Bursa Malaysia Securities Berhad (Bursa Malaysia Securities) has publicly reprimanded Serba Dinamik Holdings Berhad (in liquidation) (SERBADK) and 10 of its directors for breaches of Bursa Malaysia Securities Main Market Listing Requirements (Main LR).
In addition, 10 directors of SERBADK were imposed total fines ranging from RM355,200 to RM1,376,000.
SERBADK was publicly reprimanded for the breaches of the following provisions of the Main LR, among them being :-
Failure to announce the Factual Findings Update immediately and in accordance with Bursa Malaysia Securities’ Directive; where –
(A) Paragraph 9.03(1) of the Main LR for failing to make an immediate announcement of the material factual findings as at 30 September 2021 (FFU) prepared by Ernst & Young Consulting Sdn Bhd (formerly Ernst & Young Advisory Services Sdn Bhd) (EY) pursuant to an independent review, verification and assessment into the financial affairs of SERBADK (Special Independent Review) which were presented to SERBADK on 21 October 2021; and
(B) Paragraph 2.23(1) of the Main LR for failing to comply with Bursa Malaysia Securities’ directive dated 22 October 2021 to make an announcement of the FFU by 26 October 2021 (Directive); and
Various Financial Reporting Breaches, including – Delay in Issuance of AR 2021
Paragraph 9.23(1) read together with paragraph 9.28(1) of the Main LR for failing to issue the annual report that included the annual audited financial statements (AFS) together with the auditors’ and directors’ reports for the 18-months financial period ended (FPE) 30 June 2021 (AR 2021) within the extended timeframe of 30 November 2021 (Extended Due Date) stipulated in Bursa Malaysia Securities’ letter dated 25 October 2021.
SERBADK had only issued the AR 2021 on 6 January 2022, after a delay of 26 market days; and Inaccurate QR 30 June 2021
Paragraph 9.35A(1)(a) of the Main LR for failing to ensure that SERBADK’s quarterly report for the 18-months FPE 30 June 2021 (QR 30 June 2021) announced on 29 September 2021 was accurate and took into account the adjustments on impairment of trade receivables and write down of inventories stated in the company’s announcement dated 6 January 2022 (collectively, Adjustments).
SERBADK had reported an unaudited profit after tax and minority interest of RM759.980 million in the QR 30 June 2021 announced on 29 September 2021 as compared to an audited loss after tax and minority interest of RM175.839 million in SERBADK’s AFS for the 18-months FPE 30 June 2021 (AFS 2021) announced on 6 January 2022 which represented a variance of RM935.819 million/123%.
SERBADK was also required to review and ensure the adequacy and effectiveness of its financial reporting function and carry out a limited review on the company’s quarterly report submission and comply with the training requirement imposed by Bursa Securities.
The following penalties amounting to the RM1,376,000 were imposed on 10 directors of SERBADK at the material time who had breached paragraph 16.13(b) of the Main LR for permitting the company to commit the breaches as follows:-
a) Failure to announce the FFU immediately; and
b) Failure to comply with Bursa Malaysia Securities’ Directive to announce the FFU Public Reprimand & Fine of RM500,000 for (a) and (b) collectively
c) Financial Reporting Breach – Delay in Issuance of AR 2021 Public Reprimand & Fine of RM26,000
d) Financial Reporting Breach – Inaccurate QR 30 June 2021 Public Reprimand & Fine of RM500,000
e) Disclosure Breach – Defaults in Payment Public Reprimand & Fine of RM150,000
f) Disclosure Breach – Disclaimer Opinion; and
g) Disclosure Breach – PN17 First Announcement
(Public Reprimand & Fine of RM100,000 for (f) and (g) collectively)
h) Disclosure Breach – Material Litigations; and
i) Disclosure Breach – Winding-Up Petition
(Public Reprimand & Fine of RM100,000 for (h) and (i) collectively)
Bursa Malaysia Securities views the contraventions seriously as timely and accurate disclosure of financial statements and material information are fundamental obligations of listed companies and are of paramount importance in ensuring an orderly and fair market for securities traded on Bursa Malaysia Securities and maintaining market integrity and investor confidence.
Further, it is mandatory for listed companies and its directors to comply with the directive issued by Bursa Malaysia Securities. All directors (be it executive or non-executive) of listed companies must also ensure compliance of the Main LR and maintain the highest standards of integrity, accountability, corporate governance and responsibility to its shareholders and the investing public.
There was a serious dereliction of duties by the Board of Directors (BOD) of SERBADK and corporate governance failures in view of the numerous breaches by SERBADK and the directors, particularly in failing to ensure proper and timely disclosure of material information and transparency to the market and compliance with the regulator’s directive.
