2020 Preference Shares FINAL (MAICSA).pdf

Preference Shares

1. E GE

PREFERENCE SHARES —
ISSUANCE, REDEMPTION AND
CONVERSION

2. 4 What are preference shares?

Section 2 definition

A share by whatever name called, which does not
entitle the holder to :

- the right to vote on a resolution or

- to any right to participate beyond a specified
amount in any distribution :
> whether by way of dividend, or on redemption,
> ina winding up,

- or otherwise.

3. Can a Company be incorporated
with preference shares only?

= Company cannot be formed with only
preference capital, as section 69 provides
that the company may only issue
preference shares if provided in the
constitution.

= In the application to incorporate a
company under section 14, there is no
provision for adoption of a constitution.
The constitution may be adopted after the
incorporation of the company.

4. Comparison between preference
shares and ordinary shares

Shareholders have a preferential right in
terms of entitlement to receipt of
dividends as well as repayment of capital
in the event of the company being
wound up.

They offer shareholders a fixed dividend
each year.

Shareholders have no voting rights and
in the event of non-payment of
dividends may have a cumulative
dividend feature that requires all
dividends to be paid before any payment
of common share.

Shareholders are entitled to dividends as
well as residual economic value should
the company unwind (after bondholders
and preference shareholders are paid).

Ordinary shareholder dividends can be
higher than preference shareholder
dividends as dividends for ordinary
shares are not fixed.

Ordinary shareholders have the right to

vote at General Meetings and they have
the ability to elect the Board of Directors
of a company .

5. Advantages of issuing preference
shares from Company's viewpoint:

(a) Fixed Return: Dividend payable on preference
shares is fixed and usually lower than rate for
ordinary shares. The company can then maximize
profits available for dividend to ordinary
shareholders.

(b) Lack of voting rights : The lack of voting
rights preference shareholders may seem like a
drawback to investors but is beneficial to the
business because it means ownership is not diluted
by issuing the preference shares the way it is when
ordinary shares are issued.

6. Advantages of issuing preference
shares from Company's viewpoint:

(c) Flexibility in Capital Structure: The
company can issue preference shares that can
be redeemed under terms of issue.

(d) No Burden on Finance: Issue of
preference shares does not prove a burden on
the finance of the company because dividends
are paid only if profits are available otherwise
no dividend.

7. Advantages of issuing preference
shares from Company's viewpoint:

(e) No Charge on Assets: Non-payment of
dividend on preference shares does not create a
charge on the assets of the company as is in the
case of debentures.

(f) Widens Capital Market: The issue of
preference shares widens the scope of capital market
as they provide the safety to the investors as well as
a fixed rate of return. If company does not issue
preference shares, it will not be able to attract the
capital from such moderate type of investors.

8. Advantages of issuing preference
shares from Investor's viewpoint:

(a) Regular Fixed Income: Investors in
cumulative preference shares get a fixed rate of
dividend on preference share regularly even if
there is no profit. Arrears of dividend, if any, is
paid in the year's) of profits.

(b) Preferential Rights: Preference shares
ay preferential right as regard to payment of
dividend and preferential as regards repayment
of capital in case of winding up of company.
Thus they enjoy the minimum risk.

9. Advantages of issuing preference
shares from Investor's viewpoint:

(c) Voting Right for Safety of Interest:
Preference shareholders are given voting rights in
matters directly affecting their interest. It means,
their interest is safeguarded.

(d) Lesser Capital Losses: As the preference
shareholders enjoy the preferential right of
repayment of their capital in case of winding up of
company, it saves them from capital losses.

(e) Fair Security: Preference share are fair
securities for the shareholders during depression
periods when the profits of the company are down.

10. Disadvantages of issuing preference
shares from Company's viewpoint:

(a) Higher Rate of Dividend: Company usually has
to pay higher dividend on these shares than the
prevailing rate of interest on debentures of bonds.
Thus, it usually increases the cost of capital for the
company.

(b) Financial Burden: Most of the preference shares
are issued cumulative which means that all the arrears
of preference dividend must be paid before anything
can be paid to equity shareholders. The company is
under an obligation to pay dividend on such shares. It
thus, reduces the profits for equity shareholders.

11. Disadvantages of issuing preference
shares from Company's viewpoint:

(c) Dilution of Claim over Assets: The issue of
preference shares involves dilution of equity
shareholders claim over the assets of the
company because preference shareholders have
the preferential right on the assets of the
company in case of winding up.

