Bursa Malaysia Securities Publicly Reprimands Lay Hong Berhad And Fines Its Directors A Total Of RM750,000

Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded LAY HONG BERHAD (LAYHONG) and its directors for breaching the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, the 8 directors of LAYHONG at the material time had been fined a total of RM750,000.

LAYHONG had committed the following breaches:-

1. paragraphs 9.16(1)(a) and (c)(i) of the Main LR in respect of the company’s announcements dated 3 November 2015 and 19 January 2016 which were made in response to the unusual market activity queries (UMA Queries) from Bursa Securities.   LAYHONG’s announcements had stated / confirmed amongst others that there was no corporate development relating to the Group’s business and affairs that had not been previously announced that might account for the trading activity including those in the stage of negotiation / discussion (other than those announced by the company in its announcements on 3 November 2015 and 19 January 2016) 
   
   LAYHONG’s announcements dated 3 November 2015 and 19 January 2016 were not accurate, balanced and fair and failed to contain sufficient information to enable investors to make informed investment decisions as the announcements did not disclose and in fact denied an impending corporate exercise involving amongst others, a proposed bonus issue, share split and issuance of free warrants (the Proposals).  
   
   The Proposals were subsequently announced on 2 February 2016 i.e. approximately 2 weeks after LAYHONG’s announcement dated 19 January 2016 denying any other corporate development in the company including those in the stage of negotiation / discussion; and
   
   
2. paragraphs 9.19(27) and (33) of the Main LR read together with paragraphs 2.1(a) and 3.1(i) of Practice Note 28 and paragraph 13.07(a) of the Main LR for failing to make an immediate announcement on the Proposals upon the approval of the Board of Directors on 26 January 2016.  The Proposals were only announced on 2 February 2016, after a delay of 4 market days

The directors of LAYHONG at the material time had permitted the company’s breaches of the Main LR above for which the following penalties were imposed on them:- 

Bursa Malaysia Securities views the contraventions seriously in view of the importance of timely and accurate disclosure of material information to ensure the investors and public are keep fully informed of and have equal access to all facts and circumstances that were material to facilitate informed investment decision. This is critical towards building and maintaining corporate credibility, market integrity and investor confidence.

The finding of breach and imposition of the above penalties on LAYHONG 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 following:-

(a)  The disclosure obligations / framework under the Main LR and the Corporate Disclosure Guide particularly in respect of unusual market activities which is premised on the following key underlying principles:-

1. Whilst listed companies must make immediate and accurate disclosure of material information / corporate event, listed companies are allowed the right to withhold material information in circumstances where the information is in a state of flux;
   
   
2. However, the right to withhold ceased where there is unusual market activity which signifies that a ‘leak’ of the information may have occurred; and
   
   
3. Listed companies must ensure disclosure of unpublished material information to the market including those in the stage of negotiation / discussion.

(b)  LAYHONG and its directors were or should be aware that the Proposals were clearly material information and hence, might have reasonably contributed to / accounted for the increase in LAYHONG’s share price and volume traded at the material time premised on the following:-

1. The Proposals which consisted of a proposed bonus issue, share split and issuance of free warrants were clearly identified and predetermined as a material event / information which must be disclosed immediately to Bursa Malaysia Securities / the market under paragraphs 9.19(27) and (33) of the Main LR;
   
   
2. The materiality of the Proposals was also evident from the implication of the Proposals to the shareholders and financials of the company as set out in the company’s announcement of the Proposals dated 2 February 2016.  Essentially, upon implementation of the Proposals, every shareholder with 1 LAYHONG share would receive 10 LAYHONG shares and 5 free warrants and the company’s share capital would increase from RM132.83 million to RM199.24 million, shareholders’ funds would increase from RM227.29 million to RM360.11 million and the company would receive proceeds of RM132.83 million from the exercise of the warrants; and
   
   
3. There was a continued increase of 20.2% in LAYHONG’s share price from 18 January 2016 to 3 February 2016 (i.e. during the material time of the UMA Query on 19 January 2016 until announcement of the Proposals on 2 February 2016 and where the most recent material announcement by LAYHONG was on 11 January 2016 in respect of NH Foods Ltd) and 17.8% from the Board’s approval of the Proposals on 26 January 2016 to 3 February 2016 after announcement of the Proposals on 2 February 2016.

(c)  Based on the facts and circumstances, particularly where LAYHONG and its Board had in fact agreed and confirmed to undertake / proceed with the Proposals prior to the UMA Queries on 2 November 2015 and 19 January 2016 and the specific wordings of the UMA Queries requiring the company’s confirmation which covered any corporate development including ‘those in the stage of negotiation / discussion’ that may account for the trading activity, LAYHONG must make factual disclosure of the Proposals in responding to the UMA Queries.  Instead, LAYHONG’s material omission in failing to highlight the Proposals as well as the misstatement in its denial of any corporate development including those in the stage of discussion / negotiation in its announcements were clearly in contravention of the disclosure obligations under the Main LR.

It was not acceptable for the Company and directors to take the position that the Proposals were not material as it was only at a conceptual stage and had yet to be finalised or approved by the Board. 

(d)  Further, the disclosures made pertaining to the negotiations / discussions with foreign parties on taking a strategic investment stake in LAYHONG, a possible joint venture and the involvement of NH Foods Ltd. did not and could not dilute the materiality of the Proposals or render the Proposals to be less material under the Main LR.  LAYHONG and its directors had an obligation to make full disclosure of all material information that might have accounted for the trading activity in response to the UMA Queries.  It was irrelevant for LAYHONG to ascertain the contribution / proportion of contribution of each undisclosed corporate proposal at the material time to the share price and/or volume movement. The fact remained that the Proposals were material and might have reasonably contributed to / accounted for the increase in LAYHONG’s share price and volume traded at the material time.  Hence, there was no reasonable justification for the failure by LAYHONG and its directors to disclose the Proposals and to deny any other undisclosed corporate development including those in the stage of negotiation / discussion that might have contributed to the unusual market activity in the announcements dated 3 November 2015 and 19 January 2016.     

(e)  LAYHONG had further failed to make an immediate announcement of the Proposals upon the Board’s approval on 26 January 2016 in accordance with paragraphs 9.19(27) and (33) of the Main LR read together with paragraphs 2.1(a) and 3.1(i) of Practice Note 28 and paragraph 13.07(a) of the Main LR.  LAYHONG had an obligation to ensure immediate disclosure of the Proposals upon the Board’s approval of the salient terms of the same on 26 January 2016 pursuant to the Main LR.  It was not acceptable for LAYHONG to allege ‘non-finalisation’ of the Proposals / announcement after the Board’s approval of the salient terms on 26 January 2016 and only announced these salient terms on 2 February 2016.

(f)  The public reprimand and fines imposed on the directors served as a deterrent and was appropriate and proportionate to the directors’ aggravating conduct in their repeated failures to disclose the Proposals accurately and on a timely basis and the materiality of the breach.  A higher fine were imposed on the executive directors as they were the directors responsible for and/or involved in the Proposals and were primarily responsible for the approval and issuance of announcements to Bursa Securities.