A recent Federal Court decision in Detik Ria Sdn Bhd v Prudential Corporation Holdings Limited & Anor [2025] MLJU 575 has underscored a crucial yet often overlooked aspect of share disposals: the need to verify and obtain prior regulatory approvals where required. The failure to do so may render an agreement void, regardless of the parties’ intentions or contractual safeguards.
Case Background
In 2002, Detik Ria Sdn Bhd (“Detik Ria”) entered into a Call/Put Option Agreement (“CPOA”) with Prudential Assurance (“Prudential”) which it subsequently exercised to effect the disposal of Detik Ria’s 49% stake in Sri Han Suria Sdn Bhd (“SHS”), the holding company of Prudential Assurance Malaysia Berhad (“PAMB”), a licensed insurer regulated under the (now-repealed) Insurance Act 1996.
The CPOA expressly stated that the transaction was conditional upon obtaining the approval of the Minister of Finance (MOF), as required under Section 67 of the Insurance Act 1996. Despite not obtaining the MOF approval, the parties proceeded to perform the agreement over several years whereby Detik Ria had received RM109 million in payments of the share sale proceeds from Prudential, while Prudential received over RM4.2 billion in dividends as the sole holder of Class A Preference Shares.
When Detik Ria subsequently sought to rescind the agreement due to the absence of MOF’s approval, Prudential maintained that the deal remained valid and enforceable.
Federal Court’s Findings
The Federal Court overturned the lower courts’ decisions and allowed Detik Ria’s appeal. Its findings were as follows:
Governing Law at Time of Contract
The relevant statutory regime was the Insurance Act 1996, not the later Financial Services Act 2013, as the CPOA had been executed prior to the latter’s enforcement. Under Section 67, the Ministry of Finance’s approval was mandatory for any transaction involving 5% or more of a licensed insurer’s shareholding.
The Court reaffirmed that the newer statute cannot be applied retrospectively to override the legal requirements in force at the time of the agreement.
Conditional Agreements Are Lawful — But Not Premature Execution:
While conditional agreements are permissible, the Court clarified that performance of the agreement before certain conditions are fulfilled (e.g. MOF approval) constitutes a breach of law.
In this case, the parties had substantially performed the CPOA despite the condition precedent not being satisfied, thus violating Section 67 of the Insurance Act. As a result, the agreement was held to be void ab initio and unenforceable.
Consequences
In applying Section 66 of the Contracts Act 1950 (dealing with restitution following a void agreement), the Court ordered both parties to restore each other to their pre-contractual positions:
- Detik Ria was required to refund the RM109 million received under the CPOA.
- Prudential Assurance was directed to return dividends and other gains attributable to the invalid transaction.
Implications for Businesses
This case serves as a powerful reminder that compliance with regulatory and contractual approvals must be addressed at the outset.
- Verify Approval Requirements Upfront: While not all share disposals require regulatory approval, there are certain specific industries or ownership thresholds that approvals may be mandatory (e.g. insurance, banking, telco, etc.). These obligations should be assessed early in the transaction process.
- Do Not Perform Until Conditions Are Fulfilled: Even if approvals are eventually obtained, any premature steps taken to perform the agreement may render it void. A conditional clause is not a shield if parties act before conditions precedent are met.
Final Thoughts
The Detik Ria decision is a timely reminder that compliance with approval requirements must never be treated as an afterthought. If an individual or business is entering into a share sale or structuring a joint venture that may involve regulated entities, it is important to identify upfront (i) whether approval is needed, (ii) who must provide the approval , and (iii) at what stage must the approval be obtained.
Failing to do so could undermine the entire transaction even years after the deal was inked.
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This article was written by Jocelyn Lier (Associate) from Donovan & Ho’s corporate practice.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.
