The Securities Commission Malaysia (SC) and Bursa Malaysia are mandated to regulate the capital market and protect investors.
But their roles and structural limitations often create challenges for minority shareholders.
Minority shareholders frequently bear the brunt of financial losses during public listed company (PLC) delistings.
Take the case of those PLCs who faces delisting after Bursa Malaysia rejects their regularisation plans.
It is incredibly frustrating when a company is delisted because its regularisation plan fails.
When a company falls into financial distress and triggers Bursa Malaysia’s Practice Note 17 (PN17) or Guidance Note 3 (GN3) status, the board's legal duty is to rescue the corporate entity.
However, in practice, the restructuring mechanisms chosen heavily favor the survival and control of the majority owners, frequently at the expense of minority shareholders.
The primary goal of a regularisation plan is to inject capital and wipe out debt.
But most of the time, the structural design of these financial instruments inherently compromises small investors:
- Massive Capital Reductions: Boards often first propose cutting the existing paid-up capital (e.g., cancelling 90% of the share value) to wipe out accumulated losses. While necessary to fix the balance sheet, this immediately slashes the book value of minority holdings.
- Highly Dilutive Private Placements: To bring in cash or white knights, boards issue large blocks of new shares directly to specific investors or the founders themselves. Because these are issued at deep discounts, the minority’s ownership percentage and earnings-per-share (EPS) are severely diluted.
- The Debt Settlement Trap: When debts are settled by issuing new shares to creditors (who are often aligned with the majority owners or bank lenders), the existing public float shrinks in influence, further consolidating control in fewer hands.
Yes, noted that Bursa Malaysia and the Securities Commission (SC) mandate strict disclosure rules. But they, however, cannot dictate commercial terms.
E.g the regulatory safeguard requires Independent Advisers to assess if the regularisation plan is fair to minorities but in reality and many a times, advisers routinely declare plans "not fair but reasonable" because the only alternative presented is corporate liquidation, forcing minorities to accept the lesser of two evils and controlling shareholders only need to abstain if they have a direct conflict under "Related Party Transaction" rules. If the restructure is framed as a general mandate or white-knight injection, they can often vote to pass it.
In corporate restructuring, the phrase "save the company" is frequently used as a cover to save the majority shareholder's wealth and control.
When a Public Listed Company (PLC) enters PN17 or GN3 status, the financial reality shifts from wealth creation to loss mitigation.
Because major shareholders often have their personal net worth, family legacies, or collateralized bank loans tied to the company's survival, their restructuring strategies are designed to protect their own downside first.
E.g many a times, majority owners who own separate, private businesses often structure their regularisation plans to inject their private assets into the distressed PLC.
These are not fantastically profitable businesses.
Often times, these are toxic assets which they are dumping into the PLC.
They frame this as "injecting a profitable white-knight business," and the valuation is often questionable.
When private assets are injected, the profit guarantees provided by the major shareholder is a tell tale sign of a toxic asset being injected in.
If the guarantees are short-term and lack bank-backed security, the major shareholder is likely offloading a dying asset to the PLC to rescue themselves.
And they have advisors to fall back on who will say the offer is not fair but reasonable given the alternative is worse off.
The major shareholder gets newly minted PLC shares at a discount, while the minority's stake is heavily diluted to acquire a mediocre asset.
When designing a debt settlement plan, the founders and major directors often prioritize paying off or converting the debts that carry their personal liabilities, even if other corporate debts or operational needs are more critical for the company’s long-term survival.
Major shareholders are often willing to wipe out 90% of the existing equity through a massive capital reduction because they know they can immediately replenish their holdings by subscribing to a cheap, exclusive private placement or converting directors' loans into new equity right after the reset, they regain dominant control of a clean balance sheet, leaving the minority holding pennies.
Both SC and Bursa don’t second-guess commercial decisions if the board can argue that a regularisation plan was done in "good faith" to prevent bankruptcy.
This gives major shareholders massive leeway to structure deals that benefit themselves, under the legal umbrella of preventing total corporate liquidation.
And major shareholders exploit the fact that if minority shareholders vote down an unfair regularisation plan at an Extraordinary General Meeting (EGM), the company will default, face delisting, and head into winding-up proceedings.
Minorities are forced to vote "Yes" to a predatory plan because a highly diluted share is still worth more than a bankrupt, unlisted share.
Time for SC and Bursa Malaysia to step up in their roles and really `protect’ the interests of the minority shareholders.
If the request cannot be implemented, the clause referencing Practice Note 17 (PN17) and Guidance Note 3 (GN3) must be removed in its entirety.
The inclusion of these specific regulatory triggers introduces significant risk of involuntary suspension or delisting, which functions to lock up equity and depress share value. Consequently, these clauses act to the severe detriment of minority shareholders' interests rather than serving as a protective mechanism.
While regulators focus on systemic health, the practical reality for minority investors remains highly punitive.
Once a company transitions to an unlisted entity, it is no longer subject to the strict disclosure rules, continuous listing requirements, and quarterly auditing timelines enforced by Bursa Malaysia and the SC.
In the final trading days leading up to a regularisation rejection suspension, panic selling frequently triggers massive price drops.
Shareholders are forced to choose between selling at fractions of a sen or holding onto private shares that have zero secondary market liquidity.
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