The report was expected to be completed by June 2013, there is no mentioning of the reason for the large delay.
More information about these issues can be found here.
- MGB: Metronic Global Berhad
- MESB: Metronic Engineering Sdn Bhd, a fully owned subsidiary of the above
- ORPR: Outstanding Related Party Receivables of RM 47 million
- MHPSB: MH Projects Sdn Bhd, the company that owed this amount and who had two directors that were also directors of MGB (hence the related party transaction)
- EY, Ernst & Young, the auditor of MGB who until 2008 approved the accounts, in 2009 disclosed an "emphasis of matter", in 2010 qualified the accounts and in 2011 resigned as auditors
- IA: Investigative Accountant, Ferrier Hodgson MH Sdn Bhd
- CPC: Certificate of Practical Completion
- JKR: Jabatan Kerja Raya, issuer of the CPC for the Alor Setar Hospital
Some important paragraphs from the report:
6. It is noted that:
a) Despite MHPSB having received almost all the payments from JKR, it had only remitted approximately RM18.69 million to MESB during the Financial Years 2008 to 2010 with the balance of RM46.53 million remaining outstanding to date.
b) Notwithstanding Ernst & Young (“EY”)’s advice to the management to review the recoverability of the Outstanding Related Party Receivables (“ORPR”) on 28 February 2008, it appears that certain directors who have knowledge of the status of the progress claims and payments between JKR and MHPSB, have failed to disclose the said information to the Board, Audit Committee and EY for their assessment on the requirement of provision of doubtful on the ORPR.
The "certain directors" are not mentioned, but I assume they might be the ones mentioned here:
7. Based on the findings, it appears that the material and significant information on the payment status between MHPSB and JKR has not been conveyed to the audit committee and the full Board as well as EY to assess the recoverability of the ORPR and to enable timely efforts to be made to recover the ORPR. It also appears that the Board, at the material time, has not acted upon the audit committee’s suggestions for immediate action to be taken to recover the ORPR save for the Board’s instructions to obtain the Letter of Undertaking (“LOU”) and Deed of Assignment (“DOA”) which was subsequently disputed by MHPSB.
8. IA also note that the subsequent dispute by MHPSB and the representation by JKR on the outstanding amount due and payments to MHPSB have raised doubts on the veracity of the LOU and DOA provided by MHPSB in favour of MESB which have been adopted by the Board, audit committee and the external auditor to facilitate the assessment of the recoverability and the justification for the provision of doubtful debt on the ORPR.
9. IA advises that MESB seek legal advice on whether certain statutory offences may have been
committed and/or whether the relevant directors may have failed to act/discharge their duties as follows and if so, the potential legal action(s) to pursue against them including for the recovery of payments made or for loss resulting from such failure, if any:
a) The common law and statutory duty of directors to act with reasonable care, skill and diligence pursuant to Section 132(1A) of the Companies Act 1965;
b) Section 132(1) of the Companies Act 1965 to act for a proper purpose and in good faith in the best interest of the Company in the discharge of the duties of his office; and
c) Sections 367 and 369 of the Capital Markets and Services Act 2007 on the offences by bodies of persons and by employees and agents which includes directors who knowingly authorises or permits the making or furnishing of any false or misleading statement to Bursa Securities.
The company has not yet announced if it wants to seek legal advice, and is going to pursue the above matter vigorously. Apart from that, the authorities should also consider to take action.