Wednesday, 12 August 2015

Benalec: are reprimands and fines enough?

Article in The Star: "Benalec’s Leaw brothers reprimanded":

Bursa Malaysia has reprimanded Benalec Holings Bhd’s three Leaw brothers for breaching listing requirements and also fined them a total of RM250,000.

According to the stock exchange regulator, the directors failed to make immediate announcement, appoint an independent adviser and procure shareholders’ prior approval of the land disposals entered between Benalec’s subsidiary, Strategic Land Sdn Bhd (SLSB) with Sunshine 2000 Sdn Bhd (Sunshine 2000) and Seaside Synergy Sdn Bhd (Seaside Synergy) on Jan 18, 2012 and March 12, 2012.
On top of that, the land reclamation player also failed to appoint an independent adviser and procure shareholders’ prior approval of the Heads of Agreement announced on Dec 5, 2013 in relation to the rescission and cancellation of the land disposals.
The directors, who are also brothers, are Benalec managing director Datuk Leaw Seng Hai, former executive director Datuk Leaw Ah Chye and Datuk Leaw Tua Choon, who resigned on Dec 4, 2013.

Bursa announced some more detail:

Datuk Leaw Ah Chye and Datuk Leaw Tua Choon

Based on the evidence, the Purchasers (of the Land Disposals) were persons connected to (i.e. accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of) Datuk Leaw Ah Chye and Datuk Leaw Tua Choon by virtue of the control / influence of the 2 directors and the son of one of these directors had over the Purchasers as well as their involvement in the Purchasers.

Notwithstanding their interests in the Purchasers and the Land Disposals, Datuk Leaw Ah Chye and Datuk Leaw Tua Choon had:-

(a)    failed to declare their interests to the board of BENALEC and SLSB in accordance with paragraph 10.08(8) of the Main LR;
(b)   failed to ensure that BENALEC complied with paragraph 10.08 of the Main LR; and
(c)    concealed their interests in the Land Disposals from BENALEC and its board including persistent denial (including under oath) their interests despite being asked by the board after the complaint.

Further, Datuk Leaw Ah Chye had signed the directors’ resolutions of SLSB dated 18 January 2012 and 12 March 2012 authorising SLSB to enter into the Sunshine 2000 SPA and Seaside Synergy SPA respectively in contravention of paragraph 10.08(6) of the Main LR.

Dato’ Leaw Seng Hai

He was the Managing Director of BENALEC primarily in charge of the day to day management of the business and operations of the company including land disposals by BENALEC Group and had approved the Land Disposals on behalf of by SLSB.  He was also aware or should have been aware of the anomalies / unusual circumstances of the Land Disposals and the magnitude / materiality of the Land Disposals. Notwithstanding these, he had failed to undertake due enquiry and address these anomalies resulting in the breaches of the Main LR by BENALEC.   

More background can be found in this announcement:

An allegation was made in March 2013 by a complainant via email which was disseminated to various parties, including Bursa Securities, that two (2) land disposal transactions (concluded in January and March 2012 respectively) between a wholly-owned subsidiary of Benalec Holdings Berhad as vendor and two private companies as purchasers were related party transactions in that Datuk Leaw Tua Choon and Datuk Leaw Ah Chye were linked to the purchasing entities.

Related Party Transactions (RPTs) are often bad, many examples can be found in this blog. However, even worse are RPTs which are not earmarked as such.

Many cases however will go unnoticed. In that light, the chance to get caught is small. In the above case there was a tip off.

Given all the above (the severity of the breaches and the small chance of getting caught), is the punishment as meted out by Bursa really sufficient? I strongly doubt it.

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