Wednesday, February 29, 2012

NFC Breached Companies Act 1965

We have revealed the RM250 million loan agreement between the Government and NFCorp which clearly restricted the use of the monies for the purpose of “establishment and operation” of a National Feedlot Centre “to be consistent with the Government of Malaysia’s policy of developing, nurturing and promoting the production of beef”.

However it is clear that the millions of ringgit of the loan have been used for purposes other than that of cattle-rearing including the purchase of high-end luxury condominiums in Malaysia and Singapore and investment in businesses in Singapore.

Such acquisitions and investments with the loan funds have not been made through the NFCorp entity but through the individual directors of the company.  In effect it meant that NFCorp has lent money to the individual directors of the company and/or directly to companies which had common directors with NFCorp.  Such director-related companies would include Meatworks (Singapore) Pte Ltd which is not owned by NFCorp but by the individual directors of NFCorp.

Not only is such use a blatant breach of the loan agreement, it is illegal under the Companies Act to extend such loans.  In Section 133 and 133A under the “Loans Prohibited” category, “a company shall not make a loan to a director of the company or of a company which by virtue of section 6 is deemed to be related to that company, or enter into any guarantee or provide any security in connection with a loan made to such a director by any other person…”

Even for certain types of loans which are permissible, such as housing loans for employees and advances on expenditure to be incurred, they are only legal if prior shareholders’ approval has been obtained.  It is obvious in this case that no prior approval has been obtained from the Ministry of Finance which has a golden share in NFCorp.

In addition, Section 133A extends the prohibition to include loans to persons connected with directors of the lending company. Such persons include other companies in which its directors have an interest in 20% of the equity of such companies.

Finally, Section 133(4) makes directors in breach of the prohibition guilty of a criminal offence and such directors are made jointly and severally liable to indemnify the company against any resulting losses.

In response to the statement by the Director of Commercial Crimes Investigation Department (CCID) Datuk Syed Ismail Syed Azizan which recommended that NFCorp be charged for criminal breach of trust (CBT), NFCorp had claimed on Sunday 26th February 2012 that the conclusion made by the Police was “premature” and failed to take into account the “intentions” of its Directors.

NFCorp had claimed that “the so-called ‘unrelated companies’ of NFCorp where the fund was channeled to, were always meant to be the subsidiaries of NFCorp”.  However such a claim is in fact a clear admission of wrongdoing under the Companies Act.

The statement by NFCorp that “the directors of NFCorp sat on the board of these associate companies” would “prove exactly the point of the attempt to rationalize” the group of unrelated companies, is in fact the exact offence which the Companies Act seek to make illegal.

Therefore we call upon the Attorney-General to act not only on the case of CBT where the government’s loan funds have been abused, but also for clear breach of the Companies Act where NFCorp lent liberally to its directors and directors’ companies.
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