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.
This is only an overview of the applicable law, and should not be relied upon as legal advice or recommendation by us. If you require our advice please be good enough to contact us on firstname.lastname@example.org.