Related party transaction within an M&A deal


When a buyer enters into an agreement with a seller to acquire shares of a company from the seller (“Transaction”), the buyer and the seller may negotiate for some other deals involving the target company to be included in the sale and purchase agreement in respect of the Transaction. For example, the parties may agree for the target company to provide goods and/or services to the seller after completion of the Transaction. This would give rise to recurrent related party transaction (“RRPT”) if the seller remains a major shareholder of the target company after completion of the Transaction. If the target company is a public listed company (“PLC”) or a subsidiary of a PLC, consideration should be given to the requirements in respect of RRPT under the Listing Requirements. The requirements include immediate announcement of the RRPT by the PLC if the thresholds specified in the Paragraph 10.09(1) of the Main Market Listing Requirements or Rule 10.09(1) of the ACE Market Listing Listing Requirements, as the case may be, are met. Shareholders’ approval is required for the RRPT. The PLC must also ensure the requirements under Paragraph 10.09(2) of the Main Market Listing Requirements or Rule 10.09(1) of the ACE Market Listing Requirements, as the case may be, are complied with, which include the following:

  • the RRPT must be in the ordinary course of business and are on terms not more favourable to the related party than those generally available to the public;
  • the shareholder mandate is subject to annual renewal; and
  • the PLC’s circular to shareholders for the shareholder mandate includes the information prescribed by Bursa Malaysia Securities Berhad.

In the event the target company in the example above is not listed but intends to be listed or form part of a group of companies to be listed, a RRPT that does not comply with the Listing Requirements may be a potential pitfall for the listing exercise.

A PLC is subject to the sanctions set out in chapter 16 of the Main Market Listing Requirements or ACE Market Listing Requirements, as the case may be, for failure to comply with the Listing Requirements, which include reprimand by Bursa Malaysia Securities Berhad, fine and/or suspension of trading of listed securities.

The information in this article is intended only to provide general information and does not constitute legal opinion or professional advice.

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