MALAYSIA Law and Practice Contributed by: Munir Abdul Aziz, Ee Von Teo and Addy Herg, Wong & Partners
Where the conditions precedent agreed between the parties are relatively limited and straightforward in nature, the long-stop date can be as short as one month. 6.8 Allocation of Risk The allocation of risks in transactions differs when there is a private equity-backed buyer/seller involved, compared to transactions without any private equity involvement. Deals involving a private equity buyer/ seller will typically entail a more heavily negotiated set of transaction documents to address a robust set of deal terms, with more complex consideration struc - tures with adjustments and earn-out features and risk allocation measures put in place. In contrast, corporate buyers/sellers tend to focus on strategic synergies and operational integration, and they rely heavily on their industry knowledge and expertise. They may also be more familiar with the regulatory framework and dealing with the regulators in question, which will affect how the regulatory-relat - ed issues are dealt with during negotiations and the drafting of the definitive transaction documents. 6.9 Warranty and Indemnity Protection W&I Insurance Where there is a private equity-backed seller involved, a “sell-side flip” warranty and indemnity insurance process is often applied. The private equity-backed seller’s W&I insurance broker will provide indicative terms for the policy at the commencement of the sale process, with the intention that the insurance policy will ultimately be purchased in the name of the buyer. To the extent that the management team is also exiting and is involved as part of the sale process, they will not typically be made to provide additional or separate warranties or indemnities to a buyer. The sale of their shares is typically stapled to the exit of the private equity-backed seller, and they will provide the same set of warranties and indemnities, which will in turn be insured by the same warranty and indemnity insur- ance package. The limits on liability will depend on the W&I policy ultimately purchased. The common limit for title and capacity warranties is 100% of the purchase price,
and business and operational-related warranties are capped in the range of 20% to 50% of the purchase price. Limitations on liability are typically applicable only to warranties, but sellers with a strong bargaining posi - tion (such as in auction processes) will ask for the cap to apply to the whole sale agreement. It is also common to carve out fraud from the limitations on the seller’s liability in Malaysian M&A deals. The time limit of the seller’s liability (other than tax) is generally 18–24 months after completion, which is tied to one or two audit cycles of the target company. The seller’s tax liability typically lasts for up to seven years post-completion, which ties to the tax audit statutory limitation period in Malaysia. 6.10 Other Protections in Acquisition Documentation Deposits, escrows, retention and the holding back of the purchase price are not common features in Malay - sia. They may be requested by local counterparts but are typically pushed back. The use of W&I insurance is common in private equity deals, especially where the private equity fund is the seller. 6.11 Commonly Litigated Provisions Litigation in private equity-backed transactions can occur, but it is not common in Malaysia. The following terms may potentially lead to litigation: • purchase price adjustments – disagreements on adjustment mechanisms such as how performance is measured or whether targets have been met for the purposes of the earnout-related calculation or net asset value or working capital-related adjust - ments; • breach of warranties – discovery of inaccurate, misleading or breached warranties; • indemnification claims – disputes as to whether the claims are valid and the extent of the coverage of the indemnification; and • fraud or misrepresentation claims – allegations of fraud or intentional misrepresentation.
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