At the same time, KLSE has also issued clarification on these amendments and certain other provisions of the Listing Requirements with the issuance of the following Practice Notes:
I. Practice Note No 13/2002 - Requirements Relating To Directors And Signatory To Statutory Declaration Accompanying Annual Audited Accounts (PN 13/2002); and
II. Practice Note No 14/2002 - Requirements on Transactions and Related Party Transactions (PN 14/2002).
The amendments, PN 13/2002 and PN 14/2002 will take effect on 1 January 2003. Listed companies are given up to 31 March 2003 to comply with certain listing requirements relating to independent directors, qualification of one of the audit committee members and signatory to statutory declaration accompanying annual audited accounts.
The amendments to the Listing Requirements as well as the Practice Notes are made/issued primarily in response to industry feedback on certain provisions of the Listing Requirements arising from regular discussions and dialogues with industry participants and are aimed at assisting industry in the application of the Listing Requirements.
The amendments, PN 13/2002 and PN 14/2002 are part of the continuous effort of KLSE to ensure that KLSE's Listing Requirements achieve clarity and consistency in terms of application by industry participants.
I. Amendments to Listing Requirements and PN 13/2002
The key areas covered by the amendments and PN 13/2002 are as follows:-
- Definition of "independent director"
- Qualifications for the signatory to statutory declaration accompanying audited accounts and one of the members of an audit committee
- Restriction in the number of directorships that may be held by a director of a listed company
1. Definition of independent director
The Listing Requirements contain an enhanced definition of independent director comprising a general test of independence which is supplemented by specific exclusions. The definition specifically excludes persons in specified circumstances as being ineligible to act as an independent director. The amendments and PN 13/2002 provide clarification in relation to these specified circumstances. A notable clarification is in respect of a director who enters into transactions with the listed group, whether personally or through a firm or company. The circumstances under which such director would be disqualified to act as an independent director have been clarified under PN 13/2002.
The clarifications provided will aid listed companies in the appointment of suitable candidates as independent directors.
2. Qualifications for the signatory to statutory declaration of audited accounts and for member of audit committee
Pursuant to paragraph 9.27 of the Listing Requirements, the signatory to the statutory declaration of audited accounts must be a member of the Malaysian Institute of Accountants (MIA) or if not, he must possess certain prescribed qualifications. Additionally, under paragraph 15.10 of the Listing Requirements, at least one member of the audit committee must be similarly qualified.
The related amendments and PN 13/2002 detail additional qualifications which would be deemed to satisfy the requirements of both paragraphs 9.27 and 15.10. These qualifications include:-
- a degree/masters/doctorate in accounting or finance with at least 3 years' post qualification experience in accounting or finance; or
- 7 years' experience being a chief financial officer of a company or having the function of being primarily responsible for the management of the financial affairs of a company; or
- such qualifications as may be stipulated by the Exchange.
The additional qualifications will enable the listed companies to have more flexibility in complying with the requirements of paragraphs 9.27 and 15.10, without compromising the objective of the requirement in ensuring that at least one member of the audit committee has in-depth knowledge of accounting or finance, in particular, accounting standards and practices.
3. Restriction in the number of directorships that may be held by a director of a listed company
Pursuant to paragraph 15.06 of the Listing Requirements a director of an applicant or a listed company may hold not more than 10 directorships in listed companies and not more than 15 directorships in companies other than listed companies (referred to as "the non-listed companies").
The number of directorships that may be held by a director of a listed company has not been altered. However, a new method of computation for directorships in non-listed companies has been introduced via the amendments and PN 13/2002.
Essentially, the new method of computation allows the aggregation of directorships in certain non-listed companies as 1 directorship in a non-listed company. Directorships held in the following situations shall be aggregated and counted as 1 directorship in a non-listed company:-
- directorships held in any of the listed company's subsidiaries, except where such subsidiaries are listed companies or are also subsidiaries of the listed company's listed subsidiaries;
- directorships held in the listed company's immediate non-listed associated companies; and
- directorships held in the immediate non-listed associated companies of the companies referred to in bullet point 1 above; and
- directorships held in family-owned companies shall also be combined and counted as 1 directorship in a non-listed company;
Various permutations in the method of computation are also illustrated in PN 13/2002 to aid understanding of the method of computation.
The new method of computation will facilitate the continued operations of businesses in corporations where it is common for the business to be carried out via subsidiaries, and directors of the holding company are also required to sit at the boards of the subsidiaries to supervise the management of the business.
II. Practice Note No 14/2002 - Requirements on Transactions and Related Party Transactions (PN 14/2002).
The salient areas covered by PN 14/2002 are as follows:-
- the application of the percentage ratio which uses the market value as a basis for comparison;
- the principles in relation to the aggregation of transactions entered into by listed issuers or their subsidiaries;
- additional transactions that are not normally regarded as related party transactions; and
- the application of shareholders' general mandate to provision of financial assistance by listed companies or their subsidiaries.
The complete text of the Amendments, PN 13/2002, PN 14/2002 and frequently asked questions on PN 13/2002 and PN 14/2002 including certain provisions in the Listing Requirements are available on the KLSE web-site at www.klse.com.my.
