KUALA LUMPUR: The Court of Appeal has upheld the Kuala Lumpur High Court’s 2012 judgement that Bursa Malaysia does not have unfettered discretion in issuing a restitution order to directors of listed companies, thereby clipping the wings of the regulator.

In scrutinising the Capital Market and Services Act 2007 (CMSA 2007) and the Bursa-enacted Listing Requirements (LR) (paras 16.17-16.20), the three-men bench on Tuesday unanimously upheld the High Court ruling made two years ago in a judicial review hearing that the LR, which Bursa relied upon to impose penalties, did not contain clear provisions allowing the regulator to order any restitution against directors for losses to their companies.

The Court of Appeal comprising Justices Datuk Abdul Wahab Patail, Datuk Hamid Sultan Abu Backer and Datuk Umi Kalthum Abdul Majid upheld High Court judge Justice Datuk Abang Iskandar Abang Hashim’s ruling that any order of restitution must be done through a court order, rejecting Bursa’s contention that the latter should be allowed an “unfettered discretion” to institute penalties.

Justice Abang Iskandar said only courts can order restitution and Bursa must apply to the court to enforce this.

Justice Abang Iskandar held that “a person wishing to obtain an order of restitution, an order that is very similar, if not synonymous with an order of restoration, must apply to the court for such an order. In that regard, it is noted that even the Securities Commission, which undoubtedly is the principal regulator of the capital market as created by the relevant statute, must also go to court and apply for an order of restitution.”

“The power to impose a fine is expressly provided in the LR. However, there is nothing that is contained in the LR that can be used as a legitimate basis upon which an opinion can be safely and soundly predicated to say that Bursa is properly clothed with the necessary jurisdiction to impose an order of restitution,” he said.

Former Liqua Health Corp Bhd director See Keng Leong had sought to quash Bursa’s order for him to pay RM15.6 million to Liqua.

See represented Liqua Health Marketing (M) Sdn Bhd, a wholly-owned subsidiary of Liqua, in a distribution agreement with Wynsum Healthy Living Sdn Bhd.

Liqua paid Wynsum RM15.6 million for the health products, but the goods were never delivered.

Liqua then sued Wynsum for breach of contract and won. However, the judgement remained unsatisfied and Wynsum was wound up.

Apart from ordering the RM15.6 million restoration/restitution payment, Bursa’s Listing Committee also slapped See with a RM500,000 fine for breach of fiduciary duties as well as a RM50,000 fine for a public announcement from Liqua on unaudited accounts relating to the Wynsum deal.

Another director, Goh Bak Min, was also found guilty by Bursa’s Listing Committee for the Wynsum deal and fined RM1 million.

Both men had their appeals to Bursa’s Appeals Committee dismissed.

See sought a judicial review to quash the decision, citing that the Appeals Committee had acted in breach of “procedural fairness, natural justice and reasonableness”.

He accused the Appeals Committee of having “acted perversely” in upholding the decisions of  Bursa’s Listing Committee.

Bursa was represented by Lim Chee Wee and Ong Doen Xian, while Razlan Hadri Zulkifli and Ng Wai Yen appeared for See.

When contacted by The Edge Financial Daily, Razlan said the judiciary’s position on Bursa’s powers is significant as it draws the line on the latter’s powers.

“Bursa is still subject to the law and can’t act willy-nilly,” he said, adding that the regulator’s internal processes need to be scrutinised and the verdict will assist in promoting a transparent process in instituting penalties.

“At the moment there is no oral hearing allowed in the appeals process [with the Appeals Committee]. Only written submissions are allowed.

“At least in a court of law, any ruling on penalties is open and transparent for all to see, not a closed-door committee,” said Razlan.

In a written reply, Bursa’s lead counsel Lim said the High Court earlier quashed the Appeals Committee’s restoration order, which directed See and Goh to restore RM15.6 million to Liqua arising from Liqua’s subsidiary having advanced this sum of money to a third party in breach of the financial assistance provisions of the LR.

“The restoration order serves to restore to the listed company the loss it suffered arising from the contravention by directors of the LR.

“Bursa took enforcement proceedings against these two directors who were found to have contravened the LR and were publicly reprimanded, fined Goh RM1 million and See RM550,000,” he said, adding that Bursa reserves further comments as it does not have the grounds of the Court of Appeal decision.

Lim, however, said Bursa is considering filing an appeal with the Federal Court.

This article first appeared in The Edge Financial Daily, on October 24, 2014.