‘SUBSTANTIAL PROPERTY'

TRANSACTIONS: TRANSACTIONS
WITH DIRECTORS & DISPOSAL OF
ASSETS OF A SUBSTANTIAL VALUE:
sec 228 & sec 223
Prof Dr Aiman Nariman Mohd Sulaiman
Transaction with directors ,
substantial shareholders or
connected persons- sec 228
 scope of section
3

disposes to

director,
company substantial shareholder
or
shares or non-cash assets persons
of a substantial value connected with them
( or director of its
hoding company...)

acquires from
 sec 228(1) - ..a company shall not enter into or
carry into effect any arrangement or
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transaction...
Person/ party involved
• A director of the company
or of its holding company;
• Substantial shareholder of
the company or its holding
company
• Or person connected to
such director or substantial
shareholder
• sec 197- persons
connected with directors
• Sec 136-substantial
shareholder
• Sec 228(8)(a)-person
connected with a
substantial shareholder
transactions
• Acquires or is to acquire
Value
shares or non-cash assets
from the company • Shares or non-
• Disposes of or to dispose
of shares or non-cash
cash assets of
assets to the company the requisite
• Sec 228(9) includes the
value
creation or extinction o an
estate or interests in, or a
• Sec 228(8)(b)
right over, any property and (c)
and also the discharge of
any person’s liability ,
other than liability for
liability for liquidated sum
 ..under sec 228(1)..unless-
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 (i) the entering into the arrangement or transaction is made

subject to the approval of shareholders at a general
meeting; or
 (ii) the carrying into effect of the arrangement or transaction
has been approved by shareholders at a general meeting.
 Requisite value-sec 228(8)
6
 (b) For listed companies or its subsidiaries, in accordance with
listing requirements
 (c) non cash asset…,
 if at time of transaction, its value exceeds RM250,000 or

 if it does not exceed RM250,000 but exceeds 10% of the

company’s net asset value provided it is not less than
RM50,000,
 The value of company’s asset is determined by reference
to accounts prepared under sec 245 in respect of the last
financial year prior to transaction; or
 If no accounts prepared and laid before that time, the
amount of the company's share capital
 …approval of shareholders at a general meeting..
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 S 228(3) for unlisted subsidiary whose holding company is a

listed company,
 the directors of such holding company shall procure the
shareholders’ approval of the holding company in a general
meeting for the arrangement or transaction by the unlisted
subsidiary
 in addition to the shareholders’ approval of the unlisted
subsidiary in a general meeting procured by the directors of
the unlisted subsidiary.
 228(2) an arrangement or transaction which is carried
into effect...shall be void, unless..
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There is prior approval
of the arrangement or
transaction—
by a resolution of the
company;
• directors of holding Co
for unlisted shall procure Holding Co’s
shareholders’ approval
subsidiary of • in addition to unlisted
a listed sub’s shareholders’
approval procured by its
holding Co, directors

A public
company or
by a resolution of the holding • The interested persons ,
company, [if the relevant its holding shall abstain form voting
person is associated with the company or
holding company] its subsidiary
 sec 228(4) of CA2016
[= sec132E of CA 1965]
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 Prohibition from voting on the transaction on

 the director,
 substantial shareholder
 or person connected with such director or substantial
shareholder,
 (3) The resolution of the company or its holding
company at the general meeting of the company or its
holding company to consider the arrangement or
transaction shall be subject to the director, substantial
shareholder or person connected with such director or
substantial shareholder, as the case may be,
abstaining from voting on the resolution whether or
not to approve the arrangement or transaction
 exceptions -sec 229
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 (a) within corporate groups
 (i) & (ii)between a holding company and its wholly owned
subsidiaries
 (iii) between wholly owned subsidiaries of the same holding
company
 (b)a company being wound up by court and under creditors'
voluntary winding up
 (c) disposal of assets (i.e. transactions) in the ordinary course
of business...
 (d) ......
 (e) under scheme of arrangement approved by the court
 (f)under takeover rules
 Enforceability under 228 CA 2016
 Transaction shall be void
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 status of waiver from obtaining GM’s approval

In Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd [2014] 3 MLJ
301
 Tan to acquire from Code Focus, the shares of CHSB for RM16 million., subject to
certain conditions, including approval of Foreign Investment Committee & Code Focus’
shareholders in an EGM-Tan alleged several conditions not fulfilled, refused to pay
remaining purchase price. CF terminated contract & forfeited deposit. Tan challenged
termination
 High Court- contract lawfully terminated, since both parties agreed shareholders’ approval
not needed, (letter issued by Tan to Code Focus)
 Court of Appeal- letter waiving compliance from obtaining shareholders’ approval under s
132C, Companies Act 1965 (CA 1965) was void. Transaction voidable at the option of
plaintiff, who was entitled to refund of deposit & to damages.
 Federal Court - unlawful to waive compliance with the statutory requirements of s 132C,
CA 1965- clearly states that a contravention of section renders transaction void except
where third party had given valuable consideration and had no actual notice of the
breach. The letter of waiver indicated that the parties were aware that s 132C requires
shareholders’ approval to be obtained and that the company did not obtain such approval
 Who can challenge
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 228 CA 2016
 (6) The Court may, on the application of
 any member or
 director of the company…
 Similar to sec132E CA 1965
 any member or director of the company can apply to court
to restrain the directors from entering into the transaction;
 Court may restrain the company from entering or
carrying into effect an arrangement or transaction in
contravention of subsection (1).
 injunction
cannot be granted where the transaction has
been entered into or completed.
 Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd &
Anor & other appeals 3 [2012] MLJ 616.
 MUI PLAZA SDN BHD v HONG LEONG
BANK BHD[1998] 6 MLJ 203
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 a tenancy dispute between the plaintiff and the