(d) Tax disadvantage: The taxable income is
not reduced by the amount of preference
dividend while in case of debentures or bonds,
the interest paid to them is deductible in full.

12. Disadvantages of issuing preference
shares from Company's viewpoint:

(e) Adverse effect on credit-worthiness: The
credit worthiness of the company is seriously
affected by the issue of preference shares. The
creditors may anticipate that the continuance of
dividend on preference shares and suspension of
dividend on equity capital may depreive them of
the chance SL back their principal in full
in the event of dissolution of the company,
because preference capital has the preference
right over the assets of the company.

13. Disadvantages of preference shares

| to investors are:

(a) No Voting Right: The preference
shareholders do not enjoy any voting right except
in matters directed affecting their interest.

(b) Fixed Income: The dividend on preference
shares other than participating preference shares
is fixed even if the company earns higher profits.

14. Disadvantages of preference shares

| to investors are:

(c) No claim over surplus: The preferential
shareholders have no claim over the surplus.
They can only ask for the return of their capital
investment in the company.

(d) No Guarantee of Assets: Company
provides no security to the preference capital as
is made in the case of debentures. Thus their
interests are not protected by the assets of the
company.

15. 4 Rights of preference shares — s90(4)

No company shall
- allot any preference shares or

convert any issued shares into preference shares

unless provided by the constitution and the constitution
sets out the rights of the shareholders with respect to

repayment of capital,

participation in surplus assets and profits,
cumulative or non-cumulative dividends,
voting, and

priority of payment of capital and dividend

2 relation to other shares or other classes of preference
shares.

16. Rights of voting

Section 2 Section 90(4)

A share ... which does not entitle | No company shall allot any preference
the holder thereof to the right to | shares ... unless the constitution sets
vote on a resolution ... or out the rights .....with respect to
otherwise ...voting

Can preference shares be issued with voting rights when
Section 2 defines preference share as not entitled to voting
rights?

Section 90(2) requires non-voting shares to have a descriptive
title of ‘non-voting’ and these words must appear on the
share certificate, prospectus or directors’ report.

Section 90(3) states that subsection (2) shall not apply to
shares that are described as preference shares. As such
preference shares can having voting rights if provided in the Constitution.

17. 4 Failure to set out rights in Constitution

= Failure to comply — fine not exceeding
RM500,000 imposed on company and
officer in default

= Failure does not invalidate the rights that
are not so stated.

18. 4 Types Of Shares

Subject to the constitution, shares may S69

(a)
(b)
(©)

(d)
(e)

be issued in different classes;

be redeemable;

confer preferential rights to distribution of capital or
income;

confer special, limited or conditional voting rights; or
not confer voting rights.

19. 4 Transfer of Preference Shares - s70

A share or other interest of a member in a
company is personal property and transferrable in
accordance with section 105.

Similar to ordinary shares, if the Constitution has
conditions for transfer (e.g. pre-emptive rights, no
transfer to minor), the same will apply to the preference
shares unless specifically excluded in the Constitution.

20. | Transfer Of Shares s105

Holder may transfer the shares of a private
company/unlisted public company by a duly
executed and stamped instrument of transfer and
shall lodge the transfer with the Company.

Duty of Secretary to register the transfer within
30 days from receipt of the transfer form.
Secretary who fails to register transfer liable to a
fine of RM10,000 and a further fine of RM500 per
day for continuing offence

21. 4 Transfer Of Shares s105

= Name of transferee entered in Register of Members unless
(i) constitution expressly permit directors to refuse or delay
registration for reasons stated;
(ii) directors pass a resolution to refuse the transfer (with
reasons provided) within 30 days from receipt of transfer
form; and the said resolution is sent to the transferor and
transferee within 7 days of passing of the resolution.

= Register of Members (ROM) shall be prima facie evidence as
to legal title to shares.

= Duty of secretary to update the changes to ROM and notify
SSM within 14 days of transfer.

