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Bursa Malaysia Consultation Paper No. 4/2021 on additional disclosures on conflict of interest and other amendments

10 December 2021

Bursa Malaysia Securities Berhad (‘the Exchange’) issued Consultation Paper No. 4/2021 (‘CP4/21’) on 30 November 2021 proposing amendments to the Main Market Listing Requirements (‘MMLR’) and the ACE Market Listing Requirements (‘ACE LR’) (collectively ‘LR’).
 
According to the Exchange, the amendments proposed in CP4/21 (‘the Proposed Amendments’) arose from its periodic review of the LR to ensure that the LR remain fit to meet the changing needs of the domestic stock market and to strengthen governance and safeguard investor protection. In making the proposed amendments, the Exchange considered the practice in benchmarked jurisdictions, namely Singapore, Hong Kong, United Kingdom, Thailand and Australia.
 
In essence, the Proposed Amendments are two-fold, namely: 

  • enhancing disclosure of conflict of interest (‘COI’) and potential COI of directors, senior management and other stakeholders, as well as the role of the Audit Committee (‘AC’) in this regard; and 

  • enhancing the LR in other areas to address issues and gaps in the market to ensure the LR remains balanced, clear, relevant and updated. 
A summary of the main changes to be effected under the Proposed Amendments is provided below. For the purposes of this article, a reference to a ‘Paragraph’ refers to a Paragraph in the MMLR and a ‘Rule’, to a Rule in the ACE LR.
 
COI
 
The existing provisions of the LR require disclosure of COI in relation to certain personnel of a listed issuer in the circumstances specified in the LR. The Proposed Amendments seek to enhance and align these provisions in the following respects: first, to include disclosure of potential COI, including interest in any competing business; and second, where omitted from the existing provisions of the LR and where applicable, to extend the disclosure of COI and potential COI to include the subsidiaries of a listed issuer. It is also proposed that these disclosure requirements be extended to certain other stakeholders. The provisions of the LR which are to be amended are as follows:
 
Amendments to include potential COI (including interest in any competing business) and subsidiaries of a listed issuer 

  • the statement accompanying a notice of annual general meeting pertaining to individuals standing for election as directors of the listed issuer (excluding directors standing for re-election) (paragraph 1(f) of Appendix 8A of the LR); 

  • the contents of an announcement relating to the appointment of a director of the listed issuer (paragraph (e) of Part A of Appendix 9A of the LR); 

  • the contents of the annual report relating to each director of the listed issuer (paragraph (3)(g) of Part A of Appendix 9C of the LR); 

  • the contents of the annual report relating to a chief executive officer who is not a director of the listed issuer (paragraph (4)(g) of Part A of Appendix 9C of the LR); and 

  • the contents of the annual report relating to key senior management1 of the listed issuer (paragraph (4A)(f) of Part A of Appendix 9C of the LR). 
Amendment to include potential COI (including interest in any competing business)2 

  • the contents of an announcement relating to the appointment of a chief executive officer who is not a director of the listed issuer (paragraph (e) of Part B of Appendix 9A of the LR); and 

  • the contents of an announcement relating to the appointment of a chief financial officer of the listed issuer (paragraph (d) of Part B(A) of Appendix 9A of the LR). 
Amendment to include potential COI (without reference to competing business) and to subsidiaries of the listed issuer 

  • the contents of the annual report relating to the Shariah adviser of an Islamic business trust (paragraph (4)(b) of Part C of Appendix 9C of the MMLR); 

  • the contents of the annual report relating to a member of the investment committee of a real estate investment trust (paragraph (5)(c) of Part E of Appendix 9C of the MMLR); and 

  • the contents of the annual report relating to the Shariah adviser of an Islamic real estate investment trust (paragraph (6)(b) of Part E of Appendix 9C of the MMLR). 
Amendment to include potential COI (without reference to competing business or to subsidiaries of the listed issuer) 

  • the contents of the annual report relating to the managers of a closed-end fund (paragraph (2)(c) of Part B of Appendix 9C of the MMLR); and 

  • the contents of the annual report relating to the Shariah adviser of an Islamic exchange traded fund (paragraph (5)(b) of Part F of Appendix 9C of the MMLR). 
Imposition of new category of disclosure requirement on COI, potential COI (including competing business), and subsidiaries of the listed issuer 

  • the contents of an announcement relating to the change in a legal representative3 (or person of equivalent authority) (paragraph (e) of Part B(B) of Appendix 9A of the LR). 
AC
 
CP4/21 proposes three amendments in relation to the AC.
 
First, the role of the AC is to be enhanced. In addition to reviewing and reporting, inter alia, on related party transactions and COI that may arise within the listed issuer or group, it is proposed that Paragraph 15.12 of the MMLR and Rule 15.12 of the ACE LR be amended to impose a responsibility on the AC to review and report on the measures taken to resolve, eliminate or mitigate such COI.
 
Second, Paragraph 15.15 of the MMLR and Rule 15.15 of the ACE LR are to be amended to include a requirement for the AC report to include provide a summary of any COI or potential COI situation that have arisen during the year and the measures taken to resolve, eliminate or mitigate the COI.
 
Third, it is proposed that Paragraph 15.17(c) of the MMLR and Rule 15.17(c) of the ACE LR be amended to provide that, in addition to the listed issuer’s existing obligation to give full and unrestricted access to information on the listed issuer to the AC, similar access must be given to the AC to any information pertaining to the listed issuer’s group.
 
