KUALA LUMPUR (Nov 8): Serba Dinamik Holdings Bhd is taking legal action against Bursa Malaysia to challenge the stock exchange's directives concerning the requirement to conduct a special independent review and to disclose the findings of the review.
The oil and gas company, which filed a lawsuit against its former auditor KPMG over the audit disputes, announced on Monday that it filed an originating summons (OS) against the stock exchange at the Kuala Lumpur High Court last Wednesday (Nov 3).
The stock exchange did not back off. Bursa said it will be "defending its position vigorously and will not abdicate its statutory roles and functions in the marketplace".
It added that it has engaged a legal counsel to advise on this matter and the next course of action.
Bursa stressed that being a frontline regulator of the capital market, it is entitled to exercise its power pursuant to the listing requirements in the interest of maintaining an orderly and fair market. "Timely disclosure of material information is a key pillar of ensuring the market is well informed of the information and all investors are treated equally and able to trade on equal footing in terms of parity of disclosures.
"This is paramount to enable Bursa Securities to discharge its statutory duty," the stock exchange said in the statement.
Serba Dinamik argues that the stock exchange is acting “in excess of power” in relation to:
- the directive to appoint an auditor to conduct a special independent audit on its financial accounts pursuant to paragraphs 2.23 and 2.24 of the Main Market Listing Requirements (MMLR)
- instruction dated Oct 22 to announce a “Factual Findings Update” made by Ernst & Young Consulting Sdn Bhd.
Serba Dinamik argues that Bursa has no authority to direct the company to make announcements about material that is unlikely to comply with paragraphs 9.03 and 9.35A of MMLR and any "factual findings update" that may or may not be used by its auditor to form an audit opinion at the end of the audit of the company’s financial statements.
Serba Dinamik said it is seeking interim injunctive relief against Bursa pending the full and final disposal of the OS to restrain the stock exchange from:
- making any announcement or otherwise publish, distribute or make available to anyone the “Factual Findings Update” prepared by Ernst & Young Consulting
- exercising any power to do anything, to instruct and/or otherwise issue any directive against Serba Dinamik pursuant to paragraph 2.24 of the MMLR pending the full and final disposal of the OS
- issuing any notice to the company and its directors to show cause for any purported breach of the MMLR.
Furthermore, Serba Dinamik, whose share price has plunged 78% since the audit issues were made public, is also seeking damages against Bursa.
Apart from the potential damages to be assessed and costs that may be awarded against Bursa and the corresponding legal costs, the company said the legal action is not expected to have any other material financial impact on it for the current financial year ending June 30, 2022.
“The OS is [also] not expected to have any business and operational impacts on the company," said Serba Dinamik, stressing that it will make further announcements on the matter.
The application for interim injunctive relief is fixed for hearing this Thursday (Nov 11) while the case management for the OS has been fixed on next Wednesday (Nov 17).
Serba Dinamik locked horns with Bursa when the stock exchange demanded the company disclose the details from the factual findings update as at Sept 30 on the special independent review that were communicated to three out of four independent non-executive directors on Oct 21.
Bursa suspended the trading of Serba Dinamik’s securities on Oct 22 and set Oct 26 as the deadline for Serba Dinamik to reveal the findings of the special independent review.
However, Serba Dinamik, in its filing on Oct 25, denied that its directors had been given a "factual findings update" by Ernst & Young (EY), which is undertaking an independent review of the group's financial accounts.
In response to Serba Dinamik’s denial, Bursa issued a statement to disclose that to its understanding, soft copies of the factual findings update were provided to the company’s independent non–executive directors on Oct 22 and as requested by the directors, physical copies of the same were, in addition, delivered to them on Oct 23.
To recap, the audit saga started in mid-May when KPMG highlighted discrepancies involving transactions to the tune of RM4.54 billion to the company's independent directors.
The audit issues raised were based on the financial accounts for the financial year ended Dec 31, 2020.
Subsequently, Serba Dinamik decided to take legal action against KPMG, alleging that the external auditor had been negligent and breached its contractual and statutory duties to the company.
Serba Dinamik's legal consultant Tan Sri Muhammad Shafee Abdullah claimed that KPMG had raised the red flags in an “inappropriate manner”.
The company’s shares were last traded at 35 sen prior to trading suspension, falling from RM1.61 prior to the audit issues. Some RM4.6 billion market capitalisation has evaporated following the heavy selldown on the stock.
Serba Dinamik's largest shareholder Datuk Mohd Abdul Karim Abdullah, who is also the group managing director and chief executive officer, disposed of his entire holding of 55.9 million warrants before the trading suspension.
The block of derivatives, which was equivalent to 6.34% of the total warrants, was sold when the price of the warrants hover near record low levels.
The company changed its financial year to end on June 30. For the cumulative 18-month period ended June 30, Serba Dinamik posted net profit of RM759.98 million, or 20.49 sen per share, on revenue of RM8.606 billion.