Presentation on Ethical Issues: Linear Corporation Berhad
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This document provides information about the case of Linear Corporation Berhad, a Malaysian company that was delisted from the stock exchange in 2012. It summarizes the company's business activities, its status as a PN17 company, events that led to its delisting including payment of RM36 million without board approval, and issues reported in its 2010 annual report including connections between former directors and exceptional payments. It also provides details about former director Alan Rajendram's involvement in Linear Corp and other companies.
![Alan Rajendram – Interesting Things
● In 2009, Stanton Technologies Sdn. Bhd. awarded
Frost and Sullivan Telecoms Award for “Most
Promising Malaysian ICT Vendor of the Year”.
● In September 2010, Official Receiver was appointed
as liquidator of Stanton Technologies Sdn.Bhd.
● Alan was executive director of the plaintiff in the
case of Cocoa Processors Sdn. Bhd. v. United
Malayan Banking Corporation Berhad [1988] 3
MLJ 491.
● Alan was the defendant in the case of Maybank
Investment Bank Berhad v. Alan Rajendram A/L
Jeya Rajendram [2010] MLJU 1683.](https://image.slidesharecdn.com/linearcorp-presentation-141128200727-conversion-gate01/85/Presentation-on-Ethical-Issues-Linear-Corporation-Berhad-29-320.jpg)
Presentation on Ethical Issues: Linear Corporation Berhad
- 1. Presentation on Ethical Issues Linear Corporation Berhad
- 2. Universiti Teknologi Malaysia International Business School Accounting and Finance for Decision Making (PBSA 1423) December 2014 Student: Kevin Koo Seng Kiat
- 3. Important Notice This presentation was prepared for class discussion based on information found on the Internet. Where possible I have tried to conduct SSM search (Suruhanjaya Syarikat Malaysia), accessed annual reports, and checked with news websites. Any factual error is deeply regretted and will be immediately corrected if informed by the affected parties.
- 4. On 13.7.2010, Dr. Dzulkefly Ahmad (Kuala Selangor - PAS), asked in Parliament: “...terdapat … scandalism daripada syarikat-syarikat yang tersenarai mahupun PN17 company ... “Securities Commission tidak mengambil tindakan yang agak tegas seperti ... Linear Corp.... bagaimana kita mahu memikat atau menggamit pelaburan daripada luar?”
- 5. Dato' Donald Lim Siang Chai (Deputy Finance Minister II), replied: “… syarikat-syarikat yang bermasalah seperti Linear Corporation Berhad, Axis Incorporated Berhad, Kenmark Industrial Co. (M) Berhad ... semua berkeadaan status PN17. “Kita akan ambil tindakan sewajarnya dengan undang-undang dan akta-akta ... sesiapa yang membuat kesalahan kita akan ambil tindakan.”
- 6. What is PN17? ● PN17 stands for Practice Note 17/2005 issued by Bursa Saham Malaysia. ● Companies listed on the KLSE stock exchange can become PN17 if they are classified as “troubled company”.
- 7. How a Listed Company Becomes PN17 1. Deficit in adjusted shareholders’ equity in the company on a consolidated basis; 2. Receivers and/or managers appointed over the company's property, or over property of its major subsidiary or major associated company which property accounts for at least 70% of total assets of the company on a consolidated basis; 3. Auditors expressed adverse or disclaimer opinion in respect of the company's going concern, in its latest audited accounts;
- 8. How a Listed Company Becomes PN17 4.The company suspends or ceases: a. all its business or its major business; or its entire or major operations, for any reasons including, due to or as result of: i. cancellation, loss or non-renewal of licence, concession or other rights necessary to conduct its business; ii. disposal of company's business or major business; or iii.court order or judgment prohibiting company from conducting major operations on grounds of infringement of copyright of products etc; or it has an insignificant business or operations.
- 9. Linear Corporation Berhad (Information from SSM Report) ● Nature of Business: “Investment Holding and Providing Management Services” ● Registered 29/1/1994 as Linear Corporation Sdn. Bhd. ● On 17/2/1994, changed name to Linear Corporation Berhad. ● Public company limited by shares ● Registered address: 60 Jalan Sri Bahari, 10050 Georgetown, Pulau Pinang. ● Business address: Plot 20655, Susur Lencongan Timur Kanan, Kawasan Perindustrian Cendana, 08000 Sungai Petani, Kedah.
