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Case Update: The first High Court decision on the doctrine of universal succession in Malaysia

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COMPANY LAW
Doctrine of universal succession – Transmission of shares by operation law – Distinction between a transfer of shares and a transmission of shares – Whether the Plaintiff is entitled to be registered as a shareholder of the Company in place of Solartech in respect of the TS Shares without the need for the Share Transfer Documents?

United Renewable Energy Co Ltd v TS Solartech Sdn Bhd
Originating Summons No WA-24NCC-234-05/2019, High Court
- see the grounds of judgment here

Facts The Plaintiff is a public-listed solar management company in Taiwan and the successor company after a merger between three Taiwanese companies; Solartech Energy Corp. (‘Solartech’), Gintech Energy Corporation (‘Gintech’) and Neo Solar Power Energy Corp. (‘Neo Solar’). The Defendant was originally formed as a joint venture company between Solartech and Tek Seng Holdings Berhad (‘Tek Seng’). In conjunction with the parties’ entry into the joint venture, Tek Seng, Solartech and the Defendant entered into a Shareholders’ Agreement. Solartech then merged with Gintech and Neo Solar (‘Merger’) resulting in one single merged entity namely, Neo Solar. Neo Solar then changed its name to United Renewable Energy Co. Ltd (URE). Subsequently, Gintech, Solartech and Neo Solar executed a merger agreement where it was agreed that the parties shall be merged into one corporation (‘Merger Agreement’). It was also agreed that Neo Solar shall be the surviving company pursuant to the Merger and shall be renamed as URE on the effective date of the Merger. As a consequence of the Merger, the Plaintiff assumed all rights, assets and liabilities of the preceding company. This included the TS Shares which were originally owned by Solartech. URE wrote to TS Solartech to state that the merger had carried into effect a transmission of the TS Solartech by operation of law from Solartech to URE. TS Solartech took the position that there was a transfer of shares and this would require an instrument of transfer to be executed. URE then filed the Originating Summons in the High Court to seek for the declaration and the rectification of the register of members. A consequential order was also sought for the cancellation of the old share certificate in the name of Solartech and the issuance of a new share certificate in the name of URE. TS Solartech resisted the Originating Summons and maintained that there had been a transfer of shares which would require an instrument of transfer. There was no transmission by operation of law.

Issues The main issue is whether the Plaintiff is entitled to be registered as a shareholder of the Company in place of Solartech in respect of the TS Shares without the need for the Share Transfer Documents?

Held The Court held that universal succession pursuant to a merger has been recognised as a form of a transmission by operation of law. Universal succession is a legal concept of a successor company assuming all rights and liabilities of the preceding company, pursuant to a merger under foreign law. In such a situation, there is no transferor or transferee, and no active act of transfer by a member. Therefore, the Court held that there had been a transmission of shares by operation law and thus, URE was entitled to be registered as a shareholder of TS Solartech in place of Solartech in respect of the TS Solartech shares.