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Chapter 5: Transactions with Interested Parties
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268. In this Chapter, “holder of control” – a
holder of control as defined in section 1, including a person who holds
twenty-five percent or more of the voting rights in the general meeting of the
company if there is no other person who holds more than fifty percent of the
voting rights in the company; for the purpose of a holding, two or more persons
holding voting rights in a company each of which has a personal interest in the
approval of the transaction being brought for approval of the company shall be
considered to be joint holders.
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Definition of holder of control
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269. (a) An office holder in a company or a holder
of control in a public company who is aware that he has a personal interest in
an existing or proposed transaction of the company shall disclose the nature of
his personal interest to the company without delay, including any substantial
fact or document, no later than the meeting of the board of directors in which
the transaction is first discussed.
(b) The provisions of
subsection (a) shall not apply when the personal interest stems only from the
existence of the personal interest of a relative in a regular transaction.
(c) An interested party,
as defined in section 270(5), who is aware that he has a personal interest in a
substantial private placement shall disclose the substance of his personal
interest to the public company without delay, including any substantial fact or
document.
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Duty of disclosure
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270. The following transactions of a company
require approval as set out in this Chapter, provided that the transaction does
not harm the best interests of the company:
(1) a transaction by a
company with an office holder thereof, and a transaction of a company with
another person in which an office holder in the company has a personal interest;
however, an office holder of a parent company as well as a wholly owned and
controlled subsidiary thereof shall not be considered as having a personal
interest in a transaction between the parent company and the subsidiary solely
for the reason of his being an office holder of both of them;
(2) the grant of an
exemption, insurance, undertaking to indemnify or indemnification under a permit
to indemnify to an office holder who is not a director;
(3) conclusion of a
contract by a company with a director thereof as to the terms of his office,
including the grant of an exemption, insurance, undertaking to indemnify or
indemnification under a permit to indemnify, and the conclusion of a contract by
a company with a director thereof as to the terms of his employment in other
positions (hereinafter “terms of office and of employment”);
(4) an extraordinary
transaction of a public company with a holder of control therein, or an
extraordinary transaction of a public company with another person in which the
holder of control has a personal interest, including a private placement that is
an extraordinary transaction; as well as the conclusion of a contract by a
public company with a holder of control of it, if such person is also an office
holder thereof – as to the conditions of his office and employment, and if he is
an employee of the company but not an office holder thereof – as to his
employment by the company;
(5) a private placement
as a result of which the holdings of a substantial shareholder in securities of
the company will increase or as a result of which a person will become a
substantial shareholder after the issue (hereinafter “an interested party”); for
the purpose of holding, securities which are convertible into or realizable as
shares held by such person or issued to him pursuant to the private placement,
shall be considered as having been converted or realized.
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Transactions requiring special approvals
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271. A transaction in which the provisions of
section 270(1) exist, other than an extraordinary transaction, shall require the
approval of the board of directors, unless some other manner of approval is
prescribed in the articles of association.
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Non-extraordinary transactions
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272. (a) A transaction of a company to which the
provisions of section 270(1) apply, and which is an extraordinary transaction,
or to which the provisions of section 270(2) apply, shall require the approval
of the audit committee followed by the approval of the board of directors.
(b) Where a private
company does not have an audit committee, the transaction shall require the
approval of the board of directors only, if the office holder is not a director,
and if the office holder is a director, the transaction shall also require the
approval of the general meeting.
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Extraordinary transactions with office holders
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273. A transaction by a company to which the
provisions of section 270(3) apply shall require the approval of the board of
directors followed by the approval of the general meeting, and in a public
company, the transaction shall require the approval of the audit committee
followed by the approval of the board of directors.
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Conditions of office and employment
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274. A substantial private placement shall require the approval of the
board of directors followed by the approval of the general meeting.
