Case Study Sunway

Kumpulan Sime Darby Berhad, Golden Hope Plantations Berhad and Kumpulan Guthrie Berhad merged in November 2007 and became one of the world’s largest oil palm plantation companies as well as a diversified multinational with operations in over 20 countries. Sime Darby’s core businesses are plantation, property, industrial, motors, energy and utilities and healthcare. Their main source of income is from the plantation business.

The Energy and Utilities (E&U) division came under intense scrutiny when Sime Darby Bhd disclosed the extent of the losses incurred by its E&U division. The losses incurred by the division were mostly due to cost overruns from the Bakun Hydroelectric Project and both of its Qatar Petroleum (QP) and Maersk Oil Qatar (MOQ) projects. Sime’s subsidiary unit, Sime Engineering, via its 35. 7% effective interest in the Malaysia-China Hydro Joint Venture (MCHJV), was awarded the Civil Works 2 Package for the main civil works of the Bakun Hydroelectric Project guthrie waugh v malaippan case summary valued at RM 1 .

8 billion in September 2002. In 2005, the corporation had to make provision for RM132. 1 million for foreseeable contract losses arising from changes in the cost structure of the Bakun project. By May 2010, the cost overruns were estimated to be RM1 billion and were predicted to increase to RM1. 8 billion. In 2006, Sime Engineering Sdn Bhd was awarded the engineering, procurement, construction, installation and commissioning (EPCIC) contract by QP valued at RM 974 million.

One of the reasons for the overrun in the QP project was that the Qatar government did not approve one of Sime Darby’s sub-contractors after the project was awarded, which caused delays in fabrication and eventually delays in the installation. Sime Engineering was further awarded an EPCIC contract valued at RM2. 2 billion by MOQ in 2007. In 2008, news of cost overruns exceeding RM150 million in Sime Engineering’s MOQ project were met with strong denial from the Board of Directors.

Sime Darby’s internal auditor issued a report on the losses incurred by the oil and gas segment which was brought to the attention of the audit committee but the losses were deemed immaterial. No further investigations were conducted. However Sime Darby’s external auditor, PwC delayed signing off on the accounts. Sime Darby also denied reports of cost overruns of RM800 million in 2009 even though its internal auditor issued another report voicing grave concerns over the losses at the oil and gas segment.

Sime Darby’s Chairman, Tun Musa Hitam, decided to make a trip to Qatar to see for himself the extent of the problems with clients. Furthermore, PwC briefed Tun Musa on the matter and recommended the formation of a working group to investigate the extent of losses at the E&U division. It was discovered that although the Board was aware of the situation, they relied on Sime Darby’s former president and CEO Datuk Seri Ahmad Zubir Murshid’s explanation regarding the delays in the project and the cost overruns.

Nonetheless, the board decided that both Managing Director Datuk Mohamad Shukri Baharom and Ahmad Zubir could not remain in Sime after realizing that the cost overruns had ballooned up to double its original cost. Shukri resigned while Ahmad Zubir was asked to take leave of absence. Most of Sime’s directors did not seek re-election at the annual general meeting. It’s audit committee members most of whom were independent and had accounting qualifications did not seek re-election either.

Sime Darby filed a civil suit against Ahmad Zubir, Shukri and other former senior personnel (former E&U division chief financial officer Abdul Rahim Ismail, former oil and gas head of E&U division Abdul Kadir Alias, and former Sime Darby Engineering Sdn Bhd senior general manager Mohd Zaki Othman) for restitution to the sum of at least RM338 million plus general and aggravated damages and other relief. The Securities Commission (SC) issued show-cause letters to several directors with regards to various breaches of the Listing Requirements.

In a joint statement issued by the SC, Malaysian Anti-Corruption Commission (MACC), Royal Malaysian Police Force (RMP) and Companies Commission of Malaysia (SSM) in November 2010, the SC stated that they were working closely with Bursa Securities to determine breaches of relevant laws arising from the report prepared by the forensic and legal consultants appointed by Sime Darby. A Yong, ‘Does the Malaysian Code of Corporate Governance Support the Monitoring Role of Independent Directors: Lessons from Five Corporations’ Unpublished Honours Thesis, Faculty of Business and Economics Monash University (2011).

(Used with permission of the author).[ 1 ]. SIME Files Claim at http://biz. thestar. com. my/news/story. asp? file=/2011/1/5/business/7733105&sec=business at 1st September 2011. [ 2 ]. The Story Behind Zubir’s Downfall at http://www. theedgemalaysia. com/mobile/article. php? id=180083&pid=2 at 1st September 2011. [ 3 ]. Ibid. [ 4 ]. Show-cause Letters sent to Several Sime Directors at 1st September 2011.

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