Initial findings highlight possible irregularities in Scanwolf's property development division

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KUALA LUMPUR (May 6): Scanwolf Corp Bhd said a preliminary findings report from an investigative review on the group’s operations has revealed several “possible irregularities” in the company and certain of its subsidiaries in the property development division.

In a statement to Bursa Malaysia today, Scanwolf, which is involved in property development, as well as the design and manufacturing of plastic extrusions, said the report was from PKF Covenant Sdn Bhd, whom it appointed to conduct the investigative review on April 23.

Among the possible irregularities found were several conflicts of interest, due to undisclosed relationships between former directors of Scanwolf and Almal Development (M) Sdn Bhd (ADSB).

The report said these relationships were in existence when Scanwolf entered into a joint development agreement (JDA1) for the development of 44 units of shop office buildings for the Kampar Putra mixed development project in Perak with ADSB on May 26, 2011, following ADSB’s subscription of Scanwolf Development Sdn Bhd’s (SDSB) shares — a Scanwolf subsidiary.

These same relationships were also already in place, when another joint development agreement (JDA2) dated July 30, 2012 between Scanwolf Properties Sdn Bhd (SPSB) and SDSB were inked to undertake the development of 511 units of mixed development project known as Kampar Putra II.

There also appears to be no record of deliberation by the board before the JDA1 with ADSB was executed on May 26, 2011, while no formal valuation of the land in the agreement was carried out.

The report also noted there appeared to be a breach of Bursa listing requirements, as the company did not make an immediate announcement of the incorporation or acquisition of SDSB as its subsidiary either.

On the acquisition of the remaining 49% stake in SDSB, the report also found insufficient basis for SPSB to have allowed a major shareholder of ADSB to acquire the stake which was later transferred to Extra Modulation Sdn Bhd (EMSB), and sharing in SDSB’s profit in JDA2 which was projected to be approximately RM131 million.

“This is in view of the major shareholder and/or EMSB not having made any material financial contribution towards the property development projects undertaken by SDSB, apart from the subscription for the shares in SDSB by EMSB and its related parties of RM367,500,” said the report.

It added there could be another conflict of interest due to an undisclosed relationship between ADSB and EMSB, which was not considered prior to the allotment of the 49% stake in SDSB.

The report also noted there appeared to be payments of sales commissions to Gegaran Lagenda Sdn Bhd (GLSB) by SDSB, without the disclosure of the involvement of certain former directors and shareholders of ADSB and/or EMSB in GLSB.

Besides that, it also highlighted cash payments were made by SDSB to open fixed deposit accounts under a former director of Scanwolf for the procurement of bank guarantee facilities, which should have been paid by the director.

“Arising from the findings of the preliminary report, the board of directors of Scanwolf will seek the advice of the company's legal advisors on the next course of action to be taken.

“The company will make the necessary announcement of the course of actions for any further development in relation to the above,” said the company.

Scanwolf had previously said it appointed PKF Covenant to conduct the investigative review, due to “insufficient measures, severe discrepancies and possible irregularities” in the implementation of its development projects.

The full review, it had said then, was expected to be completed within eight weeks.

Scanwolf closed 2.5 sen or 3.1% lower at 78 sen, bringing its market capitalisation to RM69.84 million.

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