22. |

Transfer of Preference Shares -s106
las Illustration 1

Board approves transfer of shares
subject to stamping of transfer form
Transfer form signed

Transfer form stamped

Transfer form lodged with company
Transfer date entered in ROM (within
30 days of receipt of transfer form)
Secretary to notify SSM (within 14
days of transfer)

Example

Transfer date in ROM 15.9.2018
Transfer date in ROM 3.10.2018

8.7.2018

19.8.2018
3.9.2018
15.9.2018

Earliest 15.9.2018
Latest 15.10.2018

Update MyCoID
Latest 29.9.2018
Latest 17.10.2018

22

23. Transfer of Preference Shares -s106

| Illustration 2

fEvent ate
Transfer form signed 19.8.2018
Transfer form stamped 3.9.2018
Transfer form lodged with company 15.9.2018
Board approves transfer of shares 28.9.2018

Transfer date entered in ROM (within Earliest 28.9.2018
30 days of receipt of transfer form) Latest 15.10.2018

Secretary to notify SSM (within 14

days of transfer)

Example Update MyCoID
Transfer date in ROM 28.9.2018 Latest 12.10.2018
Transfer date in ROM 3.10.2018 Latest 17.10.2018

23

24. + Types Of Preference Shares

= Cumulative or Non-Cumulative Dividend

= Participating or Non-Participating rights
in surplus assets (on winding up) and
profits (additional dividend)

=» Redeemable or Irredeemable
= Convertible or Non-convertible

25. + Cumulative Preference Shares

a Shares on which the right to a dividend, if not
paid in one year through lack of profits in that
year, accumulates until profits are sufficient.

= All preference are presumed to be cumulative
unless otherwise described

= Arrears of dividend accumulated year to year
until declared and paid out

= No dividend to be paid to other classes until all
preference dividend accrued are paid.

26. + Cumulative Preference Shares

Co A issues 100,000 preference shares with dividend of 5 sen
per preference share.

Year 1
Year 2
Year 3
Year 4

Profit/(Loss)
RM5,000
(RM3,000)
RM8,000
RM10,000

Pref. sh dividend

RM5,000
RM5,000 (Y2) + RM3,000 (Y3)
RM2,000 (Y3) + RM5,000 (Y4)

27. | Non-Cumulative Preference Shares

= Do not confer the accumulation right
as cumulative preference shares.

= “Lost” dividend is not made up in
subsequent years.

= Entitled to only specified rate of
dividend declared.

28. | Non-Cumulative Preference Shares

Co A issues 100,000 preference shares with non-cumulative
dividend of 5 sen per preference share

Profit/(Loss) Pref. sh dividend
Year 1 RM5,000 RM5,000
Year 2 (RM3,000) 7
Year 3 RM8,000 RM5,000

Year 4 RM10,000 RM5,000

29. y Preference Shares — dividend

= Company may issue preference shares with
- no rights to dividends or
- allow directors to determine dividend rate from time to time
- allow dividend to be paid upon meeting certain condition, e.g.
when retained profits exceed RM5 million
= Dividends declared must be paid within one year of
declaration date, otherwise the dividend amount will
become unclaimed monies and the Company has to
comply with the Unclaimed Moneys Act requirement.
= Directors must ensure that the Company is solvent
(able to pay debts within 12 months) immediately after
the payment.

30. + Participating Preference Shares

= Usually carry the right to a dividend at a nominated
rate together with a right to participate in further
distribution if there remains any surplus of profits
after a dividend to ordinary shareholders.

= Preference shares are deemed non-participating
unless Constitution states otherwise

= If shares are given preferential dividend, they are
presumed to be non-participating in surplus assets

= Entitled to participate with the ordinary shareholder
in any surplus assets if Constitution allows

31. + Participating Preference Shares

Co A issues 100,000 preference shares with dividend of 5 sen
per preference share with participating rights to additional
dividend of 1 sen per preference share where there is excess

profit

Year 1
Year 2
Year 3
Year 4

Profit/(Loss)
RM5,000
(RM3,000)
RM8,000
RM10,000

Pref. sh dividend
RM5,000
RM5,000 (Y2) + RM3,000 (Y3)
RM2,000 (Y3) + RM5,000 (Y4)
+ RM1,000 (participating dividend)

32. Participating Preference Shares

Co B has 100,000 ordinary shares (Mr A - 70% and Mr B — 30%) and
100,000 preference shares (Mr C) with participating rights to surplus
assets on winding up of the company.

