Bursa Malaysia Securities Publicly Reprimands And/Or Fines 5 Directors Of Industronics Berhad

Bursa Malaysia Securities Berhad (635998-W) (“Bursa Malaysia Securities”) has publicly reprimanded and/or fined 5 directors of Industronics Berhad (“ITRONIC” or “the Company”) for breach of the Bursa Malaysia Securities Main Market Listing Requirements (“Main LR”) as follows:-

Liu Wing Yee Amy, Leung Kwok Kuen Jacob, Tsui Kwok Ho and Lu Zhi Qin had breached paragraph 8.23(2)(a)(i) of the Main LR for failing to ensure that the following were fair and reasonable to ITRONIC and not to the detriment of the Company and its shareholders:-

• the advance/deposit of SGD2.5 million paid to Vashion Group Ltd (“Vashion”) on 9 & 16 July 2014 (“the Deposit”) pursuant to the conditional deposit agreement dated 9 July 2014 in connection with the proposed subscription of shares in Vashion (“the Deposit Agreement”); and
• the continuing advances to Vashion by virtue of the extensions of the Deposit Agreement until 30 June 2016 via the supplemental agreements dated 30 September 2014, 31 December 2014, 31 March 2015, 30 June 2015, 30 September 2015, 31 December 2015 and/or 31 March 2016 (“Supplemental Deposit Agreements”).

Fung Ling Yip (who was appointed on 10 December 2014 i.e. after the Deposit Agreement) had breached paragraph  8.23(2)(a)(i) of the Main LR for failing to ensure that the continuing advances to Vashion by virtue of the extensions of the Deposit Agreement until 30 June 2016 via the supplemental agreements dated 31 December 2014, 31 March 2015, 30 June 2015, 30 September 2015, 31 December 2015 and 31 March 2016 were fair and reasonable to ITRONIC and not to the detriment of the Company and its shareholders.

The finding of breach and imposition of the above penalties on the directors of ITRONIC were made pursuant to paragraph 16.19 (1)(b) of the Main LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the directors’ roles, responsibilities, involvement, knowledge and/or approval of the Deposit, the Deposit Agreement and/or the Supplemental Deposit Agreements and the materiality/impact of the breach to ITRONIC and its shareholders/investors.

Bursa Malaysia Securities views the contravention seriously as the requirements under paragraph 8.23 of the Main LR were one of the key investor protection requirements which served to ensure proper preservation and employment of a company’s assets/funds. 

BACKGROUND

ITRONIC had on 9 July 2014 entered into the Deposit Agreement with Vashion, a company incorporated in Singapore and listed on the Catalist market of Singapore Exchange Limited for the proposed subscription of shares in Vashion by way of private placement for such number of new ordinary shares in Vashion and at such price and on such terms as shall be agreed and documented in a placement agreement to be entered into between Vashion and the Company.

Pursuant to the Deposit Agreement, the Company had paid the Deposit to Vashion on 9 July 2014 and 16 July 2014.  The Deposit represented approximately 11.7% of the Company’s net assets and 26.3% of the cash and bank balances as at 30 June 2014.

The Deposit Agreement was initially valid until 30 September 2014 but was subsequently extended every 3 months until 30 June 2016 via the Supplemental Deposit Agreements.  Vashion had subsequently made partial repayments of the Deposit on 5 February 2016 and  25 February 2016.  On 26 August 2016, the balance of the refundable Deposit of approximately SGD1 million was converted into a loan with interest at 3% per month to be paid by Vashion within 3 months from 1 July 2016 (which was subsequently extended to 31 December 2016). The loan together with interest was fully repaid by Vashion on 22 December 2016 i.e. approximately 2.5 years after the Deposit Agreement on 9 July 2014.

The Deposit, which was paid before ITRONIC acquired any shares in Vashion, was in substance an advance/provision of financial assistance under paragraph 8.23(1)(a) of the Main LR and pursuant to paragraph 8.23(2)(a)(i) of the Main LR, the board of directors of ITRONIC must ensure that the Deposit was fair and reasonable to ITRONIC and was not to the detriment of ITRONIC and its shareholders.  However, the directors had failed to discharge their obligation as they had failed to undertake reasonable care and diligence to make an informed assessment and decision to ensure that the Deposit and the continuing advances to Vashion via the Supplemental Deposit Agreements were fair and reasonable to ITRONIC and not to the detriment of the Company and its shareholders. In particular:-

1. Despite the materiality of the Deposit, there was no evidence of any proper enquiry/assessment/analysis and/or justification undertaken by the directors before entering into the Deposit Agreement and payment of the Deposit. In this regard, there was no evidence of any supporting documents and/or board paper prepared on the proposed subscription/Deposit Agreement and it was noted that some of the Independent Non-Executive Directors and Audit Committee members had requested for the following information for consideration of the Deposit Agreement:-

   • investment proposal;
   • business history;
   • financial highlights;
   • any outstanding litigations/disputes/capital commitment;
   • profit and cash flow forecasts;
   • how the proposed investment in Vashion can be beneficial to the Company;
   • how the deposits made by the Company can be safeguarded; and
   • any other relevant information to support the proposed investment.

   However, the directors (except Fung Ling Yip who was appointed after the Deposit Agreement) had disregarded/did not take into account the enquiries and did not provide the information requested by the Independent Non-Executive Directors. The directors had proceeded to approve the Deposit Agreement merely via a Directors Circular Resolution (“DCR”) dated 2 July 2014 after the teleconferences on 2, 4 and 9 July 2014 where the directors had only discussed the idea and material terms of the draft Deposit Agreement (reason of the Deposit Agreement, amount to be deposited and briefing of the placement agreement).

2. The directors had also via the DCRs dated 10 October 2014, 31 December 2014, 31 March 2015, 30 June 2015, 30 September 2015 and/or 1 June 2018 approved and/or ratified the Supplemental Deposit Agreements which essentially allowed the continuing advances to Vashion/deferred the refund of the Deposit for a period of 1 year and 9 months until 30 June 2016 without any evidence of discussion with Vashion on the proposed subscription until December 2015 and details of the assessment done vis-à-vis the numerous decisions to extend the validity period of the Deposit Agreement.