UCO 3622 | COMPANY LAW II

TRIMESTER 2, 2015/2016
LECTURE 1: FINANCING A COMPANY
PLEASE REFER TO THE COMPANY LAW II (UCO 3622) WEBSITE ON MMLS WHICH GIVES
DETAILS OF THE COURSE TOGETHER WITH ALL HANDOUTS.
Seminar Objectives
To understand how a company may raise funds.
To consider the regulations in securities offering
To consider the consequences of breaches of CMSA provisions relating to prospectus

1. Introduction
A company may raise funds in various ways to run its business.
- Most common way: issue shares or debentures to the public.
Definition of securities: s 2 Capital Markets and Services Act 2007 (CMSA).
Regulation of securities offering in Malaysia:
- Merit based regulation disclosure based regulation.
Transfer of the legal provisions regulating prospectuses
- 2000: Companies Act 1965 (CA) to the Securities Commission Act 1993 (SCA)
- except prospectuses for the offer for subscription or purchase of shares or debentures of
unlisted recreational club.
Transfer of provisions relating to fund raising
- 2007: SCA CMSA

2. Scheme of Regulation for Securities Offering Under CMSA

Two-tiered system of approval.
a. whether the offer of securities requires the Securities Commission (SC)s approval under
s 212 CMSA
b. whether a prospectus must be registered under s 232 CMSA
Since 1/7/2000, SC has taken over the functions of registration of prospectuses from the
Registrar of Companies for most offers of securities.

3. Approval for Offers of Securities: s 212 CMSA

SCs approval is required for offers of securities: s 212(2) CMSA
List of transactions which do not require SCs approval
- under s 212 CMSA
- see Schedule 5 CMSA.

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4. Due Diligence Requirements

Sections 214(1), (3) CMSA
Contravention of s 214(1) or (3) CMSA = offence: s 214(5) CMSA
Defence: s 214(2) CMSA
SCs Guidelines on Due Diligence Conduct for Corporate Proposals
- sets out the due diligence duties of the relevant parties involved in a securities offering
(issuers, advisers and experts).
- See:
http://www.sc.com.my/main.asp?pageid=292&menuid=212&newsid=&linkid=&type=

5. Prospectus
Definition of Prospectus under CMSA
Section 226 CMSA.
The definition is extended by s 242(1) CMSA.
Objective/Purpose
Primary purpose of a prospectus
Division 3, Part VI of the CMSA (Prospectus) is aimed at ensuring that investors who are
considering subscribing for securities in a company have adequate and accurate
information about the company and the securities to be issued.
Requirement to register prospectus
Sections 232(1), 232(2) CMSA.
Consequence of contravening s 232 CMSA.
See: s 232(7) CMSA.
Exemptions from registration
Excluded offer or excluded invitation: Schedule 6, CMSA; or
Excluded issue: Schedule 7, CMSA; or
Minister of Finance makes a prescription pursuant to s 229 or s 230 CMSA.

Contents of prospectus s 235 and s 236 CMSA

- The scheme for regulation of contents of prospectuses envisages 2 parallel duties.
a.
Specific disclosure: s 235(1) CMSA
- See also: Prospectus Guidelines issued by SC

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b.
-

http://www.sc.com.my/eng/html/resources/guidelines/prospectus/gl_prosp
ectus_090508.pdf
General duty of disclosure: s 236 CMSA.

Expert: s 235(1)(d) CMSA.

Application for waivers from requirements relating to the form and content of
prospectuses: s 235(3) CMSA.
Pre-requisite for an order for relief from the form and content of prospectuses: s 235(5)
CMSA.

