compiled cs report - final

GSM 5119- CORPORATE SECRETARYSHIP

GSM 5119: CORPORATE

SECRETARYSHIP

GROUP PROJECT

CASES ON DIRECTORS AND COMPANY

SECRETARIES MISCONDUCT

LECTURER :PROF. DR. ZUBAIDAH ZAINAL ABIDIN

NAME MATRIC NO

MOHD FIRDAUS BIN ZAKARIA GM03806

NORHAZWANI HANIS BINTI ISMAIL GM03845

LEKSHMI GUNASEKARAN GM03661

1


HAMIZAN WASOH GM03838

CONTENTS

TABLE OF CONTENTS PAGE

PART 1: 6 CASES OF DIRECTORS AND COMPANY 5-56


+ CASE I: ANNUAL GENERAL MEETING

Pacifica Pinang Sdn Bhd’s Director convicted Under The Companies Act 1965

+ CASE II: UNDISCHARGED BANKRUPTS ACTING AS DIRECTORS

Companies Commission of Malaysia Secures Conviction Against

Bankrupt Director In Court

+ CASE III: REMOVAL OF DIRECTORS IN PUBLIC COMPANY

Indian Corridor Sdn Bhd & Pembangunan Qualicare Sdn Bhd

vs

Golden Plus Holdings Berhad

+ CASE IV: REQUISITION FOR A MEETING

SJA Berhad

vs

HLB Nominees (Tempatan) Sdn Bhd

+ CASE V: INTERPRETATION, RESTRICTIONS ON APPOINTMENT OR

ADVERTISEMENT OF DIRECTOR

Yap

vs

Public Prosecutor

+ CASE VI: FINANCIAL REPORTING DEFICIENCIES

2


NASIONCOM HOLDINGS BERHAD

PART 2: 4 NEW CASES DEVELOPED, ADOPTED FROM 56 -86

THE 6 CASES OF DIRECTORS AND

COMPANY SECRETARIES MISCONDUCT

+ CASE I: LEKSH ZAUZA SDN BHD

+ CASE II: THE DUTIES OF DIRECTORS

+ CASE III: FINANCIAL REPORTING DEFICIENCIES

+ CASE IV: AOKAM PERDANA - SURVIVING THE ODDS

3


6 CASES OF

DIRECTORS AND COMPANY


4


CASE I: ANNUAL GENERAL MEETING

Pacifica Pinang Sdn Bhd’s Director convicted Under The Companies Act 1965

Executive Summary

Other than first annual general meeting after incorporation, all companies must hold an

annual general meeting at least once in every calendar year and not more than fifteen months

after the last AGM. After the first AGM held within 18 months after incorporation, a company

need not hold an annual general meeting in the year of its incorporation.

Default in holding an annual general meeting is an offence by the company and any

default officer. The court may order that a general meeting be convened on the application of any

member.

Necessary accounts and reports are required to be laid before the AGM. These include

copies of the profit and loss account, the balance sheet, the director’s report, auditor’s report and

a statement by directors. Further matters of an annually recurring nature also constitute the

ordinary business of the annual general meeting. These include election of directors, declaration

of dividends and appointment and fixing payment of auditor.

The annual general meeting is the only meeting of members which must be held by the

company. It enables the members to obtain information and to question the directors regarding

the affairs of the company. One of the main powers of the general meeting is the right to remove

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directors. In addition the general meeting may also transact other business allowed by the

articles.

This case study of Pacifica Pinang Sdn Bhd’s (733221-W) director whom convicted

under the companies Act 1965 and involves the interpretation of Section 143(1) for failing to

hold the company’s AGM, Section 165(4) for failing to submit annual return and Section 169(1)

for failing to submit the audited account.

Introduction

Pacifica Pinang Sdn Bhd was incorporated in Malaysia on 10 th May 2006. It is a local

private company which have share capital. The nature of this company is to provide general

trading and engage in real estate and also activities of investment holding. Arusakumaran S/O

Vadeveloo (I/C790719-14-5323) and Predeba D/O Vadeveloo (801228-10-5686) are the current

directors of this company. Currently there is no company secretary available in this company and

the last known company secretary was Thiagarajan S/O Nadasan Veeriah. The company

secretary licence number is LS02993 and he resigned from this company on 12 th November

2009. The company has an authorized share capital of RM100,000 of which RM2 is the total

issued share. The current shareholders of this company are Mohammad Khan Bin Saithu and

Hasniza Binti Wazer with each have 1 number of shares. They are also known as the first

director of the Pacifica Pinang Sdn Bhd as mentioned in the company articles. The last known

registered office of the Pacifica Sdn Bhd was No.45-1, Tingkat 1, Jalan Dewan Sultan Sulaiman

Satu, Off jalan Tuanku Abdul Rahman, 50300 Kuala Lumpur.

In this case of Pacifica Pinang Sdn Bhd, both Arusakumaran S/O Vadeveloo and

Predeba D/O Vadeveloo whom acting as directors since 15 th January 2007 fail to comply their

duty as director under Companies Act 1965.

Study

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Both directors were charged under three sections of the Companies’ Act 1965 by the

registrar, the Companies Commission of Malaysia (CCM). They are Section 143(1) for failing to

hold; Section 165(4) for failing to submit annual return and Section 169(1) for failing to submit

the audited account. Pacifica Pinang Sdn Bhd is identified for not holding AGM for the year

2007, 2008 and 2009 and also for not lodging both audited report and annual report for this 3

years. The hearing was held at Kuala Lumpur Sessions Court and the judge was Tuan Jajit Singh

S/O Bant Singh. Miss Fadilah Binti Abdul Wahab from the Prosecution Section prosecuted on

behalf of CCM.

Through continues monitoring on the companies in Malaysia, the Enforcement Section of

CCM has identified that Pacifica Pinang Sdn Bhd fail to hold any AGM since the day it

incorporated which is on 10th May 2006. The company also failed to lodge an audited report and

annual report to the registrar. A total compound of RM3700 has been issued on 23rd January

2009 by CCM on the Pacifica Sdn Bhd for not complying the three sections. Then, one of the

directors V Thiagarajan appealed to CCM for reduction of compound on 26 th March 2009 and

the appeal is approved with new compound of RM2050 to be paid. The director again made a

second appeal to CCM to reduce the compound more on 1st October 2009 and the appeal has

been approved with new total amount of RM 1450.

Yet the compound is never paid by the company. CCM took an action to bring this case

to the court. On 2nd June 2010, both directors are pleaded guilty to charges under Section 14(3),

Section 165(4) and Section 169(1). Both directors were fined RM 1,700 each for committing

offences under the Companies Act 1965. The judge also convicted and fined the company

RM700 for the same offences. The director appealed to the court to impose a minimum fine.

CCM viewed the breaches committed in this case seriously. The practice of failing to

lodge statutory documents deprives the public from having access to information relating to the

companies concerned and it also creates doubt in the public mind as to its existence. CCM

wishes to remind company directors and their officers on the need of strictly adhere to the

requirements of the Companies Act 1965.

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On 8th July 2010, the company has applied to the registrar for a strike off to shut the

company. The process of strike is currently under process.

Analysis

Section 169 (1) “the directors of every company shall at some date or date not later than

eighteen months after the incorporation of the company and sub subsequently once at least in

every calendar year at intervals of not more than fifteen months lay before the company at its

annual general meeting a profit and loss account for the period since the preceding account made

up to date not more than six months before the date of the meeting.’

It is ultimately the duty of the director to prepare the profit loss account every year to be

laid in the AGM. The first profit and loss account of the company should be prepared before 18

months from the date of incorporation and lay it in AGM before six months from the date of

profit and loss account. The following profit and loss account must be prepared every year

according to the year ending preferred.

Section 143 (1) “a general meeting of every company to be called the annual general

meeting shall in addition to any other meeting be held once in every calendar year and not more

than fifteen months after the holding o the last preceding annual general meeting, but so long as a

company holds its first annual general meeting within eighteen months of its incorporation, it

need not hold it in the year of its incorporation or in the following year”

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Section 143 (4)(a) if default is made in holding an annual general meeting, the company

and every officer of the company who is in default shall be guilty of an offence against this act

(Penalty: RM5000; Default penalty: RM10-)

It is also the responsibilities of the director to hold the AGM every calendar year. The

first AGM shall be held before 18 months from the date of incorporation and before six month

from the date of profit and loss account. The subsequent AGM should be held every calendar

year and also within 15 months from the previous AGM. Not comply to this section is an offence

and the company and all the directors of the company will be penalized accordingly.

Section 165(4) “The annual return signed by director or secretary of the company shall be

lodged with the Registrar within one month or in the case of a company keeping pursuant to its

articles a branch register in any place outside Malaysia within two months after the AGM”.

Second schedule of the Companies Act 1965 - 26A on the late lodgment of any document of a

company under this Act after the period prescribed by law or regulation, in addition to any other

fee is as follows:

a) Fees applicable to a public company

(i) more than 7 days but not more than 3 months RM 150.00

(ii) more than 3 months but not more than 6 months RM 250.00

(iii) more than 6 months but not more than 12 months RM 300.00

(iv) more than 12 months RM 500.00

b) Fees applicable to a private company

(i) more than 7 days but not more than 3 months RM 50.00

(ii) more than 3 months but not more than 6 months RM 100.00

(iii) more than 6 months but not more than 12 months RM 150.00

(iv) more than 12 months RM 200.00

COMPANIES ACT 1965: SSM’S PRACTICE NOTE NO 1/2008

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1. This Practice Note serves to inform the requirements under Section 165 of the Companies

Act 1965 (CA 1965) relating to the lodgement of annual returns with the Registrar of

Companies.

Lodgement of Annual Returns

2. Section 165 of the CA 1965 requires all companies to lodge annual return within one (1)

month after the annual general meeting (AGM). The annual return of a company shall be

in accordance with the Eighth Schedule to the CA 1965 and be accompanied by such

copies of documents as required or such certificates or other particulars as prescribed in

Part II of that Schedule.

3. Part II of the Eighth Schedule requires the following attachments:

i. a copy of the last audited accounts comprising the balance sheet and

profits and loss accounts (including every document required to be

attached thereto); and

ii. a copy of the auditor’s report.

This practice note 1/2008 is effective from year 2008 whereby any annual return without

the attachment of audited account will not be accepted by the registrar.

Section 143 (2) “Notwithstanding subsection 143(1), the Registrar on the application of the

company, may if for any special reason he thinks fit so to do, extend the period of fifteen months

or eighteen months referred to in that subsection, notwithstanding that such period is so extended

beyond the calendar year.

A company can apply for an extension of holding AGM with a written letter to the

Registrar and the Registrar may approve the extension with appropriate reason.

Conclusion and recommendation

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From the case above, it is clear that holding AGM every year is for the main reason of

tabling the account. This both annual report and account is necessary to be lodged with the

registrar.

The main way in which the act seeks to protect members and the public in their dealings

with companies is to require companies to disclose certain information regarding their affairs and

financial positions. These requirements assume that members, creditors and potential members

and creditors will be able to make more rational and better informed decisions regarding a

company, on the basis of accurate and complete information.

If a company faces any trouble to hold an AGM for the required calendar year; it can

always apply for extension subject to under Section 143(2). Other than that, the Registrar and

related parties must make sure that the directors of the company are aware of these rules and

regulation and the consequence of not comply it. This will help to enhance the compliance level

at least at minimum level.

CASE II: UNDISCHARGED BANKRUPTS ACTING AS DIRECTORS

Companies Commission of Malaysia Secures Conviction Against

Bankrupt Director In Court

Executive Summary

A board of directors is a body of elected or appointed members who jointly oversee the

activities of a company or organization. The body sometimes has a different name, such as board

of trustees, board of governors, board of managers, or executive board. It is often simply referred

to as "the board."

A director is an officer of the company and he is liable to the prescribed penalties in the

event of default in complying with the Companies Act 1965. Every company must have at least 2

directors who each has his principal or any place of residence within Malaysia. An alternate

director or a substitute director would not be taken into consideration in determining the number

of directors resident in Malaysia.

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The minimum requirements for a directorship are that the person must be a natural

person, 18 years old and above, be of sound mind and not be disqualified under the companies

act 1965. A person who does not obtain the qualification shall be disqualified and prohibited

from acting as a director. This includes an undischarged bankrupt. An undischarged bankrupt

cannot be a director or promoter or in any way take part in the management of a company

without the leave of the court (125(1)).

Introduction

Constant Unity Sdn Bhd was incorporated in Malaysia on 30th June 1997. It is a local

private company which have share capital. This company engages in investment holding.

Zulzurin Merican Bin Zaghlul Merican (I/C: 580708-07-5467) and Rosyadi Bin Abdul Rashid

(731213-13-5013) are the current directors of this company. Ng Bee Chin (MAICSA0858126) is

the company secretary. The company has an authorized share capital of RM5,000,000.00 of

which RM2,000,000 is the total issued share. The current shareholders of this company are

Zulzurin Merican Bin Zaghlul Merican and Rosyadi Bin Abdul Rashid with each has 1,000,000

numbers of shares. The last known registered office of the Constant Unity Sdn Bhd was Suite

30C, 3rd Floor, Wisma TCL, 470, Jalan Ipoh, 3rd mile, 51200 Kuala Lumpur. Wilayah

Persekutuan. Its business address was held at 2, Lorong Dungun, Damansara Heights, 50490

Kula Lumpur, Wilayah Persekutuan.

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In this case one of the directors of Constant Unity Sdn Bhd, Zulzurin Merican Bin

Zaghlul Merican failed to comply the requirement to act as a director of a company under the

Companies Act 1965.

Study

On 21st April, the Kuala Lumpur Sessions court convicted Zulzurin Merican Bin Zaghlul

Merican, the company director of Constant Unity Sdn Bhd for committing an offence under

Section 125(1) of the Companies Act 1965. He had acted as a director of Constant Unity Sdn

Bhd while still an undischarged bankrupt. Zulzurin Merican Bin Zaghlul Merican pleaded guilty

to the charge. An offence under section 125(1), Companies Act 1965 carries a maximum penalty

of fine of RM100,000.00 or imprisonment for a term not exceeding 5 years or to both. The

session Court Judge, YA Jagjit Singh sentenced the accused to a fine of RM 6,000 in default, to

4 months imprisonment.