- 10. From its website “Linear is today one of the leading heating, ventilation and air-conditioning (HVAC) solution providers in the ASEAN region.” Source: linear.com.my
- 11. Present Board of Directors Source: SSM Report Appointed Name Age Date of Birth 1 September 2010 Ling Keak Ming, Dato' 58 11 June 1956 1 September 2010 Lim Hun Beng 57 30 April 1957 3 July 2012 Skurtys, Jacek, P 56 Unknown 28 September 2012 Jerome Tan Thiam Poh 48 29 August 1966 10 January 2014 Ong Tai Chew 55 9 October 1959 Note: 1. Information on Mr. Skurtys obtained from Bloomberg Businessweek website 2. Information on other directors obtained from SSM Search
- 12. Recent Balance Sheet (?) Source: SSM Financial Report Item FY 2012 FY 2011 Non-Current Assets 18,837,000.00 38,665.00 Current Assets 24,772,000.00 5,616.00 Non-Current Liabilities 0.00 0.00 Current Liabilites 70,083,000.00 64,944.00 Share Capital 75,105,000.00 75,105.00 Reserves -100,369,000.00 -94,868.00 Minority Interests -1,210,000.00 -900.00
- 13. Recent Income Statement Items Source: SSM Financial Report Item FY 2012 FY 2011 Revenue 12,635.00 12,279.00 Profit /(Loss) before Tax -5,811.00 -64,683.00 Profit/(Loss) after Tax -5,811.00 -61,377.00 Net dividend 0.00 0.00 Minority Interests 0.00 0.00 Source: SSM financial comparison report.
- 14. Events @ Linear Corp. Event Date Linear Corp announced receiving award of RM1.66 billion from Seychelles-based Global Investment Group Inc. (GIG) to build cooling system for “King Dome” project in Manjung, Perak. Said to be worth US$5 billion. December 2009 Linear Corp. paid RM36 million to GIG for “performance consideration”, and the advance forwarded by Alan Rajendram. May/June 2010 Auditors (PwC) found that the special US$5 billion project could not be proven to exist. August 2010 Delisted from Stock Exchange (Bursa) 7 November 2012
- 15. Delisted from Bursa 5/11/2012, “Linear Will Not Appeal, To Be Delisted on Wednesday” (FMT) “The board believes that the PN17 status of the company was primarily caused by frauds committed by the former management ...” – from Linear's filing to Bursa. “Linear came to prominence in 2010 when the existence of a so-called US$5 billion (RM15.25 billion) Kingdom project said to have been awarded to the company in December 2009 could not be proven. Little internal control or governance framework within the company was said to be the weak link that led to … the setting up of prime savings and trust accounts where RM36 million was paid out.”
- 16. From News Articles “In the Linear Corp case, the central allegation is that almost all of its cash was taken out by one director. On Dec 29 last year, Linear had been awarded a massive RM1.67bil contract to build a district cooling plant, also known as the “King Dome” project in Manjung Perak by Seychelles-based company Global Investment Group Inc. Linear’s former director Alan Rajendram paid out its entire cash hoard of RM36mil without board approval.” – The Star, Famous Past Scandals 3/7/2010
- 17. From the 2010 Annual Report (pp. 82-84) Item in 2010 Annual Report 2010 (RM '000) 2009 (RM '000) Property, Plant and Equipment Exceptional Item I 558 0 Receivables Exceptional Item II 35,472 Exceptional Item III 8,185 Exceptional Item IV 3,085 Exceptional Item V 600 Exceptional Item VI 250 Exceptional Item VII 50 36,000 8,185 3,321 600 250 0 Exceptional Item VIII Allowance for Impairment 10,804 (10,804) 10,804 (10,804) 0 0 47,642 48,536
- 18. From the 2010 Annual Report (pp. 82-84) Item in 2010 Annual Report 2010 (RM '000) 2009 (RM '000) Payables Exceptional Item IX Exceptional Item X 2,472 570 2,806 570 3,042 3,376
- 19. From the 2010 Annual Report (pp. 82-84) Exceptional Item I – RM558,000. “2 motor vehicles which were used by 2 former directors who did not return the motor vehicles to the Company upon resignation.”
- 20. From the 2010 Annual Report (pp. 82-84) Exceptional Item II – RM36,000,000 (2009) “In December 2009, a former director caused a wholly-owned subsidiary, LCI Global Sdn. Bhd. to advance a sum of RM36 million to Global Investment Group Inc. as a performance consideration in connection with a letter of award for the design, construction, completion and commissioning of a district cooling plant for the King Dome project in Manjung, Perak...”
- 21. From the 2010 Annual Report (pp. 82-84) Exceptional Item II – RM36,000,000 (2009) “In February 2010, the former director caused GIG to refund the Advance Sum to an account held at PrimeSavings & Trust, a credit union registered in Sweden. “In April 2010, the former director caused LCI Global to pay the Advance Sum to GIG again without the approval of the Board of Directors.”
