Kuala Lumpur, 28 May 1999

The Securities Commission ("SC") hereby announces that in exercise of its powers under Sections 33D (1) and 42(1) of the Securities Commission Act 1993 ("the SCA") it has decided to issue reprimands to the following parties:

  1. IOI Corporation Berhad ("IOI") and Tan Sri Lee Shin Cheng ("LSC"), for their failure to undertake mandatory offers ("MO") for the remaining voting (rights) shares in Palmco Berhad ("Palmco") after having acquired more than 33% of the voting shares in Palmco in breach of Section 6(4) of the Malaysian Code on Take-Overs and Mergers, 1998 ("the Code"); and
  2. CSA Holdings Ltd ("CSAH") and its directors at the material time, namely Allen Joseph Pathmarajah, John Moo Kwee Chong @ Johnny Moo, Boon Yoon Chiang, Betty Koh Hue Lah, Barry Baxter Lennon and Prof. Bernard Tan Tiong Gie, for their failure to undertake MO for the remaining voting shares in Computer Systems Advisers (M) Berhad ("CSAM") after CSAH increased its group's shareholding in CSAM by more than 2% in a six-month period in breach of Section 6 (4) of the Code.

Section 6(4) of the Code stipulates that the requirement concerning MO obligation in respect of the remaining voting shares in the offeree or target company will arise in the following situations:

  1. Where an acquirer (who) has obtained more than 33% of the voting shares in a company
  2. Where an acquirer who holds more than 33% but less than 50% of the voting shares of a company acquires in any period of 6 months more than 2% of the voting shares of the company.

The SCA defines an acquirer as including parties acting in concert with the acquirer. Section 33(3) of the SCA further provides that, amongst others, a person is presumed to be acting in concert with the company in which he is a director and a corporation is similarly presumed to be a concert party with the company of which it is its holding company.

In the case of Palmco, IOI and its concert party, who is its Managing Director, LSC had obtained control in Palmco via a collective interest of 33.03% whilst in the case of CSAM, CSAH has 44.58% voting shares in CSAM when its concert party, which is its subsidiary, i.e. Integral Systems Inc. ("Integral"), made the additional purchase of approximately 2.5% voting shares in CSAM.

Chronology of events in Palmco's case

(i) Background

IOI had on 24 March 1997 acquired 52,463,000 voting shares representing 32.96% interest of Palmco from Mega First Corporation Berhad (MFCB) at RM4.35 per share. On 25 March 1997, IOI and LSC acquired a further 38,000 and 77,000 voting shares in Palmco, respectively from the open market through K&N Kenanga Bhd. These purchases had increased IOI and LSC's collective interest in Palmco to 52,578,000 voting shares or 33.03%.

(ii) SC issues show-cause letters

The SC was informed of a possible breach of the Code through a complaint. Since IOI and LSC had obtained control in Palmco but no MO was subsequently undertaken, both IOI and LSC were considered to have breached Section 6(4) of the Code. In view of the possible breach, the SC issued show-cause letters, dated 24 November 1998 and 30 November 1998 to IOI and LSC respectively, for them to explain why action should not be taken against them for failing to undertake a MO for the remaining voting shares in Palmco.

IOI and LSC provided replies to the SC on 7 December 1998 and 10 December 1998 respectively. It was explained that LSC had, on 25 March 1997, instructed his broker to purchase 77,000 voting shares in Palmco while he was in Australia. However, on realising IOI's actual holdings in Palmco, after his return to Malaysia on 26 March 1997, LSC had disposed of the entire 77,000 Palmco shares on 8 April 1997 to one Goh Sue Yin ("GSY") via a private arrangement at the same price that he had acquired the said 77,000 Palmco shares. IOI had confirmed that GSY was not a party acting in concert with IOI and LSC did not benefit financially from that transaction.

