Bursa Malaysia Securities Publicly Reprimands Scanwolf Corporation Berhad And Its Directors And Fines 4 Executive Directors

Bursa Malaysia Securities Berhad (635998-W) (“Bursa Malaysia Securities”) has publicly reprimanded Scanwolf Corporation Berhad (“SCNWOLF” or “the Company”) and its 7 directors for breaches of the Bursa Malaysia Securities Main Market Listing Requirements (“Main LR”). In addition, 4 executive directors of SCNWOLF were also imposed total fines of RM175,000.

SCNWOLF was publicly reprimanded for committing the following breaches of the Main LR:-

(a)            Paragraph 10.07(1) of the Main LR read together with paragraphs 10.02(l)(i), 10.02(g)(iii) and 8.29(1) of the Main LR for failing to issue a circular to the Company’s shareholders and seek the shareholders’ approval in a general meeting before the Joint Venture Agreement dated 30 July 2012 (“JVA”) entered into between Scanwolf Properties Sdn. Bhd. (“SPSB”) and Scanwolf Development Sdn. Bhd. (“SDSB”).

(b)       Paragraph 9.16(1)(a) of the Main LR in respect of the Company’s announcement dated 30 July 2012 on the JVA (“the Announcement”) which was inaccurate, particularly with regard to the following representations:

• the JVA was not subject to the approval of SCNWOLF’s shareholders; and
• the highest percentage ratio applicable to the transaction pursuant to paragraph 10.02(g) of the Main LR was 1%.

(c)       Paragraph 10.06(1) of the Main LR for failing to ensure that the Announcement contained the following required information set out in Appendix 10A of the Main LR:-

i.   paragraphs 3(a) and (b) of Part A of Appendix 10A – the basis of arriving at the consideration and the justification for the consideration; and

ii.   paragraph 8 of Part B of Appendix 10A – if no joint venture corporation will be set up, the terms of cost and profit sharing and the estimated total cost of project.

7 directors of SCWOLF at the material time had breached paragraph 16.13(b) of the Main LR for permitting SCNWOLF to commit the breach of paragraph 10.07(1) of the Main LR as set out at paragraph (a) above and the following penalties were imposed on them:-

The finding of breach and imposition of the above penalties on SCNWOLF 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/impact of the breaches to SCNWOLF and shareholders/investors and the directors’ roles, responsibilities, knowledge/involvement in the JVA and conduct of the directors.

Bursa Malaysia Securities views the contraventions seriously particularly as Chapter 10 of the Main LR serves to protect the interest of shareholders on material transactions of a listed issuer.

Bursa Malaysia Securities has also reminded SCNWOLF 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 

(I)         PUBLIC REPRIMAND ON SCNWOLF

SCNWOLF had on 30 July 2012 announced that its wholly-owned subsidiary, SPSB has signed the JVA with SDSB, a 51% owned subsidiary of SPSB (at the material time), to undertake a mixed development project on 511 leasehold vacant development plots of land all within the mukim and district of Kampar, State of Perak (“JV Plots”) known as “Kampar Putra II”.

The JVA was a transaction under paragraph 10.02(l)(i) of the Main LR as pursuant to the JVA, SCNWOLF or its wholly-owned subsidiary, SPSB had disposed of the developmental rights and/or substantially all the right, benefits or control over the JV Plots (“the Disposal”) to SDSB as it was agreed, amongst others, that SPSB shall deliver possession of the JV Plots and deposit the issue documents of title to the JV Plots to SDSB, SPSB shall not create any encumbrances or otherwise deal with the JV Plots save and except in accordance with the JVA, SDSB is entitled to charge the JV Plots to financial institutions as security for loan facilities to finance the development and SPSB shall sign and execute all the necessary documents to effect the charge. SPSB had also executed an irrevocable Power of Attorney in favour of SDSB dated 30 July 2012. The JVA was not subjected to/conditional upon the shareholders’ approval being obtained and hence, the Disposal had been completed upon the parties entering into the JVA which was already effective and binding on the parties.    

As the applicable percentage ratio of the transaction based on paragraph 10.02(g)(iii) of the Main LR was more than 25%, SCNWOLF must issue a circular to the Company’s shareholders and seek the shareholders’ approval in a general meeting before entering into the JVA pursuant to paragraph 10.07(1) of the Main LR read together with paragraph 8.29(1) of the Main LR. However, SCNWOLF had failed to do so as the Company’s main representation, was that the highest percentage ratio applicable to the transaction pursuant to paragraph 10.02(g) of the Main LR was 1% and hence, shareholders’ prior approval of the JVA was not required.

In arriving at the computation of the percentage ratio of 1%, the Company had taken into account the amount of RM500,000 as the value of consideration. However, this was wrong and unreasonable as the amount of RM500,000 was only a deposit payment by SDSB and could/did not reflect the entire value of the assets or the aggregate value of the consideration for the JVA/Disposal. Pursuant to the JVA, the consideration was clearly premised on the ‘sales proceeds of the JV units’ and SPSB’s entitlement would be 20% of ‘the gross development value’ (which was approximately RM180 million as disclosed in the Company’s earlier announcement and circular on SPSB’s acquisition of the JV Plots).

SCNWOLF had only obtained shareholders’ ratification of the JVA on 30 March 2017 and this was despite Bursa Securities’ engagement with/reminders to the Company since 14 April 2016 that the percentage ratio of the JVA was more than 25% (which would trigger the requirement for shareholders’ approval/ratification) (“Bursa’s Engagements”).

(II)       PUBLIC REPRIMAND ON 7 DIRECTORS AND TOTAL FINES OF RM175,000 IMPOSED ON 4 EXECUTIVE DIRECTORS

All the directors were and/or should be aware of the JVA including the terms and conditions therein and the materiality of the JVA/Disposal.

However, there was inaction and no evidence that the directors had demonstrated/taken reasonable efforts to discharge their duties particularly to undertake proper deliberation, reasonable enquiries and assessment on the JVA/Disposal including the necessity of shareholders’ approval to ensure the Company’s compliance with the Main LR during the Board of Directors (“BOD”) meetings on 26 November 2011, 25 February 2012 and 26 May 2012.  Other than the notation in the Board papers that the Company was in the process of preparing the JVA between SPSB and SDSB for execution upon completion of the sale, there was no evidence of draft agreement or other related documents pertaining to the proposed JVA being circulated during the BOD meetings.  Further, despite the materiality of the JVA, all the directors had proceeded to approve the JVA vide a Directors’ Circular Resolution dated 30 July 2012. 

The purported reliance on the company secretary/chief financial officer by the directors with regard to compliance with the Main LR was unsubstantiated and did not absolve the directors particularly in the absence of any evidence of reasonable enquiry/assessment being undertaken.

The higher penalty imposed on the executive directors was in view of their roles, responsibilities, knowledge/involvement in the JVA and the subsidiaries i.e. SPSB and/or SDSB. Further, Dato’ Loo Bin Keong, Dato’ Tan Sin Keat and Mr Teoh Teik Kean had further failed to demonstrate reasonable steps taken to ensure that the shareholders’ ratification of the JVA was procured expeditiously upon/despite Bursa’s Engagements.