M&A due diligence: Charge over shares

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One of the objectives in M&A due diligence is to ascertain that the seller has good title to the seller’s shares in the target company.

This include verifying whether any charges or encumbrances have been created over those shares. Three ways to do this:

1. Include questions in the legal due diligence checklist to the seller to enquire about the ownership and charges over the shares in the target company.

2. Unlike land, there is no registry of charges created over shares of companies. However, a company is required under the Companies Act 2016 to register a charge created over the company’s property or undertaking with the Companies Commission of Malaysia (“CCM”). Therefore, if the seller is a company, search could be conducted with the CCM to establish whether the seller has created any charge over the shares held by the seller in the target company. If should be noted that the accuracy of the search result depends on due filing of the charge with the CCM.

3. Include appropriate representations and warranties when preparing and negotiating the share sale and purchase agreement. If there are charges created over those shares, the seller should make the necessary disclosure to the buyer.

#malaysiancorporatelawyer
#mergersandacquisitions
#legalduediligence

This post was first posted on Linkedin on 11 May 2022.

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