Zulzurin Merican Bin Zaghlul Merican is appointed as the company director on 23rd July

1997 and lodged a Form 49 dated 23rd July 1997 with the registrar. At the time of appointment,

his residential address was 1301-E, Lorong Perwira, Jalan Telok Wanjah, 05200 Alor Setar. He

also lodged with the registrar a Form 48A which is a statutory declaration by a person before

appointment as director or by a promoter before incorporation of corporation dated 23rd July

1997. In this form, he declared himself as not undischarged bankrupt. He did this declaration and

took oath in front of the commissioner at Kuala Lumpur at the state of Wilayah Persekutuan.

Through the lodgement of Form 49 to the Registrar, it was known that he did not have any

participation in other companies as a director.

Through the collaboration with Malaysia Department of Insolvency With CCM, it was

identified by the Registrar that Zulzurin Merican Bin Zaghlul Merican is an undischarged

bankrupt. CCM then charged him under Section 125(1) Companies Act 1965 and brought the

case to the court. Mr. Steve Chin Yun Cheong prosecuted on behalf of CCM.

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CCM views the conduct of undischarged bankrupts acting as company directors as a

serious governance issue and reiterates that only fit and qualified persons are appointed to

oversee the operations of a company in Malaysia. CCM reminds companies and its officers

including company secretaries of their duty to continue to play a vital role in ensuring that

companies are governed only fit and qualified directors.

Currently, this company is under liquidation. Aliquidator has been appointed by the court

on 24th June 2004. Suriyati Hasimah Binti Mohd Hashim, Assistant Official Receiver on behalf

of the official receiver Malaysia is given a notice to act as a liquidator of the company.

Analysis

Section 125(1) of the Companies Act 1965 provides that “Every person who being an

undischarged bankrupt act as director of, or directly or indirectly takes part in or is concerned in

the management of, any corporation except with a leave of court shall be guilty of an offence

against this Act.

(Penalty : Imprisonment for five year or RM100,000 or both)

An undischarged bankrupt prohibited from being appointed or act as a director in a

company without the leave of the court. The period of disqualification for this case is 5 years

where within the period of 5 years after his conviction or he is being sentenced to imprisonment,

after his release from prison.

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Malaysian Development of Insolvency (MdI) is a premier government agency leading the

national administration and regulation of insolvency matters in Malaysia. MdI has evolved and

expanded over the years since its inception in 1924 into a principal regulatory body with over

1,200 employees in a network of offices across Malaysia. MdI operates under a statutory

framework comprising of the Bankruptcy Act 1967, Companies Act 1965, Societies Act 1984

and Trade Unions Act 1959. Its aim is to protect the integrity of the insolvency system and

committed in providing excellent services to the clients in parallel with its core values.

The Department of Insolvency performs the following functions:

To administer the affairs of debtors and bankrupts pursuant to Bankruptcy Act 1967 and

Bankruptcy Rules 1969;

To act as Provisional Liquidator or appointed Liquidator for companies that has been

wound up pursuant to the Companies Act 1965 and Companies Rules (Winding-up)

1972;

To administer the affairs of societies that has been deregistered pursuant to the Societies

Act 1966 and Societies Rules 1984;

To administer the affairs of trade unions that has been deregistered pursuant to the Trade

Unions Act 1959 and Trade Unions Rules 1959;

To conduct investigation and enforcement of relevant laws in relation to any offences

allegedly done by bankrupts pursuant to the Bankruptcy Act 1967, company directors

pursuant to the Companies Act 1965, the Societies Act 1984, the Trade Unions Act 1959

and any laws in relation to bankruptcy and winding-up;

To conduct prosecution of all criminal and quasi-criminal cases pursuant to the

Bankruptcy Act 1967 and the Companies Act 1965;

To be the reference for the Government of Malaysia and its departments on any legal

issues related to bankruptcy, companies winding-up, deregistered societies and trade

unions.

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To represent the Government of Malaysia, its departments, bankrupts, and wound-up

companies in all civil proceedings in court;

To provide search services on individual bankruptcy status and companies status;

To manage and supervise the administration of the headquarters and all state and branch

offices of the Department of Insolvency throughout Malaysia.

Conclusion and recommendation

A person before to act as a director must make sure that he is not an undischarged

bankrupt. This is because one of the qualifications of director under Companies Act 1965 is a

director must not be an undischarged bankrupt and he must declare himself by taking oath in

front of commissioner. The declaration also must be lodged to the Registrar as a proof of he is

qualified under stated statement in the form.

However this does not mean an undischarged bankrupt can never act as a director

forever. He can act as a director under circumstances such as by court order. Other than that this

person can act as director after 5 years from the date he was charged as undischarged bankrupt.

CASE III: REMOVAL OF DIRECTORS IN PUBLIC COMPANY

Indian Corridor Sdn Bhd & Pembangunan Qualicare Sdn Bhd

v

Golden Plus Holdings Berhad

Executive Summary

General meeting is one of the important ways in which the members of a company can

express their views and concerns about the management of the company. The power to convene

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a company members’ meeting is normally under the power of a board of directors. However, for

a specified minimum number of members, the members can either request the directors to call a

meeting (Section 144 of the Companies Act 1965) or convene one themselves (Section 145 of

the Companies Act 1965).

Generally, a company’s articles of association will state who can arrange for a meeting of

members to be held. The board of directors may convene general and class meetings when those

meetings are necessary for the administration of the company’s affairs.

This case study, Indian Corridor Sdn Bhd & Pembangunan Qualicare Sdn Bhd v Golden

Plus Holdings Berhad, involves the interpretation of Section 145 of the Companies Act 1965, the

shareholders’ right to convene a general meeting and the requirements to remove directors under

Section 128 of the Act. In this case study, the meeting is convened to allow the members to vote

on the removal and replacement of the directors.

Introduction

Golden Plus Holdings Berhad was incorporated in Malaysia as an investment holding and

management company on 16th January 1984. It was successfully listed on the Main Board of

Bursa Malaysia Securities Berhad on 29th November the same year. The company has an

authorized share capital of RM300,000,000 of which RM146,850,675 is issued and fully paid-

up. Over the years, Golden Plus Holdings Berhad, through its subsidiaries, gradually built-up its

businesses and expanded its operations to emerge as a major force in the building and

construction industry.

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The company has four business segments: investment, which is engaged in property and

investment holding; property development, which is engaged in the development of residential

and commercial properties; construction, which is engaged in the construction and engineering

works, and leisure and food, which is a water theme park operator, as well as restaurant

franchisee and operator. It has operations in Malaysia and People's Republic of China.

Below are the facts of the company:

i. Paid-Up Capital : RM146.85 million

ii. Board of Directors :

a. Dato' Abdul Halim Bin Dato' Haji Abdul Rauf

Non-Independent and Non-Executive Chairman

b. Low Thiam Hoe

Executive Director

c. Goh Sin Tien

Executive Director

d. Dato' Jeyaraj a/l V. Ratnaswamy

Independent and Non-Executive Director

e. Yeoh Hor San

Independent and Non Executive Director

f. Tan Sri Dato' Haji Lamin bin Haji Mohd Yunus

Independent and Non Executive Director

iii. Major Shareholders :

a. Indian Corridor Sdn Bhd 18.6%

b. Employees Provident Fund 14.4%

c. Lai Su-Chen 5.06%

d. Pembangunan Qualicare Sdn Bhd 1.15%

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In the case of Indian Corridor Sdn Bhd and Pembangunan Qualicare Sdn Bhd v Golden

Plus Holdings Berhad, the two appellants, Indian Corridor Sdn Bhd (Indian Corridor) and

Pembangunan Qualicare Sdn Bhd (Pembangunan Qualicare), are shareholders of Golden Plus

Holdings Berhad (GPlus) which hold 18.6% and 1.15% interest respectively. On 27th December

2007 as reported in The Star (2008), acting under Section 145 Companies Act 1965, they served

a Special Notice on GPlus and requisitioned for an extraordinary general meeting to be held on

26th January 2008 in Penang. The purpose of the meeting was to seek shareholders’ approval for

the removal of all six current directors in GPlus and to appoint others in their place (Penang

EGM).

On 9th January 2008, the Board of Directors of GPlus contested against the Special Notice

and called for a separate EGM of the Company to be held on the same day and time in Kuala

Lumpur (KL EGM). The agenda of the KL EGM is to get shareholders’ approval to pass an

ordinary resolution to determine the validity of the Special Notice served on the Company on

27th December 2007.

Further to the seeking of declaratory relief which impugned the validity of the requisition,

on 16th January 2008, the Board of GPlus filed an application for an injunction against Indian

Corridor and Pembangunan Qualicare to restrain them from convening and proceeding with the

Penang EGM.

Study

Indian Corridor and Pembangunan Qualicare, relevant shareholders of GPlus

requisitioned an extraordinary general meeting (EGM) to remove the directors of the company

and to appoint others in their place. As reported in The Star (2008), Indian Corridor was seeking

to remove the directors of GPlus to protect shareholders and assets of the company following a

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dispute over the agreement signed between GPlus subsidiary, Yanfull Investments Ltd (YIL),

and Hong Kong-based China Idea Development Ltd (CIDL).

According to the agreement, CIDL would provide services in relation to the management

and daily operations of YIL unit, which involves in the high-end Royal Garden residential

project in Shanghai. CIDL agreed to reimburse YIL a sum of RM650 per sq m from sales of the

properties, with payment starting after the former achieves 40% of the gross saleable area based

on each of the four phases of the Royal Garden project.

From a search conducted on the Hong Kong registrar of companies, GPlus’ chief

executive officer, Datuk Alex Ooi (2008) discovered that CIDL was nothing more than company

with a paid-up capital of only HK$9, and is run by two Chinese nationals. It is also discovered

that CIDL does not even have any employees or a proper business premise. Indian Corridor is

against the agreement as it considers the reimbursement rate as too low compared with the

prevailing market price, which is said to be approximately 15,000 yuan (RM6,832).

Indian Corridor and Pembangunan Qualicare hence proposed a resolution to remove the

directors of the Company and to appoint others in their place at an EGM, where the call for an

EGM arose following a dispute over the agreement signed in July 2007 between YIL and CIDL.

Analysis

From the facts of the case, Indian Corridor and Pembangunan Qualicare, shareholders of

GPlus requisitioned an extraordinary general meeting (EGM) to remove the directors of the

company and to appoint others in their place. Following to the requisition, GPlus commenced an

20


action in the High Court to impugn the validity of the requisition and obtained declaratory relief.

The relevant shareholders then took action by appealing to the Court of Appeal where the court

allowed the appeal and ruled against the High Court’s declarations.

The appeal is allowed based on the reasons as follows:

i. EGM under Section 145

The Court of Appeal disagreed that Article 55 of the Articles of Association of the

company prohibited the relevant shareholders from exercising their right to requisition the EGM.

Article 55 of the GPlus’ articles of association is as follows:

‘The Directors may, whenever they think fit, convene an Extraordinary General Meeting and

Extraordinary General Meetings shall also be convened by such requisitionist, as provided by

Section 144 of the Act. If at any time there are not within Malaysia sufficient Directors capable

of acting to form a quorum at a meeting of Directors, any Director or any two Members may

convene an Extraordinary General Meeting in the same manner as nearly as possible as that in

which Meetings may be convened by the Directors.’

The Court held that Article 55 does not restrict the shareholders to Section 144 to

requisition a meeting. Article 55 provides that the directors have the discretion to convene an

EGM and must do so upon the requisition by the shareholders. In the event the directors fail to

comply with such a requisition, the requisitionists may convene a meeting in accordance with

Section 144 of the Act. Nothing in Article 55 prevents the shareholders from relying on Section

145 of the Act. This decision confirms that the option remains open for the shareholders to call

for a meeting under Section 145.

ii. Special notice for resolution to remove directors

The Court of Appeal disagreed with the High Court’s finding that Section 145 cannot be

invoked by the relevant shareholders because of the special notice provision in Section 153 of

the Act. The Company argued that Section 153 is compatible with Section 144, not Section 145.

21


Section 128(2) of the Act requires that special notice be given to the Company on any

resolution to remove a director. Section 153 prescribes that such special notice shall not be less

than 28 days from the date of the meeting. The Court of Appeal held that there is no conflict

between these provisions and the right under Section 145. Having been given special notice, the

burden is on the Company to give notice of meeting to the shareholders. Failure to do so could

not be a ground to preclude the shareholders from relying on Section 145 to convene a meeting.

iii. Notice of resolution need not contain grounds of removal

The Company further argued that Sections 128(2) and 128(3) require grounds of removal

to be furnished in the notice of resolution. Failure to furnish such grounds, the Company

contended, would render the notice of resolution void. The Court of Appeal however, noted the

setting out of the grounds for proposing the removal is not a requirement of Section 128. The

notice requirement in Section 128 meets the element of fairness, which makes the directors

aware of this proposal, and it is up to the director’s concern to respond by a representation on

why they should not be removed. This sufficiently meets the requirements of fairness and justice.

Conclusion and Recommendations

From the case, it is clear that apart from the usual route of requisitioning an EGM under

Section 144 of the Act for the purpose of removing a director of a public company, the option is

open to the shareholders to adopt the route under Section 145. The difference between the two

Sections is that Section 145 allows the shareholders to decide on the timing and venue of the

meeting while Section 144 places such decisions squarely in the hands of the directors, giving

the directors the opportunity to determine the process and timing of the EGM to suit their

personal agenda or that of the Company.

On the other hands, Section 128 of the Act requires a plain notice of resolution to be

given to the Company without the necessity of furnishing the grounds of removal or to be

22


accompanied by an explanatory statement. However, this may give rise to some concern. As it

relates to removal of directors in a public company, the shareholders may be ignorant of the

motivation and grounds for the removal of the directors. In the absence of such grounds, the

directors concerned will face difficulties in seeking to answer the allegations leveled against him.

A balance needs to be maintained between compliance with the strict statutory requirements and

good corporate governance which requires keeping all parties concerned informed of the grounds

of removal of directors.

CASE IV: REQUISITION FOR A MEETING

23


SJA Berhad

v

HLB Nominees (Tempatan) Sdn Bhd

Executive Summary

The power to convene a company members’ meeting is normally under the power of a

board of directors. However, for a specified minimum number of members, the members can

either request the directors to call a meeting (under Section 144 of the Companies Act 1965) or

convene one themselves (Section 145 of the Companies Act 1965). Generally, a company’s

articles of association will state who can arrange for a meeting of members to be held. The board

of directors may convene general and class meetings when those meetings are necessary for the

administration of the company’s affairs. If the company adopts Table A Art 44, then any single

director may convene a general meeting.

