KUALA LUMPUR (July 29): Construction and property group Ireka Corp Bhd said a subsidiary had applied with the High Court be placed under judicial management.

Judicial management refers to a method of debt restructuring for companies under financial distress. It involves the appointment of an independent judicial manager to manage the affairs of the company, in a move to prevent the company from being wound up.

In a bourse filing, Ireka said there was a series of events that affected the cash flow of  the group and its subsidiary Ireka Engineering & Construction Sdn Bhd (IECSB), significantly slowing down the timing of payments by customers as well as the progress of the projects undertaken by the group and IECSB.

The events, it said, included Covid-19, which had severely affected the development of real estate and the construction business as a whole.

The group also cited general economic factors, such as shortages of manpower and raw materials, which led to an increase in prices, affecting all ongoing projects.

Ireka said it was also hit by the classification of the group under Practice Note 17 (PN17) status on March 1, which was directly connected to the financial condition of IECSB.

Ireka said IECSB filed its application with the court on Friday (July 29). The subsidiary also applied to appoint an interim judicial manager to manage its affairs, businesses and properties pending the disposal of the judicial management application.

Ireka said the applications were filed in a bid to enable IECSB to rehabilitate by a combination of several restructuring mechanisms and other approaches to regularise its financial condition.

Additionally, they were aimed at restructuring the debts owed by IECSB to its creditors, and consequently for it be in a better position to address the repayment of its debts via a scheme of arrangement.

“The board of directors of the company is of the view that placing IECSB under judicial management proceedings would be in the best interest of IECSB and its creditors,” said Ireka.

On April 27, Ireka said it had appointed Messrs Baker Tilly Monteiro Heng PLT as its new external auditor for the financial year ended June 30, 2022 (FY22) until the next annual general meeting. This was after the group received a written notice from Messrs Crowe Malaysia PLT on April 25, indicating its intention to resign as the external auditor owing to a lack of audit resources.

Crowe Malaysia earlier highlighted a material uncertainty relating to Ireka's status as a going concern in the audited financial statements for FY21.

Ireka first triggered the criteria for PN17 status in August 2020, after its then auditor Messrs RSL PLT highlighted a material uncertainty relating to its ability to continue as a going concern in the audited financial statements for FY20, and after its shareholders’ equity had fallen to RM77.51 million or 42.67% of its RM181.29 million share capital as at end-FY20, which was below the required 50% threshold.

At the time of writing on Friday, Ireka was down 1.02% or half a sen to 48.5 sen, giving the group a market capitalisation of RM110.5 million.

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