Bursa Malaysia Securities Berhad has publicly reprimanded and fined 6 directors of Brem Holding Berhad for breaches of the Bursa Malaysia Securities Main Market Listing Requirements. The 6 directors had breached for failing to ensure that the payments/advances to or on behalf of GJH Prestige Sdn Bhd (GJHP) totalling RM26,463,650 were fair and reasonable to the company and not to the detriment of the company and its shareholders.
The Exchange said it views the contravention seriously as the requirements were one of the key investor protection requirements which served to ensure proper preservation and employment of a company’s assets/funds.
Brem had on 1 November 2014 acquired 49% shareholding in GJHP from GJH Holdings Sdn. Bhd. (GJHH). However, Brem had made the Advances to or on behalf of GJHP from 28 August 2014 to 22 August 2019 i.e. prior to and subsequent to the acquisition of GJHP as an associate. The details of the Advances including repayment are as follows:
It was an understanding by all shareholders of GJHP that the repayment of the Advances would be made once there was excess cash flow which depended on the selling of properties and the success of the property development in the future.
Notwithstanding the above representations, the 6 directors of Brem had failed to ensure that the Advances to GJHP were fair and reasonable to Brem and not to the detriment of the Company and its shareholders, particularly as, the Board of Directors had failed to undertake proper deliberation and reasonable care and diligence to make an informed assessment and decision on the Advances. There were no BOD meeting minutes, resolutions or papers documenting the BOD’s deliberation, enquiry, assessment and approval of the pre-condition arrangement and/or the Advances. Further, there was no evidence of proper due diligence, feasibility study or risk assessment undertaken on the proposed acquisition of GJHP.
There was no written agreement or documentation to formalise the arrangement/transaction between BREM and GJHP/GJHH and the Advances, including the refund and/or repayment of the Advances which was crucial to safeguard the
interests of the company and its shareholders. This is also, particularly in view of the materiality of the Advances above and the Advances totalling RM14,217,750 provided prior to 1 November 2014 represented 102.7% of BREM’s cash and bank balances of RM13,835,320 as at 31 March 2014.
There was also no proper documentation attesting the purpose and utilisation of the Advances and BREM’s external auditors had highlighted that there was an internal control weakness where there was no documentation on the approval in relation to the rationale or basis for advances and further investments in BREM’s associates and joint ventures. GJHP had only repaid RM1.6 million to BREM on 31 August 2017 and the remaining Advances amounting to RM24,863,650 (which represented 4.67% of the Group’s NTA as at 31 March 2019 and 4.3% of the Group’s NTA as at 31 March 2021) remained unpaid, nearly 8 years after BREM had first provided the Advances on 28 August 2014.
In this regard, there was no evidence of a concrete repayment plan of the Advances and any steps or efforts taken to recover the Advances and the BOD had merely accepted/acceded that the settlement of the Advances was neither planned nor likely to occur in the foreseeable future as disclosed in BREM’s financial statements.
The BOD had totally relied on the Managing Director to ensure compliance and provided him with full authority not only to negotiate and finalise the terms and conditions of the acquisition of GJHP but also to make any payment to GJHP with no specific limit, based merely on the expectation/assumption that the Managing Director would safeguard the interest of Brem.
A higher penalty was imposed on the Managing Director as he was in a key position to ensure that the Advances complied with Bursa guidelines in view of his primary role/involvement in the negotiations and acquisition of GJHP and approval of the disbursement of the Advances to GJHP. There was a serious dereliction of duty by the Managing Director who not only failed to safeguard the interests of Brem and its shareholders as stated above but also continued to approve the Advances without assessment and consideration of the requirements, including proper escalation and deliberation by the BOD.
A breach warranted deterrent penalties of a public reprimand and a fine to underline the serious view taken by Bursa Malaysia Securities on such a breach and remind directors of the proper discharge of their duties to ensure compliance.
Despite that Brem had been de-listed, the breaches by the directors were committed while the company was listed on the Official List of Bursa Malaysia Securities hence the authorities still have jurisdiction over the company.