The bonds were called "ABBA Bonds", which reminds me of the ABBA song: "Money, Money, Money":
I have received the judgement, it contains 86 pages, too long to publish here entirely. Rather strong language about KAF Discounts Bhd and Mayban Trustee Bhd. A selection of interesting paragraphs (MTB = Mayban Trustee Bhd, KAF = KAF Discounts Bhd):
As for the case against MTB, the learned judge held to the effect
(i) that it was the duty of MTB to see that it had the sole control of the designated accounts,
(ii) that that duty of MTB commenced well before the issuance of bonds on 1.4.2004,
(iii) that MTB being in control of the accounts must be resolved when bonds were issued and bond proceeds were disbursed (53 – 54AR),
(iv) that the responsibility of MTB as trustee started upon appointment in July 2003 and not only when accounts were opened and monies were deposited (54AR),
(v) that MTB had not exhibited the level of professionalism, competence, skill expected of professional trustees (54AR),
(vi) that the role of MTB was as trustee and not mere signatory (55AR),
(vii) that the IM and Trust Deed required MTB to manage the designated accounts and to authorise the movement of its funds (55AR),
(viii) that it was open to MTB to remind all parties of the terms of the IM and Trust Deed and the implication of any departure (55AR),
(ix) that MTB owed a duty, under contract, tort, and trust (56AR),
(x) that MTB ought to have taken steps to address the fact that it was not the signatory to the designated accounts (56AR),
(xi) that MTB ought to have been alerted that something was amiss when funds were moved out of the designated accounts (56AR),
(xii) that MTB was amateurish, indifferent, and lacked urgency in the execution of its obligations (56AR), and
(xiii) that MTB did nothing to ensure that its primary role was not compromised (57AR).
(i) that KAF had the duty to verify all information in the IM, but that the inclusion of the foreign exchange loss claim to the total revenue from 3rd contract was not false or misleading (see 49AR),
(ii) that new accounts must be opened but that existing accounts could be the designated accounts if “ring fencing” were in place with MTB in control, and if that information were released to the market, and that when existing accounts were intended to be used, there was that duty on the part of KAF to inform bondholders (see 50AR),
(iii) that KAF had the duty to ensure that all parties played their part according to the IM, and,
(iv) that the conduct of KAF, in leaving it to MTB to take control of the “designated” accounts, was below the expected standard of professional lead arrangers/facility agents.
And it was KAF who issued those false and misleading statements, and amended those statements at 2562AR without approval. KAF must answer to the bondholders for those false and or misleading statements. But KAF was not the only party who should answer. Pursuant to the provisions of section 82 (deleted by Act 1305) of the SC Act 1993, MTB had to exercise reasonable diligence to ascertain whether the revenue was insufficient or was likely to be insufficient to repay the amount payable on the bonds. In order to be so satisfied as to whether the revenue was insufficient or was likely to be insufficient to repay the amount payable on the bonds, MTB had to exercise reasonable diligence to ascertain the actual position of the available revenue. And MTB could not have done that. For it should have discovered, with some reasonable diligence, that the total receivable revenue was not RM182,142,538.00 (2562AR). Section 83(1)(a) (deleted by Act 1395) of the SC Act 1993 provided that MTB as trustee shall not be exempted for any breach of trust or for failure to show the degree of care and diligence. MTB had not shown the required degree of care and diligence, and so should also answer to the bondholders for those false and or misleading statements at 2562AR.
The learned judge rejected altogether the argument that MTB could not have done anything to prevent those withdrawals from those conventional accounts, that is, once KAF accepted that CP11 had been satisfied, even when MTB was not in control of the accounts (57AR). Suffice it to say that the learned judge took a dim view of the total conduct of MTB. The learned judge concluded, only that time against MTB (58AR), that the bondholders’ claim had been made out.
It was glaringly evident that there were no designated accounts as required. There were never any Syariah compliant accounts or even conventional accounts for that matter into which the revenue would be or was being deposited, with MTB in sole control. Put simply, the required designated accounts were never there. “Ring fencing” was also not there on 1.4.2004. Prudence alone should have dictated that the bonds could not be issued. If issued without “ring fencing”, it would mean that the Primary Subscriber would pay for bonds without the security to back it. Moreover, in that circumstance, clause 4.3 of the SF Agreement mandated that bonds could not be issued. But bonds were issued nonetheless by KAF on 1.4.2004. Funds received from those bonds were also entirely disbursed with alacrity by KAF on 1.4.2004 (4136AR) (After BPIMB and CIMB were repaid on 1.4.2004, Pesaka’s assignment of the revenue from the contracts was then perfected by Assignment dated 1.4.2004 at 2866 – 2884AR).
“Ring fencing” was not even there after the bonds had been issued and after the bonds proceeds had been fully disbursed. In the meantime, revenue flowed into Pesaka’s conventional account at the CIMB Cosway Branch. Pesaka had a number of conventional accounts, but the revenue was only deposited into the revenue/proceeds account at the CIMB Cosway Branch. That revenue belonged to bondholders. Still “ring fencing” was not in place, not even after all revenue had been deposited into Pesaka’s aforesaid account. That revenue in that aforesaid conventional account was not controlled by MTB. As a matter of sad fact, MTB had no control whatsoever of all revenue deposited into the aforesaid conventional account after the issuance of the bonds. When revenue was deposited into the aforesaid conventional account, Pesaka controlled it. The signatory or signatories to all conventional accounts were yet the nominee/s of Pesaka. In that state, it should have dawned upon KAF and or MTB that the security of the bondholders had been totally breached. Pesaka could withdraw the revenue at will, notwithstanding that the revenue had been assigned and was no longer its property. And sad to say, so it proved to be that Pesaka could indeed withdraw all revenue. Between July 2004 and September 2005, Pesaka fraudulently withdrew all revenue that had been deposited into its conventional account at the CIMB Cosway Branch. On Pesaka’s instructions, all revenue in that conventional account was transferred to other accounts. Pesaka had made off with the revenue, despite Pesaka’s prior notices to the CIMB Cosway and Subang Branches that Pesaka had assigned and charged all rights and title in and to all said conventional accounts to MTB (see 3727 and 3729AR). Not surprisingly, there was nothing left in the till for the redemption of bonds. Bondholders were left high and dry, and quite without payment.
Overnight (MTB declared default on 30.9.2005), the bonds became worthless pieces of paper (actually scrip less). But that should not have happened, as the revenue was supposed to have been “ring fenced”. The IM informed that all revenue would be deposited into designated banking accounts. The IM informed that MTB would have absolute control of those designated banking accounts (2467AR). In effect, the IM informed that Pesaka would have no control whatsoever of the revenue. MTB was supposed to control and apply the revenue to redeem the bonds. “Ring fencing” was the piece de resistance in the redemption structure to ensure that the bonds would be redeemed as promised. But yet there was a total failure to have “ring fencing” in place, both before and after the issuance of bonds on 1.4.2004, both before and after the revenue had been deposited into the banking accounts of Pesaka, and even as Pesaka was making away, that is, from July 2004 to September 2005, with the revenue.
Fraudulent misappropriation of trust property was the immediate cause of the loss of the revenue. But it was the dereliction of duty and or negligence that allowed that to happen. The stable door was invitingly not shut. Those who had the duty to shut that door would have to restore the total loss.