18 April, 2016
Issuers and their respective advisors can now no longer rely on a disclaimer for liability which is customarily included as part of any teaser document or IM seeking to solicit interest of potential investors to invest in an auction sale of any equity or debt instrument. With effect from 15 September 2016, Section 256, read together with section 92A, of the Capital Markets and Services Act 2007 now provides that any provision in a “document, agreement or contract” that excludes the liability of any person who provides information to another who is investing in a capital market product will be void.
Background
The Capital Markets and Services (Amendment) Act 2015 came into force on 15 September 2015 and amends the Capital Markets and Services Act 2007 (“CMSA”) to, amongst other things bring Malaysia in line with other financial markets, enhance investor protection and clarify responsibilities of issuers and advisers under the CMSA.
One of the key amendments was to clarify if an issuer of an information memorandum ("IM") can exclude liability for false or misleading statements contained in an IM. The amendment was prompted by a Federal Court decision on the issue in February 2014.
Amendment to the CMSA
The CMSA prescribes that an issuer is required to deposit an IM with the Securities Commission Malaysia (“SC”) within 7 days of the issuance of the IM if:
(a) an offer, invitation for purchase, or issuance of shares is an “excluded offer” or “excluded issuance” under the CMSA; and
(b) the IM purports to describe the business and affairs of the issuer.
Prior to the 2015 Amendment Act, section 256 of the CMSA provided that an "agreement" is void in so far as it purports to exclude or restrict the liability of a person for, amongst other things, false or misleading statements. The Federal Court of Malaysia had the occasion to consider if an exclusion of liability in an IM would shield any claim arising from and in connection with statements made in the IM. The court ruled that as an IM is not an 'agreement', the issuer of the IM could rely on the exclusion of liability clause.
Flowing from the Federal Court decision, it was clear that investors could not make a claim against an issuer of an IM for loss resulting from false or misleading statements in the IM if liability relating to the same had been expressly excluded. This weakened the ability of an investor to rely on the veracity of information contained in the IM, and shifted the burden on them to undertake the requisite diligence before proceeding with an investment.
Following this decision, Parliament amended the CMSA to redress what it perceived to be a legal imbalance. With effect from 15 September 2016, Section 256, read together with section 92A, of the CMSA now provides that any provision in a “document, agreement or contract” that excludes the liability of any person who provides information to another who is investing in a capital market product will be void.
The amendments mean that issuers and their respective advisors can now no longer rely on a disclaimer for liability which is customarily included as part of any teaser document or IM seeking to solicit interest of potential investors to invest in an auction sale of any equity or debt instrument.
Due diligence is however a statutory defence for any false or misleading statement or material omission of information under the IM. Lead time and the costs of undertaking such a review will need to be factored into the timeline for any equity or debt transaction moving forward.
Conclusion
Given the change to the law, any person seeking to issue materials that describes its business and affairs to a prospective investor will need to exercise care in preparing an IM. The issuers and its advisers should consider establishing a working group that will diligence the information in the IM to ensure there is no false or misleading information or material omissions in the IM. This inevitably increases the transactional timeline as well as overall costs to the project, and early engagement with the advisers will be necessary.
For further information, please contact:
Adeline Wong, Partner, Wong & Partners
adeline.wong@wongpartners.com
