LORI MALAYSIA BERHAD
A CASE STUDY ABOUT THE SURVIVAL OF LORI MALAYSIA BERHAD, A MALAYSIAN PUBLIC (UNLISTED) COMPANY THAT WAS THE COUNTRY’S LARGEST HEAVY HAULAGE TRANSPORT COMPANY
This is the story of how Graham came to be employed by an international con-man wanted by Interpol for corporate fraud & bigamy in a number of countries; and yes; he lived to tell the tale.
Be warned: this tale contains elements of corporate intrigue, fraudulent deception, corruption and financial mismanagement on a grand scale, death threats & physical intimidation, Malaysian triads, courtroom maneuvering, a payback shooting and a corporate debt of more millions than you have fingers on both hands. It is therefore a very long read.
The Case Study of Lori Malaysia Starts Here
The company. Lori Malaysia Berhad, a public (unlisted) company, was, in 1990, Malaysia’s largest heavy haulage transport company. Lori Malaysia (the Berhad simply means ‘Limited’) had over 220 staff and 121 prime movers in service with 40’ trailers configured for various uses: general haulage (flat bed and covered), low loaders, frozen products and bonded & security transport. In 1992, the company was in serious financial, trading and managerial difficulties that had placed its continued viability in jeopardy. This is the survival case study of Lori Malaysia Berhad.
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- The First 18 Months
- Banks & Creditors Threats
- Foundation Directors’ Response
- The Sale & Purchase Agreement
- Appointment to Lori Malaysia: what have I got myself into?
- Post-Sale & Purchase Agreement Operations
- Trading Commences ‘Under New Management’
- The Missing Rigs
- Corporate Structure Issues
- The Plot Thickens
- The First Week in August
- Monday morning: the axe falls
- The Arrest
- Facing the Music: on the carpet at the Bank
- Back to the Future
- Lori Malaysia Berhad: business success milestones
- Unexpected Disaster
- Events Turn for the Worse
- Confrontation & Retribution
- Legal Repercussions: the end is nigh!
- The survival case study of Lori Malaysia Berhad: the last word
Lori Malaysia Berhad. The company was one of a number of companies set up by the Malaysian Government in 1972 to provide business experience for Malays. These companies were established in the wake of the inter-racial conflicts that had occurred in May 1969. The inter-racial conflicts had occurred in part because of the then economic disparity between the Chinese and Malay communities.
Bumiputra company. As a public company in which the Malaysian Government held 99% of the issued shares, Lori Malaysia was given preferential treatment in the issue of special permits to conduct transport operations, as well as being allocated lucrative contracts with Government Departments and agencies such as Telecom Malaysia and the National Electricity Board. The companies that the Malaysian Government established at this time became known as ‘Bumiputra’ companies; bumiputra being the term used to describe ethnic Malay citizens. Bumiputra companies had stringent requirements applied that only permitted ethnic Malays to become shareholders and directors.
Company overview. Over the period 1972 to 1989, Lori Malaysia provided regular if unexceptional service. As a company run under essentially public service guidelines, it made only small profits. It was not however commercially managed in a way that permitted periodic replacement of the vehicle stock. Consequently, by 1989, the stock of prime mover and trailer rigs (many of which had originally been purchased second hand) were over 20 years old and well past their economic ‘use by’ date.
Takeover. In the late 1980s the Malaysian Government decided that it was now time to privatise many of the Bumiputra companies set up in the 1970s. Lori Malaysia was the first of such privatisations. The company was accordingly privatised in 1989 with the Malaysian Government divesting 100% of its shares to a small consortium of Malay businessmen. These businessmen, who became the majority beneficial shareholders, were then appointed as the ‘hands-on’ executive directors. The directors were initially faced with the problem of replacing the ageing vehicle fleet.
The First 18 Months
Upgrading of the transport fleet. The company had over 300 government permits to conduct various types of transport operations in the commercial business sector. As well, Lori Malaysia had exclusive transportation contracts with many government departments and authorities for particular or specific transport functions. These lucrative contracts, coupled with the then existing very buoyant Malaysian economy, made it possible for the new directors to conclude an agreement brokered through a major Malaysian Bank with a consortium of financial institutions to fund the purchase of 121 new transport rigs (prime movers with associated trailers). The sum involved was therefore substantial.
