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Corporate, Opinion  |  FEBRUARY 14, 2013 10:54AM

Protecting the interests of interest scheme holders

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aidila-on-the-sidelines-thumbnailAfter battling wild elephants and antsy investors, Country Heights Growers Scheme (CHGS) founder Lee Kim Yew last Friday managed to get 98 percent of the scheme’s growers to agree to terminate it altogether.

Investors, however, did not let him off easy.

Meeting them on the matter a couple of days before the Chinese New Year, Lee not only had to revise his buyback offer, but also throw in an ang pow (money as gift) of RM25 mil, equivalent to a 12 percent net yield payment.

And while Lee came to the table offering to reimburse the growers investment plus yield from 2007 to 2011 within two years, investors managed to push his company Plentiful Gold-Class to cough up the cash in six months.

Lee had given a personal guarantee that the total RM 294 mil in fee refund and net yield payout will be paid up within six months. logo_CHGS

In all respects, CHGS’s investors are much better off than those who invested in gold investment schemes like Bestino and Genneva, whose money is still tied up in the debacle.

The victory-of-sorts could have been due to the high profile nature of the scheme, as well as pressure from the Minority Shareholders Watchdog Group which had proposed a counter offer close to what Lee buckled to.

What is clear, however, the outcome was not owing to regulatory oversight. If at all, the CHGS saga only throws light on the lack of it.

Scheme launched before guidelines set

Companies Commission Malaysia (CCM)’s website states the scheme falls under Section 86 and 87 of the Companies Act, and is regulated through guidelines issued by the commission. However, the guideline was only released in 2010, about three years after CHGS was launched.

According to the guidelines, the duty of safeguarding growers for such share-farming schemes falls mostly on the trustees.

It states that trustees must make regular site visits for inspection purposes and suggest remedial action when things are found unsatisfactory. Trustees must also meet independent consultants twice a year to ascertain operation performance and report the details of the meeting in writing to CCM.

But what will CCM do when a trustee reports that the scheme is not doing as well as it promises to be?

In his press release, CCM CEO Naim Daruwish said that in the absence of fraud or mala fide, interest schemes should be allowed to operate freely without interference from regulators. But does this mean that regulators, and indeed investors, can be left in the dark if a scheme is poorly managed?

palm-oil-gathering

For CHGS, at least, the writings were on the wall at least 10 months before the proposal for termination was made. According to independent consultants Elaeis CropCare’s report appended in CHGS’s prospectus dated June 2012, production costs as at last March, were “higher than expected”, weeding work delayed, palms not growing well and staffing and pests a major problem.

New legal framework

All the same, investors complained that they were given the impression that everything was rosy as late as last year, when it announced a 12 percent payout for the fourth consecutive year.

Less than six months later, investors were told that it would be better to fold. This time, they were given a history of the plantation’s financial statements which spelt things out loud and clear.

Did the trustee not inform the growers that things were not holding up? Was CCM also informed? If it did, did CCM do anything about it?

In reaction to the CHGS saga, CCM said is proposing a “new legal framework” which would require periodical reporting, appointment of auditors and the enhancement of interest holder rights.

It also proposes to beef up CCM’s powers to protect investors’ interest by way of injunction and restitution.

The bigger question, however, is how did such schemes get the CCM seal of approval in the first place?

CCM’s guide to registering a new interest scheme provides a long checklist of documents which need to be produced, but there is no indication of vetting for viability or whether the scheme would be able to return the guaranteed returns.

Kosher label

Like in CHGS, many of those who invested in the troubled gold schemes are retirees or those planning for retirement. Many lament that they had invested after seeing that the schemes are backed by CCM. While the gold schemes’ troubles have stretched beyond the jurisdiction of CCM, the fact remains that it was the CCM label which gave the impression that it was kosher.

CCM may say that its approval is not an endorsement. The commission could also argue that it does not have the capacity to vet through each scheme to see if they can meet the guaranteed returns to investors.

It can also tell investors that the onus is on the investors to do their own research before parting with hard-earned cash.

Many who put money in these schemes, however, are mom-and-pop investors. For many, much of the information presented in scheme prospectuses may as well be written in French, and the term ‘CCM-approved’ is a familiar face in a foreign land.

That means CCM should have been much more responsible than it was. It is now its responsibility to remedy that and ensure no repeat of what happened at CHGS.

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Aidila Razak is a journalist with KiniBiz. She believes that CHGS’s tagline ‘Invest in Certainty’ could well be the definition of irony.



 
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