Sunday, 23 February 2014

Landmark case against Mayban Trustee and Kaf Discounts (2)

I wrote more than two years ago about this case.

On February 10, 2014 the press summary was published about five civil appeals regarding this same case.

To summarize the main players:
  • Pesaka Astana (M) Sdn Bhd (Pesaka), a manufacturer of vehicles, proposed a financing scheme
  • Datuk Mohamed Rafie Sain (Rafie) and Datin Murnina bt Dato’ Haji Sujak (Murnina) are in control of Pesaka
  • KAF Investment Bank (KAF) was the lead arranger, facility agent and issue agent
  • Kenanga was the primary subscriber, who sold the bonds to the ultimate bondholders
  • Maybank Trustees (MTB) was the trustee

Problems started in 2005 when the accounts, which contained the revenue of certain orders, were not properly ring-fenced (as was promised to the bondholders), and:

"Having control over the accounts, Pesaka utilised the monies in the Designated Accounts for its own purposes and failed to redeem the bonds and repay the bondholders on the maturity date."

"Rafie had admitted that the funds of the Issuer were utilised to invest in the Amdac Group in various investments both locally and abroad. The common pattern was that the assets would ultimately be in the names of either Rafie or Murnina."

The results of this latest court case were different:
  • "KAF is not a party to the Trust Deed. It is strictly between the Issuer and MTB." and "MTB is wholly to blame for the loss and not KAF."
  • "We make an order that MTB is liable only to RM107 million and not the full amount of RM149,315,000."
  • No interest to be charged on top of the above amount: ".... our answers to the three questions on pre-judgment interest are in the negative."
  • "Similarly in the present case it is obviously not just and equitable to allow Pesaka to keep the ill-gotten gains or any part of it. This is especially so when the bondholders have not taken any step to enforce the Consent Judgment entered between Pesaka and the bondholders and instead focus their attention to MTB on the basis that MTB is in the position to satisfy the bondholders’ claim. Thus, by allowing indemnity in full, Pesaka will be called to meet its obligation in full"
  • " would be a travesty of justice that it be allowed to keep a portion of the ill-gotten gains and accordingly we order that Murnina too (and Rafie who together with Murnina owned 90% of Pesaka) must fully indemnify MTB for the loss." 

An interesting court case and judgement that might have consequences for future cases.

Pity that these cases are so rare in Malaysia, and often only in the case of bonds. When bonds default, that is a clear signal that something is wrong and that action has to be taken.

But when a prospectus of for instance an IPO or a Related Party Transaction or a General Offer contains wrong or misleading information or when a valuation given is not justified, then surely action also should be taken, even when the case might not be so black and white as a bond default?

And so many Malaysian IPO's have disappointed from the moment the company was listed, so many RPT's have yielded bad results, so many companies were delisted for a too low amount.

For a small minority shareholder the legal expenses would be too high, but for a large fund it should be worth their while. Hopefully the larger funds like PNB and EPF will be more willing to take appropriate action in these corporate exercises.

Regarding the above case, "Skilgannon1066" asked the following questions on Rocky Bru's website:

  • Why did Pesaka default on the bonds back in September 2005?
  • How did it get on to the Ministry of Defence's suppliers list if its financials were shaky?
  • Were the RM140 million bonds issued to finance a contract awarded to Pesaka by the Ministry of Defence?
  • Was the contract satisfactorily completed and the goods or services properly delivered to the satisfaction of the Ministry?
  • Is Pesaka Astana still a defence supplier in good standing with the Ministry, notwithstanding its bonds default in 2005?

In answer to the last question, according to this article, it looks like Pesaka is still doing business with the Malaysian government under its new name AMDAC (M) Sdn Bhd.

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