Philosophy Politics Economics

Posted by Awanama | Posted on 9:26 PTG

Philosophy Politics Economics

NFC Breached Companies Act 1965

Posted: 28 Feb 2012 04:40 PM PST

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.

NFC Spins Itself Into A Corner

Posted: 28 Feb 2012 02:51 AM PST

In response to my press conference held on Saturday to reveal the NFCorp RM250 million loan agreement with the Malaysian Government, the company has yesterday responded publicly to claim that I have "misled the public".

I have highlighted the fact that the Directors have clearly breached the loan agreement by using the loan funds for purposes other than that of that specified in the agreement, which is to rear cattles and improve its quality and production in the country.

However NFCorp argued that "the loan agreement had to be read concurrently with the implementation agreement, the powers of the company as set out in its memorandum and articles of association and other related documents."

In essence, the company claims that the Loan Agreement signed with the Government must be read concurrently with the company's memorandum and articles of association (MAA). They clarified that the MAA allowed the company to "to invest and deal with the money of the company not immediately required in such manner as may from time to time be thought fit."

Therefore, according to NFCorp it is important that the agreements and the company's MAA "for a holistic understanding of MoF's terms and conditions for the loan."

NFCorp even tried to justify their generous use of tax-payers' funds channelled through the loan by the fact that the Government owns a Golden share in the company.  They argued that the Government's share in the company means the former's complete approval with its use of funds lent to the company.

Even to someone not trained in law like myself, the statement from NFCorp must be one of the most preposterous but beautifully written legal gobbledegook I've read in my short political career.

There is absolutely no provision in the loan agreement for the use of the monies to be "guided" by the company's MAA.  The fact that NFCorp MAA may allow the company to set up a casino does not in any "legalise" the use of the loan funds for its set up. The Government's stake in the company makes absolutely no difference to the legal effect of the loan agreement.

In fact I would go so far as to say that the statement by NFCorp is a clear admission of their guilt in breaching the strict terms of the loan agreement.

I found it laughable that NFCorp has also attempted to justify their purchase of luxury condominiums in Malaysia and Singapore by relying on the clause in the loan agreement which said

"12.1 - In the event that the Loan Facility is utilized to fully pay for the purchase of landed properties, the Borrower hereby agrees that it shall create the necessary charge/assignment over such landed properties in favour of the Lender."

Firstly, given the strict purpose of the agreement to promote cattle-farming, surely any acquisition of property must be directly related to the industry such as cattle-grazing land.

Secondly, and most incredibly, surely NFCorp can't be arguing that the luxury condominiums they have purchased can be defined in any possible way as "landed property". Or worse, that they were purchased for cattle-rearing purposes, or would we find new technological wonders on how to farm cattles in high-rise luxury residences?

The company is obviously so bankrupt of ideas and is desperately clutching at straws to save themselves from the wrath of the Malaysian public and the claws of the enforcement authorities.

Finally, if the above statement and legal justification of NFCorp's use of funds was advised by their lawyers, then my only advice to the directors is perhaps to consider appointing better lawyers to save their skin.

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