For IPO exercise in Malaysia, the following usually takes place before submission of the IPO application to the authorities:

• conversion of the holding company (Listco) from a private company to a public company (Conversion);
• the Listco enters into agreements with promoters to acquire their shares in the proposed subsidiaries to form the listing group (Pre-IPO Restructuring Agreements).

Consider the following before converting a public company to a private company:

Interested director not to vote 

1. Under section 222 of the Companies Act 2016 (CA 2016), a director of a company who is interested in a contract entered into by the company, shall not vote on the contract.

This restriction applies to a public company but not to a private company unless it is a subsidiary of a public company.

Approval of the directors of the Listco is required to authorise the execution of the Pre-IPO Restructuring Agreements on behalf of the Listco.

In an IPO exercise, generally the existing executive directors of the Listco are also the promoters who are interested in the Pre-IPO Restructuring Agreements. Upon Conversion and if there are no non-interested directors who can vote on the Pre-IPO Restructuring Agreements, directors’ resolution cannot be passed until independent directors are appointed. To avoid this situation, consider:

• appointing independent directors so that they can pass the resolutions for the pre-IPO restructuring; or
• passing the relevant directors’ resolutions and executing the Pre-IPO Restructuring Agreements before Conversion.

Interested shareholders not to vote

2. Section 228(1) of the CA 2016 prohibits a company from entering into a transaction where a director or substantial shareholder of the company or persons connected to them disposes shares of requisite value to the company, unless the entering into the transaction is made subject to shareholders’ approval at a general meeting.

In the case of a public company, section 228(4) requires the director or substantial shareholder or person connected to them who is interested in the transaction to abstain from voting on the resolution at the general meeting to consider the transaction.

Consider:

• Are the shares in the Pre-IPO Restructuring Agreement of requisite value (as defined in s. 228)?
• If yes to (a), is there any non-interested shareholder in the Listco who can approve the pre-IPO restructuring?

If there is no non-interested shareholder, shareholders’ approval should be obtained and Pre-IPO Restructuring Agreements should be executed while the Listco is still a private company.

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This post first posted on LinkedIn on 13 June 2024.