Sri Lanka - Overview Of The Law Governing ‘Major Transaction’.

Legal News & Analysis - Asia Pacific - Sri Lanka - Corporate/M&A

7 March, 2017

 

Overview of the law governing ‘Major Transaction’ under the Laws relating to companies in Sri Lanka (‘Applicable Law’)

A ‘Major Transaction’ is defined to include the following:

 

(i) the acquisition of or an agreement to acquire whether contingent or not, assets of a value which is greater than half the value of the assets of the company before the acquisition;

 

(ii) the disposition of or an agreement to dispose of, whether contingent or not, the whole or more than half by value of the assets of the company;

 

(iii) a transaction which has or likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities of a value which is greater than half the value of the assets before the acquisition; or

 

(iv) a transaction or series of related transactions which have the purpose or effect of substantially altering the nature of the business carried on by the company.

 

A company proposing to enter into a major transaction is required to:

 

(i) first obtain the approval of its shareholders by special resolutions; or

 

(ii) make its entry into the transaction continent on such approval;

 

(iii) have the consent in writing of all the shareholders; or

 

(iv) be a transaction which the company is expressly authorized to enter into by a provision in its Articles, which was included in it at the time the company was incorporated.

 

The valuation of assets for the purpose of determining a major transaction is not dealt with in the Applicable Law. In the absence of a specific methodology, it appears that the market value of the assets of a company will be considered.

 

The following transactions though falling within the definition of ‘major transactions’ do not require shareholder resolutions:

 

(i) transaction under which a company gives or agrees to give a floating charge over all or any part of the property of the company;

 

(ii) A similar transaction entered into by a receiver appointed under an instrument creating a floating charge; and

 

(iii) A transaction entered into by an administrator or liquidator of a company.

 

Consequences of not obtaining shareholder approvals as per Applicable Law.

 

(i) Directors of the company maybe personally liable if they allow the company to enter into a major transaction in breach of the Applicable Law;

 

(ii) A shareholder may block a transaction which is not yet completed by obtaining injunctive relief from court.

 

D.L.&F. De Saram

 

For further information, please contact:

 

Savantha De Saram, Partner, D.L.&F. De Saram.

savantha@desaram.com