Markets
Upping the ante against Bursa violators
Shalini Kumar 
We see a high level of compliance, particularly in financial reporting where timely submissions are almost 99.5%, says Tajuddin
GONE are the days when listed companies will be let off the hook easily for failure to comply with Bursa Malaysia’s Listing Requirements (LR). The frontline regulator has been tightening the screws on companies that repeatedly flout the rules.

The writing is on the wall judging from a June 20 public reprimand on Lay Hong Bhd alongside fines totalling RM750,000 meted out to the company’s eight directors for furnishing inaccurate responses to the unusual market activity (UMA) queries from Bursa Securities.

The local integrated poultry player was in hot soup following breaches to paragraphs 9.16(1)(a) and (c)(i) of the Main Market LR in respect of two UMA responses dated Nov 3, 2015 and Jan 19, 2016 respectively.

In Bursa’s view, both responses to its UMA queries “were not accurate, balanced and fair, and failed to contain sufficient information” for investors to make informed investment decisions given their failure to disclose – and in fact denied – an impending corporate exercise involving a proposed bonus issue, share split and issuance of free warrants, among others.


Corporate development

The corporate exercise was subsequently announced on Feb 2 last year or barely a fortnight after Lay Hong denied knowledge of any corporate development, including those in the stage of negotiation/discussion.

On April 3, Bursa also publicly reprimanded Tecnic Group Bhd (now Rohas Tecnic Bhd) and three of its directors with fines amounting to RM150,000 for breaching paragraph 9.16(1)(a) of the LR pertaining to the company’s announcement dated Sept 7, 2015 in response to an UMA query.

Back then, Tecnic Group had denied knowledge of any corporate development when in fact it was aware of an on-going negotiation on a proposed reverse take-over (RTO) of the company by a third party at the material time.

The RTO exercise subsequently led to the signing of a memorandum of understanding which was announced on Sept 21, 2015 (about two weeks after Tecnic Group’s response to the Sept 7, 2015 UMA query).

The moral of the Lay Hong and Tecnic Group episodes is that all responses to an UMA query – including “not aware” responses – are closely monitored by the market regulator as to whether there is any material corporate development thereafter.

“Where the reply to the UMA query is found to be inaccurate, misleading and/or promotional in nature, enforcement proceedings will be initiated against the said listed company and the directors who were involved in approving the response,” Bursa told FocusM in an article entitled Don’t take UMA queries lightly (published on June 24, 2016).


Timely submission of financial reports

Listed companies had better wise up to the prospects of stringent action for non-compliance of LR. Another area that they have to be wary of is failure to submit their financial reports on time.

Paragraph 9.28 of the LR states that if a listed company fails to issue its outstanding financial statements within five market days after the expiry of the relevant time frames (suspension deadline) – in addition to any enforcement action that the market regulator may take – the counter risks indefinite suspension.

The suspension shall be effected on the next market day and will only be uplifted on the market day following the issuance of the outstanding financial statements unless otherwise determined by Bursa.

As for actions against the various breaches of the LR, Bursa’s enforcement statistics reveal that last year were enforcement actions taken against 14 listed companies and 38 directors (of eight companies) with fines totalling RM2.12 mil compared to 14 listed companies and 37 directors (of nine companies) in 2015 (with fines amounting to RM5.88 mil).

“Bursa views seriously adherence by listed corporations of timely submission of its financial statements under the LR,” the market regulator says. “If a listed corporation fails to issue the outstanding financial statements within six months from the expiry of the relevant time frames, Bursa shall commence de-listing procedures against such listed corporation in addition to any other enforcement action that it may take.”


Time extension

However, in instances where the listed company is unable to comply with the said requirement, it can submit an application for time extension to submit its financial statements in accordance with the procedures/processes prescribed.

According to Bursa, there is no prescribed limit to the number of applications or length of extension that can be made by a listed company. However, considerations will centre on what are the factors causing/leading to the delay; whether these are within/outside the reasonable control of the listed companies and the reasonableness of the period/extension of time sought.

“Instances where Bursa has allowed extensions of time, including delays due to the destruction of financial records caused by an Act of God (ie a natural disaster outside human control such as flood or fire for which no person can be held responsible),” asserts the market regulator.