This case study, SJA Berhad v HLB Nominees (Tempatan) Sdn Bhd involves the

interpretation of Section 144 of the Companies Act 1965. The section provides that the board

must convene a meeting of members when requested to do so by (i) members with at least 10%

of such of the paid-up capital with voting rights at general meetings; or (2) for a company not

having a share capital, members representing at least 10% of the total voting rights of all

members entitled to vote at general meetings.

The meeting must be called within 21 days and held within two months after the request

is given to the company. If the members have requisitioned a meeting under Section 144 for a

proper purpose, and the board has failed to convene the meeting within the required time,

members with more than 50% of the votes held by members who made the original request can

proceed to convene the meeting at the expense of the company under Section 144(3) of the

Companies Act 1965.

Introduction

24


SJA Berhad which was formally known as South Johore Amalgamated Holdings Berhad,

is a leading public bus transport company in the Southern and North-Western regions of

Peninsular Malaysia. It manages the only consortium of bus operators in the states of Johor and

Penang, and is the sole operator of buses that provide services between Penang Island and the

mainland.

The directors of the company are:

i. Tan Sri Dato’ Azahari bin Mohd. Taib

ii. Dato' Haji Ahmad Hasmuni bin Haji Hussein

iii. Hamidah bte Abdul Ghafar

iv. Tan Hock Chan

v. Dato' Tan Hooi Chong

vi. Tung Soo Aik

vii. Tan Hui Meng

viii. Tan Hui Swang

ix. Che Joha Bin Abdul Jalil

In the case of SJA Berhad v HLB Nominees (Tempatan) Sdn Bhd, on 22nd April 2002, HLB

Nominees (Tempatan) Sdn Bhd deposited with SJA Berhad a requisition for an extraordinary

general meeting (EGM) together with a special notice of intended resolutions to remove a

number of named directors of SJA Berhad including Tan Hock Lai @ Tan Hock Chan and to

appoint two named persons as independent and non-executive directors pursuant to Section

144(1) of the Companies Act 1965. The directors of SJA Berhad did not take any step to act on

the requisition and as a result of that, HLB Nominees (Tempatan) Sdn Bhd on 9 th July 2002,

pursuant to Section 144(3) of the Companies Act 1965, issued a notice for an EGM to be held on

7th August 2002.

However, on 24th July 2002, SJA Berhad filed the Originating Motion No. 24-1259-2002 at

the Penang High Court to restrain HLB Nominees (Tempatan) Sdn Bhd from holding the EGM

25


on 7th August 2002 on the ground that under Section 144(3) of the Act the time to hold the

meeting had lapsed.

Study

There are two main issues in this case study:

i. Whether the three months time frame for convening the EGM as stipulated in Section

144(3) of the Companies Act 1965 commences from the date of the deposit of the

relevant requisition or from the expiry of 21 days of the date of the deposit of the said

requisition

ii. Whether the HLB Nominees (Tempatan) Sdn Bhd’s notice to SJA Berhad dated 9 th July

2002 indicating its intention to hold the Extraordinary General Meeting (EGM) was in

contravention of the time limit prescribed by the aforesaid section and therefore null and

void

Analysis

It is common ground that HLB Nominees (Tempatan) Sdn Bhd on 22nd April 2002

deposited a requisition with the SJA Berhad to convene an EGM to remove certain directors of

the SJA Berhad. The requisition was made under Section 144 of the Companies Act, 1965.

Section 144 provides:

Convening of extraordinary general meeting on requisition

(1) The directors of a company, notwithstanding anything in its articles, shall on the

requisition of members holding at the date of the deposit of the requisition not less than

one-tenth of such of the paid-up capital as at the date of the deposit carries the right of

voting at general meetings or, in the case of a company not having a share capital, of

members representing not less than one-tenth of the total voting rights of all members

having at that date a right to vote at general meetings, forthwith proceed duly to convene

26


an extraordinary general meeting of the company to be held as soon as practicable but in

any case not later than two months after the receipt by the company of the requisition.

(2) The requisition shall state the objects of the meeting and shall be signed by the

requisitionists and deposited at the registered office of the company, and may consist of

several documents in like form each signed by one or more requisitionists.

(3) If the directors do not within twenty-one days after the date of the deposit of the

requisition proceed to convene a meeting the requisitionists, or any of them representing

more than one-half of the total voting rights of all of them, may themselves, in the same

manner as nearly as possible as that in which meetings are to be convened by directors

convene a meeting, but any meeting so convened shall not be held after the expiration of

three months from that date.

However, the directors of SJA Berhad did not take any step to act on the requisition and as a

result of that, HLB Nominees (Tempatan) Sdn Bhd on 9 th July 2002, issued a notice for an EGM

to be held on 7th August 2002 at Sri Mas 2 & 3, The City Bayview Hotel, 25-A Farquhar Street,

Penang.

The date for holding the meeting as stated in the notice exceeded the three months provided

by Section 144(3). Hence, the notice is null and void. Pursuant to Section 144(3), the directors

themselves shall proceed to convene the EGM of the company but in any case not later than two

months after the receipt by the company of the requisition, provided that any of them

representing more than one-half of the total voting rights at general meetings.

This means that when the requisitionists or any of them who qualifies to do so to convene the

EGM, the company is given another month to do so in order to take into account the period of 21

days which is given to the directors to convene the EGM. It is only after the expiration of the 21

days without the directors convening the EGM that the respective shareholders or members can

themselves proceed to convene the EGM.

27


In this case, since the requisition was received by SJA Berhad on 22nd April 2002, the

EGM should have been convened and held at the latest on 22nd June 2002 by the directors.

However, since the directors of the SJA Berhad did not, between 22nd April 2002 and 13th May

2002, issue any notice calling for an EGM then pursuant to Section 144(3) of the Companies Act

1965, starting from 14th May 2002 onwards, HLB Nominees (Tempatan) Sdn Bhd is entitled to

issue a notice calling for an EGM which should have been held at the latest on 22nd July 2002.


The case of SJA Berhad has clarified the legal interpretation of the provision in Section

144 of the Companies Act 1965 especially Section 144(3). This case is a reminder to any

company secretary or shareholders who like to invoke their right to convene an EGM under the

provision of Section 144 of the Companies Act 1965. The legal effect of Section 144(3) is that

time for calculating the three months for convening the EGM stipulated in the section, runs from

the deposit of the relevant requisition.

28


CASE V: INTERPRETATION, RESTRICTIONS ON APPOINTMENT OR

ADVERTISEMENT OF DIRECTOR

Yap

v

Public Prosecutor

Executive Summary

This case is about the definition of ‘director’ in Companies Act 1965. Whether in the

company, there is the non-compliance of the Companies Act 1965. It was related whether a

person in the company can be a director of a private limited company. In this case also defined a

person who is being charged as an agent or as a director of a private limited company. What is

the capacity of her/him to be held to act as an ad-hoc agent?

A private company limited by shares, usually called a private limited company (Ltd)

(though this can theoretically also refer to a private company limited by guarantee). It has

shareholders with limited liability and its shares may not be offered to the general public, unlike

those of a public limited company (plc).

This case study, Yap v Public Prosecutor, involves the interpretation of Section 4, Section

123(1) and (4) and Section 409 of the Companies Act 1965.

29


Introduction

In this case, three charges against the appellants on which they were convicted and which were

connected with the four questions were as follows:

First charge

On 30 April 1985, Yap was being agents of Lien Hoe Sawmill Sdn Bhd at the Hongkong and

Shanghai Banking Corporation and he was being as a directors. He also has a committed amount

of $12,000,000 criminal breach of trust that offence punishable under Section 409 of the

Companies Act 1965.

Second charge

On 10 May 1985, Yap was being agents of Yap Sing Hock Holdings Sdn Bhd and also being as

directors in the company. He was entrusted with the property amount of $ 2,500,751 criminal

breach of trust that offence punishable under Section 409 of the Companies Act 1965.

Third charge

On 30 April 1985, Yap was being officers of Lien Hoe Sawmill Sdn Bhd. He also being as

directors and gave financial assistance to Sing Hock Holdings Sdn Bhd for the purpose of

purchase of 4,413,284 shares in his former company. This is offence punishable under Section

67(3) of the Companies Act 1965.

Company Profile

30


Lien Hoe Sawmill Sdn Bhd. started out as a building and construction materials

manufacturer in 1969 but enjoyed only modest success. In early 1994, the company started to

diversify via the acquisition of North Sumatera Timber Sdn Bhd, a small timber moulding plant

complete with long-term log supply contracts covering 180,000 ha of forest in North Sumatra,

Indonesia. Lien Hoe also owns 70% of Indonesian company PT Budi Tri Sakti, which

manufactures timber mouldings.

In 1997, it was reported that Lien Hoe owned 51% of Carlton Resources, a logging

company with a 25 year logging concession covering 152,000 ha in Liberia. The company made

the deal in 1995, paying US$2.50 per ha, but production was disrupted due to political unrest in

the country. Logging resumed in November 1996 and the company was forecasting that profits

would start coming in by March 1997.

Study and Analysis

Directors’ and Officers’ (D&O) Liability

D&O potential liability are contained in various enacted legislation including the

Companies Act 1965 (“CA”), the Income Tax Act 1967, the Employees’ Provident Fund Act

1991, the Copyright Act 1987 and the Environmental Quality Act 1974. This memorandum

highlights some of these legislations and provides an overview of the principal areas of risk

specifically applicable to directors. It should not be taken as a comprehensive list of all potential

liabilities specific to directors under Malaysian law. In addition, directors may also be subjected

to criminal liability under the Penal Code for such offences as fraud and criminal breach of trust

and/or civil liability arising out a breach of their fiduciary duties or a failure to exercise due care

and skill in carrying out their duties. These are not within the scope of this memorandum.

31


The comments as to any trends in the exposure of directors or officers and/or the level of

risk given in this memorandum are based on known prosecutions and civil actions reported in

law reports in Malaysia.

Overall, there is a gradual increase in the emphasis on directors’ accountability

particularly in relation to offences under the Securities Commission Act 1993 (“SCA”) and other

offences in relation to the securities industry, which are not covered in the scope of the

memorandum.

Malaysian Companies Act 1965 (“CA”)

For the purposes of the CA, references to a “director” or “officer” have been defined in Section 4

of the CA to include the following:

“Director” includes any person occupying the position of director of a corporation by whatever

name called and includes a person in accordance with whose directions or instruction the

directors of a corporation are accustomed to act and an alternate or substitute director.

“Officer” in relation to a corporation includes any director, secretary or employee of the

corporation.

Although criminal liability is not always expressly provided under the specific sections of the

CA discussed below, there is a general penalty provision contained in section 369 of the CA

which provides that a person is guilty of an offence if:

(a) He does any prohibited act under the CA;

(b) Omits to do what he is required to do under the CA; and

(c) Otherwise contravenes or fails to comply with any provision of the CA.

Section 67 of the CA – Prohibition in giving Financial Assistance

Type of Breach and Description of Offence

32


Save for specific exceptions contained in the CA, a company is generally prohibited from the

following:

(a) Giving direct or indirect financial assistance (including a loan guarantee, security or

otherwise) to any person for the purpose of or in connection with a purchase or subscription of

any shares in the company or, where the company is a subsidiary, in its holding company;

(b) In any way purchase or deal in its own shares; or

(c) Lend money on the security of its own shares. The exceptions to this general prohibition

include where

(a) A financial institution lends money to customers in the ordinary course of

business other than for the specific purpose of purchasing shares in that

institution; or

(b) A company provides assistance to its employees to purchase shares in the

company. Criminal and civil liability applies.

This act is applies to Directors and Officers as defined in the CA.

Potential Penalties

In the event of any contravention of this section, the company giving such assistance is

not guilty of an offence but each officer of the company who is in default is guilty of an offence

against the CA. The penalty for such contravention is imprisonment for up to 5 years or a fine of

up to RM100,000.00.

In addition, where a person is convicted of an offence under this section, and the Court is

satisfied that the company or another person has suffered loss or damage as a result of such

contravention, the Court may order the convicted person to pay compensation to the company or

person (as the case may be) of such amount as the Court specifies.

33



In Yap Sing Hock & Anor. v. PP [1992] 2 MLJ 714, the Malaysian Supreme Court

upheld the conviction of the directors of Lien Hoe Sawmill Co. Sdn. Bhd. (“Lien Hoe”) for

causing Lien Hoe to give financial assistance to Yap Sing Hock Holdings Sdn. Bhd. to purchase

shares in Lien Hoe. The directors were fined RM2,500.00 or in default 3 months imprisonment

CASE VI: NASIONCOM HOLDINGS BERHAD:

FINANCIAL REPORTING DEFICIENCIES

Introduction

NasionCom Holdings Berhad (NasionCom) is an ambitious and fast growing Malaysian

telecommunication service provider. The company was incorporated in 1993 and later was

converted into a public company on 28 January 2004 and subsequently listed on the MESDAQ

Market of Bursa Malaysia Securities Berhad on 25 February 2005. Nasioncom portrayed their

identity as an innovative company that deliver innovative voice and data services, broadband

internet access, interactive entertainment systems and information technology solutions.

It is the aimed of the company to make their customer happy and more importantly is to enhance

shareholders value. It is evidenced on the Annual Report of the company by the following tagline

"Our Commitment: To keep our Customers happy and continue to enhance value to our

shareholders." As a result of their commitment, the company received an award of Most

Promising Service Provider of the Year at the Frost & Sullivan Malaysia Telecom Awards 2005.

Again, in the year 2006, they received the same award.

34


Their latest products in the market are 'Nasion 1' and 'NasionTouch™015'. Nasioncom pointed

out that Nasion 1, a VoIP-enabled mobile phone services offers 2 exciting phone models

equipped with the latest in mobile technology. It offers low rates at the touch of one button

anytime, anywhere (AR, 2005). On the other hand, NasionTouch^™015 offers voice

communication through broadband connections. Indeed, NasionCom has projected their image as

an aggressive and dynamic Malaysian telecommunication company that offers cost-effective

Voice over Internet Protocol (VoIP) telephony services. The company also brings together

multimedia interactive entertainment systems in their portfolio of highly innovative

telecommunication services.

