Legal recourse for breach of mandatory bid rule in Malaysia

Abstract

In Malaysia, if an acquisition of voting shares in a public company exceeds the statutory threshold for ‘control’, the rule is that the acquirer is obliged to make a mandatory offer to acquire the remaining shares in the target company. This mandatory bid rule, as embodied in the Capital Markets and Services Act 2007 (‘CMSA’) and the Malaysian Code on Takeovers and Merger 2010 (‘the 2010 Code’), has the rationale that the control of a company has a value in itself and such value must be shared by all shareholders. Such concept of ‘equal opportunity’ is reflected in s 217(5)(b) of the CMSA. Since a takeover involves a transfer of corporate control, the mandatory bid rule also provides an opportunity for the remaining shareholders to exit the company because the character of the company may have changed under the new controller. Failure to make a mandatory offer may be visited with criminal sanctions as well as administrative actions by the Securities Commission. However, reported cases in Malaysia reveal a divergence in views as to whether a shareholder of the target company has a private law remedy premised on the breach of statutory duty under the predecessors of the CMSA and the Malaysian Code on Takeovers and Mergers. It is believed that similar cases in which the CMSA and the 2010 Code apply (if any), are yet to be reported. This article seeks to examine whether a shareholder of the target company can maintain a similar claim under the current laws