Key Issues Which May Delay An IPO In MalaysiaJuly 2019
Key Issues Which May Delay An IPO In Malaysia
By Wong Mei Ying
A company which intends to undertake an initial public offering (“IPO”) in Malaysia and list on Bursa Malaysia Securities Berhad (“Company”) must undertake a due diligence exercise on the Company and its group of companies (collectively, “Group”). One of the objectives of the due diligence exercise is to ensure any potential issue, which may affect or delay the proposed IPO and listing of the Company is resolved the soonest possible. If there is any major issue, the Company is required to resolve the issue prior to the submission of its proposed IPO and listing to the Securities Commission Malaysia and/or Bursa Malaysia Securities Berhad (“Submission”).
The following are some of the common key issues which may delay a Company’s IPO and listing exercise:
1. Are there certificates of completion and compliance or certificates of fitness for occupation for all the properties occupied by the Group?
It is an offence under section 70(27) of the Street, Drainage and Building Act 1974 (“Act”) for any person to occupy or permit to be occupied any building or part thereof without a certificate of completion and compliance (“CCC”). This provision has a wide effect as it may cover owners, occupiers, tenants and purchasers of buildings. The CCC must be issued by a qualified person who submits building plans to the local authority for approval in accordance with the Act or any by-laws made under the Act. On conviction, the offender is liable to a fine not exceeding RM250,000 or to imprisonment for a term not exceeding ten years or to both.
Prior to the Street, Drainage and Building (Amendment) Act 2007 which came into force on 12 April 2007, the equivalent of CCC was the certificate of fitness of occupation (“CF”) issued by the local authority under the Uniform By-Laws of the Street, Drainage and Building Act 1974. The Group must ensure that there are proper CCCs or CFs for all the properties occupied by the Group, whether the properties are owned or rented by the Group.
2. Do the buildings owned by the Group comply with the building plans approved by the local authority?
Notwithstanding CCCs or CFs having been obtained, some owners or occupiers subsequently create extensions or additional structures to the properties without approval of the local authorities. The buildings on the properties owned by the Group must comply with the building plans approved by the local authorities under the Act or any by-laws made under the Act.
3. Is there a valid fire certificate for every designated premises occupied by the Group?
Pursuant to section 28(1) of the Fire Services Act 1988, every designated premises shall require a fire certificate. The Fire Services (Designated Premises) Order 1998 sets out a schedule of designated premises which require a fire certificate under the Fire Services Act 1988. A fire certificate must be renewed annually. Failure to have a fire certificate in force in respect of any designated premises is an offence and on conviction, the owner of the premises is liable to a fine not exceeding RM50,000 or to imprisonment for a term not exceeding five years or to both.
4. Does the Group require manufacturing licence for its activities?
Under the Industrial Co-ordination Act 1975, “manufacturing activity” means the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal and includes the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade. Generally, pursuant to the Industrial Co-ordination Act 1975 and Industrial Co-ordination Exemption Order 1976, manufacturing companies with shareholders’ fund of RM2.5 million and above or employing 75 or more full time paid employees are required to have a manufacturing licence. Contravention of this provision is an offence and on conviction, the offender is liable to a fine not exceeding RM2,000 or to imprisonment not exceeding six months and to a further fine not exceeding RM1,000 for every day during which such default continues. The manufacturer must have a manufacturing licence in respect of all the products to be manufactured and for each place of manufacturing.
5. Does the Group have valid licences, permits and approvals required to conduct all its activities?
The Group must have valid licences, permits and approvals required under the law to conduct all of its business activities. Any licences which have expired should be renewed before the Submission. If a licence is considered a major licence, the principal adviser may require a valid licence to be obtained or renewed prior to the Submission.
6. Does the Group have any tax issues?
The Group is expected to have good corporate governance and to be in compliance with the law. Any adverse ongoing tax investigation or non-compliance with tax law is likely to cast doubts on the Group. If the tax issue is material, the Group may be required to resolve the issue before Submission, which may delay the Company’s IPO and listing.
7. Are there any equity conditions imposed on the licences, permits and approvals of the Group?
There may be conditions imposed on the licences, permits and approvals of the Group which require the shares of the holders of the licences, approvals or permits to be held by Bumiputera or Malaysians. Any reorganisation of the Group prior to the Company being listed must take into account such equity conditions.
8. Are there any consents from or notifications to authorities, financial institutions or counter parties of agreements entered into by the Group which are required for the listing or the change of share capital, shareholders or directors of the Group?
The terms of the licences, approvals or permits granted by the authorities or the banking facilities granted to the Group or the agreements entered into by the Group may require the relevant companies within the Group to notify or seek prior consent from the authorities, financial institutions or counterparties for the proposed listing of the Company or any change of share capital, shareholders or directors of the Group. The time required to get the prior written consent from the authorities, financial institutions or counterparties, if necessary, should be taken into account in the timetable for the proposed IPO and listing of the Company.
9. Are there any confidentiality provisions in the contracts entered into by the Group which prohibit disclosure in the prospectus?
Pursuant to the Prospectus Guidelines issued by the Securities Commission Malaysia, the Company is required to disclose information such as the Group’s significant products or services, major customers, major suppliers, contracts which the Group is materially dependent on and material contracts outside the Group’s ordinary course of business. The contracts entered into by the Group with its counterparties may contain confidentiality provisions which prohibit disclosure of all or certain terms of the contracts or the business dealing between the parties to third parties. The Group may need to seek waiver or obtain prior written consent from the counterparties of the contracts to disclose certain information in the prospectus. The time required to get the waiver or prior written consent from the counterparties of the contracts, if necessary, should be taken into account in the timetable for the proposed IPO and listing of the Company.
10. Are the foreign workers legally employed?
The Group must ensure foreign workers working for the Group, whether employed directly by the Group or outsourced from employment agencies, are legally permitted to work in Malaysia and comply with the conditions of their working pass such as the premise where the foreign workers are permitted to work. There are various offences under the Immigration Act 1959/63 if a person is found hiring or harbouring illegal workers.
The above is not an exhaustive list of issues which may affect or delay the proposed IPO and listing of the Company. As it takes time to rectify the issues, the Company should discuss with its advisers on the steps to take to resolve the issues as soon as possible.
The information in this article is intended only to provide general information and does not constitute any legal opinion or professional advice. The law as stated in this article is current as of 19 July 2019.