Surplus assets RM1,500,000
Repayment of capital - preference shares 100,000

- ordinary shares 100,000 200,000
Balance surplus asset (distributed pro-rata to Mr A, Mr B 8 Mr C) RM1,300,000

Ordinary shareholder Mr A gets RM525,000 (70,000 + 455,000)
Ordinary shareholder Mr B gets RM225,000 (30,000 + 195,000)
Preference shareholder Mr C gets RM750,000 (100,000 + 650,000)

33. 4 Non-Participating Preference Shares

= These shares carry only a fixed rate of dividend
without any right to get additional dividend.

= Unless otherwise stated in the Constitution, the
preference shares are presumed non-participating.

34. Non-Participating Preference Shares

Co A has 100,000 ordinary shares (Mr A — 70% and Mr B — 30%) and
100,000 preference shares (Mr C) with no participating rights.

Surplus assets RM1,500,000
Repayment of capital - preference shares 100,000

- ordinary shares 100,000 200,000
Balance surplus asset (distributed pro-rata to Mr A and Mr B) RM1,300,000

Ordinary shareholder Mr A gets RM980,000 (70,000 + 910,000)
Ordinary shareholder Mr B gets RM420,000 (30,000 + 390,000)
Preference shareholder Mr C gets RM100,000

35. 4 Redeemable Preference Shares

= Section 72(2) provide that if authorized by its

Constitution, a company may issue preference shares

> which are liable to be redeemed in accordance with
the Constitution (i.e. preference shareholder give
notice of redemption to company)

> which at the option of the company are to be liable
to be redeemed in accordance with the Constitution
(i.e. company gives notice of redemption to
preference shareholder)

> which are irredeemable.

36. 4 Redeemable Preference Shares

Redemption shall be effected only on such terms and in
such manner as provided by the Constitution.

Gives the holder the right to be repaid their capital at a
specified date or alternatively give the company the
right to repay the capital after a specified time or within
a specified period.

Notice of redemption must be lodged with SSM within
14 days. [Section 72(7)]

37. | Redeemable Preference Shares

= Redemption of Preference shares are usually at the option
of the Company since there needs to be profits available or
new shares are to be issued for the redemption or out of
capital of the company. Under the accounting standards,
such preference shares will be treated as equity.

= Redemption of Preference shares at the option of the
holders will be treated as liability under the accounting
standards.

= Above is merely for presentation of the financial
statements and does not affect the obligation of the
company to comply with the Companies Act requirement
on allotment and redemption.

38. Redeemable Preference Shares
Equity or Liability?

[ Questions | If answer is YES If answer is NO

= Are the shares
redeemable at a fixed
date?

= Are the shares
redeemable at the
option of the holder?

= Is the issuer obliged
to make payments in
the form of dividends?

= Do the terms and
conditions oblige the
issuer to distribute a
specific percentage of
profits?

The preference shares
would be classified as
a financial liability,

The preference shares
would be classified as an
equity as there is no

because it would seem
that the issuer lacks
the unconditional right
to avoid delivering
cash or another
financial asset to settle
an obligation.

mandatory payment
clause and the Company
only needs to repay
upon liquidation.

There is no contractual
obligation to deliver cash
or another financial
asset.

Above are for presentation of financial statements
and is not to be considered for purposes of
lodgement of notifications on allotment of shares to SSM.

39. | PREFERENCE SHARES - Redeemable Rights

Section 72(4)
Subject to subsection (5) and (6), the preference shares
shall be redeemable only if

the shares are fully paid and

the redemption shall be out of :

(a) profits (retained),

(b) fresh issue of shares; or

(c) capital of the company.

Subject to the Constitution, Directors are to decide on
which of the 3 redemption method is in the best interest
of the Company.

40. PREFERENCE SHARES - Redemption Method

10,000 Preference Shares issued

at RM1.50 each and paid up to
RM1.00 each

Preference shares
not fully paid
CANNOT be redeemed

1. Preference shareholder to pay
the balance RMO.50 each.

2. Company redeem and repay

preference shareholder

RM1.50 each.

Call up on balance of
issue price and then

redeem a

Capitalise unpaid
portion and then

b redeem "|

1. Ordinary shareholders
approve the capitalisation of
the balance RM0.50 each
from profits or reserve.

2. Company redeem and repay

preference shareholder

RM1.50 each.

41. PREFERENCE SHARES - Repayment Method

10,000 Preference Shares issued

at RM1.50 each and paid up to
RM1.00 each

Preference shares
not fully paid
CANNOT be redeemed

. Ordinary shareholders
approve the capital reduction
of the preference shares.

