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BURSA MALAYSIA SECURITIES PUBLICLY REPRIMANDS CHINA STATIONERY LIMITED AND ITS DIRECTORS AND FINES 2 DIRECTORS

07 Jun 2019

KUALA LUMPUR, 7 JUNE 2019 - Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded China Stationery Limited (CSL or the Company) and 2 of its directors for breaches of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, the 2 directors of CSL were imposed total fines of RM5,376,500 as at to-date.

CSL was publicly reprimanded for committing the following breaches of the Main LR (CSL’s Breaches):-

No.

Breach

1.

Financial Reporting Breaches

CSL had breached and continues to breach the following provisions of the Main LR:-

(a)   paragraph 9.22(1) of the Main LR for failing to announce the Company’s quarterly reports for the financial period ended 30 September 2017 (QR Sept 2017), 31 December 2017 (QR Dec 2017), 31 March 2018 (QR March 2018), 30 June 2018 (QR June 2018), 30 September 2018 (QR Sept 2018) and 31 December 2018 (QR Dec 2018) within the stipulated timeframes; and

(b)   paragraph 9.23(1) of the Main LR for failing to issue the Company’s annual report that included the annual audited financial statements together with the auditors’ and directors’ reports for the 18-months financial year ended 30 June 2018 (AR 2018) on or before 31 October 2018. 

(The QR Sept 2017, QR Dec 2017, QR March 2018, QR June 2018, AR 2018, QR Sept 2018 and QR Dec 2018 are collectively referred to as “the Outstanding Financial Statements”.)

2.

Corporate Governance Breaches

CSL had breached and continues to breach the following provisions of the Main LR with regard to the composition of its Board of Directors (BOD) and Audit Committee (AC):-

(a)    paragraph 15.02(1) read together with paragraph 15.02(3) of the Main LR for failing to ensure that there were at least 2 independent directors in the BOD of CSL after 3 months from the resignation of the independent director, Herman Widjaja on 2 November 2017. Further, after the resignation of Dr Risambessy Izaac on 7 November 2017, the Company does not have any independent director in its BOD; and

(b)    paragraph 15.09(1)(a) read together with paragraph 15.19 of the Main LR for failing to ensure the AC composed of not fewer than 3 members after 3 months from the resignation of Ang Wei Chuan and Lim Kim Huat on 1 November 2017. The Company has yet to comply with this requirement. Further, after the resignation of Herman Widjaja and Dr Risambessy Izaac on  2 November 2017 and 7 November 2017 respectively, the Company does not have an AC.

3.

Foreign Listing Requirements Breaches

CSL had breached and continues to breach the following provisions of the Main LR on foreign listing requirements:-

(a)    paragraph 4A.04(2) read together with paragraph 4A.08 of the Main LR for failing to have at least 2 independent directors whose principal or only place of residence is within Malaysia after the resignation of the Malaysian independent directors, Ang Wei Chuan and Lim Kim Huat on 1 November 2017;

(b)    paragraph 4A.04A read together with paragraph 4A.08 of the Main LR for failing to ensure that the Company’s AC has at least 1 independent director who has a principal or only place of residence in Malaysia after the resignation of the Malaysian independent directors, Ang Wei Chuan and Lim Kim Huat on 1 November 2017; and

(c)    paragraph 4A.05 read together with paragraph 4A.08 of the Main LR for failing to appoint an agent or representative in Malaysia to be responsible for communication with Bursa Malaysia Securities on behalf of the Company after the resignation of its agent in Malaysia, PFA Corporate Consultants Sdn Bhd on 7 December 2017. It was further noted that its company secretary, Secretarius Services Sdn Bhd had resigned on 7 December 2017. 

4.

Non-Compliance with Bursa Malaysia Securities’ Directives

CSL had breached paragraph 2.23(1) of the Main LR for failing to comply with the following instructions/directives of Bursa Malaysia Securities vide letter dated 21 November 2017 (Bursa Malaysia Securities’ Directives):-

(a)       CSL to have its QR Sept 2017 reviewed by its external auditors prior to its issuance which included the following scope:-

  • assess and verify the material litigations involving its subsidiaries and ascertain its financial impact to the Company;
  • verification of CSL’s existing cash and bank balances; and
  • verification of CSL’s trade, other receivables and revenue; 

(b)       CSL to have the advertisement expenses amounting to RMB146.2 million for the FYE 31 December 2016 reviewed by its external auditors; and

(c)        the BOD of CSL to announce to Bursa Malaysia Securities the following information by 24 November 2017:-

  • steps to be taken by CSL to address the issues in relation to paragraphs (a) and (b) above;
  • confirmation from the auditors that they have been appointed to undertake the review;
  • steps to be taken to appoint new directors pursuant to paragraphs 4A.04(2), 4A.04A, 15.02(1), 15.09 and 15.10 of the Main LR; and
  • confirmation from the solicitors in People Republic of China (PRC) that it has obtained the necessary authority from CSL to undertake the review on the ongoing material litigations.

The Company had failed to announce the information required at paragraph (c) above by 24 November 2017 which led to the suspension in the trading of the Company’s securities with effect from 5 December 2017.

5.

