In Malaysia, the Companies Act 2016 (“CA 2016”) recognise the distinction between “transfer” and “transmission” of shares. Both transfers and transmissions of shares are pivotal transactions that entail changes in ownership in a private company.

One significant difference between a transfer and transmission of shares under the CA 2016 is that a transfer of shares is a voluntary act by the holder of shares by way of contract, i.e. requiring an executed and stamped instrument of transfer to take effect in accordance with Section 105(1) of CA 2016 whilst a transmission of shares is an automatic devolution of title which takes place by operation of law to a person upon the occurrence of a legally significant event, such as the death of the holder of shares or the holder being bankrupt pursuant to Section 109 of CA 2016.

To notify a company of a transmission of shares, a written notice from the legal heirs or nominees indicating his or her willingness to be registered as a shareholder(s) of the company in respect of the shares is sufficient.

In this article, we will discuss in detail the transmission of shares and the process involved.

1. Legal Definition of Shares Transmission
   
   A Malaysian High Court appeal case, Ng Chong Wee v Ng Chong Geng & Sons Sdn Bhd [2018] 5 AMR 655; [2018] MLJU 934, highlighted the difference between transfer and transmission of shares. This case essentially involves a beneficiary of a deceased shareholder in a private limited company claiming his right to be registered as a shareholder by way of a transmission of shares that was not approved by the directors. To this, the Court of Appeal responded by citing the English case of Moodie v W & J Shepherd (Bookbinders) Ltd [1946] 2 All ER 1044, in which Lord Reid of the House of Lords, explained the distinction of the two concepts as follows:
   
   “… ‘Transfer’, if the word is used in the ordinary sense, means a transfer from one person to another and implies that there must be both a transferor and transferee. But where in respect of shares forming part of the deceased's estate, there is no transfer from one person to another … ”
   
   As such, this implies that there must be a transferor and a transferee in a transfer of shares, as well as a voluntary disposition of legal title to the shares and a proper instrument of transfer must be delivered to the company.
   
   Conversely, transmission of shares is an automatic vesting of ownership of shares from one person to another without any consideration. It merely involves legal heirs or nominees which takes place by operation of law upon the occurrence of a legally relevant event. For example, the death of a shareholder or when a shareholder is bankrupt etc.
   
   Although Section 109 of CA 2016 provides for the registration of a person as a shareholder in the event of a share transmission, it however, does not address the circumstance in which shares held by a body corporate are transmitted by operation of law, as it envisages that shares being transmitted by operation of law only when an individual shareholder dies.
   
   Hence, the question now is whether shares held by a body corporate can be transmitted by operation of law as a result of universal succession.
   
   
2. Doctrine of Universal Succession
   
   Universal succession is a legal concept originating from Roman Law in which a successor company inherited all of the preceding company’s assets, liabilities, rights and obligations as a result of a merger under foreign law.  This concept is somewhat foreign in Malaysia as there is no legislation or regulation in Malaysia which provides for the merging of two entities, resulting in one surviving entity.
   
   Nonetheless, this concept has come to be recognised in Malaysia where there is a merger involving a foreign shareholder of a Malaysian company as per the recent Malaysian case of United Renewable Energy Co Ltd v TS Solartech Sdn. Bhd. [2019] 8 CLJ 72.  
   
   This is the first Malaysian decision to recognise the doctrine of universal succession, and this is in line with other Commonwealth decisions as well, where all assets and liabilities are vested in the successor entity. The High Court gave effect to the transmission of shares by operation of law where there has been a foreign merger. The reason being is that the application of a transmission by operation of law is not limited to instances of death or bankruptcy.  Rather, the provisions in Section 105(4) and 109 of the CA 2016 are sufficiently wide in scope to include a universal succession.
   
   The High Court therefore held that universal succession resulting from a merger has been recognised as a form of a transmission by operation of law because there is no transferor or transferee, and no active act of transfer by a member.
   
   In summary, foreign companies with their mergers under foreign law will have the ability to seek Court’s recognition that shares have been transmitted by operation of law and that the register of members is allowed to be rectified.
   
   
3. Process of Transmission of Shares
   
   The process of transmission of shares can be divided into two stages. Notifying the company about the shareholder’s demise or bankruptcy etc is the first step in the transmission of shares process. This can be accomplished by submitting a copy of the death certificate or other pertinent documentation to the company.
   
   After notifying the company on the transmission of shares, the legal heirs or nominees of the deceased shareholder can transmit the shares to their names. This can be accomplished in two ways:
   
   

   (1)

   Transmission by nomination If the deceased shareholder had nominated a person to receive the shares, the legal heirs or nominees can transmit the shares by providing a copy of the death certificate and the nomination form to the company. The company will then register the transmission of shares in the name of the nominee(s).

   (2)

   Transmission by succession If the deceased shareholder does not nominate a person to receive the shares, the legal heirs will need to obtain a succession certificate or grant of probate from the court. This certificate will authorise the legal heir(s) to transmit the shares to their names. The succession certificate or grant of probate, as well as the share certificates and a transfer deed, must be submitted by the legal heir(s) to the company. The company will then register the transmission of shares in the names of the legal heir(s).

Kaizen, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professionals in Kaizen for further clarification.