2. Company repay preference

shareholder RM1.00 each.

Selective Capital
Reduction

s116 or s117

| NOT REDEMPTION ä

42. | PREFERENCE SHARES - Redeemable Rights

= Redemption shall not be taken as reducing the
amount of share capital S72(3) - this means the process
of capital reduction under section 116 and section 117 will not apply
to redemption.

Where the preference shares are redeemed out
of profit which would otherwise have been
available for dividend, there shall be transferred
into the share capital accounts of the company, a
sum equal to the amount of the shares
redeemed. S72(5) Companies Amendment Act
2019

43. | PREFERENCE SHARES - Redeemable Rights

= The redemption of preference shares out of
capital shall be subject to the following:

all the directors make a solvency statement
under section 113 in relation to such redemption;
and

the company has lodged a copy of the solvency
statement with SSM S72(6) within 30 days S611

a

ES

44. Redemption of 10 Preference share
out of profits at redemption amount of RM100

Existing After Redemption
RM RM

Share Capital Share Capital
2 ordinary shares 2 ordinary shares
10 pref shares
Retained Profits 300 Retained Profits 200
Shareholders’ Funds 402 Shareholders’ Funds 302
Cash 402 | Cash 302

File S72

notification

45. Redemption of 10 Preference share out of new issue
of shares at redemption amount of RM100

— in
Existing After new issue of shares After Redemption
RM RM RM
Share Capital Share Capital Share Capital
2 ordinary shares 2 102 ordinary shares 102 102 ordinary shares | 102
10 pref shares 100 10 pref shares 100
Retained Profits 10 Retained Profits 10 Retained Profits 10
Shareholders’ Funds 112 Shareholders’ Funds 212 Shareholders’ Funds 112
Cash 12 Cash 112 Cash 12
Trade debtor 100 Trade debtor 100 Trade debtor 100
112 212 112
File S72
File notification
ROA 45

46. Redemption of 10 Preference share

| out of capital at redemption amount of RM100

Existing

After Redemption

Share Capital

2 ordinary shares
10 pref shares
Retained Profits

Shareholders’ Funds

Cash

Share Capital
2 ordinary shares

Retained Profits

Shareholders’ Funds

Cash

RM

File Solvency
Statement

Before
redemption

File s72

After
Redemption

47. + Irredeemable Preference Shares

= The preference shares issued do not carry the right
for redemption.

Capital is repaid/returned when the Company goes
for a capital reduction to repay the preference
capital or when the Company winds up and capital
is returned.

The irredeemable term may be changed to
‘redeemable’ if allowed by holders of ordinary
shares (for amendment to Constitution and holders
of preference shares (for variation of rights).

48. Convertible Preference Shares

= The Constitution must have provisions for the conversion of
Preference shares into any other shares of the Company.
= Conversion can be done :
during a specified period of time

“The RCPS shall be convertible at any time during the Conversion
Period.”

after a specified period of time
“The RCPS shall be convertible at any time after the second
anniversary of the date of issuance up to the Expiry Date.”

+ on occurrence of a defined event
“The RCPS shall be convertible upon the receipt of approval from
the authorities for the listing of the Company or on Maturity
Date, whichever if the earlier.”

49. Rules of Preference Shares

1. If Articles provide for preferential dividends, the dividends
are presumed to be cumulative unless indicated that
dividend is to be payable only “out of yearly profits” or
“out of the net profits of each year.”

2. Prima facie, the rights of preference shares as set out in
the Constitution are exhaustive and shares given
preferential dividend are presumed to be non-
participating in surplus asset.

3. If the Constitution deals only with preferential dividend
and nothing mentioned on return of capital, the
preference shareholder has the same rights to a return of
capital as the other shareholder.

4. Preference shareholder are not entitled to be paid
dividend until it is declared.

50. + Rules of Preference Shares

5. Once winding up commences, preferential dividend cannot
be declared.

6. Detail of rights of preference shareholders with respect to
the repayment of capital need not be set out in the
Constitution. Redemption date or rate of dividend can be
specified in other document.

7. The power to issue redeemable preference shares does
not confer right to the company to convert an existing
class of shares which were issued into redeemable
preference shares unless the Constitution allows it.