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Private placement |
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275. (a) A transaction to which the provisions of
section 270(4) apply shall require the approvals by those mentioned below, in
the following order:
the audit
committee; the board of directors; the general meeting, provided that
one of the following applies: in a count of votes, the majority in the
general meeting includes at least one third of all of the votes of those
shareholders that do not have a personal interest in the approval of the
transaction, who are present at the meeting; in a count of all of the
votes of such shareholders, abstentions shall not be taken into account;
the total of opposition votes amongst the shareholders referred to in
subparagraph (a) above shall not be greater than one percent of all the
voting rights in the company.
(b) The Minister may
determine rates other than those prescribed in subsection (a)(3)(b).
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Transaction with holder of control
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276. A shareholder participating in a vote under
section 275 shall notify the company prior to the vote in the meeting, or, if
the vote is by way of voting papers, on the voting paper whether or not he has a
personal interest in the approval of the transaction; where a shareholder does
not so notify, he shall not vote and his vote shall not be counted.
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Disclosure of personal interest
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277. Where the conditions prescribed for more than
one of the alternatives in section 270 apply in respect of a transaction, the
transaction shall require approvals in accordance with the provisions applying
to each alternative.
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Cumulative approvals
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278. (a) A director who has a personal interest in
the approval of a transaction, other than a transaction as referred to in
section 271, that is brought before the audit committee or the board of
directors for approval, shall not be present during the deliberations and shall
not take part in the voting of the audit committee or of the board of directors.
(b) Notwithstanding the
provisions of subsection (a), a director may be present at a deliberation of the
audit committee and may take part in the voting if the majority of the members
of the audit committee have a personal interest in the approval of the
transaction; likewise, a director may be present at the deliberations of the
board of directors and may take part in the voting if the majority of the
directors of the company have a personal interest in the approval of the
transaction.
(c) Where the majority of
the directors on the board of directors of a company have a personal interest in
the approval of a transaction as aforesaid in subsection (a), the transaction
shall also require the approval of the general meeting.
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Abstention of directors
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279. The audit committee of a public company shall
not be permitted to grant an approval required under this Chapter, unless, at
the time of the grant of the approval, two External Directors are sitting on the
committee, and at least one of those was present at the deliberations in which
the committee resolved to grant the approval.
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Audit committee of a public company
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280. (a) A transaction of a company with an office
holder thereof or an extraordinary transaction by a public company with a holder
of control thereof shall not be valid in respect of the company or the office
holder or holder of control if the transaction is not approved in accordance
with the provisions of this Chapter or if a substantial defect has occurred in
the approval process, or if the transaction was effected in a way that deviated
substantially form the terms of the approval.
(b) A transaction
referred to in subsection (a) shall likwise not be valid in respect of any other
person if such person knew of the personal interest of the office holder or of
the holder of control in the approval of the transaction, and knew or ought to
have known of the lack of approval of such transaction as required under this
Chapter.
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Invalid transaction.
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281. A company may revoke a transaction with
another person requiring approval as provided in this Chapter, other than a
transaction as provided in section 271, and it may claim compensation from such
person for damage caused to it even without revoking the transaction, if such
person knew of the personal interest of an office holder of the company in the
approval of the transaction or of the personal interest of the holder of control
of the public company in the approval of the transaction, and knew or ought to
have known of the lack of approval of the transaction as required by this
Chapter.
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Revocation of transaction
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282. It shall be presumed that a person ought not
to have known of the lack of approval of a transaction as required under this
Chapter where such person has received the confirmation of the board of
directors to the fact that all of the approvals required for the transaction
have been obtained.
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Approval by board of directors
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283. (a) An
office holder who fails to disclose a personal interest as provided in
section 269 shall be considered to be in breach of fiduciary duty; a
holder of control of a public company who does not disclose his personal
interest as provided in that section shall be considered to have been in
breach of duty to act fairly.
(b) Where an interested
party is in breach of the duty of disclosure as provided in section 269 or where
a shareholder fails to disclose his personal interest as provided in section
276, the company may claim compensation from such person for the damage caused
to it due to the failure to disclose.
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Remedies |
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284. The
Minister, upon consultation with the Securities Authority, may determine
that the provisions of this Chapter shall not apply to various types of
transactions.
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Regulations |
