SGX orders Astaka executive director, former CEO to resign from all posts

ASTAKA Holdings' current executive director and former chief executive Zamani Bin Kasim has been ordered by the Singapore Exchange (SGX) to resign from all his current positions for causing the company to breach Catalist rules. SGX also reprimanded the group for failure to disclose three letters of demand relating to loan defaults.

SGX, via a bourse filing on Friday, said it brought three charges against the Catalist-listed Astaka for failing to promptly disclose three letters of demand received by its wholly-owned indirect subsidiary, Astaka Padu Sdn Bhd (APSB), from China State Construction Engineering (CSCE) between October 2018 and July 2019.

The same three charges were also brought against Mr Zamani, former chief financial officer Lee Shih Yi, and an anonymous party (Party A).

SGX noted that APSB had appointed CSCE as the main contractor to carry out construction works for the development of service apartments in Malaysia.

Subsequently, APSB was unable to make payment for outstanding progress claims and proposed to CSCE to treat the amounts owed as a loan that CSCE had extended to APSB.

On April 12, 2017, by way of a loan agreement, CSCE had agreed to grant an interest-free loan to APSB under the construction agreement, due to be repaid on or before June 30, 2017, or upon APSB's receipt of written demand from CSCE, whichever was earlier.

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In the event APSB was unable to repay the loan on time, CSCE would, upon APSB's request, grant APSB a final extension of time until Sept 30, 2017 to repay the loan, provided that late interest be charged at the rate of 8.5 per cent per annum on the outstanding loan - calculated from the expiry of the due date (or such period as stated in the written demand) until the date of full loan repayment.

APSB had received three letters of demand from CSCE for the recovery of the outstanding sum due and owing from APSB.

The first letter, received by APSB's lawyers on Oct 2, 2018 and forwarded to Mr Zamani, Party A, and Ms Lee, stated for the lawyers to "kindly urge your clients to repay the loan with the late payment interest".

The claim amount of RM51.48 million (S$16.55 million) represented 313.5 per cent of Astaka's cash and cash equivalents, 21.2 per cent of its net asset value (NAV), and 213.9 per cent of its net profit before tax.

The second letter of demand, received by APSB on Feb 13, 2019, demanded for the outstanding amount plus interest to be paid within 60 days, failing which CSCE would have to commence legal proceedings for the recovery of the same.

Mr Zamani, Party A, and Ms Lee were aware of this letter, said SGX.

That claim amount of RM113.54 million represented 1,420 per cent of the group's cash and cash equivalents, 47.8 per cent of its NAV, and 838.3 per cent of its net profit before tax.

The third letter of demand dated July 11, 2019 was sent to APSB by courier and e-mailed to Mr Zamani, Party A and Ms Lee. It stated that CSCE was thereby making a payment claim pursuant to and under the Construction Industry Payment and Adjudication Act.

The claim amount of RM125.35 million represented 659.3 per cent of the group's cash and cash equivalents, 62.4 per cent of its NAV, and 925.4 per cent of its net profit before tax.

None of the letters of demand were disclosed by the management team to the board of directors (excluding Mr Zamani), upon receipt, said SGX.

On Aug 27, 2019, Astaka's audit committee (AC) had, in a meeting attended by Mr Zamani, Party A, and Ms Lee, asked whether the group had received any legal letter of demand from creditors.

The management had confirmed that the group had not received any legal letter of demand, other than a letter from a supplier for an outstanding amount of approximately RM1.8 million.

"As a result, the AC was misled, and the material information of the letters of demand was not promptly disclosed. This is deeply concerning," said SGX.

On Sept 5, 2019, the AC chairman sent an e-mail to Ms Lee seeking reconfirmation that the group had not received any letters of demand from CSCE.

Mr Zamani then informed the AC chairman of the group's receipt of the three letters.

On the same day, Astaka released an announcement on SGX relating to the receipt of the letters, the need for the prior year adjustment on the under-recognition of interest expense, and the intention to appoint an independent reviewer to undertake a review of the matters that "might have given rise to the oversight".

It then requested for a voluntary suspension of the trading of its shares, the resolution of the letters of demand, and the issues raised by the independent review to be undertaken.

Trading in the company's shares have remained suspended to date. It is currently facing legal proceedings from one of its contractors and CSCE.

SGX said there was no dispute that APSB was in default of the loan.

It noted that amounts claimed in the letters of demand constituted a "significant" proportion of the group's assets; repaying the loans would result in a substantial outflow of the group's cash, and in turn would result in a significant deterioration of its financial position and diminution in the value of its assets, and potentially affect its ability to operate.

Non-disclosure of the receipt of the letters of demand had also resulted in investors and shareholders trading in the company's securities without the knowledge that there existed factors that would adversely affect the company's value and prospects.

On July 22, a resolution agreement was signed by the relevant parties, which stated that the company - as well as Mr Zamani, Party A and Ms Lee - would plead guilty for failing to promptly disclose the receipt of the third letter of demand.

Mr Zamani is required to resign from all his current positions and not to be appointed to any position in the company for two years from Aug 17.

SGX said: "Mr Zamani's actions in telling a deliberate falsehood to the AC in the face of a clear question cast serious doubt on his character and integrity, and whether he is fit and proper as an executive director of the company.

"He had continually assessed the letters of demand as being 'immaterial' for disclosure, and this raises questions on whether he met the baseline standard of competence and conduct expected of a director of a listed company."

Public reprimands were also issued to the company, Mr Zamani and Ms Lee.

Party A was given a private warning and is required to undertake a mandatory education or training programme on listing rule obligations.