Crisis at Megan and MBF Corp

The above companies are being suspended at this moment. Megan case is a hot topic recently where it has announced that accounting misstatements in its books go back to its 2005 financial year - by overstate its trade receivables, revenue, cost of sales, inventories and deposits and prepayments. Meanwhile, MBF Corp is facing the possibility of being delisted as SC has rejected its request for more time to fix its financial position after being designated a Practice Note (PN) 17 company a year ago.

In Megan case, it has raised another great concern about the quality of audit report. The external auditor for Megan is not a small or medium audit firm, it is another Big Four - KPMG. They never raised any concern about company's accounts before this. They are the external auditor for Megan since it was listed in 2000. Megan is currently being investigated by SC. If KPMG failed to show that they have actually carried out sufficient audit trials during the audit, should we see actions to be taken against the partner from KPMG who signed off the previos report? Megan is another sinking ship due to not honest management team. I wonder what is going to happen to this company as the top level management key personals have left the company one by one. The worst case is it will be delisted. According to a source, Megan's records for the periods prior to 2005 were 'accidentally destroyed'. It is just another biggest joke in the town ....

It was reported in The Edge that MBF Corp Bhd's suspension is good for the major shareholders and bad for the minority interest. It is mainly due to there is a hidden jewel in the company - QBE Insurance Bhd. Some parties have offered a great price tag to purchase the 49% of QBE which owns by MBF Corp. However, the deal was dropped in April. Everything will be different if MBF Corp had sold QBE as this would help the cash position of the company. Again, I believe this crisis is caused by the management where they do not care about their minority interest. According to The Edge, if Loy (the majority shareholder) makes an offer of 10 sen a base, which is at 25% premium to its share price pre-suspension, he would have to pay about RM17mil for the 60% of the shares he does not own to take over the company. Guess what he will get? It is a total control of the valuable 49& stake in QBE, which is worth close to RM90mil.

Base on the above 2 cases, I would think its very important to look at the management team before investing ...