- 22. From the 2010 Annual Report (pp. 82-84) Exceptional Item III – RM8,185,000 (2009) “... long-outstanding trade debts owing by a company which is suspected to be connected with certain former directors. “... the related costs of sales were paid to the same company to which the sales were made.”
- 23. From the 2010 Annual Report (pp. 82-84) Exceptional Item IV – RM3,321,000 (2009) “... long-outstanding advances to companies which are suspected to be connected with certain former directors.” Exceptional Item V – RM600,000 “... an amount alleged as brokerage fee paid to a company which is suspected to be connected with certain former directors.”
- 24. From the 2010 Annual Report (pp. 82-84) Exceptional Item VI – RM250,000 “... long-outstanding advances to a prospective investee whose statutory information could not be found from the records of the Companies Commission of Malaysia. ” Exceptional Item VII – RM600,000 “... an amount alleged as loan processing fee paid to a company which is suspected to be connected with certain former directors.”
- 25. From the 2010 Annual Report (pp. 82-84) Exceptional Item VIII – RM10,804,000 “... long-outstanding advances to a joint venture company in China which were fully impaired in 2009 after several attempts to collect the debts and locate the counterparties have failed. ”
- 26. From the 2010 Annual Report (pp. 82-84) Exceptional Item IX – RM2,806,000 (2009) “... alleged advances from a company which is suspected to be connected with certain former directors.... might originate from its (Linear's) own funds suspiciously misappropriated earlier.” Exceptional Item X – RM570,000 “... alleged advances from a former director … might originate from its (Linear's) own funds suspiciously misappropriated earlier.”
- 27. Alan Rajendram Director in Linear Corp Bhd Position Start End Executive Chairman 26 December 2006 22 June 2008 Non-Executive Director 29 June 2009 18 May 2010 Executive Director 8 December 2006 29 June 2009 Source: Bloomberg Businessweek website
- 28. Alan Rajendram – Interesting Things ● He filed a Malaysian patent (PI 20070816) – was rejected. International patent also filed (WO/2008/143493) - status unknown. ● Alan is a director of Stanton Technologies Sdn. Bhd. (Source: Linear Corporation 2008 Annual Report) ● In May 2007, Stanton Technologies Ltd was incorporated in Dubai DFIC (Registered company no. 0392). It was later struck off in August 2012. ● According to 2014 SSM Report, Stanton Technologies Limited is the sole shareholder of Stanton Technologies Sdn. Bhd.
- 29. Alan Rajendram – Interesting Things ● In 2009, Stanton Technologies Sdn. Bhd. awarded Frost and Sullivan Telecoms Award for “Most Promising Malaysian ICT Vendor of the Year”. ● In September 2010, Official Receiver was appointed as liquidator of Stanton Technologies Sdn.Bhd. ● Alan was executive director of the plaintiff in the case of Cocoa Processors Sdn. Bhd. v. United Malayan Banking Corporation Berhad [1988] 3 MLJ 491. ● Alan was the defendant in the case of Maybank Investment Bank Berhad v. Alan Rajendram A/L Jeya Rajendram [2010] MLJU 1683.
- 30. Alan Rajendram – Interesting Things ● As of November 2014, Alan is still director of: – Cocoa Processors Sdn. Bhd. (since May 1983) – Stanton Technologies Sdn. Bhd (since June 2002). ● Queries arise when we notice that: – Cocoa Processors Sdn. Bhd. SSM Report does not have Financial Information (based on 1991 documents); – Stanton Technologies Sdn. Bhd. SSM Report shows that their auditor is from Johor Bahru (whereas the company is registered in Penang).
- 31. Rosy News in 2008 IJM Corp Bhd announced last week it received a letter of intent for a construction contract of RM840mil in Abu Dhabi in a joint venture with a little-known company also listed on Bursa Malaysia, LFE Corp Bhd. LFE's share of the job through its 30:70 joint venture with IJM is substantial for the small company. Equally significant, it shows the recognition from IJM of LFE as a suitable contracting partner. ... Or rather, that recognition could be for Alan Rajendram who took over LFE, as well as Linear Corp Bhd, in 2006. Rajendram, an accountant by training, also heads Stanton Technologies Sdn Bhd, which was approved for a listing on the Dubai Financial Exchange. Both LFE and Linear have started to perform exceptionally well. – “Time for Timber”, 21st April 2008. The Star
- 32. Board Overlap Some directors of Linear Corporation Berhad (Malaysian company no. 288687-W) were directors of Stanton Technologies Limited (Dubai company no. 0392): Person Linear Stanton Alan Rajendram Executive Director Director Eswaramoorthy Pillay Executive Director Director Mevin Nevis A F Nevis Executive Director Director Pervez Rustin Manecksha Chairman & Independent Non-Executive Director Director Source: a) DFIC Dubai page on Stanton Technologies Limited; b) Linear Corporation Berhad 2008 Annual Report.