Achievement

NasionCom involvement in Malaysian telecommunication market has been recognised by the

authority when the Malaysian Communications and Multimedia Commission (MCMC) awarded

them the status of Network Facilities Provider (NFP) and Network Services Provider (NSP). The

company is allowed to provide a full suite of value-added services such as Internet Protocol

Telephony services, broadband internet access services, Managed Internet Protocol - Virtual

Private Network (IP - VPN) services and info-communication application services to customers

throughout Malaysia.

Good Corporate Governance Practices

The board of directors of Nasioncom Holdings Berhad believed that they have adopted high

standard of corporate governance practices by complying all of the requirements put into practice

by Malaysian regulators.

Table 1: Fast Facts

2004 2005

Members of Board of Directors

Independent Directors

7

3

9

3

35


Non-Independent Directors 4 6

Financial Expert on the Board of

Directors

i.e member of MIA, CACA(UK),

CIMA

3 3

Stock Exchange MESDAQ MESDAQ

Committees

i. Audit Committee

ii.Remuneration &

Nomination

Committee

i. Audit Committee

ii. Remuneration &

Nomination

Committee

Number of Meetings Not disclosed 6

Corporate Governance Report in

Annual Report

i. Statement of Corporate Governance

ii. Audit Committee Report

iii.Statement on Internal Control

iv.Additional Compliance Information

v. Director’s Responsibility Statement

Consistent with their commitment to enhance shareholders value and to have good corporate

governance practices, the company engaged the right mix of directors. As of 31st December

2005, the company's board of directors comprised of 9 members of which 3 independent and 6

non-independent directors. The independent directors are Dato' Seri Mohamad Noor bin Abdul

Rahim (Non-Executive Chairman), Tan Sri Dato' Hj Hanafiah bin Hj Ahmad (Non-Executive

Director) and Wan Azizul bin Wan Yusuf (Non-Executive Director). The 6 non-independent

directors are Alfian bin Mohamed Basir (Executive Vice Chairman), Peter Tham (Group

Managing Director), Shamsul Khalid bin Ismail (Executive Director), Azam Azi bin Rusdi

(Executive Director), Chan Chun Fee (Executive Director) and Dato' Chee Kok Wing (Non-

Executive Director) – Founder). The directors’ interest in the company are summarised in the

following table.

36


Table 1: directors’ shareholdings in nasionCom as at 18 May 2006

Name of directorNo. of share Held % of issued capital

Direct Indirect Direct Indirect

Dato’ Seri Mohamad Noor bin

Abdul Rahim200,000 - 0.03 -

Alfian bin Mohamed Basir 1,200,000155,626,68

60.15 19.45

Dato’ Chee Kok Wing 90,426,650155,626,68

611.30 19.45

Shamsul Khalid bin Ismail 1,200,000 31,626,666 0.15 3.95

Peter Tham 1,200,000 - 0.15 -

Tan Sri Dato’ Hj. Hanafiah bin Hj

Ahmad200,000 - 0.03 -

Among the directors, Dato’ Chee Kok Wing has strong interest to the success of the company as

he is the founder and the person who responsible in building up the company from scratch to the

public listed company. As the managing Director since its incorporation, Dato’ Chee was the

master mind of the company. In addition, Dato’ Chee also serve as an officer and director for

various direct and indirect subsidiaries of NasionCom. His role of NasionCom Group business

oppurtunities.

37


Board Committees

The board of directors has 2 sub-committees namely audit committee and remuneration &

nomination committee. Among the members of board of directors, 3 of them are qualified

accountants who could be classified as financial expert that are able to understand and appreciate

the preparation and presentation of financial information. The company has complied with the

expectation of the Malaysian Code on Corporate Governance and the Bursa Malaysia Listing

Requirements, where at least one of the members of audit committee is a financial expert. The

following are some characteristics of audit committee of NasionCom.

Table 2: Characteristics of Audit Committee

2005

Total Number of members 4 (1 resigned on 14.12.05)

Number of Independent/Non Executive 3 (1 resigned on 14.12.05)

Number of Non Independent / executive 1

Number of financial Expert2 (each is Independent Non Executive and

Non Independent Executive

Number of Meetings 5

Audit Committee ReportSome details on activities undertaken

during the year

38


Auditor

It is commonly known to the users of financial statements that auditor's role is to provide

assurance services that add value to the information reported in the statements. In 2004,

NasionCom's auditor, PriceWaterHouse has audited the accounts and of opinion that the

accounts show true and fair view of the company financial affairs. The auditor gave a clean

report without any qualification. In the year of 2005, the company has changed its external

auditor to Deloitte KasimChan. The new auditor found that the company has kept proper

accounting record and the accounts are credible and showed true and fair view of the financial

affairs of the company. Indeed, they have issued a clean report and agreed that the financial

statements were prepared in accordance to the standards.The following are information related to

the external auditors of the company.

Table 3: Audit Function

2004 2005

Auditor PwC Deloitte KasimChan

Audit Fees RM 90,000 RM 82,000

Non-Audit Services Fees* RM 264,019 RM 793, 434

Express willingness to

continue in financial year√ √

Audit OpinionUnqualified

(Clean Report)

Unqualified

(Clean Report)

Internal Audit Function None** None**

*Non Audit Services provided by the auditor of the company

39


**” The Company does not have an internal audit department. The Board has determined that the

current control mechanisms are sufficient for the size of the Company. The Board will set up an

internal audit function in the current financial year” (AR, 2004).

*** “Efforts are ongoing towards establishing an internal audit function for the Group beginning

with the setting up of the organization & method department during the financial year”

(AR,2005).

Investment

With the aim to capture large number of customers, NasionCom has invested RM65million in an

Internet Data Center with 10 terabyte capacity at Mid Valley City in Kuala Lumpur. The project

is very ambitious and utilises technologies from various companies such as Cisco, Compaq,

Microsoft, EMC Corporation, Oracle, Veritas, Citrix and Trend Micro. They plan to further

invest RM 300 million in the broadband deployment in Malaysia.

Excellent Financial Performance

The company had recorded relatively well growth in the competitive telecommunication market.

The company has broadened their line of products by offering attractive program to capture the

customer's attention. For example, the marketing of Voice over Broadband (VoB) product,

customers were offered a creative sign-up program which included free holidays (Annual Report,

2005). Thus, the company has increased their turnover and recorded excellent business

performance. The following are financial information of the company.

40


Table 4: Financial Performance of NasionCom Holdings Berhad1

2003 2004 2005

Revenue 0 160,935,248 194,184,186

Profit / (Loss) before tax (40,320) 7,770,632 11,161,483

Profit / (Loss) after tax (40,320) 4,702,444 7,592,737

Net Profit / (Loss) for the year (40,320) 3,763,559 7,582,941

Earnings per share (12.1) 5.2 1.0

Non-current assets 148,593,337 158,171,259 157,111,764

Property, plant and

equipment64,510,092 74,213,503 74,835,865

Development costs 546,064 1,292,080 1,251,013

Other Investment 575,600 3,749,000 742,000

Deferred tax assets 11,300,000 9,590,800 6,105,600

Goodwill 71,751,581 71,751,581 71,751,581

Current assets 42,451,669 47,099,684 106,069,788

Inventories 1,366,983 3,507,975 414,974

Trade receivables 37,622,689 25,789,147 67,979,594

Other receivables, deposits

and prepaid expenses14,105,706 31,482,681

41


Amount due from contract

customers 155,185 -

Cash and bank balances 3,461,997 3,541,671 6,192,539

Current liabilities 68,673,187 31,882,561 36,317,203

Trade payables 56,387,492 6,678,169 12,567,309

Other payables and accrued

expenses15,825,424 11,460,288

Borrowings 12,148,470 8,150,229 11,303,020

Tax liabilities 137,225 1,228,739 986,586

Non-current and deferred

liabilities43,285,285 29,981,939 59,589,109

Borrowings 43,238,885 23,601,272 51,774,942

Government Grant 0 6,290,167 7,814,167

Deferred tax liabilities 46,400 90,500 -

Shareholders’ Equity 78,959,682 142,340,706 166,199,707

Issued capital 35,300,002 74,000,000 80,000,000

Reserves 43,659,680 68,340,706 86,199,707

Minority Interests 126,852 1,065,737 1,075,533

Net cash from / (used in)

operating activities500 (8,409,942) (33,979,584)

Net cash / (used in) investing 0 (12,143,756) (9,008,467)

42


activities

Net cash from / (used in)

financing activities(5,554,813) 21,532,606 46,629,206

1 There are discrepancies of disclosures in the accounts for the year ended 31/12/2004 as

disclosed in the Annual Report for the year ended 2004 and comparative figures in the Annual

Report for the financial year ended 2005.

Revenue Recognition

The increasing level of sophistication and the demands for convenience and competitive services

in telecommunication industry requires the market participants to continuously innovate better

products. NasionCom has deployed its resources in building up their capacity and competency

that consistent with the technological changes. Their product innovation i.e. Nasion 1 and Nasion

Touch™015 has attracted interest among users of telecommunication industry. As a result, the

turnover of the company has continuously increased consistent with the amount of effort to

ensure that the company is on track. To ensure proper revenue recognition, the following policies

have been instituted by the management of the company.

-Revenue from provision of postpaid telecommunication services are recognised upon invoicing

to customer, net of sales tax and discounts.

-Revenue on prepaid telecommunication services are recognized upon actual usage of the said

services.

-Revenue from provision of other services are recognised upon delivery of services to customers

over a\ stipulated period of time, net of sales taxes and discounts.

-Revenue on sale of computers and telecommunication products are recognised upon delivery of

products and customer acceptance, if any, or performance of services, net of sales taxes and

discounts.

-Unearned income arising from monies received from customers but for which services have not

been rendered is reflected as unearned income under current liabilities.

43


-Revenue relating to long term contracts are accounted for under the percentage of completion

method. The stage of completion is measured by reference to the actual cost incurred to date to

estimated total costs for each contract.

-Interest income and rental income are recognised on an accruals basis.

During the financial year of 2005, NasionCom has showed excellent performance where the

company registers more than RM30million increment in revenue. This has resulted in a better

profit for the company as shown in Table 4. The following are the company revenue for the

financial year 2004 and 2005.

Table 5 : Revenue of the Company

2005 2004

Sale of telecommunication prepaid cards 103,202,551 82,683,106

Provision of Voice over Internet Protocol (‘VolP’) services 71,622,726 52,324,033

Provision of internet broadband connectivity services 17,959,030 7,939,788

Advertising income 1,152,848 5,730,900

System integration services 1,043,437 4,979,766

Sale of computers and telecommunication products - 7,106,165

Management fees receivable from subsidiary companies

(Note 12)

- -

Others 3,594 171,490

194,984,186 160,935,248

44


Charges

NasionCom faced financial difficulties in the year of 2007, when they unable to service their

debts. As a result, the company was brought to the court due to failure to service its loans owed

to the Malaysian Development and Infrastructure Bank and later was put under receivership.

Several key executives of NasionCom i.e. Dato' Chee Kok Wing and Shamsul Khalid bin Ismail,

both directors of NasionCom, and Mah Soon Chai, a shareholder of Express Top-Up Sdn Bhd, a

subsidiary of NasionCom were charged in court for falsifying accounting records. The shares of

the company have been suspended due to the release of misleading financial statements to the

public.

Reprimand and Court Charges

Acting on the financial irregularities in Nasioncom, the Securities Commission has charged Dato'

Chee Kok Wing for the submission of false information. He was accused for issuing a prospectus

which contained misleading information, namely the top 10 customers of NasionCom, for listing

on the MESDAQ Market. This information is essential to be supplied to the Securities

Commission with regard to their proposal to be listed on the MESDAQ Market of Bursa

Malaysia Securities Berhad. Also, the Companies Commission of Malaysia (CCM) has charged

Dato' Chee Kok Wing for 'authorizing the making of false statements in NasionCom Sdn Bhd's

documents, namely invoices, dealer agreements, ledgers and bank deposit slips'(SC, 2007). The

following are the press release issued by the SC on the charge towards Dato' Chee Kok Wing.

45


under sS5(1)(a) of the Securities Commission Act 1993 (SCA) for causing the issuance

of NasionCom Prospectus for listing on the MESDAQ Market, which contained

misleading information. This offence is punishable under s55(3) of the SCA which carries

a maximum penalty of RM3 million f ne or 10 years imprisonment or both;

under sl22B(a)(bb) Securities Industry Act 1983 (SIA) read together with sl22 of the

same Act, in his capacity as a director, is deemed to have submitted false information to

the SC contained in the 2005 Annual Report of NasionCom, in particular, its revenue for

the FYE 31 December 2005. This offence is punishable under sl22B of the SIA, which

carries a maximum fine of RM3 million or imprisonment not exceeding 10 years or both;

and

under s364(2) of the Companies Act 1965 for authorising the making of false statements

in the documents of NasionCom Sdn Bhd which are required to be kept under s167(1) of

the Companies Act 1965. These false statements were used for the preparation of

NasionCom's Financial Statementfor the FYE 31 December 2005. This offence is

punishable under s364(2) of the Companies Act 1965 which carries a maximum

imprisonment of 10 years or RM250, OOO fine.

SC has also charged Shamsul Khalid due to his capacity as director of NasionCom that primarily

responsible for the financial management of the company and "therefore is deemed to have

committed the offence under section s122B(a)(bb) SIA read together with sl22 of the same Act"

(SC, 2007).

The SC has issued a press release titled "SC raps Nasioncom and directs company to reissue

2005 financial statements - Ensures investors have true financial figures" dated 15 th February

46


2007 that reprimanded Nasioncom Holding Berhad and the following are extract of the press

release.

"The Securities Commission (SC) today publicly reprimanded Nasioncom Holdings Berhad

(NHB) and directed the company to rectify and re-issue its financial statements for the financial

year ended 31 December 2005 within a month."

"NHB had submitted false information to the SC with respect to revenue on sales that were not

transacted, in its 2005 financial statements. In doing so, NHB had breached section 122B(a)(bb)

of the Securities Industry Act 1983."

"The SC's investigation revealed that NHB's group revenue of R M194,984,186 as reflected in its

2005 financial statements contained a total of R M143, 109, 727 sales that were not transacted.