LSC further explained that the 77,000 shares in Palmco were the only Palmco shares purchased by him subsequent to the acquisition of Palmco shares by IOI. Instruction for the purchase by LSC was made without his full knowledge of IOI's actual shareholding in Palmco as he was away in Australia. Both IOI and LSC stated that they regretted their oversight and action was taken by LSC to sell his 77,000 shares in Palmco. LSC emphasised that the mistake was inadvertently made and he had taken immediate steps to dispose of his entire holdings without making any profit out of it.

(iii) Ruling by the SC

The SC made its decision under Section 33A(4)(a) of the SCA that IOI and LSC had breached the Code and as such they would have to comply with the requirement under Section 6(4) of the Code to undertake a MO for the remaining voting shares in Palmco. This decision was made based on the fact that LSC, who is the principal shareholder and main driver of the IOI Group of Companies, should be in the position to know the exact holdings of IOI's voting shares in Palmco given that the acquisition of Palmco shares was so close to the 33% trigger point. Our decision was conveyed to IOI/LSC on 5 February 1999.

(iv) Review Of Decision

IOI and LSC had appealed to the SC under Section 42(1) of the SCA for a more lenient penalty as it was represented that IOI would not be in a financial position to undertake a MO. It was submitted that a MO will render the company insolvent with consequential adverse effects on its performance and inevitably, on the position of the minority shareholders.
The letters of appeal were submitted on 27 February 1999 and 3 April 1999 respectively. The SC had considered the grounds of the appeal and noted further that IOI had been a good corporate citizen in the past and that Palmco's performance has improved following the take-over by IOI.

(v) Final Decision

Having taken into consideration the foregoing mitigating factors and the fact that LSC had actually reversed the transaction soon after he realised the breach, the SC decided, pursuant to the said appeal application that a public reprimand is an appropriate penalty for the breach.

Chronology of events in CSAM's case

(i) Background

On 11 February 1998, Integral, a company incorporated in the United States of America, acquired 1 million shares in CSAM (representing approximately 2.5% of the paid-up share capital of CSAM) at RM4.00 per share from a substantial holder of CSAM, Elite Vista Sdn Bhd ("Elite"). This transaction was effected through a married deal. Integral is an 80% owned subsidiary of CSAH, a company listed on the Singapore Stock Exchange. At that time, CSAH held 44.58% equity interest in CSAM.

On 3 July 1998, Messrs. Cheang & Ariff, on behalf of CSAH, wrote to the SC informing of the breach of the Code and the willingness of the directors to explain the matter. A meeting was subsequently held on 24 August 1998 with Mr. Johnny Moo, Group Managing Director of CSAH, Ms. Esther Tan (Group Financial Controller) and Encik Mohamad Ariff Yusoff, a partner of Messrs. Cheang & Ariff, to clarify the acquisition of the 1 million shares in CSAM. Mr. Johnny Moo explained that the acquisition was made without their knowledge. It was submitted that the transaction was not disclosed to the Board of Directors of both Integral and CSAH. It was further stated that an Investment Committee of Integral was formed by the Executive Committee of Integral (comprising mainly Mr. Kelvin Kwok, its Managing Director for the North America Division) without the knowledge and authorisation of the Integral's Board to purchase the 1 million shares in CSAM.

The Group Financial Controller of CSAH had subsequently detected the additional investment in CSAM shares during a review of the accounts and brought this matter to the attention of CSAH's Board on 6 May 1998. Therefore, consistent with the listing obligation under the Singapore Stock Exchange ("SES"), an announcement pertaining to this acquisition was made on 8 May 1998. In the same announcement, the Board of CSAH expressed its regret over the oversight to announce the purchase and emphasised to the SES that CSAH and its officers would strictly observe the listing requirements in the future.

After further investigation, the Board of Integral instructed the Executive Committee to disband the Investment Committee of Integral and to dispose of the 1 million shares in CSAM. Integral had on 5 June 1998 disposed of the 1 million shares to one Mr. Lee Boon Teck, an unrelated party as confirmed by CSAH, at RM4.00 per share.

