M&A due diligence: Charge over shares

Linkedin Post

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.

Linkedin Post
When do you need a shareholders’ agreement?

Before there’s conflict, not after. The ideal time is when: – you’re bringing on your first investor – a co-founder is getting equity – someone new joins the shareholding. As the business evolves, it’s worth revisiting the shareholders’ agreement. Businesses change. So do people. Consider this real-life scenario. Two companies, …

Due Diligence
How Education Business Owners can Prepare for a Smooth Sale

If you’re planning to sell your education business, taking a few proactive steps now can save months of delay later. Based on my experience working on M&A deals in the education sector, the following are common issues that could slow down your sale and how to rectify them early: 𝟭. …

Due Diligence
𝗦𝗲𝗹𝗹𝗲𝗿 𝗳𝗮𝘁𝗶𝗴𝘂𝗲 𝗶𝘀 𝗿𝗲𝗮𝗹. 𝗕𝘂𝘁 𝗯𝘂𝘆𝗲𝗿’𝘀 𝗹𝗮𝘄𝘆𝗲𝗿𝘀 𝗳𝗲𝗲𝗹 𝗶𝘁 𝘁𝗼𝗼.

Yesterday, I came across a post which talked about seller fatigue after prolonged due diligence and multiple rounds of amendments to the sale and purchase agreement. I half-jokingly commented that buyer’s lawyers feel the same too. The truth is, a lot of the delay could be avoided if complete and …