Problems surface. Unfortunately, history shows that the new owners of Lori Malaysia were not good managers. 18 months after their assumption of control, the company found itself in serious financial, trading and managerial difficulties. Later investigations disclosed that these serious financial, trading and managerial difficulties were the direct result of two complementary but destructive actions: the first was mismanagement by the directors and the second was internal corruption by senior executives.
Problems quantified. This combination of mismanagement and corruption had led to massive financial losses and a consequent critical reduction in shareholder value. The reasons that this situation was allowed to develop will be canvassed shortly. Before we get to that point however, it is important in the overall context of understanding Lori Malaysia’s woes to look at the company’s history from the point that the directors of Lori Malaysia acknowledged that the company was in serious financial, trading and managerial difficulties
Banks & Creditors Threats
Creditors’ winding-up petition. By April 1991, the company was in serious default on the lease payments for the vehicle fleet. Consequently, Bank officials met with Lori Malaysia directors and requested that the directors immediately invest further equity capital to cover the lease defaults, and take urgent action to substantially improve the Lori Malaysia cash flow. If the situation was not resolved quickly, the Bank officials warned, Lori Malaysia would be closed down. In making this threat, the Bank initiated the first step towards implementing a creditors’ winding-up petition. The Bank was also aware of the extent of other debts that Lori Malaysia had incurred and were outstanding for a number of months.
Foundation Directors’ Response
Investor discovered. The directors, with their financial backs to the wall, then made a search for additional investment funds. They were introduced to an Englishman with apparently impeccable financial credentials who just happened to be visiting Malaysia seeking investment opportunities. You can guess what happened next. The directors (each of whom faced personal bankruptcy if the company closed down, because they had signed personal guarantees to the Bank) were so grateful to find someone who could apparently save Lori Malaysia that they accepted his credentials without question. The Englishman provided to the directors and the Bank an audited ‘Statement of Net Worth’ showing that he was a person of substantial wealth with considerable personal investment funds at his disposal.
Investor’s credibility accepted. Unfortunately, neither the directors nor the Bank checked the veracity of the Englishman’s financial credentials at the time! His financial credibility was accepted at face value. This was an important oversight that was to have serious repercussions later. The repercussions resulted from the fact that the Englishman was later to be exposed as a con-man of international notoriety. He was wanted by Interpol for criminal offences committed in a number of countries.
The Sale & Purchase Agreement
The sale and purchase agreement. In May 1991, the directors (as beneficial shareholders) entered into a sale and purchase agreement with the Englishman with the tacit approval of the Bank. The broad terms of the agreement were that in return for a peppercorn payment of $MYR 1 ringgit, all Ordinary Shares held by the directors/shareholders were to be transferred to the Englishman. The Englishman then assumed the position of Managing Director.
Grace period. An important component of the agreement was that the Englishman was to have a three month ‘grace’ period to independently run the company, following which he was to pay a first instalment of $MYR 1.5 million ringgit to the Bank, and inject a further $MYR 2 million ringgit into the company as working capital. This meant, of course, that as the new beneficial majority shareholder in Lori Malaysia, the Englishman accepted responsibility for the substantial Lori Malaysia debts.
Appointment to Lori Malaysia: what have I got myself into?
I joined the company about three weeks after the conclusion of the sale and purchase agreement. On taking office, I quickly identified the four primary issues that were the source of the company’s difficulties:
Problem 1: internal mismanagement & corruption
The directors had failed to impose strict financial, operating and administrative procedures when they took control of the company. This situation was then exploited by opportunistic staff. Some staff used the transport rigs clandestinely without detection for personal gain with running costs being diverted back to Lori Malaysia; and other staff participated in a black market selling tyres and spare parts from the Lori Malaysia inventory. This mismanagement and corruption flourished because the company’s internal management and accounting controls were either ineffective or nonexistent. The crooks of course disappeared very quickly after the Police were informed of the corrupt practices.
Problem 2: rig serviceability
The result of these corrupt practices was that in May 1991, only 4 of the 121 rigs were operationally serviceable. Additionally, 15 of the prime movers, worth about $MYR 4.5 million, were completely missing. These prime movers had been ‘hijacked’ by drivers who had not been paid for some time. The drivers had simply gone home to their kampongs (villages) with the prime movers as a security against their unpaid wages. The drivers, as they needed funds for living expenses, simply cannibalised the vehicles and sold the items on the black market to other companies who used the same make and model of prime mover.