These sales were recorded in the financial statements of two NHB subsidiaries, namely

Nasioncom Sdn Bhd and Express TOP-MP Sdn Bhd."

As a result of the trial of these three individuals, the SC has publicly reprimanded NasionCom on

15 February 2007 and requires the company to resolve the issue and reissue its financial

statements for the financial year ended 31 December 2005. Further, the company unable to

comply with many of the Bursa Malaysia Securities Berhad's Listing Requirements such as the

announcement of quarterly reports (QR) and audited annual accounts (AAA) for the year of

2006. Accordingly, Bursa Securities, on 18th December 2007, has publicly reprimanded and fines

NasionCom's directors as follows:

47


No DirectorsPosition/date of Appointment

& resignation

Failure to

submit

Penalty

imposed

1. Tham Kok Sing

Managing Director

(Appointed on 30 April 2005

and resigned on 11 may 2007)

(appointed as Audit Committee

member on 9 February 2007

and resigned on 11 May 2007)

4th QR

2006

Public

reprimand and

fine of

RM8,500

AAA 2006

Public

reprimand and

fine of

RM3,500

2. Omar bin

Zolkifli

Executive Director

(Appointed on 9 February 2007

and the aforesaid appointment

continues to date

1st QR

2007

Public

reprimand and

fine of

RM13,000

AR 2006

Public

reprimand and

fine of

RM12,800

3. Tan Sri Dato’

Seri Mohamad

Noor bin Abdul

Rahman

Independent Non-Executive

Chairman

Audit Committee Member since

2005 and resigned on 22

October 2007 (Appointed on 6

January 2004 and resigned on

4th QR

2006

Public

reprimand and

fine of

RM12,400

AAA 2006 Public

reprimand and

fine of

48


22 October 2007)

RM12,800

1st QR

2007

Public

reprimand and

fine of

RM13,000

AR 2006

Public

reprimand and

fine of

RM12,800

4. Wan Azizul bin

Wan Yusoff


Director

Audit Committee Chairman

since 2005 and resigned on 1

October 2007

(Appointment on 3 January

2005 and resigned on 1 October

20070

4th QR

2006

Public

reprimand and

fine of

RM12,400

AAA 2006

Public

reprimand and

fine of

RM12,800

1st QR

2007

Public

reprimand and

fine of

RM13,000

AR 2006

Public

reprimand and

fine of

RM12,800

49


5.Datuk Wan

Kassim bin

Ahmed


Director (Appointed on 23

March 2007 and the aforesaid

appointment continues to date)

(Appointed as Audit Committee

Member on 4 June 2007 and the

appointment continues to date)

AR2006

Public

reprimand and

fine of

RM12,800

6. Dato’ Chee Kok

Wing

Non-Independent Non-

Executive Director (Appointed

as executive Director on 12

December 2003 and has bee re-

designated as Non-Independent

Non-Executive Director in 28

February 2006 and resigned on

8 August 20070

4th QR

2006

Public

reprimand and

fine of

RM6,200

AAA 2006

Public

reprimand and

fine of

RM6,400

1st QR

2007

Public

reprimand and

fine of

RM4,900

AR 2006

Public

reprimand and

fine of

RM2,800

50


Datukship Suspended

The whole NasionCom's case has received attention from many interested parties including the

Sultan of Selangor who awarded Datukship to Dato' Chee Kok Wing. Due to the allegation of his

involvement in the submission of false information to the SC, the Sultan of Selangor has

suspended Chee's Datukship.

Analysis and Remedies

Revenue recognition practices

Revenue recognition practices of the company found to be the biggest default in NasionCom. It

all started in the year 2007, where NasionCom was thrown into receivership after it failed to

service its loans owed to the Malaysian Development and Infrastructure Bank that resulted to

cause several key executives of NasionCom were charged in court for falsifying accounting

records. SC revealed that 73 per cent of the company's revenue that year (RM 143,109,727 from

RM 194,984,186) was based on deals that were not transacted. The practice may seem to work in

a short term but after a while, it caused disastrous financial situation to the company.

Furthermore, NasionCom was in such a volatile kind of industry which dealt with ‘shorter shelf

life’ products which refer to communication devices that expands in fast pace product and

market development.

Concentration of Shares

If refer to table 1, Dato’ Chee’s shares covered 11.3% of the total direct share alone. It such a big

amount if compared to other directors. It shows that he had the highest interest on the company

and it might be possible that he had overruled some of the decisions made for the company.

Auditor’s Accountability

One of the main issues here is the switch of auditor from PriceWaterhouse Cooper to Deloitte

KassimChan in the year of 2005. It is found out that PWC did a good job in 2004 and of opinion

51


that the company’s accounts show true and fair view of the company financial affairsa. Thus,

why and for what reason NasionCom changed their auditor to Deloitte KassimChan in the

following year (2005)? Based on Table 3, we can see that the fee for 2005 audit and non-audit

exercise was higher if compared to the previous year? Besides that, ‘non-audit services’ fee from

Deloitte KassimChan exceeded 5% total amount paid by the company to its auditor during the

same fiscal year in which the non-audit services are provided. It is easy to compare the situation

here with the turmoil in corporate America – in those days when the likes of Enron, WorldCom

and Tyco dominated the headlines – that lead to the controversial reform that included the

introduction of the Sarbanes-Oxley Act. Prior to the adoption of the Sarbanes-Oxley Act

("SOA"), there was some confusion over what types of non-auditing services the outside

accountant could perform for a public corporation. In fact, some of the major accounting firms

sold their consulting units in recent years in order to avoid any possible conflicts of interest. The

SOA endeavours to eradicate particular possible conflicts of interest occur out of "non-audit

services" and gives additional power to the Audit Committee. The SOA clearly forbid large

scale, big fee financial information systems design and implementation or information

technology work. This was a very high profit area for the non-audit arms of the large accounting

firms. The SOA also bars internal audit outsourcing and "expert" services.

Set forth below are the nine prohibited activities for a registered accounting firm performing an

independent audit of a public company:

bookkeeping or other services relating to the accounting records or financial statements

of the audit client;

financial information systems design and implementation;

appraisal or evaluation services, fairness opinions or contribution-in-kind reports;

actuarial services;

internal audit outsourcing services;

management functions or human resources;

broker or dealer, investment advisor, or investment banking services;

52


legal services and expert services unrelated to the audit;

and any other service that the accounting board determines, by regulation, is

impermissible.

The Audit Committee must understand the nature of the proposed non-audit service to be

provided and consider whether that proposed service raises independence concerns

Even the professionals who failed to discharge their due diligence responsibilities have not been

spared. Historically, Deloitte KassimChan was the auditor for NasionCom's accounts that year,

according to the company's 2005 annual report. According to Bernama, the accounting firm even

declined to comment when contacted about this case. Not only that, Deloitte KassimChan have

some bad history where SC also reprimanded Deloitte KassimChan and Hwang- DBS Securities

Bhd over Ocean Capital Bhd's restructuring plan previously and not only that, they are also

involved in Trabnsmile case. Due to this, Deloitte was also barred from submitting any proposal

as the reporting accountant for six months. This shows the lack of accountability of the audit

firm itself that somehow tarnish the whole picture of directors’ commitment on financial

reporting.

Failure of the audit committee and Internal Audit Function

In this case, it seems like the audit committee failed to serve the company well. As all of us

concern, the fight against fraud or mismanagement in corporations should be a team effort by all

parties, including directors of companies, Bursa Malaysia, the SC, the Malaysian Institute of

Certified Public Accountants and audit committee. They all play a role to ensure good corporate

governance is practised.

Audit committee should view these findings or reports as proof that the accounting standards and

audit practices are in place to detect corporate wrongdoings. They can have all the standards in

place, but in this case, we can assume that the tone at the top was negative and they failed to take

action on findings of audited reports, especially when there is something very wrong with the

53


company, then there was problems in this case, irregularity in revenue recognition that caused

inability to serve debt in long term.

In order to operate effectively, independent, vigilant, experienced, proactive, and willing to ask

challenging questions about the company's management. Similarly, non-executive directors

who sit on various committees in the company, including the audit committee, must be

independent of the management of the company and be willing to ask hard questions. Obviously,

none of any directors in the audit committee for NasionCom were acting as whistleblower! The

utilization of Section 99e should takes place here; whistle blowers' provision which allows

auditors to report to the SC on the conduct of companies without fear or favour some auditors

resorted to the provision. Otherwise, the audit committee is rendered an ineffective corporate

governance mechanism or a “toothless tiger.”

On the other hand, the existence of internal audit function also became a big matter here where

as NasionCom didn’t even have internal audit department in their company. According to the

Companies Act 1965, S. 167A requiring directors of public companies to have in place “a

system of internal control that will provide a reasonable assurance…..” . It makes us wonder why

Internal Audit Function was not in place for those 2 particular years. The role of internal auditors

had never been as challenging, especially in terms of financial control and financial reporting

and companies were now turning to internal auditors to help with governance concerns. We may

assumed that no auditors were invited to be in board meeting to explain their findings to show

that top management now values the audit committee's findings and suggestions when making

decisions on behalf of the company but none of Internal Audit function existed in the company.

References

1. Bursa Malaysia Securities Berhad (24 April 2007) New admission into GN3, available at

http://www.klse.com.my

2. Bursa Malaysia Securities Berhad (10th July 2007) Delay in submission of financial

statements, available at http://www.klse.com.my

54

http://www.klse.com.my/



3. Bursa Malaysia Securities Berhad (13th July 2007) Deferment of imposition of suspension

against NasionCom Holdings Berhad, available at http://www.klse.com.my

4. Bursa Malaysia Securities Berhad (16 July 2007) Imposition of suspension against

NasionCom Holdings Berhad, available at http://www.klse.com.my

5. Bursa Malaysia Securities Berhad (6th August 2007) New admission into Guidance Note

No. 3/2006, available at http://www.klse.com.my

6. Bursa Malaysia Securities Berhad (19th October 2007) Commencement of delisting

procedures against NasionCom Holdings Berhad for failure to submit financial


7. Bursa Malaysia Securities Berhad (18 December 2007) Commencement of delisting

procedures against NasionCom Holdings Berhad for failure to submit financial


8. Bursa Malaysia Securities Berhad (18th December 2007) (i) Public Reprimand on

Nasioncom Holdings Berhad ("Nscom" or "The Company"), Breach of Rules 9.22(1),

9.23(1) and 9.24 of Bursa Malaysia Securities Berhad's Listing Requirements for The

MESDAQ Market ("MMLR") and (ii) Public Reprimand and Fine on Directors of

Nscom, available at http://www.klse.com.my

9. Burrsa Malaysia Securities Berhad (21st Jan 2008) De-listing decision on NasionCom

Holdings Berhad, available at http://www.klse.com.my

10. Bursa Malaysia Securities Berhad (5th March 2008) NasionCom Holdings Berhad to be

delisted, available at http://www.klse.com.my

11. Bursa Malaysia Securities Berhad (25th March 2008) NasionCom Holdings Berhad's

appeal disallowed, available at http://www.klse.com.my

12. Bursa Malaysia Securities Berhad (3rd April 2008) Deferrnent of the removal of

NasionCom Holdings Berhad, available at http://www.klse.com.my

13. Bursa Malaysia Securities Berhad (1 8th April 2008) GN3, Commencement of delisting

procedures against NasionCom Holdings Berhad, available at http://www.klse.com.my

14. Bursa Malaysia Securities Berhad (22nd May 2008) GN3: NasionCom Holdings Berhad

and Wimems Corporation Berhad to be de-listed, available at http://www.klse.com.my

55













15. Mahmood, W., Mansor, W. and Syed-Tazhili, S. N. (2008) What's Went Wrong With

MESDAQ Market. MPRA Paper No. 14603 available at

http://mpra.ub.unimuenchen.de/14603/

16. Minority Shareholders Watchdog Group (MSWG) (20 April 2007) MSWG Comments on

(1) Securities Commission (SC)'s Prosecution Against Two (2) Directors and Co-

Founders of GP Ocean Food Berhad for Submission of Misleading Information and (2)

NasionCom Challenges SC in Court and SC Likely To Fight NasionCom (NSTP,

Business Times on 19 and 20 April 2007 respectively), available at

http://www.mswg.org.my

56

http://www.mswg.org.my/

http://mpra.ub.unimuenchen.de/14603/


4 NEW CASES DEVELOPED,

ADOPTING FROM THE 6 CASES OF

DIRECTORS AND COMPANY


57


NEW CASE I: LEKSH ZAUZA SDN BHD

The company secretary

Leksh Zauza Bhd initially incorporated as a private local company on 28 th March 1978.

The company converted to a public company on 13 January 1990. It engages in sporting goods

industry and delivering sports footwear, apparel and accessories. The company’s aim is to be a

global leader in the sporting goods industry and offers a broad portfolio of products. With the

authorised capital of RM 500,000.00 and issued shares is RM500,000.00 the company was

performing well.

History

The founder of this company is Leksh Canny John. In 1940 at the age of 20 Canny John made

his first shoe using the few materials available. His vision was to produce the most durable and

safest footwear for athletes in different sports. By 1966 he was making 30 different styles of

shoes for different sports and employed 100 workers. His products were successful in the market,

especially to the youth athlete since the shoes are stylish. In 1978 canny John formerly

registered his company as Leksh Zauza, which is the combination of his first name and his wife

whom Zauza Kelly. Cany John was an ambitious person and he wanted to expand his products

variety by producing not only shoes but also sport apparels and accessories. To expand his

business he needs more capital and then he decided converts his company to a public company

by remaining his and his wife position still as the director of the company. In the year of 1990 at

the age of 70 his company converted to public company and he and his wife retired from the

58


company after one year. The business was then took over by became the management. They are

Michel & Rockcy. They brought the company product mainly targeting younger athletes and the

response was good. Continuing with their momentum, in 2000 the company became of the top

athletic footwear, apparel and sports hardware producers in the Malaysia.

Vision

The vision of the company is to be the global leader in the sporting goods industry with sports

brands built on a passion for sports and sporting lifestyle.

Product and services

The company consists of the largest segment of product. They are sport shoes, sport apparels and

sport accessories. Among these three products the sports shoes perform well than others. They

distribute their products through outlets and retail stores. These days were the glories days of the

company.

