Melissa Stothard discusses the amendments to the Main Market Listing Requirements on Major Disposals.

INTRODUCTION
           
On 19 March 2010, the Securities Commission (“SC”) and Bursa Malaysia Securities Berhad (“Bursa Malaysia”) issued a joint consultation paper in respect of the proposed amendments to the Main Market Listing Requirements ("MMLR") and the ACE Market Listing Requirements ("ALR") on the privatisation of listed corporations via the asset disposal route.
 
The asset disposal route is an indirect method of taking over a listed corporation where the acquirer acquires all, or substantially all, of the assets, rather than the shares, of a listed corporation. Upon the completion of the disposal, the listed corporation would be delisted as it no longer has the level of operations required to maintain its listing status.
 
There was much debate in this area as it was perceived that there was a loophole in the law in that unlike other forms of privatisation which had higher approval thresholds, a disposal of all, or substantially all, of a company's assets required the approval of only a simple majority of its shareholders present and voting at the company’s meeting.
 
On 28 January 2011, the SC and Bursa Malaysia released their joint-response to the consultation paper and announced that a takeover of a corporation's assets that results in a listed corporation being no longer suitable for listing, would require the approval of 75% of its shareholders. At the same time, Bursa Malaysia introduced amendments to the MMLR and the ALR to give effect to this requirement, which applies to all asset disposals announced on or after that date.
 
This article discusses the amendments made to the MMLR on the privatisation of a listed corporation via the asset disposal route. Our comments apply equally to the ALR as identical amendments were made to those requirements.
 
MAJOR DISPOSALS
 
A new Part F(A) was introduced into Chapter 10 of the MMLR to deal with “Major Disposals”. Paragraph 10.02 (eA) of the MMLR defines a “Major Disposal” as a disposal of all, or substantially all, of a listed corporation’s assets which may result in the listed corporation being no longer suitable for continued listing on the official list of Bursa Malaysia. 
 
Bursa Malaysia has clarified in the Questions and Answers issued in conjunction with these amendments that a disposal of “substantially all of a listed corporation’s assets” refers to a disposal of almost all of its assets, which is so material that upon the completion of the transaction, the listed corporation will trigger (a) the criteria for a cash company under Paragraph 8.03 and Practice Note 16 of the MMLR; or (b) any of the “Prescribed Criteria” referred to in Paragraph 8.04 and Practice Note 17 of the MMLR.
 
A “cash company” is defined in Paragraph 1.01 of the MMLR as a listed issuer whose consolidated assets consist of 70% or more of cash or short term investments or a combination of both and is deemed by Bursa Malaysia to be a cash company.
 
The circumstances that will trigger a “Prescribed Criteria” are set out in Practice Note 17 of the MMLR, and include a situation where a listed corporation has disposed of its business or major business, or has an insignificant business or operations.
 
REQUIREMENTS FOR A MAJOR DISPOSAL
 
A listed corporation which intends to undertake a Major Disposal must comply with the requirements set out in Paragraph 10.11A(1) of the MMLR. The main requirements are set out below.
 
Main Adviser
 
The listed corporation must appoint a main adviser in relation to the Major Disposal. The main adviser must be a Principal Adviser under the SC's Principal Adviser's Guidelines ("Guidelines") and be appointed before the terms of the Major Disposal are agreed upon.
 
The main adviser is to ensure that the Major Disposal complies with the relevant laws, regulations or guidelines and that all the information required to be disclosed in the announcement and circular are fully disclosed.
 
Independent Adviser
 
The listed corporation is required to appoint an independent adviser who is a corporate finance adviser under the Guidelines.
 
The independent adviser is required to comment on the fairness and reasonableness of the Major Disposal and any related proposals in so far as the shareholders are concerned and to advise them as to whether they should vote in favour of the proposed transaction. The independent adviser must take reasonable steps to satisfy itself that it has a reasonable basis to render the afore-mentioned comments and advice.
 
Additional Disclosure Requirements
 
The listed corporation will also be required to include the additional information set out in Part I of Appendix 10A and Part J of Appendix 10B of the MMLR, in the announcement and circular to its shareholders on the Major Disposal respectively.
 
Among the additional information to be included in the announcement are the identity of the ultimate offeror (as defined in the Malaysian Code on Take-Overs and Mergers 2010) and a statement as to whether the board of directors intends to seek alternative bids.
 
The additional information be included in the circular are statements by the board of directors as to (a) whether the Major Disposal is fair and reasonable and in the best interest of the listed corporation; (b) the future plans of the listed corporation and whether it intends to maintain its listing status; and (c) the intended utilisation of the sale proceeds and the time-frame for such use.
 
Increase in Approval Threshold Requirement
 
The final and perhaps most crucial of the new requirements in the MMLR is that the approval of a Major Disposal requires the approval in general meeting of at least 75% in value of the shareholders present and voting, in person or by proxy, on the relevant resolution.
 
CONCLUSION
 
These recent amendments to the MMLR have brought about a higher level of certainty and clarity to the capital market and have enhanced investor protection. They have been well received by stakeholders in the securities industry. The enhanced disclosure requirements promote greater transparency and enable shareholders to make an informed decision.
 
The increase in the shareholder approval threshold for a Major Disposal provides greater protection for minority shareholders. With this amendment, Malaysia has the same shareholder approval threshold as New Zealand, Hong Kong and Thailand, which have all raised their threshold for asset disposals from a simple majority to 75%.
 
These amendments effectively plug the loophole in the "asset disposal" route for the take-over of a listed corporation as shareholders of such entity will now be given the same level of protection as the other methods of taking over or privatising a listed corporation.