Bursa Malaysia Securities Publicly Reprimands And/Or Fines Reach Energy Berhad And Seven (7) Directors

Bursa Malaysia Securities Berhad [Registration No.: 200301033577 (635998-W)] (Bursa Malaysia Securities) has publicly reprimanded Reach Energy Berhad (REACH) and 7 of its directors for breach of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR).  In addition, 6 directors were imposed a fine of RM50,000 each.  

REACH was publicly reprimanded for breach of paragraph 8.04(3)(b) of the Main LR read together with paragraph 4.1(a) of Practice Note 17 (PN17) for failing to make the First Announcement pursuant to PN17 on an immediate basis upon announcement of the Company’s 4^th quarterly report for the financial period ended 31 December 2022 (QR 31/12/2022) on 28 February 2023.

REACH had triggered the prescribed criteria under paragraph 2.1(e) of PN17 as the external auditors had highlighted a material uncertainty related to going concern (MUGC) in the company’s latest audited financial statements for the financial year ended 31 December 2021 issued on 29 April 2022 (AFS 31/12/2021) and based on the QR 31/12/2022, the shareholders’ equity of the company on a consolidated basis was RM111,293,000 which represented 22.8% of the share capital of the company of RM488,975,000 as at 31 December 2022.  

REACH only made the First Announcement on 3 April 2023 i.e. after a delay of approximately 1 month.

7 directors of REACH at the material time had breached paragraph 16.13(b) of the Main LR for permitting REACH to commit the breach for which the following penalties were imposed on them: -  

The finding of breach and imposition of the above penalties on REACH and the directors were made pursuant to paragraph 16.19 of the Main LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the materiality of the breach, impact of the breach to REACH and its shareholders/investors, and the roles, responsibilities, knowledge and conduct of the directors.  No fine was imposed on Izlan Bin Izhab having considered his personal adverse/extenuating circumstances. 

Bursa Malaysia Securities views the breach seriously as the First Announcement was crucial to shareholders and investors as it related to REACH’s financial condition and the consequences of being classified as a financially distressed company pursuant to PN17 vis-àvis possible suspension and de-listing if the company fails to regularise its financial condition within the timeframe prescribed under paragraph 8.04 of the Main LR and PN17. Hence, timely disclosure of information pertaining to classification/triggering of PN17 is important towards facilitating informed investment decision.  

Bursa Malaysia Securities has also reminded REACH and its Board of their responsibilities to maintain the appropriate standards of corporate responsibility and accountability to its shareholders and the investing public.  

BACKGROUND

REACH had triggered the prescribed criteria under paragraph 2.1(e) of PN17 upon announcement of the QR 31/12/2022 on 28 February 2023 as the external auditors had highlighted a MUGC in the AFS 31/12/2021 and the shareholders’ equity of the company on a consolidated basis was RM111,293,000 which represented 22.8% (i.e. below 50%) of the share capital of the company of RM488,975,000 as at 31 December 2022.  

However, REACH had only made the First Announcement on 3 April 2023, after Bursa Securities’ engagement with the Company on 31 March 2023.

There was no reasonable explanation for REACH’s failure to make the First Announcement upon announcement of the QR 31/12/2022.  It is clear from the illustration in FAQ 8.20 of the Consolidated Questions and Answers in relation to the Main LR issued by Bursa Malaysia Securities that once the external auditors had highlighted a MUGC in the latest financial statements, a listed issuer had triggered the 1^st limb of paragraph 2.1(e) of PN17 and the listed issuer would trigger the 2^nd limb of paragraph 2.1(e) of PN17 if its shareholders’ equity in the subsequent quarterly results had reduced to below 50% of its share capital.  In this regard, the subsequent quarterly results is not limited to the first quarterly results and the listed issuer must continuously monitor its subsequent quarterly results on the triggering of the 2^nd limb of paragraph 2.1(e) of PN17. 

The directors had failed in the discharge of their duties to undertake reasonable assessment and enquiry to ascertain whether REACH had triggered the prescribed criteria under PN17 (including paragraph 2.1(e) of PN17) and ensure compliance with the PN17 requirement  despite the financial indicators/red flags on the company’s financial condition,  particularly the staggering losses and significant reduction in the shareholders’ equity in the QR 31/12/2022 as compared to the AFS 31/12/2021 as follows: -  

The directors could/should not merely rely on the management and/or external auditors to highlight any potential risk that the company might trigger PN17 and ensure all financial matters were managed in compliance with the applicable regulations.

The Board (which consisted mainly of non-executive directors) must exercise a more robust oversight and supervision over the management in ensuring the management was effectively managing the operations of the company and adherence to the Main LR.