Bursa Malaysia Securities Berhad [200301033577 (635998-W)] (“Bursa Malaysia Securities”) has publicly reprimanded Sunzen Biotech Berhad (“SUNZEN” or “the Company”) and 2 of its executive directors, for breaches of the Bursa Malaysia Securities ACE Market Listing Requirements (“ACE LR”). In addition, the 2 executive directors of SUNZEN were imposed total fines of RM100,000.
SUNZEN was publicly reprimanded for breaching Rule 10.13(1)(b) read together with Rule 8.31(1) of the ACE LR for failing to obtain prior shareholders’ approval in respect of the diversification into a new business in the trading of crude palm oil and its derivative products such as palm kernel and palm kernel shell in February 2017 (“the Diversification”). SUNZEN had only announced the proposed ratification of the Diversification on 9 February 2018 and obtained its shareholders’ ratification of the Diversification on 30 May 2018.
The 2 executive directors of SUNZEN at the material time had breached Rule 16.13(b) of the ACE LR for permitting SUNZEN to commit the above breach and were imposed the following penalties:-
No. |
Name |
Penalty |
1. |
Datuk Hong Choon Hau Managing Director cum Chief Executive Officer
|
Public reprimand and fine of RM50,000.00 |
2. |
Lim Eng Chai Executive Director/Chief Operating Officer (resigned on 30 November 2018)
|
Public reprimand and fine of RM50,000.00 |
The finding of breach and imposition of the above penalties on SUNZEN and the directors were made pursuant to Rule 16.19 of the ACE LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the materiality/impact of the breach to SUNZEN and shareholders/investors and the roles, responsibilities, knowledge and conduct of the directors.
Bursa Malaysia Securities views the contravention seriously particularly as the requirement of Rule 10.13 of the ACE LR serves to protect the interest of shareholders and ensure shareholders are kept informed of all facts or information that might affect their interests.
Bursa Malaysia Securities has also reminded SUNZEN and its board of directors of their responsibility to maintain the appropriate standards of corporate responsibility and accountability to its shareholders and the investing public.
BACKGROUND
SUNZEN was principally engaged in biotechnology research and development and manufacturing and marketing of animal feed supplements and animal health care products, which includes feed additives, nutritional feed supplements, veterinary pharmaceutical and animal vaccines.
The Company had commenced a new business in the trading of crude palm oil and its derivative products such as palm kernel and palm kernel shell (“CPO & Derivative Products Trading”) in February 2017. The Company had triggered Rule 10.13(1)(b) of the ACE LR where the CPO & Derivative Products Trading had contributed more than 25% of SUNZEN’s net profit as at the quarterly report for the financial period ended (“FPE”) 31 March 2017 (“QR 1/2017”), 30 June 2017 (“QR 2/2017”), 30 September 2017 (“QR 3/2017”) and 31 December 2017 (“QR 4/2017”) as follows:-
RM million Cumulative Results |
Revenue from CPO & Derivative Products Trading |
Total Revenue of SUNZEN |
Net Profit from CPO & Derivative Products Trading |
Total Net Profit of SUNZEN |
Percentage contribution* |
QR 1/2017 |
36.232 |
45.745 |
0.450 |
1.051 |
43% |
QR 2/2017 |
103.557 |
121.621 |
2.706 |
2.578 |
105% |
QR 3/2017 |
171.019 |
200.340 |
1.973 |
3.531 |
56% |
QR 4/207 |
262.030 |
303.451 |
2.678 |
3.640 |
74% |
* Percentage contribution of the net profit from CPO & Derivative Products Trading over the net profit of SUNZEN
SUNZEN and the executive directors had represented that:-
· the Diversification arose unintentionally out of the need to secure a consistent supply of refined, bleached and deodorized palm stearin (a derivative of crude palm oil) for the processing of powder fats, a feedstock for the manufacturing of the Group’s animal feed supplement; and
· the Company did not expect the CPO & Derivative Products Trading to be part of the Group’s business and did not foresee it would contribute significantly to the Group’s profitability/was sustainable as it was new/commenced only in February 2017 and the commodity market was unpredictable/volatile subject to price fluctuation.
However, the evidence showed that the Company had clearly intended to diversify into the CPO & Derivative Products Trading and both the Company and executive directors were aware of the material contribution of the CPO & Derivative Products Trading to the Company’s revenue, net profits and/or prospects as disclosed in the QR 1/2017, QR 2/1017, QR 3/2017 and QR 4/2017. Further, the Company and executive directors had failed to make any proper assessment/analysis on the CPO & Derivative Products Trading vis-à-vis compliance with the ACE LR prior to the Diversification in February 2017.
The Company had only proceeded to obtain its shareholders’ ratification of the Diversification after the external auditors and company secretary highlighted the need to make an announcement and obtain shareholders’ approval of the Diversification during the Audit Committee meeting on 24 November 2017. Thereafter, the Company had appointed M&A Securities Sdn. Bhd. as the adviser on 5 December 2017, announced the proposed ratification of the Diversification on 9 February 2018, issued the circular to shareholders on 30 April 2018 and obtained the shareholders’ ratification of the Diversification on 30 May 2018.
Based on the roles, responsibilities, knowledge and/or involvement in the CPO & Derivative Products Trading of the executive directors, there were many instances (prior to and after the Diversification including in preparing and deliberation of the quarterly results) where the executive directors could and should be aware of the new business that the Company was venturing into and the potential/possible impact to the Company. In addition, as the executive directors of the Company who were in charge of the day to day affairs of the Company including entrusted by the board to ensure compliance by the Company of relevant laws and rules, there was blatant failure/neglect by the executive directors in the discharge of their duties to identify, check, make proper assessment/analysis on the Diversification and ensure compliance of the ACE LR