Compulsory acquisition of minority shares in private companies

Constitutional Provision

Article 13 Federal Constitution:

(1) No person shall be deprived of property save in accordance with law.

(2) No law shall provide for the compulsory acquisition or use of property without adequate compensation.

Shares are a form or property

Peters American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at 503, per Dixon J:

"Primarily, a share in a company is a piece of property conferring rights in relation to distributions of income and of capital."

Consequently...

1. No one can be deprived of his shares save by law.

2. No law can provide for the compulsory acquisition of shares without adequate compensation.

The law for private companies

1. Where majority shareholder being a company owns more than 90% and wants to acquire the balance less than 10% (section 180(1) Companies Act 1965); or

2. Where minority shareholder owning less than 10% wants to compel majority shareholder company owning more than 90% to acquire its shares (section 180(3) Companies Act 1965).

Intended acquisition by majority shareholder company

1. The scheme/contract involves the transfer of all shares (or all shares in a particular class) to another company. Transfers to an individual would not be entitled to rely on section 180(1).

2. Offer by acquiring company must be approved by more than 90% of shareholders within 4 months the offer is made.

Intended acquisition by majority shareholder company (2)

3. Calculation of 90% does not include shares already held by the acquiring company, its subsidiary, or its nominee. This implies that the acquiring company can be an existing shareholder.

4. Within 2 months of receiving approval from more than 90%, the acquiring company can give notice to the dissenting shareholders of its intention to acquire their shares.

Intended acquisition by majority shareholder company (3)

5. Notice given must be in prescribed form (Form 57 Companies Regulations 1966).

6. Within 1 month of receipt of Form 57, dissenting shareholder may:

• demand from the company a list of all other dissenting shareholders;

• apply to Court for an order against the acquisition or its terms.

Intended acquisition by majority shareholder company (4)

7. If dissenting shareholder seeks list of all other dissenting shareholders, he must within 7 days of being supplied with that list apply to Court to contest the acquisition or its terms.

8. Unless Court thinks fit to order otherwise, acquiring company will become entitled and bound to acquire the shares of the dissenting shareholders.

Role of Court when considering objections

1. The Court's primary function is to consider whether the proposed acquisition is fair. If proposed acquisition is not bona fide, the Court may decline to allow it to proceed (Re Bugle Press Ltd [1961] Ch 270; [1960] 3 All ER 791).

2. The onus of establishing unfairness lies upon the applicant (Re Grierson, Oldham & Adams Ltd [1968] Ch 17).

Procedure to effect compulsory acquisition

1. Acquisition must take place:• 1 month after Form 57; or• 14 days after list of dissenting shareholders

supplied to dissenting shareholder; or• after application to Court by dissenting

shareholder has been disposed of.

Procedure to effect compulsory acquisition (2)

2. Manner of acquisition is by acquiring company transmitting a copy of notice to the company, together with a signed instrument of transfer.

3. The instrument of transfer is signed:• by a nominee of the acquiring company on

behalf of the dissenting shareholder; and• by the acquiring company as transferee.

Procedure to effect compulsory acquisition (3)

4. Together with the transfer, the acquiring company must make payment for the shares to the company itself.

5. Thereafter, the company is obligated to register the acquiring company as the holder of those shares.

Procedure to effect compulsory acquisition (4)

6. The consideration paid must be held in a separate bank account by the company in trust for the dissenting shareholders.

7. After 2 years, and before the expiration of 10 years, the monies held shall be dealt with as unclaimed moneys.

Required acquisition by minority shareholders (s180(3))

1. Where pursuant to any scheme/contract, shares have already been transferred to another company resulting in the acquiring company, its subsidiary and nominee owning 9/10 of all shares, acquiring company must within 1 month give notice to the dissenting shareholders.

2. Notice under this section must be given by way of Form 58 Companies Regulations 1966.

Required acquisition by minority shareholders (2)

3. Within 3 months from receipt of the notice, the dissenting shareholder may require the acquiring company to acquire his shares.

4. Upon receipt of notice from dissenting shareholder, acquiring company is entitled and bound to acquire the shares on terms under the scheme/contract, or as otherwise agreed, or as may be set by the Court on application by either acquiring company or dissenting shareholder.

Issue of valuation for minority shares

The Court of Appeal in Shanta Holdings Sdn Bhd v Golden Uni-Consortium [2007] 7 MLJ 513 held:

• Unless price offered and accepted by majority was totally unjustified or manifestly lower or there was bad faith in the sense that the objectives was for a sinister purpose to acquire the shares by devious means, then the price should be that as offered and accepted by the majority shareholders.

Difference between s180(1) and s180(3)

1. In Shanta Holdings Sdn Bhd v Golden Uni-Consortium [2008] 2 MLJ 609, the Federal Court held:

• S180(1) is where 9/10 shareholders have approved and accepted offer by acquiring company, thereafter acquiring company has 2 months to give notice to dissenting shareholders, and dissenting shareholders have 1 month to challenge

Difference between s180(1) and s180(3) (Part 2)

• S180(3) covers situations where shares of the consenting majority equivalent to 9/10 in total value had already been transferred to the acquiring company. The acquiring company needs to give notice of the transfer within 1 month from the transfer, and it is for the dissenting shareholders to compel acquisition of their shares on similar terms or such terms to be determined by Court.

Difference between s180(1) and s180(3) (Part 3)

2. An application to Court under s180(1) can only be made by the dissenting shareholders, whilst an application to Court under s180(3) can be made by either the dissenting shareholders or the acquiring company.

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