defendant relating to the lease of MUI plaza.
 the plaintiff brought proceedings for arrears in rental
against the defendant, the defendant raised the
argument that the transaction was voidable as it fell
within sec 132E and was not entered into with
shareholders’ approval.
 At the time of the transaction , both MUI Plaza and
Hong Leong Bank had a common shareholder. Tan Sri
Koo Pay Ping who was also a substantial shareholder
of Mui Plaza Sdn Bhd
 Liability for contravention- sec 228(5)
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Account to the company • Interested person; &

for any gain which he had • any director who knowingly authorized the
made directly or indirectly arrangement or transaction

Jointly & severally

Indemnify the company • Interested person; &
for any loss or damage • any director who knowingly authorized the
damage resulting from the arrangement or transaction
transactions

• Interested party in whose favour the company carries into

Criminal
effect an arrangement or transaction and who knows that
liability ; a such arrangement or transaction is carried into effect by a
term ≤ 5 years company in contravention of this section
OR fine ≤ RM
• director who knowingly authorized the arrangement or
3M OR to both transaction
223 disposal or acquisition of
company's assets of a certain
value by directors
 scope of section
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Acquires
undertaking or property of a
BOD substantial value
Shall not
disposes

Must obtain shareholders’ approval entering into the arrangement

to carry into effect the arrangement or transaction is made subject
or transaction to shareholders’ approval
 Sec 223 under CA 2016 – the directors shall not enter
or carry into effect any arrangement or transaction for
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 the acquisition of an undertaking or property of a

substantial value; or
 the disposal of a substantial portion of the
company's undertaking or property,
UNLESS
 (i) the entering into the arrangement or transaction
is made subject to the approval of shareholders at
a general meeting; or
 (ii) the carrying into effect of the arrangement or
transaction has been approved by shareholders at
a general meeting.
18

 Disposal does not include entering into a JVA

because a JVA does not transfer beneficial interests
over the company’s assets- Pioneer Haven Sdn Bhd v
Ho Hup Construction Co Bhd & Anor & other appeals
[2012] 3 MLJ 616.
 Compare with s132C, CA 1965
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 any arrangement or transaction for --

 the acquisition of an undertaking or property of a
substantial value; or
 the disposal of a substantial portion of the company's
undertaking or property,
 unless the arrangement or transaction has been
approved by the company in a general
meeting.
 S 223(2)(c) for unlisted subsidiary whose holding
company is a listed company,
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 the directors of such holding company shall procure the

shareholders’ approval of the holding company in a general
meeting for the arrangement or transaction by the unlisted
subsidiary
 in addition to the shareholders’ approval of the unlisted
subsidiary in a general meeting procured by the directors of
the unlisted subsidiary.
 'Substantial value' for PLC
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 2(b) in the case of a company where all or any of its

shares are quoted on a stock exchange, or its subsidiary,
the term “substantial value” or “substantial portion” shall
mean the same value prescribed in the listing
requirements of the stock exchange where approval of
the shareholders at a general meeting is required;
 Par 10.6 of the Listing Requirements-percentage ratio of
the acquisition is equal or exceeds 25% of the net
tangible asset (NTA)
 Percentage ratio is [ para 10.02(h)], among others, value
of the assets which is the subject matter of the
transaction, compared with the net assets of the listed
company
 Substantial value' for non-listed companies
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 (3) Non listed company, if --

 its value exceeds twenty-five per centum of the total
assets of the company;
 the net profits (after deducting all charges except
taxation and excluding extraordinary items)
attributed to it amounts to more than twenty-five per
centum of the total net profit of the company; or
 its value exceeds twenty-five per centum of the issued
share capital of the company,
 whichever is the highest.
23
24
 Paragon Union Bhd v Prestamewah Dev Sdn Bhd [2018] 4
MLJ 307, at 328-333.[COA]
 Sec 132C & para 10 of BMLR

 Dispute regarding the value of the property, where the

value was reduced from RM28 to RM18 was to
circumvent shareholders’ approval
 Rayston Resources Sdn Bhd v LGB engineering Sdn Bhd
[2019] MLJU 763
 Shareholders’ Approval is required;

 company convened EGM which was declared null and

void
 Shares acquired was 25% of total assets
 enforceability
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 223 CA 2016
 (4) The Court may, on the application of any member,
restrains the directors from entering or carrying into
effect an arrangement or transaction in contravention
of subsection (1).
 Similar to sec132C CA 1965
 any member or director of the company can apply to court
to restrain the directors from entering into the transaction;
 Court may restrain the company from entering or
carrying into effect an arrangement or transaction in
contravention of subsection (1).
 injunction
cannot be granted where the transaction has
been entered into or completed.
 Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd &
Anor & other appeals 3 [2012] MLJ 616.
 enforceability; case law 132C CA 1965 =
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CA 2016?
 Cannot waive compliance with section; it is
unlawful for parties and/or the company to
voluntarily agree not to obtain shareholders’
approval
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ 301 (FC) followed in
 Lau Tiong Ik Construction Sdn Bhd v Lau Chung
Ping [2017] 8 MLJ 509 (HC) –Contracts Act
1950 that party who received any advantage
under void contract must restore it; shares to be
transferred back to plaintiff