Due Diligence Report (Malaysia)

A Due Diligence Report in Malaysia records the findings or particulars it documents for the purpose at hand.

For transactions involving listed companies on Bursa Malaysia Securities Berhad, due diligence must comply with the Listing Requirements of Bursa Malaysia Securities and the Securities Commission Malaysia's (SC) Guidelines on Mergers and Acquisitions under the Capital Markets and Services Act 2007 (Act 671). The SC's Malaysian Code on Take-Overs and Mergers 2016 imposes specific due diligence obligations on advisers acting for offerors in mandatory general offer situations.

Legal due diligence in Malaysia involves searches at the Companies Commission of Malaysia (SSM), the National Land Information System (e-Tanah) for property assets, the Intellectual Property Corporation of Malaysia (MyIPO) for trademarks and patents, the Court Management System for pending litigation, and the Insolvency Department for winding-up petitions. Financial due diligence reviews audited financial statements under the Financial Reporting Act 1997 (Act 558) and Malaysian Financial Reporting Standards (MFRS) as issued by the Malaysian Accounting Standards Board (MASB).

A Due Diligence Report in Malaysia typically covers a defined scope agreed between the client and the adviser. The report identifies material issues (red flags), quantifies risks, and recommends conditions precedent, price adjustments, indemnities, or warranties to be incorporated in the sale and purchase agreement. Under the Contracts Act 1950 (Act 136), a buyer who relies on a Due Diligence Report prepared by a professional adviser may have claims for negligent misstatement if the report is materially inaccurate, as established in the Malaysian context through principles derived from Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.

The legal framework governing the Due Diligence Report (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Due Diligence Report (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Companies Act 2016 (Act 777) sets the foundational requirements.

A Due Diligence Report in Malaysia is required before entering any significant commercial transaction where the buyer or investor assumes risks associated with the target.

A Due Diligence Report is needed when a strategic acquirer or private equity fund seeks to acquire shares or assets of a Malaysian company under the Companies Act 2016 (Act 777). The report identifies undisclosed tax liabilities assessed by the Inland Revenue Board (LHDN), contingent litigation claims before the High Court of Malaya, and regulatory non-compliance issues that could affect valuation or closing conditions.

A Due Diligence Report is required when a foreign investor applies to the Malaysia Investment Development Authority (MIDA) for manufacturing or services sector licences, and needs to verify the regulatory standing of a Malaysian joint venture partner including all approvals from sector regulators such as Bank Negara Malaysia (BNM), the SC, or the Energy Commission (ST).

A Due Diligence Report is needed when a venture capital or angel investor evaluates a Malaysian startup before making an equity investment under the SC's Guidelines on the Registration of Venture Capital and Private Equity Corporations and Management Corporations. The report covers intellectual property ownership, employment agreements, and compliance with the Employment Act 1955 (Act 265).

A Due Diligence Report is required in real property transactions involving commercial or industrial land under the National Land Code 1965 (Act 56), verifying that the target property is free from charges, caveats, and restrictions in interest, and that all approvals from the relevant State Land Authority and local planning authority have been obtained.

A Due Diligence Report is needed when a financial institution or bank conducts credit due diligence before extending a term loan or project financing facility under BNM guidelines on credit risk management.

A Malaysia Due Diligence Report must cover the following key areas to provide the client with a complete picture of the target.

Corporate and Regulatory Status: Confirm the target's SSM registration number, date of incorporation, share capital structure, and list of registered directors and shareholders under the Companies Act 2016 (Act 777). Verify compliance with annual filing obligations — annual returns (Section 68) and financial statements (Section 259) — and check for any notice of striking off or winding-up petitions at SSM or the High Court of Malaya.

Title to Assets: For property assets, conduct title searches at the National Land Information System (e-Tanah) or State Land Registries to verify ownership, charges, caveats, and restrictions under the National Land Code 1965 (Act 56). For intellectual property, search MyIPO's trademark and patent registers.

Litigation and Disputes: Review pending and threatened litigation in the Civil Justice System (CJS) of the Malaysian courts. Check for arbitration proceedings at the Asian International Arbitration Centre (AIAC) and claims before the Industrial Court of Malaysia or the Labour Court.

Material Contracts: Review key agreements — customer contracts, supplier agreements, loan documentation, lease agreements, and licences — for change of control provisions, assignment restrictions, and material termination rights that could be triggered by the proposed transaction.

Regulatory Licences and Permits: Identify all licences required for the target's business operations — business licences under the local government authority, sector-specific licences from the SC, BNM, Energy Commission, or MCMC — and verify their currency and compliance conditions.

Employment: Review headcount, employment contracts, collective agreements with trade unions under the Industrial Relations Act 1967 (Act 177), EPF and SOCSO compliance under the Employees' Provident Fund Act 1991 (Act 452), and any pending Industrial Court claims.

Tax: Confirm Inland Revenue Board (LHDN) tax compliance — income tax under the Income Tax Act 1967 (Act 53), real property gains tax (RPGT) for property transactions, and GST/SST obligations. Obtain tax clearance letters where applicable.

Red Flags and Recommendations: Summarise material risks and recommend conditions precedent, price adjustments, indemnities, and warranties for inclusion in the transaction documents.

Additional compliance elements for a Due Diligence Report (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.