The SC had, on 29 October 1998, received an application from Messrs Cheang & Ariff, on behalf of CSAH, seeking our consideration that the acquisition of the said 1 million shares was unintended and was an inadvertent mistake on CSAH's part and as such, it should not be considered as a breach of the Code.

(iii) Ruling by SC

The SC did not fully accept the explanation by CSAH and accordingly ruled under Section 33A(4)(a) of the SCA that CSAH and Integral had contravened the MO requirement of the Code. Accordingly, on 4 February 1999, the SC informed CSAH of its ruling that CSAH had breached the Code and the consequent need to comply with Section 6(4) of the Code pertaining to the MO obligation in respect of the remaining voting shares in CSAM.

(iv) SC issues show-cause letter

As CSAH did not respond to our ruling made on 4 February 1999 the SC had on 11 March 1999, issued a show-cause letter to the Board of Directors of CSAH seeking explanations on why appropriate actions should not be taken against them for not undertaking the MO for the remaining voting rights in CSAM.

(v) Review Of Decision

On 24 March 1999, CSAH replied to the show-cause letter and appealed against the SC's ruling. CSAH explained that there was no intention to breach the Code since the Board collectively had no knowledge of the transaction and there was no attempt by the Board to consciously obtain or consolidate control of CSAM beyond its initial shareholding.
CSAH stated that if it had intended to do so, it could have purchased shares from the open market in January 1998 when the market price of CSAM shares was at its lowest. Further, CSAH had immediately addressed the problem by making the appropriate announcement and wrote to all its subsidiaries on 15 May 1998 advising them to be mindful of their duties and responsibilities of a listed company and that all future investments must be approved by the relevant Boards.

CSAH had also disposed of the shares at the same price that it had acquired and had voluntarily notified the SC. CSAH argued that the transaction did not breach Section 6(4) of the Code since this section refers to a period of 6 months and the acquisition was made in February 1998 which is 10 months from the date of the initial listing of CSAM in April 1997 and aside from this transaction, there had been no other transaction by CSAH. However, this explanation was not acceptable as CSAH had in one transaction alone purchased more than 2% interest in CSAM, and as such, the argument on the time period is not relevant.

(vi) Final Decision

Nevertheless, considering that CSAH had voluntarily come forward to inform the SC of the breach and that CSAH had disposed of the 1 million CSAM shares immediately, the SC has decided pursuant to the appeal application that a public reprimand is an appropriate penalty for the breach.
High standards expected of acquirers, directors and principal officers

The SC would like to highlight that in regard to the failure to undertake MO obligation in accordance with the requirements of the Code, such contravention may, pursuant to the amendment to the SCA which came into force on 1 January 1999, depending on the facts and circumstances of each case, result in a criminal prosecution be instituted by the SC against the pertinent offender.

Accordingly, the SC would like to remind all parties involved in any take-over transaction, especially acquirers, directors and principal officers of all public companies to maintain high standards of corporate conduct and to strictly observe all relevant laws and rules at all times when undertaking such take-over transactions. They must always ensure that they discharge their fiduciary duties and obligations in a responsible manner as the laws and rules have been formulated with the objective of ensuring fair treatment to minority shareholders and at the same time promoting investor confidence and good corporate conduct in the country's securities market.


Issued on behalf of the Securities Commission. Members of the press requiring assistance may contact the Corporate Affairs Department at tel no. 03-6548513 (Ann Teoh) / 03-6548184 (Azmi Hariss Ibrahim) or fax no.: 03-6515078.

Background information:
The Securities Commission (SC), a statutory body reporting to the Minister of Finance, was established under the Securities Commission Act 1993. It is the sole regulatory agency for the regulation and development of capital markets. The SC has direct responsibility for supervising and monitoring the activities of market institutions, including the exchanges and clearing houses, and regulating all persons licensed under the Securities Industry Act 1983 and Futures Industry Act 1993.
More information about the SC is available on its homepage at
about the SC
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.

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