Linear blames weak internal controls

Admitting its recent problems were “self-inflicted” by internal weaknesses, Linear Corporation Bhd is keen to move on, buoyed by the promise of continuing profitability in its core business.

After an uneventful AGM yesterday, which lasted less than 10 minutes with only five shareholders attending at its plant in the Perai Industrial Estate, recently appointed executive director Yap Chee Keong said the company believed the worst was over.

“We will carry on with our restructuring exercise with the usual framework of capital reduction, reduction of indebtedness followed by injection of new equity funds.

“We have addressed much of the self-inflicted problems in the last two months,” he told a press conference that was also attended by executive director Mevin Nevis and chairman Paul Maneksha.

Among the weaknesses that had been rectified included having two signatories for all its bank accounts since May.

This followed the debacle of almost its entire cash hoard of RM36 million paid out — twice — without board approval, by its former director Alan Rajendram Jeya Rajendram, who was the sole signatory for the account for three years since 2007, Yap alleged.

Nevis said when the letter of award was issued on Dec 29, 2009 by Seychelles-based company Global Investment Group Inc (GIG) for the district cooling plant in the RM1.67 billion King Dome project, the RM36 million was subsequently paid out on Dec 31, 2009.

Following the advice of its auditors in February 2010 that the money should not have been paid out without an EGM being called, Rajendram was allegedly asked to refund the money.

“However, in April, for the second time, without informing the board, Rajendram authorised the RM36 million to be paid to GIG again.

“The board was only notified after the transaction was completed and his explanation was that he was under pressure from GIG for the money to be paid as GIG was keen to move on with the project,” Nevis alleged.

Yap claimed that Rajendram was the sole correspondent with GIG on the King Dome deal. He also clarified that one of its directors, Bryan Pillay, had been misquoted by an English daily.

“Linear has no control over where the King Dome project should be located as we do not own or promote the project. It is not our call. We are only involved in the air-conditioning and cooling plant system for the project,” Yap added.

He said Linear would continue to assess the viability of the project or seek recourse from GIG to recover the money.

“Our second recourse is to recover the money from Rajendram, who has issued a statutory declaration and a letter of indemnity (LOI) on June 17 to deliver the project or indemnify the company in the event of any losses. He has until Nov 30 to do so,” Yap added.

Linear is saddled with secured loans of RM18 million and RM21 million in unsecured loans, which it had defaulted on, resulting in it being classified as a Practice Note 17 (PN17) company.

“At least six parties had approached us but none materialised due to the bad press reports which created an adverse perception of the company.

“Knowing that we are down and out, the buyers were not even willing to pay the forced sale price of RM15.2 million even though the open market value was RM19 million.

“We have fallen, now we are up and we hope to be able to run soon. We are hoping to sell this building in the next three months,” Yap added.

Its restructuring efforts include tightening other loopholes, with any decisions involving more than RM10,000 requiring the approval of the board.

“All contractual arrangements must also be vetted and prepared by external legal advisers before being brought to the board for deliberation.

“The King Dome project was one of those which were entered into without proper documentations or approval by the board. The agreement was too flimsy with many issues left unsaid and as per the letter of award, the money had to be paid upfront and if the project is not carried out, the payment would be forfeited,” he said.

On talk of the possibility of a takeover of the company by a white knight, Yap said these were shareholder issues which did not concern the board.

Yap said Linear was working closely with Bursa Malaysia, the Securities Commission and its creditors to resolve its outstanding issues.

On whether Bryan Pillay, a non-executive director of Linear, who was charged by the Securities Commission for offences related to LFE Corp Bhd alongside Rajendram, would be removed as a director, Yap said both of them were innocent until proven guilty by the courts.


This article appeared in The Edge Financial Daily, June 30, 2010.