Problem 3: ineffective marketing & CRM
The directors had failed to implement effective marketing and customer relationship management policies to build upon, or at least consolidate the solid Lori Malaysia customer base they had inherited. Compounding that, when word of Lori Malaysia’s difficulties became public knowledge, long-term clients suddenly refused to give any more contractual work. Moreover, no major new customers were recruited during this period. This resulted in a substantial decline in sales revenue, which ultimately proved extremely deleterious because it resulted in the company defaulting in the lease payments for the new rigs. At the point that I joined the company, the lease payments for 121 prime mover and trailer rigs were in excess of 6 months in default. This was a significant amount of money. The point can also be made here that even if new clients were recruited, Lori Malaysia did not have enough serviceable rigs to fulfill client orders.
Problem 4: unpaid wages and statutory employee payments
Further exacerbating the situation, some 20 staff that were loyal to the company and had remained at their posts over this difficult period had not been paid for more than three months. Their statutory entitlements to such things as the Malaysian Provident Fund (superannuation) were also unpaid.
Post-Sale & Purchase Agreement Operations
The books of account. I was initially hired by the Englishman as the company’s Financial Controller. However, for reasons that will become apparent as this story unfolds, the Englishman would not permit any access to the Lori Malaysia books of account by anyone but himself. In particular, the Englishman refused any access by me to the company’s bank accounts. He validated this decision by drawing attention to his right to the three-month ‘grace’ period during which he could run the company independently. Consequently, the Englishman (as Managing Director) channeled my work into operations, marketing and administration. in effect, I became the company’s Chief Operating Officer.
At this time, the Englishman ignored my warning to him that he was acting ultra vires the Malaysian Companies Act because Lori Malaysia, as a public company, required two signatures on all official financial instruments such as cheques. Moreover, I pointed out that I was not a qualified accountant and that meant that I was unable to certify periodical official reports that required such certification.
Managerial eccentricities rationalised. The Englishman dismissed this as an issue, saying that once the company was running successfully, we could observe the rules more closely. Apart from this, the Englishman displayed a number of other managerial eccentricities, which suggested that he was not the experienced business manager that he made himself out to be. Looking back with 20/20 hindsight of course, it is easy to see how I, and others in the management team, did not react to these managerial eccentricities but simply rationalised them away.
After all, one doesn’t expect in the normal course of events to be employed by an international con-man. At the time, the management team rationalised the Englishman’s eccentricities on the grounds that as he was to shortly inject substantial funds of $MYR 3.5 million ringgit into the company, it was not unreasonable that he should want to be fully aware of where all the financial problems were; or to put it more bluntly, where the skeletons were.
Bank complicity. The Bank also accepted the situation that for a short period of time the Englishman was to be the sole signatory to the Lori Malaysia bank accounts. This situation was apparently rationalised by the bank on the basis that at the end of July, the company was to pay the Bank a cash payment of $MYR 1.5 million ringgit. Obviously, Lori Malaysia itself could not generate such funds in such a short timeframe. The bank therefore expected that the payment would be supplied from the Englishman’s personal funds. Consequently, the Englishman was permitted a great deal of latitude to keep close control over the accounts during this initial take-over period.
Trading Commences ‘Under New Management’
Management team recruited. The Englishman gave me authority to recruit a small management team. For obvious reasons, the team I recruited had an emphasis on marketing and client recruitment skills. Through this team, Lori Malaysia quickly obtained some contractual work to commence a cash flow. At this same time, I personally visited all creditors to whom Lori Malaysia owed money. I explained to each individual creditor the changed circumstances resulting from Lori Malaysia hanging up the ‘Under New Management’ shingle and gave an assurance that providing the company could be turned around Lori Malaysia would honour all its debts, and not seek to have them reduced in any way. In return, I gained an assurance from each creditor that they would not take any precipitate prosecution action over the debt, but would give Lori Malaysia time to become profitable.
The one hard case. Only one creditor provided a hard case. The company that provided fuel and oils to Lori Malaysia was owed in excess of $MYR 1 million ringgit. When I met with the fuel company representatives, they initially proved quite intractable, suggesting that as Lori Malaysia was returning to profitability, the fuel company should receive priority for repayment over all other creditors. If Lori Malaysia would not agree to that course of action, the representatives said, the fuel company would restrict Lori Malaysia’s access to fuel and oils and, after Lori Malaysia received its capital injection, take Lori Malaysia to court for non-payment of the debt.