51. Status of Preference Shares if
4 Constitution is silent

Preference shares will be presumed to be:

> Cumulative;

> Non-Participating;
> Redeemable; and
> Non-Convertible.

52. Rights and powers attached to
shares s71

A share in a company, other than preference shares, confers on the

holder—

(a) the right to attend, participate and speak at a meeting;

(b) the right to vote on a show of hands on any resolution of the
company;

(c) the right to one vote for each share on a poll on any resolution
of the company;

(d) the right to an equal share in the distribution of the surplus
assets of the company; or

(e) the right to an equal share in dividends authorized by the Board
(right to dividends as specified therein may be negated, altered
or added to by the constitution of the company or in accordance

with the terms on which the share is issued). 52

53. wg renee er right

Right to transfer preference shares in same
manner as set out in Section 105-107 or the
Constitution on transfer of ordinary shares.
Right to receive notice of general meeting
[Section 321(1)] including Audited Accounts
[Section 257(1a)].

Right to inspect the Minutes of General
Meeting and Registers without charge.

54. + Right to attend meetings & vote

= The Constitution may suspend the right of the
preference shareholder to attend any general
meeting and to speak and vote on any
resolution.

= If the Constitution provides for a suspension to
attend and vote, the suspension is uplifted when
preference shareholders’ rights are varied or as
allowed in the Constitution.

55. | Variation of rights s91(5)

The issue of new preference shares ranking pari-
passu with existing preference shares shall be
deemed to be a variation of rights attached to
existing preference shares UNLESS

m the issue of the new preference shares was
authorised by the terms of issue of the existing
preference shares OR

m the issue of the new preference shares was
authorised by the Constitution at the time the
existing preference shares were issued

56. Variation of rights s91(5)

= The provisions in the Constitution on variation of
rights has no application to a cancellation of
preference shares on a reduction of capital.

A reduction of capital by return to ordinary
shareholders only although not affecting the
rights of preference shareholders is prima facie
unfair if it is made otherwise than in accordance
with priorities in a winding up.

57. + Variation of rights

e To follow the provisions in the
Constitution for the variation of
rights

In accordance
with
Constitution

* written consent of not less than
75% of total voting rights, or

e Special resolution (75% of those

present and voting)

No provision
in
Constitution

58. Variation of terms of Preference Shares

ubmit s36 to

SM within 30
Special lays of passing
Resolution f resolution

Ordinary
Shareholders Constitution

4

Amendment to

Submit s95 to
SSM within 30

4

Consent/Special days of passing of
Resolution resolution
Preference Variation of terms Written notice of
Shareholders a Preference preference
shareholders

within 14 days

59. 4 Issue of Preference Shares

- Directors have power to issue preference shares
by way of —
(a) a rights issue;
(b) a bonus issue;
(c) consideration shares for acquisition of shares
or assets by the company and the members
have been notified in writing and via
advertisement of the intention at least 14 days
before the issue.S75

60. Shareholders’ Mandate to issue shares

Lodge s76 notification = Shareholder
to SSM within 14 days Mandate
General Specific

Public Co. Private Co.

Valid until next Valid for 12
AGM months

60

61. | ALLOTMENT OF SHARE

Sample EGM Resolution — general mandate

AUTHORITY TO ALLOT SHARES

THAT pursuant to Section 76 of the Companies Act 2016, the
Directors be and are hereby empowered to allot and issue
preference shares in the Company at any time upon such
terms and conditions and for such purposes as the Directors
may, in their absolute discretion, deem fit provided that such
authority shall continue in force until the conclusion of

- the next Annual General Meeting of the Company (public company)

- 12 months from date of approval of this resolution (private company).

61

62. 4 ALLOTMENT OF SHARE

Sample EGM Resolution — specific mandate

SPECIAL ISSUE

THAT pursuant to Section 76 of the Companies Act 2016,
the Directors be authorised and directed to issue and allot
500,000 new preference shares in the capital of the
Comp pany at an issue price of RM2.50 each for cash to Mr
XYZ Se rae Issue”) AND THAT such new preference
shares shall, on allotment and issue rank pari passu in all
respects with the existing preference shares of the
Company AND THAT the Directors be authorised to give
effect to the aforesaid Special Issue.

62

63. | PAYMENT OTHER THAN IN CASH

+ Allotment for a consideration other than in cash
is allowed but Directors must ensure that the
asset is at a fair value (to ensure the shares are
not issued at a discount).

