This article first appeared in The Edge Financial Daily on January 7, 2020

KUALA LUMPUR: Bursa Malaysia Securities Bhd has publicly reprimanded Sunzen Biotech Bhd and two of its executive directors for failing to obtain prior shareholders’ approval in respect of its diversification into a new business in the trading of crude palm oil (CPO) and its derivative products such as palm kernel and palm kernel shell in February 2017.

Datuk Hong Choon Hau, who is Sunzen’s managing director-cum-chief executive officer (CEO), and Lim Eng Chai, its chief operating officer (COO) who resigned on Nov 30, 2018, were also fined RM50,000 each.

In a statement yesterday, Bursa said Sunzen was publicly reprimanded for breaching the ACE Market listing requirements.

Sunzen, which is principally engaged in biotechnology research and development and manufacturing and marketing of animal feed supplements and animal healthcare products, had triggered Rule 10.13(1)(b) of the ACE Market listing requirements where the CPO and derivative products trading contributed to more than 25% of the group’s net profit for the financial periods ended March 31, 2017, June 30, 2017, Sept 30, 2017 and Dec 31, 2017.

Sunzen and the two executive directors had maintained that the diversification arose unintentionally out of the need to secure a consistent supply of refined, bleached and deodorised palm stearin for the processing of powder fats, a feedstock for the manufacturing of the group’s animal feed supplement.

They also reasoned that they did not expect the CPO and derivative products trading to be part of the group's business and did not foresee it would contribute significantly to its profitability/was sustainable as it was new/commenced only in February 2017 and the commodity market was unpredictable/volatile subject to price fluctuation.

“However, the evidence showed that the company had clearly intended to diversify into the CPO and derivative products trading and both the company and executive directors were aware of the [new business’] material contribution to the company’s revenue, net profits and/or prospects as disclosed in the four quarterly results of 2017,” said Bursa.

“Further, the company and executive directors had failed to make any proper assessment/analysis on the CPO and derivative products trading vis-à-vis compliance with the ACE Market listing requirements prior to the diversification in February 2017,” it added.

The regulator pointed out that Sunzen had only proceeded to obtain its shareholders’ ratification of the diversification after its external auditors and company secretary highlighted the need to make an announcement.

“There were many instances (prior to and after the diversification including in preparing and deliberation of the quarterly results) where the executive directors could and should be aware of the new business that the company was venturing into and the potential/possible impact to the company,” said Bursa.

“Bursa views the contravention seriously particularly as the requirement of Rule 10.13 of the ACE Market listing requirements serves to protect the interest of shareholders and ensure shareholders are kept informed of all facts or information that might affect their interests.

“Bursa has also reminded Sunzen 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,” it added.