One thing for sure is that request for time extension does not come free. Paragraph 2.20 of the Main Market Listing Requirement (MMLR) and ACE Market Listing Requirements (AMLR) imposes processing fees of RM2,000 (for Main Market listed companies) and RM500 (for ACE Market) respectively for an application for waiver, modification of or extension of time to comply with provisions of the MMLR and AMLR.

Nevertheless, Bursa reiterated that compliance rate in terms of timely financial report submission remains high – consistently above 99% over the past five years.


Loophole still exists

Despite the measures taken by Bursa, there are still instances where companies continue to request for extension and unable to comply with the regulation.

One recent example is that of property-based Golden Plus Holdings Bhd which was finally delisted last year after failing to issue its annual report for the financial year ended Dec 31, 2008. Eventually, it was also not able to submit audited annual accounts for the subsequent years.

Bursa suspended the stock from trading in August 2009 before reprimanding the firm and fined 10 of its past and current directors a total of RM3.25 mil for violating the Main Market listing requirements (prior to the delisting of the counter on April 19 last year).

Another company, Lion Corp Bhd, was only delisted last year after slipping into Practice Note 17 (PN17) in October 2013.

The company was classified as Practice Note 17 (PN17) after its auditors expressed doubt about the group and its subsidiaries’ ability to continue as a going concern while its shareholders equity fell to less than 50% of its issued and paid-up share capital.


False financial figures

It had been repeatedly filing for time extensions, only for Bursa to reject its final request made in September last year on grounds that there was no material development towards the finalisation and submission of the plan to the regulatory authorities.

Of the current 18 PN17 companies, MAA Group Bhd tops the list as the longest-serving PN17 company (since Sept 30, 2011) while the most recent is Berjaya Media Bhd (since June 21).

MAA Group, which has made 88 PN17-related announcements as of July 3 – the most among the 18 PN17 companies – slipped into PN17 following the cessation of its core business stemming from the disposal of its wholly-owned Malaysian Assurance Alliance Bhd (MAA) to Zurich Insurance Company Ltd while Berjaya Media saw its shareholders’ funds shrinking to less than 25% of its total paid-up capital.

Elsewhere, there are incidences of declaring false financial figures – an offence which is time-consuming to get the culprit/s convicted.

On July 10, the Kuala Lumpur Sessions Court convicted and jailed two former executive directors of Axis Incorporation Bhd for furnishing false statements in relation to the company’ revenue of RM91.13 mil – of which RM51.5 mil was false – for the fourth quarter ended March 31, 2008.

Both Lee Han Boon and Saipuddin Lim Abdullah also faced four other counts of the same offence in relation to Axis’ consolidated income statement for all four quarters in its financial year ended 2007.

Lee, 36, was sentenced to seven months’ imprisonment and fined RM200,000 while Saipuddin, 58, was sentenced to 12 months’ imprisonment.

In a recent interview, Bursa Malaysia CEO Datuk Seri Tajuddin Atan reiterated the market regulator’s role to protect investors and that its enforcement of material breaches has been effective.

“We see a high level of compliance, particularly in financial reporting where timely submissions are almost 99.5%,” he says. “We engage in education and advocacy sessions with listed companies and their management on a range of issues, including corporate governance and disclosures.”

Tajuddin has also pointed out that striking a balance when it comes to the right amount of regulation is a delicate task. Too little oversight raises the risk of flagrant abuse while too much can stifle the market.

His view is echoed by Malaysian Investors’ Association president Datin Ho Choy Meng who says that there cannot be too many restrictive rules and regulations to maintain compliance.

“Who can declare for sure what sets of rules and regulations are perfect for controlling the diverse group of companies engaging in the myriad sectors of businesses?” she asks. “As long as there are genuine entrepreneurs who strive to bring profitability to their companies and ultimately their loyal shareholders, the local stock market should be allowed to flourish in the present environment.”

In the case of companies succumbing to financial troubles, her stance is that there isn’t much investors can do apart from being vigilant over their investments.

This article first appeared in Focus Malaysia Issue 241.