Transactions
 
It is proposed that the definition of ‘acquisition and disposal of assets’ in Paragraph 10.02 of the MMLR and Rule 10.02 of the ACE LR be amended to include ‘an issue of securities by a listed issuer’s subsidiary which will result in the reduction of the listed issuer’s equity interest in such subsidiary’.
 
It is also proposed in CP4/21 that a new Paragraph 10.03(4A) and Rule 10.03(4A) be introduced into the MMLR and ACE LR respectively to clarify that the basis of valuation of a transaction entered into by a listed issuer’s subsidiary is ‘the consideration for the transaction is the entire amount of the consideration paid or received, and not the listed issuer’s proportionate interest in such consideration’.
 
Related party transactions
 
Paragraph 10.08(9) of the MMLR and Rule 10.08(9) of the ACE LR exempt a listed issuer from, inter alia, the requirement to obtain approval of its shareholders in a general meeting and from appointing the specified advisers in relation to a related party transaction that satisfies the following conditions: (a) where any percentage ratio is 5% or more; (b) the transaction only involves the interest of a director or major shareholder of a subsidiary or the holding company of the listed issuer or a person connected with such director or major shareholder; and (c) the board of directors of the listed issuer approves the transaction before the terms of the transaction are agreed upon and ensures that the transaction is fair and reasonable to, and is in the best interests of, the listed issuer. The Proposed Amendments clarify this requirement by providing that where any percentage ratio of the related party transaction is 25% or more, the listed issuer is still required to comply with the requirements in the following provisions of the LR, as applicable: 

  • Paragraph 10.07 of the MMLR and Rule 10.07 of the ACE LR (requirement for shareholders’ approval in general meeting); and 

  • Part F (additional information for foreign acquisitions where any percentage ratio is 25% or more) or Part F(A) (major disposal of assets resulting in the listed issuer being no longer suitable for listing) of the LR, as the case may be. 
It is further proposed in CP4/21 that ‘insurance coverage and indemnities for directors as permitted under the Companies Act (2016)’ are to be not normally regarded as related party transactions under a new Paragraph 10.08 (11)(fA) of the MMLR and Rule 10.08 (11)(fA) of the ACE LR.
 
Paragraph 10.08 (11)(g) of the MMLR and Rule 10.08 (11)(g) of the ACE LR, which provide that the supply of certain goods and services at a non-negotiable price or rate that is published or publicly quoted and where all material terms are applied consistently to all customers or classes of customers are not normally regarded as related party transactions, is to be redrafted in a more organised manner and updated to extend certain exempt transactions carried out at physical outlets, such as hypermarkets, to include such transactions carried out through electronic commerce transactions.
 
New issue of securities to person connected to a major shareholder
 
It is proposed that the requirement for shareholders’ approval in relation to a proposed issue of shares or convertible securities by a listed issuer to an interested person connected with a major shareholder be dispensed with under a new Paragraph 6.06(5) of the MMLR and Rule 6.07(5) of the ACE LR if the following conditions are met:
 
  1. the interested major shareholder and interested person connected with a major shareholder are either a statutory institution which is managing funds belonging to the general public or a national fund management company established by the Malaysian Government;

  2. the interested person connected with the major shareholder: 
  • is not a major shareholder of the listed issuer or its holding company; 

  • is not involved in the day-to-day management of the listed issuer and does not have any representative in an executive capacity on the board of directors of the listed issuer, its subsidiaries or holding company; 

  • is not an initiator, agent or involved in any other manner in the proposed issue of securities; and 
  1. the issue of shares or convertible securities is effected through a book building exercise without any preferential treatment being accorded to the interested person connected with the major shareholder.
According to the Exchange, the potential of COI or influence over the listed issuer group and the corporate proposal in the circumstances set out in the proposed new Paragraph 6.06(5) of the MMLR and Rule 6.07(5) of the ACE LR is remote and the disapplication of the requirement for shareholders’ approval would not compromise investor protection.
 
Contact particulars
 
The contact particulars of certain stakeholders are to be updated to include the email address of the registered office of a listed issuer, a closed-end fund and its managers, the trustee-manager of a business trust and the Shariah adviser of an Islamic business trust, the management company of a real estate investment trust and the Shariah adviser of an Islamic real estate investment trust, the management company of an exchange traded fund and the Shariah adviser of an Islamic exchange traded fund and the office at which the register of securities or units are maintained.
 
Close of consultation
 
Any comments on the Proposed Amendments are to be submitted to the Exchange by 25 January 2022.
 
CP4/21 and Annexure A and Annexure B thereof can be accessed here, here and here.
 
 
Alert prepared by Phua Pao Yii (Partner), Fariz Aziz (Partner) and Tan Wei Liang (Associate) of the Corporate Practice of Skrine. 
 
1 For the purposes of Paragraph 4A of Part A of Appendix 9C, ‘key management personnel’ refers to a person who, in the opinion of the listed issuer, is the key management personnel of the group, and must include a person who is primarily responsible for the business operations of the listed issuer’s core business and principal subsidiaries.
2 The provisions of the LR referred to in this sub-section already include a reference to the subsidiaries of the listed issuer.
3 According to Paragraph 9.19(14B) of the MMLR and Rule 9.19(14B) of the ACE LR, a legal representative (or person of equivalent authority) is a person with sole powers to represent, exercise rights or enter into binding obligations, on behalf of the listed issuer or its foreign principal subsidiary pursuant to any relevant law applicable to the listed issuer or its foreign principal subsidiary.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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