» Payment in kind is effective if the consideration
flowing from the allottee is something which is
bona fide regarded as fairly representing the
sum which the payment is to discharge.

64. RETURN OF ALLOTMENT

On allotment of the preference shares, a company shall
lodge with SSM within 14 days from allotment:

(i) a return of allotment; and

(ii) a statement of capital as at date of allotment
which shall state:

(a) number and amount of shares allotted;

(b) amount, if any, paid, deemed to be paid, or
due and payable;

(c) the class of shares; and

(d) full name and address of each allottees and
the number and class of shares allotted to him

64

65. ALLOTMENT OF SHARE - Otherwise than in cash

$78

Allotment for a consideration other than in cash

- pursuant to contract (copy certified by statutory
declaration to be lodged)

- pursuant to a scheme of arrangement approved by
Court under S366 (court Order to be lodged)

- pursuant to contract not reduced to writing (eg
capitalisation of debt owing, share swap)#

- pursuant to provision in Constitution#
- dividend in specie#
- bonus issue#

# Statement accompanying Return of Allotment to be lodged with
SSM within 14 days.

66. | Procedures to issue Preference Shares

1. Share application forms and consideration received.

2. Lodge Section 78 Return of Allotment within 14 days
of allotment.

3. Update Register of Member and Secretary to notify
SSM of changes analysis of shareholders in MyCoID
ROM within 14 days.

4. Issue preference share certificates, if required by
Constitution.

67. Procedures for Redemption
(at option of the Company)

Directors’ Resolution to fix redemption date, manner (out of

profit/ new share issue), redemption price and number of preference
shares to redeem.

Lodge ROA for issuance of new shares

Send Notice of redemption to Preference Shareholder and request for
return of preference share certificate for cancellation.

On receipt of returned certificate to send cheques to preference
shareholder.

Lodge Section 72 Notice of Redemption with SSM within 14 days of
redemption date together with copy of cancelled certificate.

Update Register of Member and Secretary to notify SSM of changes
analysis of shareholders in MyCoID ROM within 14 days.

68. Procedures for Redemption
(at option of the Preference shareholder)

. Preference shareholder sends redemption notice to Company
stating the number of preference shares to be redeemed and
return of preference share certificate for cancellation.

. Directors’ Resolution to determine manner of redemption (out
of profit/new share issue).

. Cancel preference share certificate and send cheques to
preference shareholder.

. Company to lodge Section 72 Notice of Redemption with SSM
within 14 days of redemption date together with copy of
cancelled certificate.

. Update Register of Member and Secretary to notify SSM of
changes analysis of shareholders in MyCoID ROM within 14
days.

69. REDEMPTION NOTIFICATION

COMPANIES ACT 2016
Section 72
NOTICE OF REDEMPTION OF PREFERENCE SHARES

(Company Name)

To the Registrar of Companies,

me (Name and Co. Registration No.) hereby gives notice that on the … >
x _. redeemable preference shares, a a pe ile oy D..... Were -
(Pass tick where applicable)
2 redeemed out of profits;
redeemed out of the proceeds of a fresh issue of shares;
redeemed out of capital of the company; or
1 redeemed and converted to fresh issue of shares comprising of *.....

… “ordinary shares.

# The preference shares redeemed were the shares comprised in share certificate(s) numbered **

# All the directors have made a solvency statement dated .. … under section 113 of Companies Act 2016 in relation to
redemption of shares out of capital and the copy of the solvency statement has been lodged with the Registrar on

69

70. BOARD RESOLUTION FOR REDEMPTION
4 OUT OF PROFITS

“THAT the Company do hereby redeem 100,000
Redeemable Convertible Non-Cumulative Preference
Shares held by ABC Sdn Bhd at RM1.00 each out of the
profits of the Company.

THAT the Share Certificate for the Redeemable
Convertible Non-Cumulative Preference Share No. PO1
be cancelled upon redemption.”

71. BOARD RESOLUTION FOR REDEMPTION
4 OUT OF FRESH ISSUE OF SHARES

“THAT the Company do hereby redeem 100,000
Redeemable Convertible Non-Cumulative Preference
Shares held by ABC Sdn Bhd at RM1.00 each out of the
proceeds of the fresh issue of 100,000 Ordinary Shares
at the issue price of RM1.00 each in the capital of the
Company.
THAT the Share Certificate for the Redeemable

Convertible Non-Cumulative Preference Share No. P01 be
cancelled upon redemption.”

