Statutory Derivative Action in Malaysia

In what could possibly one of the first successful statutory derivative actions filed here in Malaysia, it was reported that a former shareholder of Celcom (Malaysia) Bhd had obtained leave from court to initiate a statutory derivative action on behalf of Celcom against Telekom Malaysia Bhd (TM). I had previously touched on the law of the new statutory derivative actionhere in Malaysia.From the public announcements, we see that leave under section 181A of the Companies Act 1965 was granted on 9 July 2008. Further details of the action being brought is also found in another recent Bursa announcement.

Quoting from the Edge Daily article, the action a former shareholder of Celcom, Mohd Shuaib Ishak, is suing TM and its wholly-owned subsidiary Telekom Enterprise Sdn Bhd (TESB) pertaining to the amended and restated supplemental agreement dated April 4, 2002 entered into between, among others, Celcom and DeTeAsia, the acquisition of Celcom shares by TESB, the consequent Mandatory General Offer (MGO) exercise implemented by TM and the de-merger exercise of the mobile and fixed-line businesses of the TM Group.

DeTeAsia was formerly the strategic partner of Celcom and made its entry into the mobile phone operator when it was majority-owned by companies belonging to Tan Sri Tajudin Ramli. After Tajudin defaulted on his debts, his shares in Celcom were forced sold by Pengurusan Danaharta Bhd to TM via TESB. TM then made a MGO for the rest of the Celcom shares at RM2.75 each.

DeTeAsia accepted the MGO but also filed a claim for additional RM4.25 per share with an international arbitration panel. It subsequently won the claim and TM paid a further RM740 million to DeTeAsia.

In the suit, Shuaib on behalf of Celcom has named as defendants TM, TESB and nineteen others, including the former and existing directors of Celcom and TM. Among the relief Shuaib is seeking on behalf of Celcom are:

(a) The sum of US$232,999,745.80, being the amount paid by Celcom to DeTeAsia under the Award;

(b) A declaration that the Sale and Purchase Agreement dated 28.10.2002 between Celcom and TM (or TESB) for the aquisition by Celcom of the shares in TM Cellular Sdn Bhd is illegal and void and of no effect;

(c) A declaration that all purchases of shares in Celcom made by TESB from the MGO is illegal and void and of no effect;

(e) That TM by itself, its servants and agents be restrained from giving effect to or executing any of the proposals set out relating to the proposed de-merger of the mobile and fixed-line businesses of the TM Group or in the event that any such proposals have been completed that TM, by itself, its servants and agents take all such steps as shall be required to rescind such completed proposals.

It will be very interesting to see the developments in this case, and the public will be able to follow any developments through the public announcements as well. The law on this area is still in its infancy and it already appears that shareholders are quick to use this procedure to bring an action in the interests of the company. It remains to be seen if my initial opinion that the floodgates of shareholder litigation will not be opened under this new derivative action.

Edit: The Court of Appeal has overturned the High Court decision, but the written grounds of judgment are not out yet.

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