Bursa Malaysia Berhad’s Chief Legal Officer, Selvarany Rasiah said the amendments were made as part of Bursa Securities’ ongoing efforts to enhance the LR. “The current framework of RPT requirements was introduced in 1998 to enhance market regulation and investor protection in view of events at the time. Given subsequent market developments and the seven-year lapse since the introduction of the current framework, it is timely to introduce changes that better reflect market conditions today.
“We are mindful that related party transactions are of significant interest to investors and shareholders given the potential conflict of interest. There may also be some tension between the needs of investors and shareholders, and listed issuers. Therefore, the changes we are announcing are meant to strike a balance between market regulation and the promotion of business efficacy.”
The key amendments to the LR are as follows:
- The imposition of certain duties on directors of a listed issuer and dispensation of shareholders’ approval for issuance of securities to related parties (in relation to paragraph 6.11 of the LR)
List of the amendments:
Shareholders’ approval for the issuance of securities by the subsidiary of a listed issuer (“PLC”) to its directors or major shareholders or a director or major shareholder of the holding company (other than the PLC or the PLC’s holding company) or a person connected with such director or shareholder is dispensed with.
Instead, to protect investors, the PLC’s board of directors are duty-bound to consider the specific allotment/issuance to the related party and in approving the same, must ensure that it is fair and reasonable, hence, in the best interest of the PLC. The PLC is also required to make an announcement.
Therefore, shareholders’ approval will only be required for issuance of securities by the PLC or its subsidiary to directors or major shareholders of the PLC or the PLC’s holding company or persons connected with such directors or shareholders. In addition, it is clarified that paragraph 6.11 extends to issuance of securities to a chief executive officer who is not a director.
- Clarification/revision of the scope or ambit of the definition of “director” and “major shareholder” for the purposes of Chapter 10 of the LR
List of the amendments:
The ambit of “director” and “major shareholder” for the purposes of related party transactions will now exclude directors and major shareholders of a sister company of the PLC (i.e. a subsidiary of the PLC’s holding company). Hence, the ambit of “director” and “major shareholder” will be limited to directors and major shareholders of the PLC, its subsidiary or the PLC’s holding company.
However, the scope of ”related party” has been expanded to include a chief executive officer who is not a director.
- Substitution of “net tangible assets” which is one of the denominators used to compute the applicable percentage ratios with “net assets” except in relation to paragraph 8.23(2)(c) of the LR.
- Expansion of the role of the independent adviser to include advising minority shareholders in relation to voting on the related party transaction in question.
- Amendments in relation to related party transactions where the related party is only at subsidiary level
List of the amendments:
If the related party is only at subsidiary level, a transaction involving the related party’s interests will be exempted in certain prescribed circumstances where the related party is not in a position to influence the PLC or, if applicable, the subsidiary entering into the transaction.
However, where a subsidiary of a PLC enters into a transaction involving the interest of a related party, shareholders’ approval which is currently required will be dispensed with. Instead, the board of directors of the PLC is required to consider the transaction and in approving the same, must ensure that it is fair and reasonable to the PLC, and in the best interests of the PLC. The PLC will still be required to make an announcement of the transaction.
- Introduction of a threshold for the requirement to disclose in the annual report, the aggregate value of recurrent transactions made during the financial year for which a mandate has been obtained. The threshold for disclosure is where:-
- the consideration, value of the assets, capital outlay or costs of the aggregated transactions is equal to or exceeds RM 1 million; or
- any one of the percentage ratios of such aggregated transactions is equal to or exceeds 1%,
whichever is the lower.
- the consideration, value of the assets, capital outlay or costs of the aggregated transactions is equal to or exceeds RM 1 million; or
- Prescription of a timeframe for the issuance of circulars which do not require Bursa Securities’ clearance (Exempt Circulars). Printed copies of Exempt Circulars must be issued as soon as as possible and in any event no later than 2 months from the date of the announcement or the date the last approval necessary for the corporate proposal is obtained from the relevant authority, whichever is the later.
However, circulars that must be cleared by Bursa Securities (Limited Review Circulars and Standard Circulars must be issued immediately upon receipt of confirmation that Bursa Securities has no further comments thereon and in any event no later than 7 market days after receipt of such confirmation.
The amendments will take effect on 21 November 2005.
The complete text of the amendments is available for reference along with a set of frequently asked questions and answers on Bursa Malaysia’s website at www.bursamalaysia.com