Last week, Apex Equity Bhd made an unusual announcement. It said its board had filed an application pursuant to Section 582(3) of the Companies Act 2016 and/or Section 355(3) of the Companies Act 1965 to the High Court to seek a validation order to regularise previous share buyback exercises it carried out between 2005 and 2017.
“The validity of such share buyback exercises is questionable because the company’s Memorandum and Articles of Association does not provide the company with the requisite authority to undertake share buyback exercises,” Apex said in the announcement.
The company noted that the requirement for express authority to be provided in the constitutional document for a company to undertake share buyback exercises is stipulated in Section 67A(1) of the Companies Act 1965 and Section 127(1) of the Companies Act 2016.
Apex also sought a declaration that the distribution of its treasury shares as a share dividend in 2007, where it gave out two shares for every 100 shares owned, was valid. Apex has 10.92 million shares, or 5.11% of its share base, held as treasury shares.
How could the share buyback exercises have taken place for 12 years without the management, independent directors and the company secretary knowing there was no provision in the Memorandum and Articles of Association?
Did someone along the way fail to fulfil his or her fiduciary duty?