*Scenario*

A public company listed on Bursa Malaysia (seller) disposes some of its shares in its wholly owned subsidiary which is not listed (target company). After completion of the disposal, the target company will become an associated company of the seller.

There is an existing guarantee given by the seller as security for a loan granted by a bank to the target company.

In the sale and purchase agreement, the seller and buyer agree to bear any liability relating to the guarantee in proportion to their shareholding in the target company.

*Whether the guarantee is in compliance with the provision on financial assistance under the Listing Requirements*

Under paragraph 8.23 of the Main Market Listing Requirements (MMLR) and rule 8.25 of the ACE Market Listing Requirements (AMLR), provision of financial assistance means (1) lend or advance money; or (2) guarantee, indemnify or provide collateral for a debt.

The same provisions under the Listing Requirements provide that a PLC or its unlisted subsidiaries may guarantee for a debt, to or in favour of (1) the subsidiaries, associated companies or joint arrangements of the PLC; (2) the PLC (in the case of the subsidiaries providing the financial assistance); or (3) its immediate holding company which is listed, subject to the following:

1. The board of directors of the PLC must ensure that the provision of the guarantee is fair and reasonable to the PLC and is not to the detriment of the PLC and its shareholders;

2. Where the provision of financial assistance is a related party transaction, the PLC must comply with the requirements in relation to RPT under paragraph 10.08 (MMLR) or rule 10.08 (AMLR);

3. Where the aggregate amount of financial assistance provided or to be provided at any time to each associated company or joint arrangement of the PLC compared to the net tangible assets of the group is 5% or more, the PLC must issue a circular to its shareholders and seek shareholder approval in a general meeting, of such provision of financial assistance; and

4. Where shareholder approval is required for the provision of financial assistance, the PLC must state in its circular, the proposed utilisation of the amount of the financial assistance.

In the above scenario, the seller needs to consider and comply with paragraph 8.23 of the MMLR or rule 8.25 of the AMLR (where applicable) in respect of the guarantee given as security for the loan granted by a bank to its wholly owned subsidiary which will become an associated company after completion of the disposal of shares.

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This post was first posted on Linkedin on 18 June 2021.