This was a blatant attempt at bluff, bluster and economic blackmail. However, I had done my homework here and called the fuel company’s bluff. I pointed out that the extent of Lori Malaysia’s debt to the fuel company was the fuel company’s own fault. Consequently, there was absolutely no way that the fuel company would receive any priority over others for payment of the debt from Lori Malaysia.
Claim rebuffed. The fuel company representatives did not defer, they again requested priority for their company; so I had no alternative but to go for the jugular. I simply pointed out that the fuel company itself had permitted the previous management of Lori Malaysia to book up the substantial fuel bill of over one million ringgit on credit without any challenge whatsoever. This was despite the fact that the fuel company itself had placed a credit limit on Lori Malaysia of $MYR 50,000 ringgit.
I felt confident, I told the fuel company representatives, that any Judge hearing an application from the fuel company for either priority payment over other creditors or to wind up Lori Malaysia would be very sure to ask the question: how was it that the fuel company permitted the Lori Malaysia fuel bill to exceed it’s credit limit by 20 times without once raising the matter with Lori Malaysia directors? At that point, the discussion closed, and nothing further was heard from the fuel company.
The Missing Rigs
As mentioned earlier, 15 rigs, prime movers and 40’ trailers worth about $MYR 4.5 million, were missing. These rigs had been highjacked by drivers who had not been paid for some time. The drivers had simply gone home to their kampongs (villages) with the prime movers as a security against their unpaid wages. The drivers, as they needed funds for living expenses, simply cannibalised the vehicles and sold the items on the black market to other companies who used the same make and model of prime mover.
I acted to recover the missing rigs. Unfortunately, the Police did not have the resources necessary for an effective search. I then contacted the interstate bus companies for assistance. These companies had buses that regularly traveled to all points in the country. The bus companies’ drivers assisted in the recovery of 11 rigs from various locations, some of which were hundreds of kilometres from Kuala Lumpur. 4 rigs were never recovered and the conclusion was reached in relation to those rigs that they had been smuggled into Thailand and sold clandestinely.
Corporate Structure Issues
As explained earlier, Lori Malaysia was a Bumiputra company. Under Malaysian law relating to Bumiputra companies, non-Bumiputras could only hold a very small percentage of the Ordinary Shares, and only constitute a minority of the actual number of directors. The Malaysian Companies Act required that there be a minimum of three directors who were Malaysian citizens. The Englishman was neither a Bumiputra nor a Malaysian citizen. He had however retained a solicitor to help him with the settlement of the sale and purchase agreement, and following the settlement, he had appointed the solicitor as a non-executive director and the first Malaysian citizen director.
The solicitor, responding to these corporate structure issues, sought and obtained assistance from two well-known and highly respected Malay businessmen to hold the Ordinary Shares in Lori Malaysia ‘in trust’ for the Englishman and become non-executive directors of Lori Malaysia. Specific details of this agreement between the Englishman and the Malay businessmen have never been publicly disclosed.
The Plot Thickens
One particularly difficult issue that I faced was that towards the end of July, I became aware that the Englishman was trying to sell a substantial parcel of company shares. At the time, I was unaware that the Englishman had not disclosed this to the other directors. When I raised this matter with the Englishman, he brushed any concerns aside on the basis that he was simply acting prudently by seeking to spread his financial risk by selling off a small portion of his total shareholding. He was at pains to assure me that he would retain a majority shareholding.
As the time grew closer to the week that the Englishman was to pay the Bank and inject the working capital (the Monday of the second week in August 1991), I became increasingly apprehensive and suspicious at the Englishman’s conduct and behavior. I quietly undertook some intelligence gathering and discovered that the Englishman was in fact trying to sell well over 80% of the Lori Malaysia shares he held. Before I had the opportunity to discuss this confidentially with any of the directors however, events overtook me. The next phase in the drama took place towards the end of the week prior to the week that the Englishman was to pay the promised funds to the Bank and the company. This was the first week in August 1991.
