Boardroom tussle at South Malaysia Industries: Prolexus units sue for alleged rights violation

TheEdge Tue, Dec 19, 2023 11:14pm - 3 months View Original


KUALA LUMPUR (Dec 19): Two subsidiaries of Prolexus Bhd, who collectively own 10.01% in South Malaysia Industries Bhd (SMI), are suing SMI and its board of directors for allegedly violating their rights as shareholders after SMI sought for more time to hold its annual general meeting.

The suit was filed after the Companies Commission of Malaysia (CCM) granted SMI until March 31, 2024 to hold its 52nd AGM, from the previous cut-off date of Dec 31, 2023, following an application from SMI to extend the deadline.

This is not the first time the two Prolexus units — its wholly-owned Honsin Apparel Sdn Bhd and 51.91%-owned HIQ Media (M) Sdn Bhd — are suing SMI. The two filed a lawsuit against SMI earlier this year for blocking an extraordinary general meeting that they had requisitioned to remove SMI's entire board of directors and replace them with two of their nominees.  

In their latest lawsuit, the Prolexus units are seeking a court declaration to state that their rights have been violated and that SMI’s directors had failed to use their powers for “proper purpose and in good faith” in requesting for the extension of time.

The units are also seeking a declaration that the application to CCM was sought by the defendants to “further strengthen their control” over the company’s board, and they want the court to invalidate, nullify and void the time extension granted by CCM.

Also named as defendants in the suit are Asian PAC Holdings Bhd and its board of directors, and Asian PAC's single largest shareholder, Mah Sau Seong. Both Asian PAC and Mah are substantial shareholders in SMI. Mah owns 32.33% in Asian PAC as well as 7.648% in SMI, while Asian PAC holds 11.56% in SMI.

In response to the legal action, SMI said in a bourse filing that its board views the suit as “frivolous and vexatious” as the plaintiff’s allegations contain “errors of fact”. It also said the issue of holding an AGM is the management’s prerogative. As such, the company plans to apply to strike out of the suit.

As to the earlier EGM that Honsin and HIQ requisitioned to be held on March 24, the Prolexus units wanted SMI's board to be replaced by Lee Boon Siong and Tan Eik Huang. Both Lee and Tan sit on the board of YB Ventures Bhd, which owns a 17.72% stake in Prolexus.

According to SMI, the two Prolexus units also wanted the EGM to be held on a fully virtual basis, and to limit the EGM to only shareholders whose names appear on the record of depositors as at Feb 20 — both conditions that SMI said were against its constitution. SMI also said the basis for holding the EGM fully virtual out of Covid-19 health concerns was no longer applicable.

SMI then applied to court for a declaration that the proposed EGM was unlawful and unconstitutional, which the court dismissed. Honsin and HIQ, in response, sought a court order to compel the EGM be allowed to be held, with the court ruling in their favour. However, SMI appealed this decision and managed to obtain a stay on execution, pending the hearing of the full appeal.

In the midst of all this, SMI lodged a complaint with the Securities Commission Malaysia that the two Prolexus units had worked together with over 20 parties and acquired over 33% stake in the company without making a mandatory general offer, as required under the capital market rules once the threshold is breached.

Prolexus, whose units bought their stake in SMI in February this year, had denied the accusation. The SC, in meantime, said they were looking into SMI's complaint.

SMI shares closed 3.5 sen or 5.22% lower at 63.5 sen on Tuesday, giving the group a market capitalisation of RM133.31 million, while Prolexus shares dipped 1.5 sen to close at 33 sen for a market cap of RM91.32 million. YB Ventures closed half a sen or 1.96% lower at 25 sen, valuing the company at RM72.85 million.

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