This article first appeared in Corporate, The Edge Malaysia Weekly, on July 11 - 17, 2016.
SHAREHOLDERS and employees seem to have ultimately borne the brunt of accounting irregularities at High-5 Conglomerate Bhd, formerly known as Silver Bird Group Bhd.
The bread maker grabbed the headlines when it ceased operations last month after its interim investors failed to turn around the debt-laden firm that was founded 50 years ago.
The hopes of the substantial shareholders — Berjaya Corp Bhd (16.7%), Lembaga Tabung Haji (5.84%) and Koperasi Permodalan Felda Malaysia Bhd or KPF (12.7%) — to recover their investments were dashed while the employees lost their jobs.
Silver Bird’s former CEO Datuk Jackson Tan Han Kook and KPF’s former director Datuk Sarchu Sawal were acquitted of criminal breach of trust charges in December last year.
The duo had been accused of committing CBT by misappropriating funds amounting to RM13.12 million in their capacity as the company’s directors through 20 banker’s acceptance documents.
Judge Rosbiahanin Ariffin acquitted both Tan and Sarchu without their defence being called.
To recap, in February 2012, High-5 dropped a bombshell when it announced the discovery of a RM112 million — which later turned out to be RM297 million — hole in its finances.
The financial irregularities arose from several doubtful payments for property refurbishment and machinery upgrade and unverifiable sales transactions.
The board, led by chairman Datuk Gan Khuan Poh, suspended Tan, executive director Ching Siew Cheong and general manager of accounts and finance Lai Poh Mei on April 12, 2012. Subsequently, it filed a RM125 million civil suit against Tan, Ching and Lai in August 2012.
The Securities Commission of Malaysia charged Tan and Ching with furnishing Bursa Malaysia with false information between 2010 and 2011.
Tan and Ching were charged with seven and eight counts respectively of providing Bursa with false statements relating to the revenue of Silver Bird in 2010 and 2011.
Following the discovery of the accounting irregularities, High-5 slipped into Practice Note 17 (PN17) status due to financial distress. The rest, as they say, is history.
Fast forward to the present time and the company has received a court order requiring it to leave the premises where it was operating from.
AmanahRaya Real Estate Investment Trust (AmanahRaya REIT) has asked the bread maker to vacate its headquarters in Shah Alam by July 17.
The court order was the final nail in the ailing company’s coffin, confirming the fact that the efforts of interim investors Covenant Equity Consulting Sdn Bhd and Suncsi Holdings Sdn Bhd had failed to put it on the road to recovery.
“The company has yet to turn around. If we were to continue our business, we would have to relocate to a new location, which would cost us RM20 million to RM30 million.
“Who is going to pump in the money when the company is facing insolvency?” asks Dawin Tang, a partner at Covenant Equity, when contacted, saying this has put all the shareholders in a dilemma.
AmanahRaya-REIT Managers Sdn Bhd, being the manager of AmanahRaya REIT, announced on July 4 that the court had served a notice to repossess the premises.
“The turnaround strategies could not be effectively implemented under the cloud of the ongoing restructuring scheme. There were delays in the implementation of the scheme due to the many hurdles that the group faced,” says Tang.
He tells The Edge over the phone that the main hurdle is that the court has rejected its request to call for a creditor meeting to restructure its whopping debt of RM250 million.
The debt is inclusive of the liabilities outstanding from the period prior to the discovery of the irregularities in February 2012, according to Tang.
“We got all the shareholders to approve our (debt-restructuring) scheme in December 2014 but until now, we have not been able to hold the creditor meeting. [It is because] the court was not convinced of our debt-restructuring plan as we were still loss-making. The court [also] deemed our debt-restructuring plan unfair to the creditors,” he says.
“It is very strange. This is a commercial decision for creditors on whether to accept or reject the scheme but the court decided that we don’t need to call for a meeting.”
Covenant Equity and Suncsi Holdings took over High-5 in 2014. But because of the long delay in the debt restructuring, the company’s shareholders became impatient. Moreover, the bread maker had bled since 2012 when the accounting irregularities were discovered.
“We cannot approach our creditors one by one as that would take us another 36 months to complete the process. [So] who is going to bear the losses?” Tang asks.
In an attempt to return High-5 to profitability, Tang and his team had downsized its distribution network to 7,000 outlets from 12,000 and focused on supplying to those with good sales.
They also tightened internal controls and plugged leakages in sales.
Though the cessation of operations was a tough decision, Tang says it was one the management had to make.
While all their efforts proved futile, Tang says Covenant Equity and Suncsi Holdings remain optimistic about the prospects for the bread industry. However, they have no plans to venture into another investment in the industry anytime soon.
“There are no immediate plans at the moment, other than to ensure that the winding-up is carried out in an orderly manner in accordance with the law. Liquidators are being appointed to the company and all employees will be treated equally in accordance with the law,” he adds.
The winding-up process may take a couple of years as the liquidators will need to dispose of the plant and machinery in order to recover the debts.
“Some parties have expressed interest in the group’s assets. However, it is too early to tell if they will make an offer,” Tang says.
On the loss suffered by Covenant Equity, Tang says its total investment was in excess of RM16 million and that the loss incurred will depend on how much of the group’s assets can be realised by the liquidators.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.