This article first appeared in The Edge Malaysia Weekly on December 9, 2019 - December 15, 2019

On Nov 29, London Biscuits Bhd (LBB) announced that it had impaired RM363.2 million worth of receivables in the third quarter ended Sept 30, 2019 (3QFY2019). That is nearly 18% more than its entire revenue in the preceding year.

The reason was not explained. LBB merely stated that it would work with its interim liquidator to take legal advice on the massive impairment. It is another piece of bad news for the company, which fell into PN17 status last July after defaulting on a debt payment.

Meanwhile, minority shareholders are left wondering what went wrong as they had little advance warning of the events that have unfolded.

What is clear is that the issue has been years in the making. LBB’s current receivables have risen spectacularly over the years. It brings to mind the infamous accounting scandal at Transmile Group, which also centred on doubtful receivables and is now before the courts.

In the financial year ended Dec 31, 2018 (FY2018), the audited figure for LBB’s receivables was RM212.8 million, more than double what it was four years ago, in FY2014. Go back another two years to FY2012 and LBB’s current receivables stood at just RM58.7 million, and following the 3QFY2019 impairment, have shrunk to a paltry RM6.18 million.

For shareholders, this means a massive sum owed to LBB has just gone up in smoke and with it, a big chunk of the value of their investment in the company. And if such a huge sum is deemed irrecoverable, the question is whether LBB has truly been profitable all these years, as its reported numbers show.

Where were the independent directors and auditors as the problem was brewing? They are paid to be vigilant and it is unacceptable that no red flags had been raised earlier.

To be fair, the last audit was conducted by an auditor appointed only on Dec 20, 2018. The auditing firm qualified in LBB’s FY2018 annual report that it was unable to ascertain many figures provided at the beginning of the audit.

However, that is little comfort to minorities. Hard questions must be asked and if there is any negligence, the parties responsible must be held accountable.

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