BURSA MALAYSIA SECURITIES PUBLICLY REPRIMANDS AND/OR FINES PASDEC HOLDINGS BERHAD AND 7 DIRECTORS

Bursa Malaysia Securities Berhad [Registration No.: 200301033577 (635998-W)] (Bursa Malaysia Securities) has publicly reprimanded Pasdec Holdings Berhad (PASDEC) and 7 of its directors for breaches of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, the 7 directors of PASDEC were imposed total fines of RM468,000.

PASDEC was publicly reprimanded for breach of the following provisions of the Main LR:-

1.  Paragraph 9.23(1) of the Main LR for failing to issue the annual report that included the audited financial statements (AFS) together with the auditors’ and directors’ reports for the financial year ended (FYE) 31 December 2019 (AR 2019) within the extended timeframe of 31 July 2020 (2019 Delay Breach).  PASDEC had only issued the AR 2019 on 27 October 2020, after a delay of 59 market days.

2.  Paragraph 9.35A(1)(a) of the Main LR for failing to ensure that the company’s fourth quarterly report for FYE 31 December 2019 (QR 4/2019) announced on 28 February 2020 took into account the adjustments stated in the Company’s announcement dated 27 October 2020 (2019 Deviation Breach).

PASDEC had reported an unaudited loss attributable to owners of the company of RM16.362 million in the QR 4/2019 announced on 28 February 2020 as compared to an audited loss attributable to owners of the company of RM27.502 million in the AFS for FYE 31 December 2019 announced on 27 October 2020. The difference of RM11.14 million represented a variance of 68.1%.

3.  Paragraph 16.17A of the Main LR for failing to comply with the enforceable undertaking dated 26 August 2019 provided by the company to Bursa Malaysia Securities pursuant to paragraph 16.29(2) of the Main LR (Undertaking) where PASDEC had acknowledged, undertaken and agreed, amongst others - 

(a)  to ensure its Board of Directors review and assess the adequacy and competency of the company’s finance and accounting resources and adequacy, comprehensiveness and effectiveness of the company’s policies and procedures, internal controls and/or risk management system and full and effective implementation of the same towards compliance of the Main LR (Finance Function Review); and

(b)  that the company would not commit a breach of paragraph 9.16(1)(a) of the Main LR in respect of the company’s quarterly reports and/or annual reports for a period of 3 years.

PASDEC was also required to carry out a limited review on the company’s quarterly report submission. The limited review must be performed by the company’s external auditors for four quarterly reports commencing no later from the quarterly report for the financial period ended 30 September 2022. In addition, PASDEC must ensure that all the 7 directors and its relevant personnel attend a training programme in relation to compliance with the Main LR pertaining to financial statements.

All the 7 directors of PASDEC at the material time were publicly reprimanded and/or fined for breach of paragraph 16.13(b) of the Main LR for permitting the company to commit the breaches as follows:-

The finding of breaches and imposition of the above penalties on PASDEC and its directors were made pursuant to paragraph 16.19 of the Main LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the materiality of the breaches, impact of the breaches to PASDEC and shareholders/investors, the roles, responsibilities, knowledge, involvement and conduct of the directors and the fact that PASDEC had previously committed similar breaches.

Bursa Malaysia Securities views the contraventions seriously particularly as timely and accurate submission of financial statements are fundamental obligations of listed companies and is of paramount importance in ensuring a fair and orderly market for securities traded on Bursa Malaysia Securities and necessary to aid informed investment decisions.  Listed companies and its directors must also ensure strict compliance of any undertaking given to Bursa Malaysia Securities. 

Bursa Malaysia Securities has also reminded PASDEC and its Board of Directors of their responsibility to maintain the appropriate standards of corporate responsibility and accountability to its shareholders and the investing public.

