JUNE 26 — Taking an excerpt from its website, Serba Dinamik Holdings Berhad (Serba Dinamik) was incorporated as a private limited company in Malaysia, under the name of Serba Dinamik Holdings Sdn Bhd on 2 December 2015, and was subsequently converted into a public limited company on 13 May 2016.
Its main business is in operations and maintenance (O&M), and engineering, procurement, construction and commissioning (EPCC), IT Solutions and Education & Training. Serba Dinamik Holdings has operational offices in Malaysia, Indonesia, UAE, Bahrain, Qatar, Singapore, India and UK. Serba Dinamik is an investment holding company and is principally involved in the provision of management services.
One of the biggest projects by Serba Dinamik in Malaysia is the Pengerang Eco-Industrial Park (PeIP) which is currently under construction. Once completed in 3 – 4 years, the project will house an MRO Global Centre of Excellence that focus on rotating equipment, for example gas and steam turbines, engines, compressors, pumps and blowers. Other than that, it will also house IRM Global Centre of Excellence that focus on static equipment including process equipment like boilers, pressure vessels, columns and heat exchangers, and structures like storage tanks and piping systems.
Abroad, the company is constructing Nam Taep 1 and Nam Taep 2 Hydropower Energy Generating Facilities located at Ban Nam Taep and Ban Nameuang in Laos that have a total capacity of 30MW of electrical power for the electrical usage domestically.
The Legal Suit
With over 5 years of good business records, Malaysia is shocked over the news of legal suit against KPMG by Serba Dinamik. According to the press conference and readily available information, the legal suit centred around the alleged negligence, breach of contractual and statutory duties of KPMG. The suit was commenced after KPMG red-flagged several issues on Serba Dinamik’s bills and transaction of RM4.54 billion in the draft Annual Report ended Dec 31,2020. It was understood that KPMG was unable to verify the details of the third parties for such transaction.
KPMG in its press conferences denied such breach, and affirmed its responsibility to discharge its duties as the auditor. It is worth noted that the Serba Dinamik Annual Report for the year ending 31 Dec 2020 is yet to be filed and raising a legal action at this stage could trigger a premature cause of action. The deadline of filing the Annual Report for the year ended 31 December 2020 is extended to 30 June 2020, as announced by Bursa Malaysia in the early 2021. Be that as it may, due to this impending legal action, it is assumed that Serba Dinamik will apply for an extension for the filing of Annual Report.
Upon Serba Dinamik’s announcement of taking the legal action against KPMG, five of its independent and non-executive directors have resigned, with four of them stating their disagreement over Serba Dinamik’s decision on 23 June 2021 to take legal action against KPMG as their reasons for leaving. That leaves only three directors who sit as the Board of Directors in Serba Dinamik as of 26 June 2021.
KPMG, on 24 June 2021, resigned as Serba Dinamik’s external auditors following the company’s legal action. The stock plunged 23% to a new low on 25 June 2021.
Can External Auditor be Sued?
An auditor enjoys qualified privileged under the Malaysian law subject to several circumstances. Under Section 286(3) of Companies Act 2016, an auditor shall not be liable to be sued in any court or be subject to any criminal or disciplinary proceedings for any report under section 266 submitted by the auditor in good faith and in the intended performance of any duty imposed on the auditor under the Act. It is noted that Section 266 of Companies Act 2016 is related to the power and duties of Auditor in preparing the annual audit account.
While Section 128 of Capital Markets and Services Act 2013, Section 128 (2) provided No auditor shall be liable to be sued in any court in respect of any statement made by the auditor in good faith in the discharge of his duties under the Act. This followed by a specific provision applicable to listed companies under Section 320 (2) that no auditor shall be liable to be sued in any court for any report submitted by the auditor in good faith and in the intended performance of any duty imposed on the auditor under this section.
In short, an auditor enjoy several privileges under the Act due to its duties to provide an independent report and not influenced by other parties. An action taken against an auditor must be on the breach of its statutory duties from the above provisions.
Can Serba Dinamik Succeed in its Claim?
To succeed in its claim before the Court, Serba Dinamik need to show that KPMG is breaching its duty as the external auditor (contractually and statutory) as well as on the ground of negligence. The burden of proof is on the shoulder of Serba Dinamik and it needs to prove that the auditor is not acting in good faith on the balance of probabilities.
However, one thing that could alarm the Court is that the legal action is taken even before the Annual Report is filed, and if there is any action taken by KPMG when they found the irregularities in the Annual Report? There are so many questions revolving this case, and with information is still behind the doors, this could be one of the most interesting case to follow after 1MDB in Malaysia.
* Wahab Jumrah is an in-house lawyer at OMS Group in Kuala Lumpur, with offices in Indonesia, Singapore and Hong Kong.
**This is the personal opinion of the writer our publication and does not necessarily represent the views of Malay Mail.