the notice and statutory declaration under subsection (1), or where subsection (2) applies, upon the provisions in subsection (2) being complied with, the offeror shall in accordance with subsection (7) acquire those shares on the terms of the take-over offer or, if the take-over offer contained two or more alternative sets of terms, on the terms which were specified in the take-over offer as being applicable to the dissenting shareholders.
In gist, the requirements under Section 222 of the CMSA 2007 is as follows:
- There must be a take-over offer to acquire all the shares or all the shares in any particular class in the company intended to be acquired;
- The take-over offer must be accepted by no less than nine-tenths in nominal value of the shares of the company intended to be acquired (excluding the shares already held by the acquiring company);
- The notice to dissenting shareholders can only be issued:
- within four (4) months after the making of the take-over offer; and
- within two (2) months from the date of acceptance by no less than nine-tenths in nominal value of the shares of the company intended to be acquired;
- The notice to dissenting shareholders must comply with the requirements under the Malaysian Code on Take-Overs and Mergers; and
- The acquiring company must furnish a copy of a statutory declaration that the conditions for giving the notice are satisfied.
Upon receiving the notice to dissenting shareholders that duly complies with Section 222(1) CMSA 2007, the dissenting shareholder is entitled to send a demand in writing for a statement in writing from the acquiring company to be furnished with a statement in writing of the names and addresses of all other dissenting shareholders as shown in the register. Such a demand must be made within one (1) month from the date of the notice to dissenting shareholders. However, it must be noted that the exercise of the dissenting shareholder’s right under Section 222(2) is entirely optional.
If the dissenting shareholder demands the written statement under Section 222(2), the acquiring company cannot acquire the dissenting shareholder’s shares until fourteen (14) days after furnishing the said written statement.
The Compulsory Acquisition
If the dissenting shareholder chooses to exercise his/her/its right to demand a written statement under Section 222(2), then after fourteen (14) days after the acquiring company has furnished the statement so demanded, the acquiring company shall send to the dissenting shareholder a copy of the notice together with an instrument of transfer executed on behalf of the dissenting shareholder by the acquiring company and pay the consideration for those shares. Thereafter, the dissenting shareholder shall register the acquiring company as the holder of those shares.
If the dissenting shareholder elects not to exercise his/her/its right to demand a written statement under Section 222(2), then the acquiring company shall do everything as listed above after the expiration of one (1) month after the date on which the notice to dissenting shareholders was been given.
What if the acquiring company does not have the necessary acceptances required under Section 222(1)?
Section 224(5) of the CMSA 2007 provides that the court may make an order authorising the acquiring company to give the notices to the dissenting shareholders under Section 222(1) provided that the requirements under Section 224(6) CMSA 2007 is met. The relevant subsections read as follows:
Section 224(5) and Section 224(6) Capital Markets and Services Act 2007
(5) Subject to subsection (6), the court may, on an application made by an offeror who has not obtained acceptances to the extent necessary for entitling him to give notice under subsection 222(1), make an order authorising the offeror to give notices under subsection 222(1).
(6) The court may only grant an order under subsection (5) upon being satisfied that–
Provided that the court shall not make such an order unless it considers that it is just and equitable to do so having regard, in particular, to the number of shareholders who have been traced but who have not accepted the take-over offer.
- the failure of the offeror to obtain such acceptances was due to the inability of the offeror to trace one or more of the persons holding shares to which the take-over offer relates after having made reasonable enquiries;
- the shares which the offeror has acquired or contracted to acquire by virtue of acceptances of the take-over offer, together with the shares held by the person mentioned in paragraph (a), amount to not less than the minimum specified in subsection 222(1); and
- the consideration offered is fair and reasonable:
Can a dissenting shareholder resist the compulsory acquisition?
Section 224(1) CMSA 2007 provides that a dissenting shareholder may make an application to court within one (1) month from the date on which the notice under Section 222(1) CMSA 2007 was given.
Section 224(1) CMSA 2007 allows the court to either:
- order that the acquiring company shall not be entitled and shall not be bound to acquire the dissenting shareholder’s shares; or
- specify terms of acquisition that are different from the terms of the take-over offer.
Malaysian Code on Take-Overs and Mergers 2016 and Related Regulations or Rules
Where it relates to acquisitions or mergers, regard must also be given to the Malaysian Code on Take-Overs and Mergers 2016.
Further to that, specifically in situations of compulsory acquisition, regard must be given to Rules on Take-Overs, Mergers and Compulsory Acquisitions (“the Rules“). The Rules provide for, among other things, the process and procedure of a take-over offer, conduct during the offer period as well as prescribes the form in the event of compulsory acquisition.