Bursa Malaysia Securities Publicly Reprimands Scan Associates Berhad And Fines 5 Directors A Total Of Rm350,000

Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded SCAN ASSOCIATES BERHAD (SCAN) and its 5 directors for breaches of the Bursa Malaysia Securities ACE Market Listing Requirements (ACE LR).  In addition, the 5 directors were fined a total of RM350,000.

SCAN was publicly reprimanded for committing the following breaches:-

The directors of SCAN were publicly reprimanded and imposed with the following fines for breach of Rule 16.13(b) of the ACE LR where they had permitted knowingly or where they had reasonable means of obtaining such knowledge, SCAN to commit the breaches:-

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

Bursa Malaysia Securities views the contraventions seriously as timely disclosure of material information is one of the fundamental obligations of listed companies to preserve and sustain market integrity and investor confidence.  In this instant, the information pertaining to classification / triggering of GN3 is crucial to the shareholders and investors towards facilitating informed investment decisions as it relates to the company’s financial condition and the consequences of being classified as a financially distressed company pursuant to GN3 including possible suspension and de-listing.

Bursa Malaysia Securities has reminded SCAN 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

Based on SCAN’s fourth quarterly report for the financial year ended (FYE) 31 December 2014 (QR4/2014) announced on 27 February 2015, it had triggered 2 Prescribed Criteria of GN3 i.e.

• paragraph 2.1(b) of GN3 where the loss of RM7.1 million for FYE 31 December 2014 exceeded the company’s shareholders’ equity of RM6.2 million as at 31 December 2014 and the shareholders’ equity was less than 50% of the company’s issued and paid-up capital of RM20 million as at 31 December 2014; and
• paragraph 2.1(c) of GN3 where –
  1. the aggregated losses incurred for 2 consecutive full financial years (i.e. FYE 31 December 2013 and 2014) of RM9.7 million exceeded the company’s shareholders’ equity of RM6.2 million as at 31 December 2014;
  2. the loss incurred in the FYE 31 December 2014 of RM7.1 million was 50% or more of the loss incurred in the FYE 31 December 2013 of RM2.6 million; and
  3. the company’s shareholders’ equity of RM6.2 million as at 31 December 2014 was less than 50% of the Company’s issued and paid-up capital of RM20 million as at 31 December 2014.

However, SCAN failed to make an immediate announcement that it was a GN3 Company pursuant to GN3 on 27 February 2015. 

SCAN subsequently announced on 27 April 2015 the change in its financial year end from 31 December 2014 to 30 June 2015.  This change of financial year end did not unwind the triggering of GN3 by SCAN based on the QR4/2014.   

Notwithstanding the clear provisions of GN3 and the ACE LR pertaining to disclosures of material information including upon triggering of GN3 and the various communications / engagements by Bursa Malaysia Securities with SCAN, the company and its directors refused and failed to comply with the requirements of the ACE LR and the directive of Bursa Malaysia Securities vide letter dated 8 May 2015 for SCAN to make the First Announcement / disclosure that it was a GN3 Company (Bursa Malaysia Securities’ Directive).

Instead, SCAN had on 10 May 2015, proceeded to file a legal suit against Bursa Malaysia Securities for an injunction order to prevent Bursa Malaysia Securities from carrying out the directive and suspension in trading.  Upon insistence of Bursa Malaysia Securities, SCAN made an announcement on the receipt of Bursa Malaysia Securities’ Directive only on 11 May 2015 at 10.27 p.m.  

The High Court had dismissed the legal suit on 18 May 2015 and Bursa Malaysia Securities proceeded to classify SCAN as a GN3 Company. SCAN only made the First Announcement pursuant to GN3 on 19 May 2015.

The directors were found to have breached Rule 16.13(b) of the ACE LR where they had permitted SCAN to commit the breaches premised on the following:-

(a)    They had failed to undertake reasonable assessment and scrutiny as to whether SCAN triggered any of the Prescribed Criteria under GN3 in reviewing and approving the QR4/2014.  The directors mere and sole reliance on the alleged confirmation by the external auditors that the company did not trigger one of the Prescribed Criteria under GN3 was unreasonable and unacceptable in the discharge of their obligations.  This was particularly when they knew or should have known of the Group’s negative trend in the operating results and financial position over the last 3 years, the possible triggering of GN3 and the limited assessment of the GN3’s Prescribed Criteria by the external auditors.  Further, the directors were lackadaisical where the QR4/2014 was approved via directors’ circular resolution and there was no proper discussion by the directors prior to the approval and release of the same to Bursa Malaysia Securities;

(b)   Apart from Dato’ Nasri bin Nasrun (who resigned on 13 March 2015), all the directors were aware of the Bursa Malaysia Securities’ Directive and yet refused to comply with / ensure compliance of the same.  Further, despite the urgency for disclosure in light of the materiality of the information which was reinforced by Bursa Malaysia Securities through a series of communications / engagements with SCAN, the directors did not ensure that the relevant disclosures were made immediately.  Notwithstanding the legal suit filed by SCAN on 10 May 2015, there was a necessity for SCAN to update and clarify to the market the matter / material development in the company including receipt of the Bursa Malaysia Securities’ Directive promptly from the outset.  This was particularly crucial in view of the significant decrease in the share price and high volume traded of SCAN’s securities since 5 May 2015 and the issuance of an unusual market activity query to SCAN by Bursa Malaysia Securities on 7 May 2015; and

(c)    Dato’ Dr. Norbik Bashah bin Idris and Mak Siew Wei were the Executive Director involved in the day to day management of SCAN and were responsible for the approval and release of the company’s announcements.  They had failed to advise SCAN and the board to comply with the Bursa Malaysia Securities’ Directive despite the various communications / engagements / directives from Bursa Malaysia Securities.