Bursa Malaysia Securities will not hesitate to take enforcement actions against culpable directors who fail to discharge their duties (including newly appointed directors and notwithstanding the director’s resignation) and thus permitted/caused the listed company to commit breaches of the Main LR, the bourse said.
SERBADK had reported an unaudited profit after tax and minority interest of RM759.980 million in the QR 30 June 2021 announced on 29 September 2021. However, SERBADK had subsequently reported an audited loss after tax and minority interest of RM175.839 million in the AFS 2021 announced on 6 January 2022 which represented a difference of RM935.819 million or 123% between the QR 30 June 2021 and AFS 2021.
The deviation was mainly due to the adjustments for under provision of impairment of trade receivables amounting to RM395 million and inventories write down amounting to RM552.6 million.
There was no reasonable explanation/evidence of any change in circumstances post announcement of the QR 30 June 2021 which justified the adjustments being made only in the AFS 2021 where –
• the impairment of trade receivables was made specifically for the customers highlighted by KPMG in relation to collection that had been identified as uncollectable and management had yet to obtain any certainty of the issues; and
• the inventories write down of RM550 million were in respect of the customers highlighted by KPMG and had been impaired without any reason.
The Board had merely and overly relied on the management to ensure the QR 30 June 2021 complied with the Main LR and failed to undertake independent assessment in approving the QR 30 June 2021. There was no reasonable basis for the directors to accept that the QR 30 June 2021 was indeed accurate and reliable or free from material misstatements particularly in view of: –
(a) the materiality of the audit issues raised by KPMG which were unresolved and the Special Independent Review and audit were still pending; and
(b) the directors’ failure to scrutinise and vigilantly probe, question and challenge the management on the numerous audit issues raised by KPMG and/or in approving the QR 30 June 2021.
SERBADK and the Board had failed to ensure an immediate announcement of the default in payment of the USD Sukuk despite the following: –
• the news articles by The Edge entitled “Serba Dinamik Misses Coupon Payment for US$300m Sukuk” dated 11 November 2021 and “Serba Dinamik Subsidiary
Defaults on Bond Coupon Payment” dated 10 December 2021; and
• the advice of the company secretary that SERBADK was required to make an immediate announcement once an event of default was triggered during the Special BOD meeting on 30 November 2021 and various engagements of Bursa Malaysia Securities.
In addition, SERBADK had only announced the defaults in payment under the Master Murabahah Agreement and the ICP Programme upon initiation of legal actions by the lenders. This was unacceptable and in clear contravention of paragraph 9.19A(1) of the Main LR as a listed issuer must make an immediate announcement of default in payment upon occurrence of a default, irrespective of whether a demand has been made by the lender or negotiations with the lenders.
SERBADK was unable to provide Bursa Malaysia Securities a solvency declaration pursuant to paragraph 9.19A(4) of the Main LR upon the announcement of the default in payment of the USD Sukuk and had triggered the prescribed criteria under paragraph 2.1(f) of PN17.
The Board had failed to demonstrate that they had discharged their duty of supervision and taken reasonable steps, assessment and enquiries to ensure compliance with paragraph 9.19A(1) of the Main LR.
However, SERBADK had only announced the Disclaimer Opinion and made the PN17 First Announcement upon issuance of the AR 2021 (which included the AFS 2021 and the Auditors’ Report) on 6 January 2022.
The Board had failed to undertake reasonable enquiries and/or independent assessment to ensure an immediate announcement of the Disclaimer Opinion and PN17 First Announcement was made upon the Board’s approval of the AFS 2021 and finalisation of the Auditors’ Report containing the Disclaimer Opinion on 22 December 2021 despite the numerous advice from the company secretary and the implication/materiality of the Disclaimer Opinion and the PN17 First Announcement. They had further agreed and allowed the announcement of the Disclaimer Opinion and PN17 First Announcement together with the notice of annual general meeting/issuance of the AR 2021 on 6 January 2022, which was in contravention of the clear requirements of paragraph 9.19(37) of the Main LR and paragraph 2.1(d) of PN17.
SERBADK had also failed to make an immediate announcement of various litigations, the material developments arising from the litigations and the Winding-Up Petition. The litigations and Winding-Up Petition concerned the veracity of SERBADK’s financials or financial condition and compliance with the Directive and material developments arising from the Defaults in Payment which were important to the shareholders and investors of SERBADK to facilitate informed investment decision.
The numerous failures (i.e. a total of 25 instances) to ensure timely announcement of the litigations and the material developments arising therefrom and the Winding-Up Petition (which also did not comply with the prescribed contents) were blatant disregard of the Main LR and reflected poor governance of the company to ensure compliance of the Main LR.
