Introduction to Related Party Transactions (RPTs)
Related Party Transactions (RPTs) are among the key corporate governance areas regulated under the Bursa Malaysia Main Market Listing Requirements (“MMLR”). Under the MMLR, a “related party transaction” is a transaction entered into by a listed issuer or its subsidiaries that involves the interest, direct or indirect, of a related party. To safeguard minority shareholders and promote market integrity, Bursa Malaysia imposes disclosure, approval, and governance requirements on listed issuers entering into RPTs.
Who are “Related Parties” and “Connected Persons”?
Related Parties refer to:
• Any person who holds the position of director in a company
• A person who is considered a major shareholder of that company
Connected Persons refer to individuals or entities that have a close relationship to a director or major shareholder, and may influence, or be influenced by, that director or major shareholder in a transaction. A person is deemed to be connected if the person is:
- a member of the director’s family
- a company or entity in which the director, major shareholder, or persons connected with them are entitled to exercise, or control the exercise of, not less than 20% of the votes attached to voting shares in the body corporate
- a trustee of a trust (other than a trustee for an employee share scheme or pension scheme) under which the director, major shareholder, or a family member of the director or major shareholder is the sole beneficiary
- a partner of the director
Transactions Covered Under RPTs
Transactions covered under RPTs include transactions involving the transfer of assets, liabilities, services, or business interests between a listed issuer or its subsidiaries and a related party. These may include the sale or purchase of goods or property, leasing arrangements, provision of services, joint ventures, financial assistance, guarantees, and other commercial transactions.
Governance Framework for RPTs
The MMLR aims to ensure that RPTs are:
- Conducted at arm’s length — the transaction should be undertaken as if the parties are completely unrelated, based on normal commercial terms, supported by market-based pricing or independent benchmarks, and free from any preferential treatment arising from the relationship.
- Fair and reasonable — the terms of the transaction must be justifiable from a commercial perspective, comparable to what would be agreed between independent parties, and supported by proper evaluation (e.g. financial analysis, valuation, or benchmarking).
- Not be detrimental to minority shareholders — the transaction must not disadvantage non-interested shareholders, either through value leakage, unequal benefits, or conflicts of interest, and should be structured in a way that protects their interests and ensures equitable treatment.
Role of the Audit Committee
The audit committee plays a central role in the governance of RPTs by:
- Reviewing RPTs prior to execution — ensuring that all relevant details are properly assessed before the transaction is entered into.
- Evaluating fairness and commercial justification — determining whether the terms are reasonable, supported by market benchmarks or independent assessments, and aligned with the company’s best interests.
- Ensuring adequate internal controls — verifying that appropriate procedures, approvals, and documentation are in place to manage conflicts of interest and mitigate risks.
In practice, many listed companies require audit committee review or pre-approval of RPTs as a mandatory internal control step before finalisation, reinforcing independent oversight and strengthening governance.
Percentage Ratio and Threshold
Under the MMLR:
- An RPT with a percentage ratio of 0.25% or more must be announced immediately to Bursa Malaysia
- An RPT with a percentage ratio of 5% or more requires:
o Immediate announcement to Bursa Malaysia
o Appointment of an independent adviser
o Circular to shareholders
o Shareholder approval at a general meeting - An RPT with a percentage ratio of 25% or more imposes additional disclosure obligations, including submission of a valuation report to Bursa Malaysia for transactions involving real estate, and requires that the circular to shareholders include prescribed additional information (Part F of the MMLR). Where no exemption applies, all Chapter 10 obligations remain in full force at this threshold notwithstanding any other conditions.
Conclusion
RPTs are an inevitable aspect of corporate operations, especially in group structures. In Malaysia, the regulatory approach is not prohibitive but supervisory, focusing on:
- Strong corporate governance practices
- Robust approval mechanisms
- Comprehensive disclosure requirements
The MMLR ensures that RPTs are conducted transparently, fairly, and in the best interests of all shareholders, particularly minority investors.