The Securities Commission (SC) today publicly reprimanded Hwa Tai Industries Berhad (Hwa Tai) and imposed monetary penalties on directors who were in office at the time of the breach for their failure to give effect to paragraph 6.02 of the Prospectus Guidelines–Abridged Prospectus (Abridged Prospectus Guidelines).
Paragraph 6.02 of the Abridged Prospectus Guidelines issued by the SC requires corporations to allocate all excess rights shares “on a fair and equitable basis”.
In Hwa Tai’s Rights Issue with Warrants exercise undertaken in April 2004, there were 1,494 applicants for 2,273,297 excess rights shares. Instead of allocating the said excess rights shares among the applicants “on a fair and equitable basis” as required under paragraph 6.02 of the Abridged Prospectus Guidelines, the Board of Directors of Hwa Tai had resolved to allocate 2,270,037 excess rights shares (representing 99.86% of the total excess rights shares) to Soo Thien Ming. He was the single largest shareholder and also the chairman and non-independent non-executive director of Hwa Tai. Such an allocation had resulted in one single shareholder being allocated with almost the entire excess rights shares.
Given the severity of the directors’ failure to discharge their duty to ensure fair and equitable treatment to all shareholders who applied for the excess rights shares, as required under paragraph 6.02 of the Abridged Prospectus Guidelines, the SC imposed a penalty of RM200,000 on Soo Thien Ming whilst the other directors were imposed a penalty of RM50,000 each. The other directors are Lee Kah Keng, Loh Poh Im, Lee Thye, Soo Suat Swon, Raja Zainal Abidin bin Raja Hussin and Tan Sri Dato’ Mohamed Yusoff bin Mohamed.
The SC emphasised that it is the duty of directors of public listed companies to maintain the highest standard of corporate conduct and observe all laws and requirements on disclosure. In this regard, they must exercise their powers fairly and accord all shareholders their appropriate rights.
All directors must also ensure at all times that their fiduciary duties are discharged in a responsible and professional manner with high standards of care, skill and diligence. They must act in good faith and avoid potential conflict of interest situations.
Further, independent directors play a crucial role in providing a balanced and independent view to the board, taking a lead where a potential conflict of interest arises. In carrying out their duties, the independent directors must also evaluate transactions and proposals objectively and voice their objections, if any, to ensure board decisions are not detrimental to the company and shareholders.
The role of the board of directors is crucial to ensuring market integrity and continued investor confidence in the capital market.
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