KUALA LUMPUR: The absence of proper succession planning in a public listed company (PLC), in the event of a major shareholder’s death, can lead to adverse consequences, including losing control of the PLC, loss of funds amounting to tens or hundreds of millions, even family tussles and distress amid the fight for capital and control.
ROCKWILLS CORP Sdn Bhd group chairman Johari Low (pix) said major shareholders must plan before their demise because dying without leaving instructions on how the business should be continued can be chaotic and disruptive.
The percentage of PLCs that have proper succession planning is very low.
“Name it in your succession instrument who you want to be the (next) managing director. Do it wisely, you don’t want to set too many things that restrict them from expanding. But on the other hand, you don’t want them to be over-adventurous. You can set limits to how much they can borrow so they don’t go and gamble away your assets,” he told SunBiz in an interview recently.
Without a proper succession plan, Low said a firm could face negative consequences.
Low said owners of PLCs have this false notion that one has liquidity (liquid assets) by owning a block of shares in the PLC (may or may not be true).
“If he’s the single largest shareholder (say 30%) and the second largest shareholder is not far away from him (25%), then his holding is not liquid. If his family sells (his shares), they lose control.
“If he has got the block of shares in the holding company, it’s not going to have liquidity because it’s frozen and the company cannot sell the shares until after obtaining the probate. It may force them to start borrowing from relatives.”
A probate is a legal process in which a will is reviewed to determine whether it is valid and authentic. Probate also refers to the general administering of a deceased person’s will or the estate of a deceased person without a will. Low said getting the probate can take one or two months to some three years.
“A fast one or two months is because they have little assets and it’s clear cut. If you have assets overseas, the assets need to be traced. Very often, the family doesn’t know where the father (major shareholder) keeps the assets and that takes time to trace.”
Low pointed out that non-professionals appointed as the executor or trustee by PLC owners may not know Bursa Malaysia Securities or Securities Commission (SC) rules that have to be complied with, such as on persons acting in concert (PAC) under the Malaysian Code on Take-Overs and Mergers in the Capital Markets and Services Act.
“It (PAC) is a wide spectrum of people. The rule says if you and your PACs hold a block of shares, you are presumed to be acting in concert, unless you prove otherwise. If a major shareholder kicks the bucket, the block of shares goes to the deceased’s next of kin and it could be several people.
“If they (PAC) collectively hold a 32.9% stake and one of them, without the others knowing, bought 0.2%, they would have hit the trigger point of 33%, which means that you have to make a mandatory general offer for the rest of the shares you don’t own,” said Low.
“When there’s a breach like this, it’s serious. You’ve to align funds big enough to buy the rest of the shares at the highest price you pay in the last 12 months. The impact is big.”
Sources: The Sun Daily