Income Statement for the year ended 30 June 2008

2008

(RM)

2007

(RM)

Revenue 1265,251 1131,882

Depreciation expense (4,747) (9,686)

Borrowing costs expense (16,097) (12,952)

Share based payments (8,822) (12,030)

Other expenses (425,711) (361,624)

59


Loss before income tax benefit (530,126) (564,410)

Income tax benefit 645,528 44,739

Net loss attributable to members 925,276 215,919

Balance Sheet as at 30 June 2009

2009

(RM)

2009

(RM)

CURRENT ASSETS

Cash and cash equivalents 408,340 1,079,772

Trade and other receivables 16,297 352,782

Inventories - 201,698

Other 23,133 61,088

TOTAL CURRENT ASSETS 447,770 1,695,340

NON-CURRENT ASSETS

Other financial assets -

Property, plant and equipment 2,129,378 2,324,129

TOTAL NON-CURRENT ASSETS 2,129,378 2,564,129

TOTAL ASSETS 2,577,148 4,259,469

CURRENT LIABILITIES 409,095 521,144

Trade and other payables 119,044 324,558

Borrowings 290,051 196,586

60


TOTAL CURRENT LIABILITIES

NON-CURRENT LIABILITIES

Borrowings - 272,587

TOTAL NON-CURRENT LIABILITIES - 272,587

TOTAL LIABILITIES 409,095 793,731

NET ASSETS 2,168,053 3,465,738

EQUITY

Issued capital 13,068,445 12,568,489

Accumulated losses (11,811,594) (9,891,923)

TOTAL EQUITY 2,168,053 3,465,738

Organizational structure

Name of officer Position

Dato Michael Vincent CEO

Rockey Jai Managing Director

Mr. Ajay Johnson

Mdm. Alicia Yu

Mr. Kumar a/l Karu

En. Akmal Bin Ali

BOD

Encik Ahmad Tajuddin Bin Abdul Carrim Independent Non-Executive Director

Anderson Kelly Board Executive Committee

Ms Vimala Menon

Encik Oh Kim Sun

Board Audit Committee

Dato’ Mohd Nadzmi Bin Mohd Salleh Board Nomination &

61


Encik Md Ali Bin Md Dewal Remuneration Committee

Ms jenniefer Company secretary

Jeng & Ji asc. Auditor & consultant

Shareholders

More investors would like to invest in this company looking at their growing in the sports good

industry. Other than that the investors also interested in their financial statement with high

revenues and also profit. More and more people keep on buying their share because they

confident with the company’s corporate performance statement. In the year 2009 the total

shareholder of this company is 20.

The company secretary

Jenifer was an accounting student as an undergrad at University Putra Malaysia, Serdang. Her

ambition is to become a successful accountant and also to own her own business in accounting

services. She later became the member of Malaysian Institute of Accountant(MIA) to start her

carrier as a company secretary. Her company licence number is MIA001245.

Jenifer joins Leksh Zauza Sdn Bhd in the year 2007 replacing the previous company secretary

Abraham. Her service to the company almost two years and she was performing well and gain

the trust of the management. At the same time she also engages herself in the business of her

close friend whom is also undergrad student in Business Administration. Her friend namely Tina

started business of providing business clerical related works with the modal she got from their

parents. Tina than requested Jenifer to join the business as one of the director as she is her close

friend. Jenifer except the offer and became one of the director of the business. The business than

incorporated as a local private company with the company name Tina Sdn Bhd on 28 November

2008.

Even though Jenifer is one of the director in Tina Sdn Bhd, she very seldom involve in that

business progress and decisions. Almost every decision and move of the company is by Tina.

This is because Jenifer doesn’t have any knowledge on that business and she trust her close

62


friend Tina on the business conduct. Tina & jenifer applied personal loans in bank to cover the

maintenance of the company. But what happen was the company did not perform well and

everytime Tina faces problem , the action or decision she took never favour her or the company.

This is all just because lack of experience in the business environment since she is a fresh

graduate. Finally the company end up being in bankruptcy. Both faced so many loses after that.

They try their best to payback all the bank debts. But they couldn’t effort to cover that much

money as they already try to ask their friends and relatives. Then Tina & Jenifer has been

charged as an undischarged bankrupt since they did not able to pay back the money on 12

October 2009.

Jenifer was very frustrated because the of loses she faces, since she is from a moderate income

family. The only source of money for her to depend now is the job as a company secretary at

Leksh Zauza Berhad. She decided to keep herself quiet about what happen to her and keep on

performing her job as a company secretary in Leksh Zauza Bhd. Somehow majority shareholder

of the company, Mr.Vinod Krish got to know that she is an undischarged bankrupt. Mr. Vinod

Krish found out this through his continues monitoring on the company since he is the majority

shareholder and have huge interest on the company. When Mr. Vinod Krish called and ask

Jenifer about this she declined it because she dun wan lose her job. But the shareholder input this

info to the company directors Mr. Ajay Johnson and Mdm. Alicia Yu requested them to collect

evidence and investigate on her.

These directors did not take any action immediately. They hold the issue since they were busy

with their report for year annual report 2009. Jenifer has close relationship with the directors and

from that she got know about the complaint on her. She began to fear of the investigation and its

feedback. Before she faces any problem and unwanted things she plans to leave the Leksh Zauza

Bhd. silently.

She immediately applies for a one month leave with a reason she is going for outstation for a

long vacation. The leave was approved and she left the company with taking with her necessary

63


things. Then she applies to vacant the office through form 48E to the registrar without the

knowledge of Leksh Zauza Bhd.

The management of Leksh Zauza knows nothing with what happen until after one month Jenifer

still not present at the company. They try to contact the company secretary and no response from

her. Since it is time for call for AGM, the management became more worry. The management

when cannot trace her through the phone and also at her residential address became more panic.

Then they requested one of the management staff to handle all the AGM works such as passing

the notices and so on.

At the meeting than, Mr.Vinod Krish the shareholder whom reported on Jenifer ask for the

feedback and then only Board of directors remember about the issue. Then they suspect that she

actually left the company. Mr.Vinod Krish became very disappointed because the BOD did not

take an immediate action on his complains. It became a huge ‘hawakc’ in the meeting that day

among the members and management.

The shareholders than felt that those directors involve as an irresponsible person and they

decided to remove the directors from the board. With the majority vote the shareholders than

removed the both directors Mr. Ajay Johnson and Mdm. Alicia Yu in the AGM 2009.

Other than that the company also charged by the Registrar under section 139 (1B) of the

Companies Act 1965 where the office of a company secretary left vacant for more than one

month.

Consequences of this entire incident Mr.Vinod Krish, the majority shareholder of Leksh Zauza

Bhd pull back all his shares because he lost confidence on the management. Referring this more

shareholder of the company pull back their share as well. This issue than became hot topic in

among the investors in the market.

Finally Leksh Zauza face so many financial problems because no investors volunteer to invest in

the company. After so much of effort bring back the brand name in the market and yet they

64


failed. The decided sell the company to other one of leading company in sports good industry

which is Lekshmi Win bhd. Lekshmi Win acquired the company with the branding on 28 March

in year 2010.

Leksh Zauza Bhd with the money they received manages to pay their creditor and settle the other

payments almost.

NEW CASE II

The Duties of Directors

Introduction

Telcast is a telecommunications company which was established by Aqilah and Badrul.

Telcast attempted to create a youth-oriented image to sell their mobile phones and Tel.Net

internet services, with a slogan “You’ll tell your friends about Telcast”, to draw the connection

between the brand and personal communication.

Teclcast was listed on the Bursa Malaysia not long after it was founded in 1995 to 2001.

It went into voluntary administration on 29th May 2001 and into liquidation, upon a decision

made by creditors in the administration on 24th July 2001. It began business in May 1995 with a

total initial issued capital of approximately RM5 million. The ownership structure of the

company was: Camelia 28.5%; Daniel 18%; Emelia 5%; Aqilah and Badrul Investment 50%

65


(approximately). Aqilah and Badrul Investment was owned by Aqilah and Badrul.

The original thought process began with a simple initiative: they wanted to start a new

telephone company, one that the average person would understand. The company was very

people focused and focused on the residential market, as opposed to corporate business. They

wanted the consumer or everyday person in the street, to have access to the entire suite of

telephony products, which is why the company was marketed with the catch phrase “100%

telephone Company”. Telcast had three core product offerings: fixed wire long distance, Internet

service provision and mobile telephony.

Its business expanded greatly and included operations in the United Kingdom and several

other countries; it came to have 2.4 million customers world-wide including 500,000 in the

United Kingdom. A huge expansion of activities and liabilities was involved in constructing the

network, including contracts committing expenditure of more than RM1.1 billion with lucent

Technologies. The Group associated with Telcast employed 3000 persons throughout the world

and had many subsidiaries. In 1999, News Ltd and Publishing and Broadcasting Ltd made

investment around RM1 billion in Telcast.

Telcast experienced huge trading losses and reductions in net realizable value in 2001 up

to 29th May 2001. During this period, Telcast incurred net trading loss of at least RM92 million.

In these months, the liquidity position of Telcast worsened by very large amounts; from a

deficiency of RM24.5 million on February 2001 to a deficiency of RM98.7 million on 29 May

2001. The deficiency in liquidity precipitated the failure of Telcast’s business. Facts were

established on the deterioration which occurred in the financial position and performance of

Telcast from 1 January 2001 onwards. By 28 February 2001, Telcast actually requires a cash

injection at least RM270 million to continue its existing operations and meet current and

reasonably foreseeable liabilities, and the requirement for cash injection was at least RM287

million by 31 March 2001. Telcast would also incur additional indebtedness to Lucent

Technologies of approximately RM365 million for capital works relating to the construction of

66


the network.

Telcast Collapse

The company was specifically geared to making money through stockmarket speculation.

Reports indicated the bonuses paid to Aqilah and Badrul were specifically tied to the rise of the

company’s share rather than profit or any other indicator of the overall viability of the company.

Telcast’s rapid expansion was way beyond its financial capacity coupled with its

misguided management decision. The company’s high risk, low yield strategy, with generous

incentives for new customers could not be sustained in the small market which had three major

mobile phone providers. The fatal flaw in the business model of the company was that the

telecom services were offered to subscribers at lower than the price the company was paying for

them itself. It could only survive as long as it could raise new capital investment more rapidly

than it was burning money.

PERIOD PROFIT/LOSS

Year to June 1999 9.9m profit*

Year to June 2000 295.9m loss**

Half-year to Dec. 2000 132.0m loss**

The first public indication that the company was in trouble was the resignation of Aqilah

and Badrul. An investigation is initiated into company’s books and promised a RM132 million

cash injection aimed at reassuring the markets. However, the investigation found that the

company needed at least RM400 million to remain viable, and the offer was withdrawn.

The thread leading to the collapse of Telcast including: inappropriate management

compensation; creative accounting; failure of directors and managers to exercise due diligence;

lack of adequate regulation; and lack of independence in audit function

67


Aqilah and Badrul – Founder & Joint Managing Director

Aqilah and Badrul used their marketing skills and unwavering positive public statements to

promote the company and made assurance that Telcast would have RM103 million at June 30.

Badrul did not understand the true position of Telcast; he wholly misunderstood the facts

Telcast’s financial position and performance. Aqilah, particularly, was misleading the market

and shareholders by saying that the company is having big cash surpluses and heading to profits;

and the company was on target to meet its subscriber numbers and gross profit projections.

Through the last quarter of 2001, Aqilah gave the board and directors Johan and Laila

repeated upbeat assurances that the company’s cash position and profitability is improving

Aqilah and Badrul were very much running the show at Telcast, and they presented the accounts

to Ghaddafi as they wanted him to see, large sum of money were being moved around the group

between the subsidiaries to disguise the true situation.

In financial year ended 30 June 2000 Telcast reported loss of RM291 million. The share

price plummeted to below RM1. Despite the loss, Aqilah and Badrul each received a RM560,000

basic salary and a RM6.9 million bonus.

Maizura – Finance Director

She did not exercise powers with respect to the company with due care and diligence;

allegingly misled the board as to Telcast’s true financial position. Telcast’s accounts was kept by

juggling the creditors, deferring payments of million dollars repatriating money from overseas

subsidiaries.

Jamsari – Chief Financial Officer

He fails to exercise his judgement with duty of care of an expert being a Chartered Accountant,

with extensive background in finance function of public company and as chief financial officer at

Telcast. As a Chartered Accountant, he should be able to properly assess Telcast’s financial

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performance and spot the discrepancies in the books thus alerted the board.

Radziah – Company Director

She dumps Telcast’s stock in the tumbling market. She is known to have sold off 6 million

Telcast shares raising RM2.2m after directors meeting on May 17

Johan and Laila – Board Directors

They are responsible for approving the bonus deals and pumping in hundreds of millions that

triggered these very bonus payments which then helped destroy confidence in the company. As

board director, they did not exercise their rights looking after the Telcast as they attended to the

major parts of their multi billion empires. They should not have sat on the board when there is no

way in the world they had the time to keep an eye on Aqilah and Badrul and hold them

accountable.

Analysis

The directors of a company are responsible for the management of the company’s

business. Management encompasses not only the day-to-day running of the company’s

operations but also the development an implementation of a long-term strategy; ensuring proper

balance between the interest of various stakeholders; ensuring any activity concerning the

company is carried out in the interest of the company. Directors, individually and as a board,

bear the primary duty to carry out the corporate governance policies of the company.

Below is the summary of the responsibilities of the board:

1. Lay solid foundations for management and oversight, including its control and

accountability system;

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2. Structure the board to add value by ratifying, appointing and removing the chief

executive officer (or equivalent), and the company secretary;

3. Promote ethical and responsible decision-making, input into and final approval of

management’s development of corporate strategy and performance objectives;

4. Safeguard integrity in financial reporting, reviewing and ratifying system of risk

management and internal compliance and control, code of conduct and legal compliance;

5. Make timely and balanced disclosure;

6. Respect the rights of shareholders;

7. Recognize and manage risk, approving and monitoring the progress of major capital

expenditure, capital management, acquisitions and divestitures, and approving and

monitoring financial and other reporting;

8. Encourage and enhanced performance, monitoring senior management’s performance

and implementation of strategy, and ensuring appropriate resources are available; and

9. Remunerate fairly and responsibly

10. Recognize the Legitimate interest of stake holders Fiduciary Duties

Amran- Company Director

Amran failed to ensure Telcast make affordable expansion and loans and fails to ensure the

company has a proper system of controls and audits in its business to avoid defalcations by other

Officers and employees. Immediately after the directors meeting on May 17 2001, he sold off 6

million Telcast shares raising RM2.2 million. He did not care for the benefits of shareholders,

company and employees of Telcast. He is in for getting as much as he can before the company

collapse. None of the “Business Judgement” rule nor acting in good faith matters to him. By

selling his shares, he is using his position as a director in Telcast to gain advantage for himself

by using the information gained in the board’s meeting. He is using privileged information

gained at the board for trading in his own benefits and gains. It does not matter to him the

implications or consequences to the company by his act of dumping Telcast’s share.

