KUALA LUMPUR: Loss-making Scan Associates Bhd’s move to sue Bursa Malaysia has taken the market by surprise. Many wonder on what grounds the ACE Market-listed company, which accumulated losses of RM31.9 million as at Dec 31, 2014, is taking legal action against the regulator for issuing a Guidance Note 3 on it.

The company’s largest shareholder Mak Siew Wei, who holds a 15.2% stake and is the executive director, told The Edge Financial Daily that the company’s auditors had confirmed that Scan Associates did not fall under GN3.

“On Feb 27 we (Scan Associates) announced our results, our auditors confirmed at that point that we did not trigger a GN3 classification. I am not an accountant, I depend on my auditors, and I accepted it.

“On May 5, two months later, they (officials of Bursa) called me and told me to assess whether we had triggered GN3 … The word used was assess,” he stressed.

After confirming again with the auditors, Mak and Scan Associates made an official reply to Bursa saying the company did not trigger the GN3 criteria, with a breakdown of why.

Under the listing rules, the criteria that triggers GN3 is that the shareholders’ equity of the listed company is 25% or less of the issued and paid-up capital of the listed corporation. Scan Associates’ ba-lance sheet as at Dec 31 last year showed that its shareholders’ fund of RM6.24 million was more than one quarter of its paid-up capital of RM20 million, he said.

Also, the company recently changed its financial year-end to June 30, 2015, from Dec 31, 2015.

Hence, Scan Associates would not trigger the rules 2.1 (b) and (c). One of the rules states that the listed entity has incurred a loss in any one full financial year, which is equal to or exceeds the amount of its shareholders’ equity at the end of the said financial year, and the shareholders’ equity is equal to or less than 50% of the issued and paid-up capital of the listed corporation at the end of the said financial year.

For the financial year ended Dec ember 2014, Scan Associates’ net loss widened to RM7.1 million from RM2.62 million in the previous year. Revenue more than halved to RM11.86 million from RM25.14 million previously.

Scan Associates’ shares took a nosedive to 4.5 sen on Tuesday after the news it is suing Bursa. The stock closed at five sen yesterday.

To recap, last Friday, Bursa issued a directive to Scan Associates to announce that the company had triggered rules 2.1 (b) and (c) of GN3 based on the company’s fourth-quarter results ended December 2014.

Scan Associates appointed Messrs Lim, Chong, Phang & Amy to file a lawsuit against Bursa on Sunday because the company disagreed with the directive issued by the regulator and to seek damages from the regulator.

In the announcement to Bursa, Scan Associates said the High Court heard the company’s application on Monday and granted an ad interim injunction to restrain Bursa from implementing the reclassification of the company.

“The ad interim injunction will be enforceable and binding until the High Court makes a decision at 4pm on May 18,” the company said.

While Mak and Scan Associates seem to have won the first round, how the courts view the feud remains to be seen.

This article first appeared in The Edge Financial Daily, on May 14, 2015.