- 33. Alan Rajendram in LFE Alan Rajendram was also director of LFE Corporation Bhd (another listed company) during his time at Linear Corporation Berhad. 24/6/2010 – Securities Commission charged Alan Rajendram for 8 offences committed when he was a director of LFE. Charged under: 1. Fraud (s. 87A r.t.w. s.122C(c) Securities Industry Act) – used RM9 mil. LFE funds to buy LFE shares. 2. CBT (s. 409, Penal Code) – RM9.99 mil. LFE funds; abetting LFE directors to cheat EON Bank of RM3.96 mil.
- 34. Alan Rajendram in LFE 3. Cheating (s. 420 r.t.w. s. 109, Penal Code) 4. Permitted False Statements to be furnished to Bursa (s. 122B(b)(bb), Securities Industry Act) (s. 396(b)(B), Capital Markets and Services Act 2007.) 11/5/2012 – Sessions Court acquitted Alan & Eswaramoorthy of cheating/CBT charges because “the money advanced by LFE to Eswaramoorthy is a loan” and was not considered CBT. However, prosecution had established prima facie case on 4 charges of submitting false information to Bursa Malaysia.
- 35. Alan Rajendram in LFE 11/10/2012 – Kuala Lumpur Sessions Court judge S.M. Komathy Suppiah fined Alan Rajendram RM300,000 and jailed a year for each of the 4 charges (submitting false information to Bursa Malaysia). The prison terms ran concurrently.
- 36. Director Eswaramoorthy Pillay s/o Amuther ● Was director of Linear Corporation Berhad and LFE Corporation Berhad. ● Former Singapore national football team goalkeeper. 29/6/2010 – Charged with abetting Alan Rajendram to commit fraud on LFE; Alan used RM9 mil of LFE money to buy LFE shares. Charged under: 1. Abetment – s. 87A(b) r.t.w. s. 122C(c), Securities Industry Act
- 37. Director Eswaramoorthy Pillay s/o Amuther 2. Abetment of CBT – s. 409 r.t.w. s. 109, Penal Code. 3. Abetting to Cheat – s. 420 r.t.w. s. 109, Penal Code. 11/5/2012 – Sessions Court acquitted Eswaramoorthy because “the money advanced by LFE to Eswaramoorthy is a loan” and was not considered CBT.
- 38. Epilogue LFE Corporation Bhd ● 1/10/2012 – LFE became a PN 17 company. ● In the 2012 Annual Report of LFE, – Alan Rajendram was still a “substantial shareholder” with 6,534,000 shares directly owned (7.7% shares); and – EB Nominees (Tempatan) Sdn. Bhd., which was the pledged securities account for Alan Rajendram, held 4,000,000 shares (4.71% shares).
- 39. Epilogue Linear Corporation Bhd. There is no news that Alan and Eswaramoorthy (Bryann) were ever charged for events during their tenure in Linear Corporation Berhad.
- 40. References 1. www.parlimen.gov.my/files/hindex/pdf/dr-13072010.pdf Malaysian Parliament Hansard, 13/7/2010 2. http://www.klmanagement.com.my/blog/pn17-listed-companies-in-fi nancial-distress/ “PN 17: Listed Companies in Financial Distress” 3. http://bankrupt.com/misc/PracticeNote17-2005.pdf “Practice Note No. 17/2005” 4. http://www.sc.com.my/post_archive/sc-charges-director-with-abetm ent-in-rm23-million-fraud-case/ “SC charges director with abetment in RM23 million fraud case” 29/6/2010, Securities Commission (Press Release) 5. http://www.mia.org.my/new/downloads/circularsandresources/res ource/newspaper/2010/06/week05.pdf Newspaper Clippings collected by MIA
- 41. References 6.http://www.thestar.com.my/story/?file=%2F2010%2F7%2F3%2Fbusi ness%2F6579934 “Famous Past Scandals”, 3rd July 2010, The Star 8.http://www.thestar.com.my/story/?sec=bus&file=%2F2010%2F6%2F 30%2Fbusiness%2F6573671 “Linear directors claims trial to five cheating charges”, 30th June 2010, The Star 9.https://sukaweb.penang.gov.my/pkn/Akhbar.nsf/ff4f9fa0a2840a8b 482575e6002c4ea0/f078a3cef14cc16e48257752000ebc7e/$FILE/File0 585.PDF “Linear: Ex-director Transferred Fund Twice” (Newspaper clipping) 10.SSM Search Report (Company Profile) on Linear Corporation Berhad , 24/11/2014. 11.SSM Search Report (Financial Comparison) on Linear Corporation Berhad , 24/11/2014.
