Bursa Malaysia Securities Publicly Reprimands China Stationery Limited And Fines 6 Directors

Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded China Stationery Limited (CSL) and 6 directors for breaches of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, the 6 directors were fined a total of RM59,600.

CSL is publicly reprimanded for committing the following breaches:-

No.

Breach

Paragraph 9.23 of the Main LR which states that:-

A listed issuer must issue its annual report that includes annual audited financial statements together with the auditors’ and directors’ reports of the listed issuer, to the Exchange and shareholders within 6 months from the close of the financial year of the listed issuer; and
A listed issuer must announce to the Exchange its annual audited financial statements together with the auditors’ and directors’ reports within a period not more than 4 months from the close of the financial year of the listed issuer unless the annual report is issued within a period of 4 months from the close of the financial year of the listed issuer.

Paragraph 2.06(2) of the Main LR which states that the Exchange may at any time, waive or modify compliance with a Requirement or any part of a Requirement. If the Exchange waives or modifies compliance with a Requirement or part of a Requirement subject to a condition, the condition must be complied with for the waiver or modification of compliance to be effective.

CSL had breached:-

paragraph 9.23(2) read together with paragraph 2.06(2) of the Main LR for failing to announce its annual audited financial statements for the financial year ended 31 December 2013 (“AFS 2013”) on or before the extended due date of 30 June 2014. CSL only announced its AFS 2013 on 8 July 2014, after a delay of 6 market days; and
paragraph 9.23(1) of the Main LR for failing to issue its annual report for the financial year ended 31 December 2013 (“AR 2013”) on or before the due date of 30 June 2014. CSL only issued its AR 2013 on 14 August 2014, after a delay of 31 market days.

Paragraph 9.16(1)(a) of the Main LR which states that a listed issuer must ensure that each announcement made is factual, clear, unambiguous, accurate, succinct and contains sufficient information to enable investors to make informed investment decisions.

CSL had breached paragraph 9.16(1)(a) of the Main LR in respect of its announcement dated 14 November 2015 on its unaudited quarterly report for the 9-month period ended 30 September 2014 (Unaudited QR Sept 2014) which failed to take into account the adjustments as stated in its announcement dated 15 January 2015.

There was a deviation between the Unaudited QR Sept 2014 and the audited results for the 9-month period ended 30 September 2014 (Audited QR Sept 2014) as follows:-

Unaudited QR Sept 2014 announced on

14 November 2014

Audited QR Sept 2014 announced on

15 January 2015

Loss after tax and minority interest

RM210,420,691

RM175,345,416

Deviation

RM35,075,275 / 16.67%

CSL is also required to review and ensure the adequacy and effectiveness of its financial reporting function and carry out a limited review on its quarterly report submissions. The limited review must be performed by the company’s external auditors for four quarterly reports commencing no later from the quarterly report for the financial period ended 30 June 2016. In addition, CSL must ensure all its directors and relevant personnel attend a training programme in relation to compliance with the Main LR pertaining to financial statements.

6 directors of CSL are publically reprimanded for breaches of paragraph 16.13(b) of the Main LR where they had permitted CSL’s failure to announce/issue its financial statements on the due date. In addition, fines are imposed on them as follows:-

No.	Director	Penalty Imposed
1.	Chan Fung @ Kwan Wing Yin Executive Chairman and Chief Executive Officer	Public Reprimand and fine of RM18,500
2.	Angus Kwan Chun Jut Executive Director	Public Reprimand and fine of RM18,500
3.	Datuk Tan Choon Hwa. JP. JMK Non-Independent Non-Executive Director Audit Committee Member (Resigned on 20 January 2015)	Public Reprimand and fine of RM7,400
4.	Dr. Risambessy Izaac Independent Non-Executive Director Audit Committee Chairman	Public Reprimand and fine of RM7,400
5.	Herman Widjaja Independent Non-Executive Director Audit Committee Member	Public Reprimand and fine of RM7,400
6.	Tan Sri Dato’ Nik Hashim Bin Nik Ab Rahman Senior Independent Non-Executive Director Audit Committee Member (Resigned on 2 July 2014)	Public Reprimand and fine of RM400

The finding of breach and imposition of the above penalties on CSL and its 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 breaches, impact of the breaches to CSL and shareholders / investors and the role, responsibilities and conduct of the directors.

Bursa Malaysia Securities views the contraventions seriously as the timely and accurate submission of financial statements is one of the fundamental obligations of listed companies and is of paramount importance in ensuring a fair and orderly market for securities traded on Bursa Securities and necessary to aid informed investment decisions.

Bursa Malaysia Securities has reminded CSL and its Board of Directors on their responsibility to maintain the appropriate standards of corporate responsibility and accountability to its shareholders and the investing public.

BACKGROUND

Delay in Submission of Financial Statements
Bursa Malaysia Securities had granted CSL’s request for an extension of 2 months (i.e. until 30 June 2014) to announce the AFS 2013 in view of a fire incident on 4 April 2014.

However, CSL failed to announce the AFS 2013 on or before the extended due date of 30 June 2014 as the company failed to procure the information / documents requested by the external auditors and resolve certain audit issues with the external auditors. This led to the external auditors expressing a disclaimer opinion on the AFS 2013 and consequently, CSL triggered the prescribed criteria in Practice Note 17 upon issuance of the AFS 2013 on 8 July 2014.

There was delay by CSL in providing the information which had been requested by the external auditors since 16 April 2014 towards finalisation of the AFS 2013. Further, there was no certainty as to when and whether the audit issues could be resolved with the external auditors.

In respect of the AR 2013, the explanation on the necessity to make certain revision / enhancement to the disclosure in the annual report and the time taken for the company secretary to liaise with the printers did not justify the length of delay and issuance of the AR 2013 only on 14 August 2014. The directors had merely relied on the management and the company secretary to finalise the AR 2013 and failed to take reasonable steps to monitor and supervise to ensure timely issuance of the AR 2013.

As such, there was no reasonable justification for the failure of CSL and its directors to ensure timely announcement of the AFS 2013 and AR 2013 by 30 June 2014.
Deviation between CSL’s unaudited and audited results for the 9-month period ended 30 September 2014
CSL had reported an unaudited loss after tax and minority interest of RM210,420,691 in its Unaudited QR Sept 2014 announced on 14 November 2014 as compared to an audited loss after tax and minority interest of RM175,345,416 in the Audited QR Sept 2014 announced on 15 January 2015. The difference of RM35,075,275 between the Unaudited QR Sept 2014 and the Audited QR Sept 2014 represented a variance of 16.67%.

The adjustments were mainly in respect of:-
1. recognition of deferred tax assets of RMB128,293,704 (equivalent to RM68,046,981) from the losses of CSL’s indirect wholly-owned subsidiaries. CSL had failed to undertake reasonable assessment in not recognising the deferred tax assets in the Unaudited QR Sept 2014 in accordance with the relevant accounting standard; and
2. provision for doubtful debts of RMB60,360,847 (equivalent to RM32,015,393) for debts which had exceeded the normal credit term of 90 days. Notwithstanding that the letters of demand for the debts were issued on 19 December 2014, there was no reasonable assessment undertaken / basis for the management’s view that the long outstanding debts were collectible at the date of issuance of the Unaudited QR Sept 2014