Disclosure Breaches

CSL had  breached the following disclosure requirements under the Main LR:-

(a)     paragraph 9.28(3) of the Main LR for failing to make the announcement of the Company’s inability to issue the QR Dec 2017, QR March 2018, QR June 2018, AR 2018, QR Sept 2018 and QR Dec 2018 not later than 3 market days before the expiry of the stipulated timeframes under paragraphs 9.22(1) and 9.23(1) of the Main LR.

The Company had only made an announcement on 27 November 2017 that the Company was unable to submit the QR Sept 2017 by 30 November 2017; and

(b)     paragraph 9.28(3A) of the Main LR for failing to make the monthly announcements on the status of the issuance of the Outstanding Financial Statements.



2 executive directors of CSL were imposed the following penalties for breach of paragraphs 16.13(a) and/or (b) of the Main LR where they had caused and/or permitted CSL to commit all or some of CSL’s Breaches:-

No.

Director

Breach

Penalties Imposed

1.

 

Chan Fung @ Kwan Wing Yin (Chan Fung)

Executive Chairman and Chief Executive Officer (CEO)

Paragraphs 16.13(a) and (b) of the Main LR for causing and permitting CSL to commit the Financial Reporting Breaches

Public Reprimand and total fines of RM4,219,000*

Paragraph 16.13(b) of the Main LR for permitting CSL to commit the Corporate Governance Breaches, the Foreign Listing Requirements Breaches, the Non-Compliance with Bursa Malaysia Securities’ Directives and the Disclosure Breaches

Public Reprimand and Fine of RM1,000,000

2.

 

Angus Kwan Chun Jut (Angus Kwan)

Executive Director

[Resigned on 18 December 2017]

Paragraph 16.13(b) of the Main LR for permitting CSL’s failure to announce the QR Sept 2017 on or before 30 November 2017

Public Reprimand and total fines of RM7,500

Paragraph 16.13(b) of the Main LR for permitting CSL to commit the Non-Compliance with Bursa Malaysia Securities’ Directives

Public Reprimand and Fine of RM150,000

[*The fines imposed on Chan Fung were computed as at 7 June 2019 and premised on a fine of RM3,000 per market day for each delay of the financial statements until the financial statements are issued/announced (subject to a maximum fine of RM1,000,000 for each financial statement).]

The finding of breach and imposition of the above penalties on CSL and its directors were made pursuant to paragraph 16.19 of the Main LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the materiality/impact of the breaches to CSL and shareholders/investors, the roles, responsibilities, knowledge and conduct of the directors and the fact that the Company and the 2 directors had previously committed similar breach in respect of the delay in the issuance of the Company’s annual audited accounts and annual report for the financial year ended 31 December 2013.

Bursa Malaysia Securities views the contraventions seriously as the timely and accurate disclosure of material information and submission of financial statements are fundamental obligations of listed companies. These obligations are of paramount importance in ensuring a fair and orderly market for securities traded on Bursa Malaysia Securities and necessary to aid informed investment decisions.

 

BACKGROUND

The delay in the announcement of the QR Sept 2017 which led to the delay in announcement/issuance of the subsequent financial statements was primarily due to the failure to verify, ascertain and assess the impact of the litigation cases against/involving the subsidiaries of CSL in the Company’s financial statements. The litigation cases were found on the Government of the PRC’s National Judgement Online website and National Legal Cases Search and highlighted by Bursa Malaysia Securities to the Company vide letter dated 8 August 2017.

Despite the appointment of the solicitors in PRC on 25 August 2017 and 31 August 2017 to carry out a thorough review of the litigation cases, the Company did not complete and announce the outcome of the review/verification checks/legal opinion. The Outstanding Financial Statements have yet to be announced/issued as at to-date.

Chan Fung, the Executive Chairman and CEO of CSL was responsible for the overall management, operations and administration of the Company and was primarily responsible for the preparation and issuance of the financial statements of CSL. He was the legal representative of a subsidiary of the Company which was involved in most of the litigation cases. In fact, Chan Fung had advised the Company that the litigation cases were related to his personal loans.

Chan Fung had blatantly disregarded and/or abdicated his responsibilities to ensure the Company’s compliance with the obligations under the Main LR vis-à-vis CSL’s Breaches. In particular, not only was he lackadaisical in ensuring expeditious completion/finalisation of the review of the litigation cases, he had in fact impeded/frustrated the same as he had failed to give/provide the necessary authorisation and/or complete documents/information to the solicitors and/or directors for the said purpose despite being in a position to do so.

Angus Kwan, the Executive Director of CSL was primarily responsible for the financial management of CSL and assisted Chan Fung in the day-to-day operations and management of the Company. By virtue of his role vis-à-vis financial management and daily operations/management, he  was in a position to resolve the issue on the litigation cases expeditiously and/or provide the relevant information/documents to the solicitors to enable completion of the review of the litigation cases. However, there was inaction and no evidence that he had taken reasonable and expeditious actions to ensure timely completion of the same prior to his resignation

Further, both Chan Fung and Angus Kwan were no longer contactable since 23 October 2017, did not engage with Bursa Malaysia Securities and had ignored/disregarded compliance with Bursa Malaysia Securities’ Directives and did not respond to/provide any explanation to the queries of Bursa Malaysia Securities on the actions taken in the discharge of their duties to ensure compliance with the Main LR.