72. Procedures for Redemption out of
Ca pital (at option of the Company)

1. Directors’ Resolution to fix redemption date for redemption out of
capital, redemption price and number of preference shares to redeem.

2. Send Notice of redemption to Preference Shareholder and request for
return of preference share certificate for cancellation.

3. On receipt of returned certificate, Directors to sign the solvency
statement and Company to lodge Section 113 — Solvency Statement
to SSM.

4. After lodgement of solvency statement, the redemption takes place
and Company send cheques to preference shareholder.

s. Company then lodge Section 72 Notice of Redemption with SSM
within 14 days of redemption date together with copy of cancelled
certificate.

6. Update Register of Member and Secretary to notify SSM of changes
analysis of shareholders in MyCoID ROM within 14 days.

73. BOARD RESOLUTION FOR REDEMPTION
OUT OF CAPITAL

“WHEREAS the Directors intend to propose that the Company
redeem100,000 Redeemable Convertible Non-Cumulative Preference Shares
held by ABC Sdn Bhd out of capital of the and pursuant to Section 72(6) of
the Companies Act 2016 (“Act”) the Company must meet the solvency
requirements.

RESOLVED THAT the Directors having considered all aspects and made due
enquiries into the Company's affairs and having reviewed and considered
the Company's current and projected financial position for the year
ending 31 December 2019 and 31 December 2020 affirm there are no further
contingent liabilities to be taken into account; do form the opinion that the
Company is solvent and there are reasonable grounds to believe that the
Company will be able to pay its debts as and when they become due and
payable during the period of twelve (12) months immediately following the
date of the redemption of the preference shares and the assets of the
Company is more than the liability of the Company as at the date of the
redemption.

74. BOARD RESOLUTION FOR REDEMPTION
OUT OF CAPITAL

THAT having satisfied the solvency test as required under Section
112 of the Act the Directors do hereby make a declaration to that
effect and shall execute the Solvency Statement in relation to such
redemption as attached.

THAT the Secretary be authorized to lodge the Solvency Statement
to the Registrar of Companies.

THAT subject to the lodgment of the Solvency Statement, the
Company do hereby redeem 100,000 Redeemable Convertible
Non-Cumulative Preference Shares held by ABC Sdn Bhd at
RM1.00 each on 15 March 2020, out of the capital of the
Company.

THAT the Share Certificate for the Redeemable Convertible Non-
Cumulative Preference Share No. P01 be cancelled upon
redemption.” 74

75. | PREFERENCE SHARES NOT REDEEMED

If company has no funds:
= then it is not in default

= preference shareholders cannot sue for damages
or proceed to wind up the company.

If the company has funds:

= Preference shareholders could wind up the
company

76. 4 CONVERTIBLE PREFERENCE SHARES

» Constitution must provide a right to conversion.

+ This is a change of the preferential rights to
ordinary rights and does not constitute an
allotment of new ordinary shares, so there is no
filing of section 78 notification (ROA) but section
72 notification is to be filed.

77. | CONVERSION PROCEDURE

1.

Directors’ Resolution to fix conversion date and number of
preference shares to be converted.

Formal Notice of Conversion to be given to preference
shareholder advising on conversion date, price and number of
preference shares to be converted and request for return of
preference share certificate for cancellation.

Ordinary share certificate issued to shareholder.

Submit s72 notice of redemption to SSM within 14 days of
conversion date together with copy of cancelled certificate
Update Register of Preference Shareholder and Ordinary
Shareholder and Secretary to notify SSM of changes analysis of
shareholders in MyCoID ROM within 14 days.

78. CONVERSION PROCEDURE

Sample Board Resolution

“THAT the Company do hereby convert 100,000 Redeemable
Convertible Non-Cumulative Preference Shares of RM1.00
each held by ABC Sdn Bhd into 100,000 Ordinary Shares of
RM1.00 each in the capital of the Company.

THAT the Share Certificate for the Redeemable Convertible
Non-Cumulative Preference Share No. P01 be cancelled upon
conversion AND THAT the Common Seal of the Company be
authorised to be affixed onto the new share certificate(s) to
be issued for the new Ordinary Shares to be issued thereto
in accordance with the Articles of Association of the
Company.”

79. For further enquiry contact [email protected]