KUALA LUMPUR (April 11): Think tank EMIR Research gave some recommendations when it comes to a corporate bailout framework on Monday, including ousting the management who presided over the company's descend and is found guilty of mismanagement, as well as imposing clawbacks on their salaries and remunerations.

In a Monday statement, EMIR Research's researchers, Dr Rais Hussin and Dr Margarita Peredaryenko, pointed out that a rigid bailout framework shall deter moral hazard and protect recouping the government investment, noting some of their recommendations for it.

These recommendations they shared for the bailout framework also include:
• Requirement for a thorough forensic audit of bookkeeping, capital management, governance structure, approval process, vendor payment process, etc;
• Attachment of a sound business turnaround/restructuring plan to a bailout package in line with company and industry prospects and net present value (NPV) projections which will represent the conditional requirements, not recommendations, of how business model, mode of operation, corporate governance structure etc have to be transformed to qualify for government support;
• Tying the bailout to a moratorium on dividend payments or share buy-backs as well as bonuses and other types of remunerations to the top management and board of directors for the time while the company is benefitting from government support;
• Curbing the excessive executive pay.

In the Monday statement, EMIR Research's researchers said positively, bailouts can be a considered remedy to save companies and industries whose demise may have dire metastatic consequences for the economy referred to as "systemic significance".

"However, not all bailouts have the same circumstances and conditions. Therefore, policymakers must attach the sensibility tests and robust, strictly neutral, technocratic bailout framework to all government-led corporate bailouts.

"Such stern mechanisms are essential to extinguish government-led bailouts' main moral hazard danger—deterring the incentives and begetting more bailouts. Given that Malaysia's corruption ecosystem is the only well-entrenched and thriving ecosystem we have, the government bailout moral hazard in our country can have a more explosive metastatic effect over and above any systemic benefits.

"Even the international empirical evidence related to government-led bailouts suggests the phenomenon of yet another type of cartel—'bailoutpreneurs'," they added.

They also pointed out that one of the critical questions to be addressed before even considering a bailout is whether the moribund company is distressed only financially or also economically.

"In other words, whether there is a reasonable assurance that the company would be viable as a going concern, provided there is sound intervention. So that the rescuer oneself can recoup its investments in NPV terms or, at least, break even if we speak of the government to safeguard the public good rather than possible narrow crony interests.

"The bailed-out companies often have a variety of chronic financial problems inflicted by previous management waste, power abuse and reckless decision-making that cannot be salvaged despite an injection of public funds and as a result the problems are often recurring that may require more public funds to be injected afterwards.

"While finding a successful example of the government-led bailout in Malaysia with companies being stabilised and invested peoples' money recovered is pretty challenging, there is a galore of inefficient examples with completely opaque information on recouping invested public funds (Tabung Haji, Felda, Proton to name the loudest few)," they added.

In light of all the above, Rais and Peredaryenko said former member of parliament Rafizi Ramli's call to enact a law that would strictly regulate public funds to bail out companies is "timely and urgent" before another whopping amount of people's money is committed to the financing of recklessness.

Rafizi's suggestion came after former prime minister Datuk Seri Najib Razak called for the government to help cash-strapped Sapura Energy Bhd from bankruptcy, either through a loan or a takeover via state investment funds.