Yes, but the charge has to be dealt with first. Offer documents typically require accepted shares to be free of any charge, so the lender releases them, usually against repayment from the offer proceeds at settlement. In a scheme of arrangement or a compulsory acquisition, shares can pass without an acceptance, so the facility must provide for the proceeds.
Key takeaways
- Release first. Charged shares cannot be delivered to an offeror until the lender releases them, which it usually does against repayment.
- Proceeds repay the loan. Cash consideration is settled within 10 days under the take-over rules, and is applied first to the facility.
- Schemes and squeeze-outs. A scheme of arrangement or a compulsory acquisition can move your shares without an acceptance from you.
- A price below the trigger. If the offer price sits below the facility's trigger, expect a margin call, and any shortfall is treated under the recourse profile.
- Plan early. Take-overs are anticipated in the facility documents, and your counsel confirms any disclosure.
Can I accept a take-over offer while my shares are charged?
Not without the lender's involvement. Accepting a take-over offer means delivering the shares to the offeror, and offer documents typically require them to be free of any charge, so the lender must agree to release its security, usually in exchange for repayment from the offer price.
The requirement for clean shares is set in the offer document: accepting holders are usually taken to warrant that their shares are free of any charge, lien or other encumbrance. While a stock loan runs, the shares sit in the lender's Pledged Securities Account, a designation explained in our note on what "Pledged Securities Account" means.
Facility documents normally anticipate take-overs before funding, setting out whether the lender's consent is needed to accept and how a release will work. The wider interaction between a stock loan and the Code, including the 33% mandatory-offer threshold, is covered in the Take-overs Code and the 33% threshold.
How is the loan repaid from the offer proceeds?
Through a release against payment: the lender releases the shares so the acceptance can settle, and the cash consideration goes first to repay the facility, with any balance paid to you. Under the take-over rules, cash consideration must be paid within 10 days of the later of a valid acceptance and the offer becoming unconditional.
Repaying from the proceeds is an early repayment, so the facility's agreed prepayment terms apply alongside accrued interest or profit. Once the loan is repaid, the charge is discharged; under section 40 of the Securities Industry (Central Depositories) Act 1991, discharged shares leave the lender's account on its written confirmation. How the release, the tender and the payment are sequenced is agreed with the lender in advance.
| Offer stage | What happens | Loan step |
|---|---|---|
| Offer announced | The offeror serves notice of the offer on the offeree's board, and the offer is announced. | Tell your lender early and check the facility's consent and corporate-action terms. |
| Offer document posted | The offer document goes to shareholders, setting out how to accept. | Agree the release and repayment mechanics with the lender. |
| Offer open | The offer stays open for at least 21 days from posting. | The lender consents to acceptance and prepares a release against payment. |
| Unconditional as to acceptances | Required by the 60th day after posting, or the offer lapses. | Acceptances become binding and the settlement clock starts. |
| Settlement | Cash consideration paid within 10 days of a valid acceptance or of the offer turning unconditional, whichever is later. | The proceeds repay the facility, the charge is discharged, and any balance is paid to you. |
| Compulsory acquisition | With acceptances of nine-tenths of the offer shares, the offeror may acquire the rest by notice within four months of the offer. | Shares not tendered pass to the offeror; the facility sets out how the consideration reaches the lender. |
What about a privatisation by scheme or a compulsory acquisition?
A privatisation by scheme of arrangement and a compulsory acquisition can each move your shares without your acceptance. A scheme of arrangement binds all members once 75% in value of those present and voting approve it and the court sanctions it; compulsory acquisition lets an offeror with acceptances for nine-tenths of the offer shares buy out the rest.
The scheme threshold is in section 366 of the Companies Act 2016. Compulsory acquisition sits in sections 222 to 224 of the Capital Markets and Services Act 2007: the offeror must give notice within two months of reaching the threshold, a dissenting holder may apply to court within one month of the notice, and the consideration is paid to the company, which holds it in trust for the holders.
The Act also works the other way. Once the offeror and those acting in concert with it hold nine-tenths in value of the shares, any remaining holder may require the offeror to buy their shares on the offer terms. Because shares can pass without your acceptance in any of these routes, a facility should say how the consideration for charged shares reaches the lender.
What if the offer price is below my loan's trigger levels?
An offer price below the facility's trigger means the loan-to-value is already above the level that allows a margin call, so expect the lender to call for a top-up or a part repayment before settlement. If the offer proceeds still fall short of the loan, the shortfall is treated according to the recourse profile agreed for the facility.
A non-recourse facility limits the lender to the shares and their proceeds; a full-recourse facility leaves the borrower liable for any gap; a limited-recourse facility sits in between. Recourse is agreed per transaction when a facility is set up, as described on our stock loans page, so it is worth reading the recourse terms against a possible take-over before signing.
What else do borrowers ask about take-overs?
01Do I still decide whether to accept the offer?
02Could my lender trigger a mandatory offer if it enforces?
03Who receives the offer price, me or the lender?
04Does accepting the offer change my disclosure obligations?
This note is general information on the Malaysian Code on Take-overs and Mergers 2016 and the Rules on Take-overs, Mergers and Compulsory Acquisitions, the Capital Markets and Services Act 2007 and the Companies Act 2016. It is not legal advice; every offer's timetable and terms are set out in its own documents, and your Malaysian counsel should confirm the position.
