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January 24, 2008 |
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CNLT (FAR EAST): Answers Allegations of Fraud Report In accordance to the Bursa Malaysia Securities Berhad's Corporate Disclosure Policy, CNLT (Far East) Berhad has submitted to the Bourse, a report in respond to The Edge Financial Daily's article entitled "Fraud at CNLT?". The Bourse has particularly pointed out the statement reported by the EdgeDaily that, the the company's forensic auditors concluded in its report that there was "clear evidence that the management and some of the directors had attempted to mislead investors and Bursa Malaysia with fictitious invoices amounting to 20% of revenue announced for the second quarter ended June 30, 2007." Moreover, the Bourse wants CNLT to provide facts for: * further clarification on the alleged: -- failure to provide for impairment of its plant and equipment; and -- fictitious invoices; * a statement of the relevant financial impact of the above to the company; and * the steps taken and proposed to be taken by the company in respect of the preliminary findings. In response, CNLT categorically denies all allegations made of any accounting fraud committed by the company. In this regard, the company wants to clarify that: 1) The Provisional Liquidators, Ong Kong Lai and Wong Cham Mew of O&M Corporate Advisory Sdn Bhd were appointed over the company on September 12, 2007, pursuant to an ex-parte court order dated September 6, 2007. On the same day of September 12, 2007, the company was also served with a wind-up petition by Vaaibz Pte Ltd. However, the appointment of the Provisional Liquidators was subsequently set-aside by the high court on Sept. 19, 2007; 2) It should be noted that the wind-up petition served on CNLT by Vaaibz Pte Ltd is still pending at the high court and not set-aside on September 19, 2007, as reported by The Edge Financial Daily; 3) Subsequent to the setting-aside of the appointment of the Provisional Liquidators, a forensic report dated Sept. 26, 2007, was prepared by Twin Leaders who was purportedly engaged by the Provisional Liquidators. The Management of the company was also not aware of the appointment of Twin Leaders by the Provisional Liquidators and there was also no basis for the preparation of the Forensic Report. The Forensic Report was only produced by Vaaibz Pte Ltd in its application to the high court to set aside the court order dated Sept. 19, 2007, that had set-aside the appointment of the Provisional Liquidators; 4) The allegation that “the forensic auditors were subsequently denied access to the financial records by CNLT’s management” as reported in The Edge Financial Daily, is untrue as the Management was not even aware of the appointment of Twin Leaders by the Provisional Liquidators and the appointment of the Provisional Liquidators was also set aside by the high court; 5) The Forensic Report was therefore prepared without any consultation or clarification with the Management. The Management views the serious allegations made in the Forensic Report and as reported by The Edge Financial Daily, as baseless and mischievous; 6) In the Forensic Report, Twin Leaders had also qualified that their purported investigation work was limited to only three days. Notwithstanding it was reported by The Edge Financial Daily in the said Article that Twin Leaders had concluded that “there were clear evidence that the management and some of the directors have attempted to mislead investors and Bursa Malaysia with fictitious invoices amounting to 20% of revenue announced for 2nd Quarter 2007”. In the following paragraph of the said Article, which is in contradiction to the purported clear evidence, The Edge Financial Daily had also quoted in verbatim that “The company’s transaction with one of its customers, MTI (Far East) Sdn Bhd is highly irregular and warrants further investigation”. In the above light, it would appear that the conclusion in the Forensic Report was premature and unjustified given that it was arrived at based on certain presumptions, which were made by Twin Leaders without any further verification; 7) There is nothing irregular with the transaction between the company and MTI Sdn Bhd as alleged in the Forensic Report or the Article. In the Forensic Report, Twin Leaders had based their conclusion of the alleged fictitious invoices on the assumption that there was no evidence of acknowledgment of the receipt of goods from MTI in the delivery orders in respect of some of the invoices amounting to MYR4.27 million. In fact, the company was waiting for the instructions by MTI for the delivery of the goods to a 3rd party. There is also nothing irregular about the transaction as MTI is a long standing customer of the company for over the past 20 years. It is also untrue that the company has not received any payments from MTI since selling goods in December 2005 which, on the contrary, the company had indeed receive payments for good from MTI after Dec. 2005; 8) The Management also denies the allegation in the Forensic Report and the Article that “the company has failed to provide for MYR13.9 million impairment of its plant and equipment, a clear attempt to cook the books of the company to hide its insolvency position”. After discussions with its external auditors, the Management commissioned an updated valuation exercise in 2007 by external valuers. The valuation exercise confirmed the carrying values of the company’s plant and equipment for the financial year ended December 31, 2006. This was accepted by the company’s audit committee, the Board of Directors and its external auditors; 9) The allegation made in the Forensic Report and as reported by The Edge Financial Daily, that the “impairment adjustments would have resulted in an unprecedented loss of MYR32 million for CNLT and that would lead to negative shareholders equity for the group, rendering it impossible for auditor not to arrive at an opinion that the Group is insolvent” is baseless as it is evident that the shareholders equity of the Group will not fall into a deficit position even if an impairment adjustment of MYR13.9 million is to be made based on the balance sheet of the Group as at the financial year of December 31, 2006; and 10) The company had on June 11, 2007, made an announcement to the Bursa Securities that it is an affected listed issuer under Practice Note No. 17/2005 of the Listing Requirements of the Bursa Securities and is required to, inter alia, submit a plan to regularize its financial condition to the approving authorities. Further, the company had on Oct. 10, 2007, announced to the Bursa Securities pursuant to the Amended Practice Note No. 1/2001 of the Listing Requirements of the Bursa Securities on the default of interest payment required to service the MYR60 million Bank Guaranteed Commercial Papers Programme as the company was experiencing financial difficulties due to constraints in its cash flow from operations which are insufficient to meet its debt obligations. It was also announced that the company was having ongoing discussions pursuant to Section 176 (10) of the Companies Act, 1965 on with its secured bank creditors on a debt restructuring plan. In addition, the company had also announced to the Bursa Securities that it had been granted a restraining order by the high court October 26, 2007. On the above basis, the company cannot be deemed that it had attempted to mislead investors and the Bursa Securities by hiding the position that the company is in financial distress and in need of a plan to regularize its financial position. CNLT had also consistently made announcements to the Bursa Securities on the status of its plans to regularize its financial condition and the status of the default on its bank facilities on a monthly basis since being classified as an affected listed issuer under PN17 and PN1. The company's Management strongly views that the allegations made in the said Article is defamatory and is now consulting their solicitors on the appropriate actions. About CNLT Based in Malaysia, CNLT (Far East) Bhd was admitted into the Amended PN17 listing criteria of the Bursa Malaysia Securities Bhd as it has triggered Paragraph 2.1(e) of the bourse's listing requirements: (i) Based on the unaudited quarterly results of CNLT for the first quarter ended March 31, 2007, as announced to Bursa Securities, the shareholders' equity on a consolidated basis is less than 50% of the issued and paid up capital of the company ; and (ii) The auditors of CNLT have expressed a modified opinion with emphasis on the Company's going concern in its latest audited accounts |
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