- 42. References 12.http://www.thestar.com.my/story/?file=%2f2008%2f4%2f21%2fbusi ness%2f20991013&sec=business “Time for Timber”, 21st April 2008. The Star 13.https://forum.lowyat.net/topic/1939269/all “Linear vows action on ex-directors” 30th June 2011. Repost of news article from The Edge (now subscription-based). 14.http://whereiszemoola.blogspot.com/2011/06/look-at-linears-accou nting-fraud-and.html “A look at Linear's Accounting Fraud and the Impact on the Stock” 29th June 2011. Where Is Ze Moola (blog) 15.http://whereiszemoola.blogspot.com/2011/06/yet-another-case-of-a ccounting-fraud.html “Yet Another Case of Accounting Fraud” 29th June 2011. Where Is Ze Moola (blog)
- 43. References 16.http://investing.businessweek.com/research/stocks/private/perso n.asp?personId=212806010&privcapId=8080927 Bloomberg Businessweek, page on Jacek P Skurtys 17.http://investing.businessweek.com/research/stocks/private/person .asp?personId=8398630 Bloomberg Businessweek, page on Alan Rajendram 18.http://cdn1.i3investor.com/my/files/dfgs88n/2010/04/29/54212569- 309380639.pdf Document filed by Linear Corporation Berhad about its 2009 accounts 19.http://www.thestar.com.my/Story/?sec=b&file=%2F2011%2F6%2F29% 2Fbusiness%2F8992127 “Special audit finds no proof of US$5 bil Kingdome Project”, 29th June 2011. The Star 20.http://www.thestar.com.my/Story/?sec=b&file=%2F2011%2F7%2F4% 2Fbusiness%2F9015467 “No reprieve for errant directors”, 4th July 2011. The Star
- 44. References 21.http://www.difc.ae/stanton-technologies-limited Dubai International Financial Centre's page on Stanton Technologies Limited 22.http://www.thestar.com.my/story/?file=%2F2012%2F10%2F11%2Fbusi ness%2F12153901&sec=business “Ex-director Rajendram jailed, fined for furnishing false statements to Bursa” 11th October 2012. The Star 23.http://www.sc.com.my/post_archive/updates-on-criminal-prosecutio n-in-2010/ “Updated on Criminal Prosecution in 2010” - Securities Commission 24.http://www2.nst.com.my/nation/general/ex-goalkeeper-found-not-gu ilty-1.84007 “Ex-goalkeeper found not guilty”, 15th May 2012, NST 25.http://www.digi.com.my/aboutus/media/press_release_detail.do?i d=3880&page=3&year=2008 DiGi press release about its co-operation with Stanton Technologies 26.http://www.mia.org.my/new/downloads/circularsandresources/res ource/newspaper/2010/06/week04.pdf
- 45. References 27.http://cdn1.i3investor.com/my/files/dfgs88n/2011/06/03/144890427 8--1243295812.pdf Linear Corporation Berhad 2010 Annual Report 28.http://www.alantanblog.com/stock-market/linear-corp-bhds-securit ies-to-be-delisted-on-7-november-2012/ “Linear Corp Berhad's Securities To Be Delisted on 7 November 2012” 29.http://www.scribd.com/doc/99992077/LINEAR-AnnualReport2011- 581KB Linear Corporation Berhad 2011 Annual Report 30.SSM Report – Stanton Technologies Sdn. Bhd 31.SSM Report – Cocoa Processors Sdn. Bhd. 32.http://www.thestar.com.my/Story/?file=%2F2010%2F6%2F28%2Fbu siness%2F6553983 “Linear directors may have a lot of explaining to do at tomorrow's AGM” 28/6/2010
- 46. References 27.http://www.thestar.com.my/story/?file=%2f2010%2f7%2f23%2fbusin ess%2f6720527 “Linear distances itself from Rajendram's action”, 23rd July 2010. The Star 28.http://announcements.bursamalaysia.com/EDMS/subweb.nsf/d fDisplayForm?Openform&Count=-1&form=dfDisplayForm&viewna me=LsvARAll&category=LFE+CORPORATION+BERHAD + Annual reports of LFE Corporation Berhad, 2003-2013