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Maizura – Finance Director

She fails to supervise Telcast’s finances adequately and failed to keep the board informed and

she might have fiddle with the accounts by simply juggling the creditors, deferring payments and

repatriating money from overseas subsidiaries. And this had mislead the board of the actual cash

flow of Telcast.

Jamsari – Chief Financial Officer

Jamsari relied on the financial information supplied to him by others, including the executing

directors. The financial information supplied to Jamsari was limited and inaccurate in material

respects. He fails to take reasonable steps to:

promptly ensure that he and the board were aware of certain financial circumstances,

including cash balances and the aging of debtors, in January, February and March 2001;

monitor the management of Telcast to properly assess the financial position and

performance and detect material adverse developments;

ensure that all material information was available to the board, particularly concerning

the adequacy of cash reserves, and the actual financial position of various segments of the

business; and

ensure that systems (billing and accounting system) were maintained and monitored

which resulted in accurate and financial information flowing from management to the

board.

Being a qualified Chartered Accountant and with his expertise he should not rely on the

information provided by others. He should take an active role in ensuring the accounts of the

company has been correctly reported and the accounting system is in place and alert to Maizura’s

act of keeping the accounts simply by juggling the creditors, deferring payments and repatriating

money from overseas subsidiaries.

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Johan and Laila – Board Directors

Both, being otherwise engaged in their other more lucrative business empire. They did not

monitor the business and left the running of the business to both Aqilah, Badrul, and Maizura.

They did not know the true financial position of the company and make judgement according to

information or promises made by Aqilah. They further approved bonuses of RM6.9 million to

Aqilah and Badrul in financial year ended 30 June 2000 despite reporting a loss of RM291

million.

Aqilah and Badrul – Founder & Joint Managing Director

As joint managing director, both failed to mange their responsibilities including responsibility to

properly assess the financial position and performance of the group and detect and assess any

material adverse development; and taking reasonable steps in ensuring that the directors are fully

informed of all material financial information about the adequacy of cash reserves and Telcast

actual financial position and performance.

They did not take steps to either to apprise themselves of the financial situation and the

deterioration from about the end of January until about the end of April 2001, or to ensure that

the board was aware of them. They also made public statements about Telcast’s financial

position and performance which is entirely incorrect and no reasonable factual basis for them. It

is also their duty to notify Bursa Malaysia the actual circumstances of the company’s financial

position and performance, which they did not and thus did not comply with their duty. Failures to

ensure the establishment of proper system to produce accurate and reliable financial information,

failure to maintain cash reserves at a level which ensured liquidity and failure to employ an

appropriately qualified finance director. On top of that, the two help themselves to a lucrative

salary and bonuses.

Conclusion

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All the directors has breached the corporate governance rule as a director of a company one way

or another. They failed to carry out their fiduciary duties by acting in their own interest which do

not include taking any active participation or interest in caring for the benefit of the company and

shareholders’ interest. They are not interested to investigate on the actual financial performance

and ensure the correct accounting reporting of Telcast’s accounts. They failed to employ their

expertise to the management of the company and failed to carry out the fiduciary duties as

company director: to act in bona fide in the best interest of the company; to exercise powers for

their proper purposes; to avoid conflicts of interests and to act with care, skill and diligence.

It is obvious that Aqilah and Badrul pursued their self interest or obsession in building

their own mobile network by expanding too fast and investing all the cash in Telcast without

having a thought for maintaining cash reserves at a level which ensured liquidity. They also did

not stop to apprise the accounting system used to control the payments and collections system.

When being queried, they presented a version of account which is incorrect to the public and

Bursa Malaysia. They did not act in good faith and honestly without fraud or collusion. They do

not care for the financial performance of the company instead plays on the share prices by giving

baseless statement and expanding the company to push up the share prices so that they can get

their director’s bonuses. As a director, they are expected to run a business aimed at making a

profit with calculated risk instead they keep expanding beyond Telcast’s financial capability.

They also help themselves to hefty bonuses when the company is at the eve of collapsing.

References

1. Company Secretarial Practice In Malaysia, Kang Shew Meng, Lexis Nexis ,Business

Solutions

2. Lipton & Herzberg’s Understanding Company Law In Malaysia by Krishnan Arjunan

and Low Chee Keong

3. Companies Act 1965

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NEW CASE III

Financial Reporting Deficiencies

Company Background

When Abu and Ali founded the ABC Sendirian Berhad in Bangi in 1987 they probably never

expected that the company would be facing ethical and financial dilemmas more than ten years

later. Like many corporations, the firm has changed and faced many crises. It has acquired rival

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companies, added totally new product lines, gone public, rebounded, restructured, relocated, and

hired and fired many CEOs, including "Amat"

Listed in the KLSE by 1994, ABC Berhad is a well-known and recognized designer,

manufacturer, and marketer of consumer products. ABC Berhad products are considered

household staple items and are known for their use in cooking, health care, and personal care.

During its hundred years of operation, ABC Berhad has grown and changed according to societal

needs. A few of the most recognized products ABC Berhad marketed included Health-O-Meter,

Powermate, and Campingaz.

Defaulters’s Background

In June 1996 Sunbeam had more than twelve thousand stock-keeping units (SKUs). SKUs are

individual variations of product lines; every different style or color of a product results in an item

having a different SKU. Sunbeam also had twelve thousand employees, as well as twenty-six

factories worldwide, sixty-one warehouses, and six headquarters. That was the situation when

Amat came into the picture.

Amat was known for his ability to restructure and turn around companies that were failing

financially. ABC Berhad needed help. Its earnings had been declining rapidly since December

1995, and by 1996 the shares was down 52 percent and earnings had declined by 83 percent.

Amat's reputation and business theory preceded him throughout the world. His operating

philosophy was to make extreme cuts in all areas of operations, including extensive layoffs, to

streamline business. Amat stressed that making money for shareholders is the most important

goal of any business.

In July 1996 Abu and Ali hired Amat as the CEO and chairman of the board for ABC Berhad.

By hiring Amat, Abu and Ali knew full well that his reputation and operating theory would mean

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huge cuts in all areas of the company, as well as extensive layoffs. They believed, however, that

he was the one person who could turn the company around and increase stock prices and profits.

The increase in stock prices did occur, almost instantly. On July 19, 1996, the day Amat was

named chairman and CEO of ABC Berhad, the stock jumped 49 percent. The jump increased the

share price from 12% to 18%, adding RM500 million to ABC Berhad market value. The stock

continued to increase and reached a record high of RM52 per share in March 1998.

Amat’s reputation and his acceptance of the position at ABC Berhad caused the initial stock

increase. Dunlap realized, however, that his reputation alone would not hold the stock price up

and that he needed to start the process of turning Sunbeam around.

Method used by Amat to cut back to the lowest costs was to reduce the number of SKUs from

twelve thousand to fifteen hundred. When Dunlap took over at ABC Berhad, it had thirty-six

variations of styles and colors of a clothes iron. Variation, of course, allows differentiation,

which is an acceptable strategy in business. But having thirty-six variations of a consumer

product such as an iron can be viewed as unnecessary and costly. Eliminating variation and

duplication helps eliminate cannibalization. Companies need to differentiate themselves from the

competition in areas that are not easily duplicated, or they end competing on price alone. Dunlap

pursued service as the area to differentiate ABC Berhad from competitors in the appliance

business.

Eliminating ten thousand five hundred SKUs enabled Amat to rid the company of factories and

warehouses—another cost-saving method. The layoff of thousands of employees, coupled with

the reduction of SKUs, factories, and warehouses meant that fewer headquarter locations would

be needed. Thus the six headquarters located throughout the country were consolidated into one

facility in Kajang- Amat’s primary residence.

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Once the cost-cutting strategies had been carried out, Amat began to practice his third rule: that

is, to focus on ABC Berhad's core business, which first needed to be defined. Dunlap and his

Dream Team for ABC Berhad defined the core business as electric appliances and appliance-

related businesses. Five categories surrounding the core business were identified as vital to ABC

Berhad's success: kitchen appliances, health and home, outdoor cooking, personal care and

comfort, and professional products. All products that did not fit into one of the five categories

were sold. The criterion Amat used to decide whether to keep or sell a product line was simple.

Since he believed firmly that consumers recalled the ABC Berhad brand name fondly, if the

product related to the ABC Berhad brand name, it was kept. Identifying ABC Berhad's core

business and paring down to it was the goal in implementing the third rule.

The final of Amat's four rules of business called for a real strategy. Dunlap and his team defined

ABC Berhad's strategy as driving the growth of the company through core business expansions

by further differentiating the products, moving into new geographic areas around the globe, and

introducing new products that were linked directly to emerging customer trends as lifestyles

evolved around the world. Amat made all these changes within seven months of taking up the

challenge to turn around ABC Berhad besides merged with Coleman, First Alert, and Signature

Brands. The stock rose to more than RM48 per share, a 284 percent increase since July 1996.

At the time, Amat's management philosophy seemed to underlie his success at ABC Berhad. He

streamlined the company and even attained what he considers the most important goal of any

business: he made money for the shareholders. In February 1998 the board of directors expressed

satisfaction with Amat's leadership and signed a three-year employment contract with him that

included 3.75 million shares of stock.

The Story Begins; Amat’s Accounting Practices Raise Questions

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Dunlap accomplished what he had set out to do at ABC Berhad, but the shareholder wealth did

not last. ABC Berhad again faced rough times—and not because of excessive costs or lack of a

strategy. The three purchases that more than doubled ABC Berhad’s size and helped push the

price per share to RM52 are part of what caused the upheaval and restricting of ABC Berhad a

second time. Rumors began surfacing that these purchases had been made to disguise losses by

write-offs.

KLSE’s analyst Andrew Shore had been following ABC Berhad since the day Amat was hired.

Shore's job as an analyst was to make educated guesses about investing clients’ money in stocks.

Shore had been scrutinizing ABC Berhad's financial statements every quarter and considered the

reported levels of inventory for certain items to be high for the time of year. He noted massive

increased in sales of electric blankets in the third quarter, although they usually sell well in the

fourth quarter. He also found that sales of grills to be sold, and noted that accounts receivable

were high. On April 3, 1998, hours before ABC Berhad announced a first quarter loss of RM44.6

million, Shore downgraded the stock. By the end of the day ABC Berhad's stock prices had

fallen 25 percent.

Shore's findings were indeed cause for concern. Amat had been using a “bill-and-hold” strategy

with retailers, which boosted ABC Berhad’s revenue, at least on the balance sheet. The bill-and-

hold strategy entails selling products at large discounts to retailers and holding them in third-

party warehouses to be delivered at a later date. By booking sales month ahead of the actual

shipment or billing, ABC Berhad was able to report higher revenues in the form accounts

receivable which inflated its quarterly earnings. Basically, what the strategy did was to shift sales

from future quarters to the current one, and in 1997 the strategy helped Amat boost ABC

Berhad’s revenues by 18 percent.

The strategy Amat used is not illegal and follows the Malaysian Accounting Standards of

financial reporting. Nevertheless, ABC Berhad shareholders filed lawsuits, alleging that the

company had made misleading statements about its finances and delivered them so that they

78

http://www.google.com.my/url?url=http://www.masb.org.my/&rct=j&sa=U&ei=Jv_FTMm5I8mXca6w6KwO&ved=0CC0QFjAB&q=malaysia+code+of+accounting&usg=AFQjCNHOMoMZCwySmbGnon5jmGPuW5PTEA&cad=rja


would buy ABC Berhad’s artificially inflated stock. A class-action lawsuit was filed on April 23,

1998, naming both ABC Berhad and Amat as defendants. The lawsuit alleged that ABC Berhad

and Amat had violated the sl22B(a)(bb) Securities Industry Act 1983 (SIA) read together with

sl22 of the same Act and s364(2) of the Companies Act 1965 by misrepresenting and/or omitting

material information concerning the business operations, sales, and sales trends of the company.

The lawsuit also alleged that the motivation for artificially inflating the price of the common

stock was so that ABC Berhad could complete millions of dollars or debt financing so as to

complete the mergers with Coleman, First Alert, and Signature Brands. ABC Berhad's

subsequent reporting of earnings significantly below the original estimate caused a huge drop in

the stock. Acting on the financial irregularities in ABC Berhad, the Securities Commission has

charged Amat for 'making of false statements in ABC Berhad's financial report’. The following

are the charges by the SC towards Amat.

under sl22B(a)(bb) Securities Industry Act 1983 (SIA) read together with sl22 of the

same Act, in his capacity as a director, is deemed to have submitted false information to

the SC contained in the 1997 Annual Report of ABC Berhad, in particular, its revenue

for the FYE 31 December 1997. This offence is punishable under sl22B of the SIA, which

carries a maximum fine of RM3 million or imprisonment not exceeding 10 years or both;

and

under s364(2) of the Companies Act 1965 for authorising the making of false statements

in the documents of ABC Berhad which are required to be kept under s167(1) of the

Companies Act 1965. These false statements were used for the preparation of ABC

Berhad's Financial Statement for the FYE 31 December 1997. This offence is punishable

under s364(2) of the Companies Act 1965 which carries a maximum imprisonment of 10

years or RM250, OOO fine.

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Amat’s Reputation Backfires

Amat called an impromptu board meeting on June 9, 1998, to address and rebut the reported

charges. A partner of ABC Berhad's outside auditors, Arthur Andersen LLP (limited liability

partnership), assured the board that the company's 1997 numbers were in compliance with

accounting standards and firmly stood by the firm's audit of ABC Berhad's books. Hashim, the

controller at ABC Berhad, was also present at the board meeting and did not counter the auditor's

statement. The meeting seemed to be going well until Amat was asked if the copy was going to

make the projected second-quarter earnings. His response that sales were soft was not what the

board expected to hear. Nor was his statement that he had document in his briefcase outlining a

settlement of his departure from ABC Berhad. The document was never reviewed. However,

Amat's behavior made other board members suspicious, which led to an in-depth review of

Dunlap's practices.

