How bad a company can be? PN17 & GN3

Practice Note 17, also known as PN 17, is triggered as long as a company listed in Main Board hits the following criteria:

• Shareholder equity falls below 25% of issued and paid-up capital and shareholder equity is less than RM40 million

Guidance Note 3, also known as GN 3, is triggered as long as a company listed in the Ace market meets the following criteria:

• Shareholder equity is less than 25% of issued and paid-up capital

• The firm has incurred loss for one full financial year the loss amount is equal to or more than shareholder equity and shareholder equity is less than 50% of issued and paid-up capital

• It has incurred loss in two consecutive full financial years and the amount is more than shareholder equity, the second year loss is more than 50% of first-year loss and the shareholder equity is below 50% of issued and paid-up capital

Besides the situation related to shareholder equity, a company will trigger PN 17 or GN 3 as long as they experience the situation as stated below:

• 50% of total assets are under receivership

• A subsidiary that makes up more than 50% of total assets is winding up

• Adverse or disclaimer opinion by the auditor

• The auditor expresses an emphasis of matter on going concerned and shareholder equity is less than 50% of issued and paid-up capital

• The company default in its payment

Adverse Opinion: Financial records are not in accordance with accounting standards or grossly misstated

Disclaimer Opinion: The auditor do not provide any opinion due to the absence of financial records or insufficient cooperation from management

The emphasis of matter on going concern: Uncertainty on whether the company will survive

When a company hits the criteria of being a PN17/ GN3 company, they have to announce to the exchange immediately. The below is a timeline of what a company should do when it became a PN17/GN3 company.

If the PN 17 firm plans to change its business direction or policy

1. Announce a regularization plan within the first 3 months

2. Submit the regularization plan to the Securities Commission (SC) for approval within 12 months from the First Announcement

3. Update the status of the regularization plan on a monthly basis

4. Complete the plan within the time frame prescribed by SC

If the PN 17 firm does not plan to change its business direction or policy

1. Announce a regularization plan within the first 3 months

2. Submit the regularization plan to the exchange for approval within 12 months from the First Announcement

3. Complete the regularization plan within 6 months from the time the plan is approved. Cases that involve court proceedings are being given a time frame of up to 12 months.

4. Update the status of the regularization plan on a monthly basis

5. Record a net profit in 2 consecutive quarterly results after the completion of the plan

Action to do by a GN3 Company

1. Appoint a sponsor within the first 3 months

2. Submit the regularization plan to the exchange for approval within 12 months from the First Announcement

3. Complete the regularization plan within 6 – 12 months

4. Update the status of the regularization plan on a monthly basis

A failure to do so will face a suspension or delisting of the counter.

Some examples of the regularization plan

• Divestment of non-core business

• Injection of fresh capital via new strategic shareholders

• Agreement and compromise with creditors

• Share capital reduction

• Fundraising via rights issue or private placement