Situations where SC shall refuse to register prospectus

- Reasons for SC to refuse to register a prospectus: s 233 CMSA
Registrable Prospectus (Prospectus Exposure)
- CMSA allows the SC to publish a draft prospectus which has not been registered but
which the public can comment upon. See: s 232(4) CMSA.
- See
also:http://www.sc.com.my/sub.asp?pageid=&menuid=329&newsid=&linkid=&type=S
(Prospectus Exposure)
Meaning of "registrable prospectus": s 232 (6) CMSA.
Lodgment of prospectus
- From 1/7/2000, the SC is the approving and registering authority for prospectuses,
except for prospectuses issued by unlisted recreational club.
- Unlisted recreational club - the approving and registering authority is the Companies
Commission of Malaysia (CCM).
- A prospectus registered with the SC must still be lodged with the CCM.
- CCM - repository for prospectuses other than prospectuses for unit trust and prescribed
investment schemes: s 234 CMSA.
- SC - repository for unit trust prospectuses
Abridged Prospectus
- Section 237 CMSA.
Supplementary and Replacement Prospectus
- Section 238 CMSA.
- Securities other than unit trusts - requirement to register supplementary or replacement
prospectus arises where a prospectus has been registered but before the securities are
issued.
- Unit trust scheme - requirement for registration of the supplementary or replacement
prospectus applies as long as the prospectus is registered.
- Comparison between supplementary prospectus and replacement prospectus :
- Supplementary prospectus, see: s 238(9), s 238(7) CMSA.

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Replacement prospectus, see: s 238(6), (8) CMSA

Consequence of registering a supplementary or replacement prospectus: s 239(3)
CMSA.

Restrictions in advertising
- The type of information which is allowed to be disclosed prior to the registration of the
prospectus is limited to that set out in s 241(4)(b)(i)-(ix) CMSA.
- Q: Why there are such restrictions?
Consequences of Breach of s 235 and s 236 CMSA
- Failure to comply with s 235 and 236 CMSA may result in:
a. SC refusing to register the prospectus: s 233(1) CMSA
b. SC issuing a stop order to the issuer directing the issuer or any other person not
to allot, issue, offer, make an invitation to subscribe for or purchase or sell,
further securities: s 245(1) CMSA.
Consequences of issuing a stop order :
(i) where the securities have not been issued to the applicants: s
245(7)(a)
(ii) where securities have been issued to the applicant: s 245(7)(b)
-

Once the securities are listed on a stock market of a stock exchange and
trading has commenced, the stop order cannot be issued: s 245(8)
CMSA.

Non-compliance with the stop order issued by the SC is an offence

against CMSA :s 245(9) CMSA.

c. Issuer and any other persons responsible for causing the prospectus to
contravene s 235 and 236 CMSA incurring criminal and civil liabilities out of a
statement or information that is false or misleading in a prospectus.
Criminal liability
- Criminal liability for false or misleading statement or material omission from prospectus.
See: s 246(3) CMSA.
- Criminal liability for non-compliance with s 235 CMSA. See: s 235(7) CMSA.
- Criminal liability for non-compliance with term/condition imposed by SC when making an
order relieving a person from or approving any variation of the requirements of CMSA
relating to the form and content of a prospectus. See: s 235(8) CMSA.
Civil liability
- Civil liability for damage resulting from false or misleading statement in prospectus. See:
s 248 CMSA.
- Civil liability for misleading or deceptive acts. See: s 249 CMSA.

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Q: What are the main differences between the scheme for liability for misleading statements and
omissions in prospectuses and that of misleading or deceptive acts?
Defences to liability
- Persons liable under s 246 and s 248 CMSA for defective prospectuses that contain
false or misleading statements, or in which material omission occurs, may avoid liability
if they can establish one or more of the defences set out in s 250, 251, 253 and 254
CMSA.
s 250 CMSA: Due diligence defence.
s 251 CMSA: Reliance on statement and information in respect of false or misleading statement.
s 253 CMSA: Reliance on public official statement in respect of false and misleading statement.
s 254 CMSA: Defence of withdrawal of consent.

Persons liable under s 249 CMSA for misleading or defective acts, may avoid liability if
they can establish the defence set out in s 252 CMSA.
s 252 CMSA: Reliance on statement and information in respect of misleading or
deceptive act.

Recommended Reading:
Shanti Rachagan et al, Concise Principles of Company Law in Malaysia (2nd edn Lexis
Nexis, Petaling Jaya 2010), Chap 7
Shanti Geoffrey, Capital Markets Laws of Malaysia (Lexis Nexis, Petaling Jaya 2010),
Chap. 7.
Capital Markets and Services Act 2007

Putri Syaidatul Akma Mohd Adzmi