BACKGROUND

PASDEC had previously committed the following financial reporting breaches:-

• breach of paragraph 9.16(1)(a) of the Main LR for failing to ensure that the company’s fourth quarterly report for FYE 31 December 2017 announced on 28 February 2017 took into account the adjustments stated in the company’s announcement released on 2 May 2018 which included adjustments arising from the financial results of Pasdec Resources SA Ltd. (PRSA), where there was a deviation of RM1.823 million or 28% between the unaudited and audited profit attributable to owners of the company (2017 Deviation Breach); and
• breach of paragraph 9.23(1) of the Main LR for only submitting the company’s annual report that included the AFS together with the auditors’ and directors’ reports for FYE 31 December 2018 due on 30 April 2019 on 11 June 2019 (2018 Delay Breach).  The 2018 Delay Breach was mainly caused by the delay in finalising the audit of the PASDEC’s subsidiaries in South Africa (i.e. the PRSA Group) where there were delays in resolving key audit issues and numerous matters and erroneous/inconsistencies in the information/documents provided to the auditors.

Despite the previous breaches above, PASDEC had committed the 2019 Delay Breach and 2019 Deviation Breach which again mainly arose from the delay in completion of the audit of PRSA Group and adjustments made in respect of the financial results of PRSA Group. The breaches were essentially due to the failure of PASDEC and its directors to:-

• keep, maintain and provide the necessary and proper accounting and other records on a timely basis and/or in such a manner to facilitate proper auditing by the external auditors and enable the preparation of true and fair financial statements;
• to review, assess and put in place a proper and effective governance/structure/framework vis-à-vis the Group’s finance function to ensure timely and proper preparation of the financial statements in accordance with the Main LR; and
• take reasonable steps to address or resolve all audit issues expeditiously with the external auditors.

Pursuant to an agreed settlement with Bursa Malaysia Securities in respect of the 2017 Deviation Breach, the Board had authorised PASDEC to provide the Undertaking to, amongst others, carry out the Finance Function Review.  The Undertaking served to ensure compliance of the Main LR and prevent occurrence of similar financial reporting breaches by PASDEC.  However, there was no evidence that the Board had deliberated on or carried out the Finance Function Review subsequent to the Undertaking for approximately 1.5 years until 25 May 2021. The external auditors’ review of the Statement of Risk Management and Internal Control for purposes of inclusion in the AR 2019 in accordance with paragraphs 15.23 and 15.26(b) of the Main LR did not fulfil the Finance Function Review condition.  PASDEC had only in 2021, i.e. 1 ½ years later, carried out a review and assessment of its finance function which was imposed on the company for the 2018 Delay Breach, by which time, PASDEC had committed the 2019 Deviation Breach and 2019 Delay Breach. 

There was blatant failure by the directors to ensure compliance with the Undertaking and in the discharge of their duties where:-

• the directors had admitted that PASDEC may not have put in place a sound and effective accounting, reporting and internal control system in PRSA Group and the weaknesses had resulted in significant deviation of the financial results of PASDEC Group for FYE 31 December 2019;
• the directors’ representation that PASDEC did not have full control on the accounting, reporting and internal control system of PRSA Group was not acceptable as PRSA Group were still its subsidiaries at the material time and the Board had responsibility over the Group’s governance to ensure compliance of the Undertaking and the Main LR;
• the directors had disregarded the governance and supervision of the finance function of the PRSA Group in view of the company's plan to exit PRSA Group;
• the directors had merely relied and continued to rely on the finance team in PRSA Group to ensure timely and accurate preparation of the financial statements even though it was clear that the finance team had not been effective and expedient in providing the relevant information or documents and resolving the outstanding matters and issues with the auditors; and 
• there was lack of supervision by the directors to ensure timely commencement of the audit and to address or resolve the audit issues of PRSA Group to ensure veracity of the QR 4/2019 despite being aware of the company’s undertaking to carry out a limited review on the QR 4/2019 pursuant to the Undertaking.

The Company had also represented that the breaches were due to the outbreak of the unprecedented Covid-19 pandemic which led to the various movement control orders/lockdowns imposed and was an unforeseeable event that had adversely disrupted PRSA Group. However, Bursa Malaysia Securities had granted PASDEC various extensions of time totalling 3 months to issue the AR 2019 considering, amongst others, the Covid-19 pandemic and lockdowns imposed. Hence, PASDEC must strictly comply with the extended timeframe granted.

A higher fine was imposed on Dato’ Sri Tew Kim Thin, the Executive Deputy Chairman and Tew Kim Kiat, the Group Managing Director for the 2019 Delay Breach in view of their executive and primary roles over the financial management of PASDEC Group to ensure the timely preparation and issuance of financial statements, including to prepare, monitor, review and approve the QR 4/2019 and AR 2019.