This article first appeared in The Edge Malaysia Weekly on December 30, 2024 - January 5, 2025

EVEN though the proposed merger between Apex Securities Bhd and Mercury Securities Sdn Bhd had long been scrapped when the issue of minority shareholder rights and oppression came before the apex court in March, the decision delivered by judge Tan Sri Nallini Pathmanathan on March 26 helped clarify legal principles in company law and mergers and acquisitions.

The three-member bench, led by Chief Justice Tun Tengku Maimun Tuan Mat alongside Federal Court judges Datuk Rhodzariah Bujang and Nallini, affirmed that the proposed merger between the two entities mooted since 2018 was lawful as it did not oppress minority shareholders of Apex Equity Holdings Bhd (KL:APEX).

In December 2018, JF Apex Securities announced it had entered into a business merger agreement (BMA) with Mercury Securities in a deal worth RM140 million, which would result in the transfer by Mercury to JF Apex of its stockbroking, corporate advisory and other related businesses, together with the requisite business assets and business liabilities.

However, the planned merger led to a court battle between minority shareholders in Apex Equity, namely Concrete Parade Sdn Bhd and Pinerains Sdn Bhd.

Concrete Parade claimed that as a minority shareholder in Apex Equity, it would be “unfairly prejudiced” by the merger, but the Federal Court judges disagreed as shareholders at a general meeting had voted in favour of the merger.

“If the majority approved the merger, how then was Concrete Parade unfairly prejudiced? All shareholders would have suffered the same fate. More importantly, it is the majority rule that prevails. The fundamental principle of governance in companies is the majority rule. As stated by the High Court, while section 346 of the Companies Act 2016 (the CA) represents a statutory intrusion into that rule, it is fundamental that unfairly prejudicial conduct must be established,” Nallini said in her judgement. “Section 346 or the cry of oppression cannot be utilised in an attempt to circumvent a situation where majority rule prevails bona fide, as in this case.”

Section 346 of the CA concerns remedy in cases of oppression.

On the procedure for mergers, Nalini said there was no need for the company to go to the shareholders twice for approval on mergers. She added that the intent and purpose of the CA do not alter or change in any manner whatsoever, as it is the shareholders’ knowledge and approval that is sacrosanct and that is protected.

In overturning the appeals court, Nallini said it was wrong in ruling there was a breach of section 223(1)(ii) of the CA, under which directors need to ensure that when the company enters into any arrangement or agreement for acquisition or disposal of property, such agreement or arrangement must be put to the shareholders at the general meeting who pass a resolution approving the entry.

The Court of Appeal decision, she said, meant that directors need to seek shareholders’ approval twice: first, before the BMA is signed, and again for the actual transfer of the shares and consideration is exchanged, including the private placement.

“The directors are accorded full powers of management of the company and to keep reverting to the shareholders on a continuous basis adversely affects the company’s performance in terms of growth and expansion.

“The costs involved in procuring shareholders’ approval are considerable. Of greater concern is the time expended in procuring such consent. Business efficacy is key in promoting economic activities. Many transactions will be aborted and opportunities lost when the CA is construed to impose greater regulation than it actually does, or needs to.

“The requiring of two sets of shareholders’ approval makes neither legal nor commercial sense, given the purpose and intent of the CA. As the primary purpose is to make shareholders aware of the proposed transaction and to get their approval for the overall aspects of the same, including matters like the private placement in the instant case for the purposes of obtaining quick financing, it is sufficient that shareholders’ approval was obtained once,” Nallini added.

Moreover, the Federal Court judge added, shareholders’ approval should be obtained at the point when most details have been ironed out, so that the shareholders have a fair comprehension of the entirety of the proposed transaction.

Ultimately, the apex court’s ruling was moot, as in April 2021, about three years after the proposed merger, Apex Equity said Mercury had informed the group that it would not be seeking any further extension of the conditions fulfilment period for the BMA, which had been mutually extended 10 times.

“As a result, the BMA has lapsed and accordingly, the proposals are discontinued,” Apex Equity said in a statement then.

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