Bursa Malaysia Securities Berhad (Bursa Securities) has publicly reprimanded HDM-Carlaw Corporation Berhad (CARLAW) and five of its directors for failing to make an immediate announcement on the defaults in payment of various credit facilities. In addition, three executive directors were fined a total of RM200,000.
The failure to make an immediate announcement on the defaults in payment breached Rules 9.03(1) and 9.04(l) of the Listing Requirements of Bursa Securities for the MESDAQ Market (MMLR) read together with paragraphs 2.1(d) and (e) of Guidance Note No. 5/2006 (GN5) where a listed company must make an immediate announcement on the following:-
- default in payments of either interest, principal sums or both in respect of a credit facility, where the credit facility is five percent or more of the net assets of the listed company; and
- default in payments of either interest or principal sums or both in respect of a credit facility, which is reasonably expected to have a material effect on the price, value or market activity of any of the listed company’s securities, or the shareholders’ or investors’ investment decision.
The following directors of CARLAW at the material time were found to have breached Rule 16.11(b) of the MMLR for permitting knowingly, or where they had reasonable means of obtaining such knowledge, CARLAW to commit the breach:
| No. | Director | Penalty |
|---|---|---|
| 1 | Lim Kong Seng Executive Chairman (Vacated on 3 January 2011) |
Public Reprimand & Fine of RM50,000 |
| 2 | Tong Keng Yoon Managing Director |
Public Reprimand & Fine of RM100,000 |
| 3 | Koh Lim Heng Executive Director Audit Committee member (until 30 January 2009) |
Public Reprimand & Fine of RM50,000 |
| 4 | Teoh Peking Independent Non-Executive Director Audit Committee Chairman (Appointed on 1 March 2005 and resigned on 2 September 2009) |
Public Reprimand |
| 5 | Tan Eng Tat Independent Non-Executive Director Audit Committee member (Appointed on 24 April 2009 and resigned on 2 September 2009) |
Public Reprimand |
Bursa Securities views the contravention seriously and reminds CARLAW and its Board of Directors of their duty to uphold appropriate standards of responsibility and accountability to shareholders and the investing public.
BACKGROUND
The details of CARLAW’s breach pertaining to the defaults in payment, the materiality of the defaults vis-à-vis CARLAW’s net assets at the material time and the date of announcement are as follow:-
| Lender | Facility | Outstanding credit facility as claimed under the Writ of Summons (A) (RM) | % of (A) Over CARLAW’s Net Assets | Date of default | Date of Notices of Demand | Date of announcement |
|---|---|---|---|---|---|---|
| RHB Bank Berhad
|
Overdraft |
494,942.77 (as at 22 December 2008 and writ of summons dated 4 March 2009)
|
2.8% | 22 October 2008 | 28 October 2008, 11 November 2008 & 15 December 2008 | 3 September 2009 |
| AmBank (M) Berhad (AmBank) |
Term Loan and Overdraft | 2,538,320.89 (as at 22 April 2009 and writ of summons dated 15 June 2009) |
14.4% | October 2008 | 7 April 2009 & 6 May 2009 | 15 December 2009 |
| Malayan Banking Berhad | Overdraft | 438,142.02 (as at 31 October 2009 and writ of summons dated 30 December 2009) |
5.9% | 31 May 2009 | 2 July 2009 | 12 May 2010 |
Notwithstanding the representation that the banks had granted certain indulgences in the repayment obligations, this did not absolve CARLAW’s obligation to make an immediate announcement upon the defaults in payment in accordance with the MMLR and particularly in light of the notices of demands issued by the banks.
The finding of breach and imposition of the above penalties against CARLAW and its directors were made pursuant to Rule 16.17 of the MMLR, upon completion of due process and after taking into consideration all facts and circumstances of the matter including the following:-
- The materiality of the breach as follows:-
- CARLAW was unable to provide the requisite solvency declaration to Bursa Securities upon the announcement of the defaults in payment on 3 September 2009, and was classified as a GN3 company on the same day; and
- The requirement for listed companies to make an immediate announcement of a material default in payment of credit facilities was fundamental to enable investors to make informed investment decisions concerning the listed company’s financial condition; and
- The knowledge, role, responsibilities and conduct of the directors:-
- The executive directors had knowledge of the defaults and/or the notices of demands during the 2nd half of 2008 and 1st half of 2009, while the non-executive directors had knowledge of the defaults in payment during the audit committee meeting on 30 April 2009 and the board meeting on 28 May 2009. Notwithstanding this, the directors had permitted the non-disclosures until the announcement was made on 3 September 2009
- ii. Tong Keng Yoon was the director primarily involved in the negotiation with the banks with regard to the defaults in payment, and the key person liaising with the sponsor and company secretary on compliance with the MMLR. He had also misrepresented to the board that there was no necessity to make an announcement of the defaults in accordance with the sponsor’s advice, which was unsubstantiated and denied by the sponsor;
- Lim Kong Seng had not undertaken reasonable efforts to discharge his duties as the Executive Chairman to ensure compliance of the MMLR. He failed to notify the board immediately of the defaults and notices of demand from Ambank to facilitate an informed board deliberation / decision vis-à-vis immediate announcement of the defaults; and
- It is unacceptable for the board to merely rely on the Managing Director’s representation in the discharge of their duties in view of the clear requirements under Rules 9.03(1) and 9.04(l) of the MMLR read together with paragraphs 2.1(d) and (e) of GN5 for an immediate announcement to be made in the event of a default in payment and the materiality of the default.