The review took place during the next four days in the form of personal phone calls and

interviews between the board members and select employees—without Amat's knowledge. A

personal conversation revealed that the 1998 second-quarter sales were considerably below

Amat's forecast and that the company was in crisis. Amat, had forecasted a small increase but the

numbers revealed by Fannin showed that Sunbeam could lost as much as RM60 million that

quarter. Outside the boardroom and away from Amat, the controller revealed that the company

had tried to do things in accordance with Malaysia Accounting Standards, but allegedly

everything had been pushed to the limit.

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ABC Berhad Forward

There were legal ramifications regarding Amat's firing. Amat stated in an interview on July 9,

1998, that he intended to challenge ABC Berhad's efforts to deny him severance under his

contract. Amat claimed that his mission was aborted prematurely and that three days after

receiving the board of director's support, he was fired without being given a reason. On March

15,1999, Amat filed an arbitration claim against ABC Berhad to recover RM 5.5 million in

unpaid salary, RM 58,000 worth of accrued vacation, and RM 150,000 in benefits, as well as to

have his stock options reprised at RM 7 a share. Additionally, he sued the company for dragging

its feet in reimbursing him for more than RM 1.4 million in legal and accounting fees racked up

in defending himself in lawsuits that alleged securities fraud. Although the board made it clear

that they had no intention of paying Dunlap anymore money, a judge ruled in his favor in June

1999.

The bad news continued with the announcement by ABC Berhad on February 6, 1999, of its plan

to reorganize under PN-17 of the KLSE. The company expected no interruption in production or

distribution. Senior management committed to remain in place and lead ABC Berhad throughout

the delisting process and beyond.

PN-17 reorganization provides a legal framework that allows us to keep the business running

normally while we put their financial house in order.

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NEW CASE IV

Aokam Perdana - Surviving the odds

Introduction

Much of the recent interest in the field of corporate governance has been driven by corporate

scandals in the Malaysia, involving firms such as Aokam Perdana, Idris Hydraulic, Omega

Securities, Ekran, and Renong. In what seems like a recent flurry of cases involving corporate

misdeeds, the fact remains that the Malaysia market is still perceived as one which lacks

enforcement against white collar crooks. The situation was even more worrisome in the past. In

the mid-1990s, before the 1997 financial crisis, Aokam Perdana Bhd, Idris Hydraulic (M) Bhd,

PWE Industries Bhd and Hwa Tai Industries Bhd were some of the more infamous companies

where share price manipulation was believed to have taken place.

Following that, the second board used to be rife with excessive speculation as share prices soared

to unimaginable levels. Repco Holdings Bhd was the most infamous of such cases. Its share

price prior to the Asian crisis in 1997 hit a high of RM140.50. The stock has since been delisted.

Biscuit maker Hwa Tai Industries Bhd’s share price had tipped over RM200 a share prior to the

1997 crisis. Hwa Tai closed on Thursday at 45.5 sen.

In 2005, the Fountain View Development Bhd case took centre stage and caused huge losses

among brokers. In 2006, there was Iris Corp Bhd, which saw its share price rocket from from a

paltry 12 sen to a bold peak of RM1.38 in five months. More recently, there were the cases of

Kenmark Industrial Co (M) Bhd, Linear Corp Bhd and Axis Inc Bhd, all emerging in the space

of several weeks and which have renewed concerns over corporate governance and shareholder

protection issues.

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Company Profile

Aokam Perdana Bhd located at B-11-3, Megan Phileo Promenade, 189, Jalan Tun Razak, Kuala

Lumpur, Malaysia. Java Incorporated Berhad Formerly known as Aokam Perdana Berhad. The

Group's principal activities are harvesting, trading and manufacturing of timber products. Other

activities include oil palm plantation and investment holding. The Group operates solely in

Malaysia. Timber products accounted for 97% of fiscal 2006 gross revenues and Investment, 3%.

Aokam Perdana

In the early 1990s, Teh Soon Seng got investors’ hearts racing with his many corporate moves.

Apart from his own company, Aokam Perdana, and a majority stake in Golden Plus Holdings

Bhd, Teh snapped up small stakes in high-fliers like Idris Hydraulic and Granite Bhd. Investors

would jump into whatever stock Teh was purportedly in, and the stock would fly. That was the

power and charm of Teh. However, a negative analyst report brought the stock crashing down. In

April 1993, Phileo Peregrine Securities said Aokam Perdana’s share price of RM13.30 was

grossly overvalued.

It argued that since the key to Aokam Perdana’s future earnings was the Sagisan timber

concession in Sabah, the share valuation had to reflect that. The research house said valuing

Aokam Perdana on a price-earnings basis would overstate its true worth. As its assets were on a

depleting basis, the discounted cash flow method was the accurate way. It thus valued the shares

at RM4.06 on a fully diluted basis. The report caused panic among the funds. Aokam Perdana’s

share prices fell by RM3. Teh personally bought into the company until the share price

recovered. It touched a high of RM31.50 at the height of the subsequent bull run. But the

fluctuations in timber and plywood prices started to hurt Aokam Perdana’s bottomline. Its shares

started to fall from late 1994. The stock plunged to a low of RM6.15 on May 12, 1995.

Teh eventually sold Aokam Perdana and resigned as managing director on March 8, 1997, before

the Asian financial crisis erupted. He subsequently left Malaysia for good.

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Teh was also suspected of being involved in the short-selling of Aokam Perdana shares. The SC

investigated him for “possible breach of securities law”. They interviewed him for two days in

Kuala Lumpur in 2003. Teh has maintained his innocence to this day.

Surviving the odds

Once hounded by the authorities for alleged market impropriety, former Aokam Perdana

Teh Soon Seng says his conscience is clear. Malaysian Business speaks to the one-time

corporate high-flyer in Shanghai, where he is now based.

Teh Soon Seng is a survivor. His shrewdness and tenacity in taking on adversity have been

demonstrated many times before. First was in the early 90s when his company, Aokam Perdana

Bhd, suffered a run on its stock following a damaging analyst report. Phileo Peregrine Securities

had, in April 1993, claimed that Aokam's market price of RM13.30 was grossly overvalued. It

said that since the key to Aokam's future earnings was the Sagisan timber concession in Sabah,

Aokam's share valuation had to reflect that.

The research house argued that valuing Aokam on a price-earnings basis would overstate its true

worth and that since its assets were depleting ones, a discounted cash flow method was the only

correct way. It thus valued Aokam shares at RM4.06 on a fully diluted basis.

Phileo's report caused near panic-selling among fund managers. Aokam's share prices fell by

RM3. And what did Teh do? He personally bought into the company until the share price

recovered. It touched a high of RM31.50 at the height of the subsequent 1993 market bull run.

In 1994, Aokam's shares were hit again. Teh was in Europe in late May promoting Aokam's

euroconvertible bonds to finance the company's expansion into China when the Kuala Lumpur

stock market crashed. Aokam's stock plunged by over 20% to RM15.

To add to the problem, there was virulent market rumor that Teh's Bumiputera partner, Datuk

Samsudin Abu Hassan, was in financial trouble and had been arrested while he himself was

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under house arrest. Teh managed the issue by arranging a meeting with the fund managers,

where he clarified the issue and denied the allegations. The move somehow prevented the fund-

raising exercise from being derailed. Aokam raised US$135 million. The tycoon's successful

foray into China is another testimony of his ability to survive. When he first ventured into

property development in Shanghai in late 1994, he was faced with the daunting task of making

his billion-ringgit investment work.

Doing business in China was not easy as many a Malaysian investor would readily testify. 'It is

still difficult now because we are trained in the open market system,' he says, while China is a

command economy whose workings have stumped even experienced investors. But despite the

difficulties and intricacies of doing business in the country, Teh has successfully developed

several large property projects there. His first, the RM1 billion Huang Du Garden in Shanghai,

saw its ground-breaking ceremony in September 1994 officiated by the then Malaysian Deputy

Prime Minister, Datuk Seri Anwar Ibrahim.

His latest project is the 400,000-sq meter The Royal Garden in Shanghai, which is being

undertaken by his company Yanfull (Shanghai) Co Ltd, a wholly owned subsidiary of Golden

Plus Holdings Bhd. Located in Minghang District, the property is the epitome of modern living

with luxury homes, penthouses and split-level townhouses, apart from schools, shops, restaurants

and recreational facilities. 'We can put our house design anywhere … in London, Tokyo and

New York and it will sell,' he claims with a grin. 'You must feel good about your products. It's

embarrassing if people tell you that your design is ugly.' The Royal Garden is divided into three

phases with an expected gross development value of about RM2.1 billion. Launched in 2000, the

project will be completed in 2014. But with the slowdown in the global economy, Teh has started

calculating his next move. 'With the way the economy is going today, maybe I will be less of a

developer,' he says.

He wants to get more into design and, surprisingly, music. As it is, Teh is already spending a lot

of his time working on the interior and exterior design of his property projects - a passion he

85


started developing fairly recently. He employs world-renowned designers such as Piero Lissoni,

Patricia Urquiola, Carlo Columbo and Mauro Lipparini.

'I spend more time designing and thinking about what the next generational hotel should be like.

What the next generational housing and mall should be like … this is something I enjoy doing

now,' he says. 'I also believe in minimalism.' Teh utilizes the minimalist concept in his property

project. The design follows an understated approach in providing maximum comfort and

convenience without excessive design and clutter.

As for music, he has partnered some of the top music companies in Shanghai to organize

concerts, including the mega concert of Taiwanese-American pop idol Wang Lee Hom at

Shanghai Stadium on Oct 18 last year. He also operates a discotheque in Shanghai where he

occasionally spends his time 'listening to the music' as well as to entertain business friends and

partners. The entertainment business is not exactly new to him as he and his brothers ran a

discotheque in Singapore in the 80s.

Teh shuttles regularly between London, Hong Kong and Shanghai. His teenage daughter studies

in England while his wife lives in Hong Kong. 'My daughter is in university. When I am in

Shanghai, it's half a holiday for me. I shuttle between London, Shanghai and Hong Kong and

have homes in these places.'The former Sabah timber tycoon, once dubbed the 'timber maverick

wunderkind', says he is no longer interested in building a business empire or doing mergers and

acquisitions. 'People go through different phases. I am nearly 50 now … those things are not in

my playbook anymore,' he says.

In fact, people who used to know him as a seasoned corporate player in Malaysia in the 90s may

not be able to instantly recognize him now. He has traded his suits for casual jeans and tees, and

keeps his hair long but well groomed. In the early 90s, Teh was the corporate darling of the

Malaysian stock market. Aokam was by then a high-flying timber company on the Kuala

Lumpur Stock Exchange (now Bursa Malaysia). The hardnosed businessman had parlayed the

loss-making tin mining company in 1991 into a RM2-billion giant. He also snapped up small

86


stakes in high-fliers like Idris Hydraulics Bhd, Granite Bhd and a majority stake in Golden Plus

Bhd. Such was his mystique that the share prices of the companies surged on news that he had

entered the fray. Investors had thought that he could perform the miracle for those counters that

he did for Aokam - doubling profits almost every year. But the fluctuations in timber and

plywood prices started to hurt Aokam's bottom line. Its shares started to fall from late 1994. Teh

had to eat humble pie when the stock plunged to a low of RM6.15 on May 12, 1995.

'We cannot push the responsibility to the weather or prices. All we have got to blame is

ourselves. Ultimately, we are the ones running the company and I have to take full

responsibility,' he was quoted as saying then. Teh was suspected of being involved in short-

selling Aokam's shares. The Securities Commission (SC) subsequently investigated him for

'possible breach of securities law'. They interviewed Teh for two days in Kuala Lumpur in 2003.

Teh has maintained his innocence to this day. 'I did not do anything wrong … my conscience is

clear,' he tells Malaysian Business in Shanghai. The SC confirms this. In a written reply to

Malaysian Business, it says: 'The SC had previously conducted an investigation involving Teh

Soon Seng for possible breach of the securities law. However, the investigation revealed no

evidence for action to be taken against him.'

Teh eventually sold Aokam and resigned as its managing director on March 8, 1997 before the

Asian Financial Crisis became full blown. He subsequently left Malaysia for good. Nine months

later, it was reported that the Malaysian police were seeking his help in connection with the

alleged theft of logs and misappropriation of funds of about RM55 million belonging to Aokam.

In 1998, Aokam declared it was insolvent and could not pay some RM33.3 million in debts. But

Teh has left those bitter episodes behind him. He has moved on with his new life outside

Malaysia. He has also uprooted his family, including his parents and brothers, from Sabah to

Shanghai and says he has no intention of returning to Malaysia.

He is happy with his life and with his new-found passion for design and music. But knowing his

insatiable appetite for success, he is still capable of pulling more surprises. 'I may be going into

film production in Hong Kong soon … I have not told anyone yet,' he says. So don't be surprised

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if his films hit your TV screen in the not-too-distant future.

Teh Soon Seng Holds a Direct Stake of 650,000 Shares in Property Company Golden Plus

Holdings Bhd (GPlus). While that forms only 0.44% of GPlus' share capital, it is believed that he

has a significant influence over the company through his nominees. Teh held 26.6% of GPlus in

2004 but pared down his holdings as he increasingly focused on his business activities in

Shanghai.

The tycoon first bought into GPlus in December 1993 when he acquired an 18.1% stake from

Grand Care Sdn Bhd, making him the single-largest shareholder then. He was appointed as

managing director in August 1994 but later resigned. He is now the chairman of Yanfull

(Shanghai) Co Ltd, the developer of the RM2.1 billion The Royal Garden property project in the

Chinese city. Yanfull is a wholly owned company of GPlus. GPlus has had a difficult year in

2008 when its major shareholders engaged in a bitter boardroom tussle. The company also failed

to submit its annual audited accounts for its 2007 financial year (FY) ended Dec 31, resulting in

the suspension of the counter on Aug 1, 2008. The suspension was lifted on Sept 9, 2008 after

the company submitted the accounts and quarterly report for first-quarter FY08. At the time of

writing, GPlus shares were trading at RM0.77 each.

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compiled cs report - final

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