Importance of good financial reporting and how it affects corporate governance

Saturday April 7, 2012

Silver Bird agenda includes directors’ pledge to defer fees

Optimistically Cautious
By ERROL OH

MINORITY shareholders of Silver Bird Group Bhd who don’t bother to read the company’s latest annual report will probably view the AGM on Apr 30 as merely an opportunity to interrogate the directors on the alleged financial irregularities that were disclosed recently.

Also, there will surely be plenty of questions about what’s next for the bread and confectionery maker.

It’s safe to say that the AGM agenda is the last thing on these shareholders’ minds. After all, who cares about voting on mundane and routine matters such as receiving audited accounts and re-electing directors when millions of ringgit belonging to the company has yet to be accounted for?

The shareholders are wrong, though. The Silver Bird AGM this year is a time for big decisions.

For example, shareholders who attend the meeting will be asked to vote for the removal of the company’s two executive directors and for the appointment of new external auditors (see news story on page 10).

These moves are not entirely surprising. Current auditors Crowe Horwath issued a disclaimer of opinion on Silver Bird’s financial statements for the year ended October 2011, saying it could not obtain “sufficient appropriate audit evidence to provide a basis for an audit opinion”.

The firm, which has been Silver Bird’s auditors for many years, gave a long list of items that it could not be sure about. Such an expression of doubt about a company’s affairs has been known to ruin auditor-client relationships.

The two executive directors, group MD Datuk Jackson Tan Han Kookand executive director Derek Ching Siew Cheong, had been suspended a few days before the company issued its audited accounts on Feb 29, “to facilitate the conduct of an internal inquiry into allegations of, amongst others, irregularities in the company’s accounts.”

It’s a given that the next step would be to boot the duo out of the board, and that can only be done via shareholder vote.

And here’s arguably the most interesting resolution on the AGM agenda: “To approve the sum of RM264,000 (2010: RM264,000) being the directors’ fees for the financial year ended October 31, 2011, payment of which shall be deferred in relation to those directors who have not received directors’ fees for the financial year, until the regularisation plan for the group has been approved by the relevant authorities.”

On Feb 29, Silver Bird was designated a PN17 company essentially a badge of financial distress because its audited accounts came with Crowe Horwath’s disclaimer of opinion and because some of its major subsidiaries defaulted on loans.

To climb out of PN17 status, the company must come up with a regularisation plan and implement it. It has until February next year to submit the plan to the Securities Commission and Bursa Malaysia.

That means the directors may have to wait at least that long before receiving their fees.

It’s confusing, however, that in his statement in the annual report, Silver Bird chairman Datuk Gan Khuan Poh says: “In view of the crisis before the company, the board of directors has resolved to put all directors’ fees for the financial year ending October 31, 2012, in abeyance pending completion of the on-going investigations into the financial irregularities.”

Is he indeed referring to the fees for 2012 or does he actually mean those for 2011? How does he define the completion of the investigations? The accounting firm hired to conduct a forensic audit of Silver Bird is expected to hand in its report in two months or so. Will the directors be paid immediately after that?

It’s likely that if the shareholders vote for the resolution on the directors’ fees on April 30, the board will abide by the words of the resolution.

This may well be the first time in corporate Malaysia that the directors of a financially troubled company have publicly pledged not to collect their fees until the company has a turnaround plan firmly in place. It’s a show of goodwill and commitment, and it’s a fine example for others to follow,

Here’s one way to top that if the directors assure that they would not step down as long as the company is not yet on the path to recovery.

Executive editor Errol Oh believes that corporate malfeasance happens when directors become too fond of the perks of the jobs.

Source: TheStar

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