A related party disposal, an eleven-year independent director and a broken audit committee

The two categories need to be separated because the consequences differ.

Hard requirements (Main Market Listing Requirements).

• The audit committee must have at least three members, all non-executive, a majority independent, and an independent chair. Here the group finance director is an executive director serving on the audit committee - a breach that must be cured, not explained.
• The newly appointed independent director sits on the audit committee while being a partner in the consulting arm of the company's external audit firm. Even if she meets the formal independence test on paper, the relationship compromises audit committee objectivity and creates a self-review threat; she should not sit on the committee while that relationship exists, and the audit firm's own safeguards should be examined.

Comply-or-explain (MCCG, reported under the listing requirements).

• Three independent directors out of nine meets the listing requirement floor but falls short of the recommendation that at least half the board be independent for a company of this size.
• Puan Rohana has served 11 years, beyond the nine-year cap. Continued tenure requires a two-tier shareholder vote - first all shareholders, then shareholders other than major shareholders and interested parties. There is no indication this was sought.
• The two sibling non-executive directors cannot be treated as independent given the family relationship.

Quality of the explanation. 'Deep industry knowledge' explains why the chairman is valuable; it does not explain a deficit of independent directors, nor does it engage with the conflict created when the chairman's family is the counterparty to a major transaction. An explanation that does not address the risk is a de facto non-compliance that the SC and Bursa can be expected to challenge.

The transaction is a related party transaction: the counterparty is controlled by the executive chairman's family, and the chairman and his sibling directors are interested.

Process under the listing requirements.

• Announce the transaction immediately, with the details prescribed for related party transactions.
• Appoint an independent adviser to advise the non-interested directors and, where required, the non-interested shareholders, and obtain its opinion.
• Issue a circular containing the valuation, the independent adviser's opinion, the rationale, the directors' recommendation and the abstention statement.
• Obtain shareholders' approval at a general meeting. This cannot be tabled as ordinary business at an AGM: ordinary business is a fixed list (accounts, directors' fees, auditors, re-election), and a conflicted disposal is not within it. It needs a separate resolution on a full circular.
• Interested persons - the chairman, his family's interests, and any director with an interest - must abstain at board level and must not vote their shares on the resolution.

Substantive problem. RM132 million against an independent valuation of RM148–155 million is a discount of roughly 11% to 15% to the valuation floor, and the buyer is connected to the chairman. The valuation range was not negotiated at arm's length, and no explanation for the discount appears in the papers.

Before any vote. The non-interested directors should obtain a second valuation or a written explanation from the valuer of the discount, test whether the sale is the best available outcome (for example, a competitive process), and satisfy themselves on the company's funding needs. Shareholder approval does not launder a breach of directors' duties: the directors must still act honestly and in the best interests of the company, and a sale below the valuation floor to a connected party is exactly the fact pattern that invites challenge and regulatory scrutiny.

Two weeks is enough to act properly if the timetable is controlled rather than the transaction.

Week one.

1. Convene the audit committee without the executive director present, formally record the composition breach, and reconstitute immediately: remove the finance director and the audit partner, and co-opt an independent director from outside the family orbit on an interim basis until a permanent appointment.
2. Commission the second valuation or a written valuer's memorandum on the discount, and put the disposal timetable back until it is in hand.
3. Appoint the independent adviser and instruct it in writing, with a scope that covers price, alternatives and the process run by management.
4. Separate the interested directors from the information flow, with a documented protocol for what they may and may not see.

Week two.

1. Decide whether to proceed, renegotiate, or run a competitive process. If the price cannot be justified, the non-interested directors should say so in the circular and let shareholders decide with full information - that is a defensible position; silence is not.
2. Brief the audit committee on whether the company's disclosure and related party policies need revision.

Board renewal plan to put to shareholders. A search for at least two additional independent directors, a succession plan for Puan Rohana's chair of the audit committee, submission of her continued tenure to a two-tier vote with an honest explanation, and a commitment that the next annual report explains the independence gap in terms of risk rather than family expertise. The plan should be announced together with the transaction papers so that shareholders see the company is fixing the structure that allowed the conflict to arise.