The First Week in August
Directors’ suspicions aroused. During the first week in August 1991, the three non-executive directors convened an unscheduled Board meeting. The meeting took place on the Thursday of that week. The reason for the meeting was that on the following Monday the Englishman was scheduled to pay the first installment of $MYR 1.5 million ringgit to the Bank and put $MYR 2 million ringgit into the company as working capital. Directors were concerned because the Englishman had not, up to that date, given any assurances that these commitments would be honoured. The directors challenged the Englishman to show proof of the availability of the funds.
Assurances given. The Englishman assured the directors of his ability to meet the commitments. He tabled a fax copy of a letter that had purportedly been sent to him from the Chicago USA Branch of the National Australia Bank. The letter stated that the Englishman had an approved line of credit of $USD 6 million and that arrangements were in place for him to draw down against this line of credit through the Kuala Lumpur office of Citibank, as the local Agent for the National Australia Bank.
Suspicions confirmed. After the meeting concluded, the solicitor director felt that something was not quite right about this situation. He sent a copy of the Englishman’s letter by fax to the Chicago Branch of the National Australia Bank for verification as to its authenticity. The Bank promptly replied that it had never lent any money to, or arranged a line of credit for, anyone with the Englishman’s name. The Bank advised the solicitor director not to place any reliance whatsoever on the letter.
Directors’ response. The solicitor director then informed the other directors of the advice from the National Australia Bank. The correspondence with the National Australia Bank had been protracted due to time zone differences between the United States and Malaysia, and this left no opportunity to take any action during business hours on the Friday that followed the Board meeting. The three directors then arranged to meet at the Lori Malaysia office at 8.30 am on the next Monday morning.
Monday morning: the axe falls
Confrontation. The Board meeting convened at 8.30 am. I did not normally attend Board meetings. The directors confronted the Englishman with his deception. After about 45 minutes, the solicitor director summoned me to the Boardroom. He asked me to explain certain matters relating to the operations of the company. When I had completed my explanations of the matters raised, the solicitor director informed me that the Englishman had given them a completely different account of the company’s present financial and trading position, but the directors had collectively disbelieved the Englishman’s information. That was why they called me in to the meeting, to give a truthful account of the company’s present trading situation.
The ‘line of credit’ letter. The solicitor director then gave me a copy of the letter that was purported to have come from the Chicago Branch of the National Australia Bank. He asked me if I thought it was genuine. I explained that this was the first time that I had seen this letter. I said that in my experience, the letter was not genuine. I said that my opinion was based on my understanding that letters of this nature, particularly given the amount involved, were always authorised by two senior bank officers. One officer only had signed the letter.
‘Way out’ compromise offered. The solicitor director then scathingly attacked the character of the Englishman. He said that he could not work out what scam the Englishman was trying to pull, but it didn’t matter in view of the circumstances where clearly the arrangement with the Bank could not now be honoured. He told the Englishman that he must immediately resign all positions within the company and formally sign over his Lori Malaysia shares to the Bumiputra directors. He would then be taken to the airport, and he was to leave Malaysia on the first available flight out of the country.
Police notified. If the Englishman refused to accept these conditions, the solicitor director said, he would be arrested for fraud and other criminal offences. The solicitor director then advised the Englishman that he had informed the Police of the situation and the Police would arrive at the Lori Malaysia office at 10.00 am. It was then 9.45 am.
‘Way out’ offer rejected. The Englishman said he could not accept such a deal, as he had a wife and children here in Malaysia. He had earlier married a Malaysian woman who had some small children (we later learned from Interpol sources that the Englishman’s modus operandi was to marry a local woman in the country in which he was operating to give himself credibility. Consequently, in addition to criminal fraud charges, Interpol also wanted him for bigamy in a number of countries). The Englishman decided to call the directors’ bluff. He attempted to leave the meeting, but was physically restrained. Promptly at 10.00 am, a contingent of Police appeared and formally arrested the Englishman for a number of offences against the Malaysian Companies Act and Criminal Code.
Board housekeeping. After the Police departed with the Englishman in custody, the directors convened a Special Board meeting and appointed a new Managing Director. They formally appointed me as Chief Operating Officer. At this point, I offered the Board an opinion as to what the Englishman had been up to. I explained that about a week earlier, when the Englishman was absent from the premises, the representative of one of the parties negotiating to purchase a parcel of shares visited the company.
Share sale details. As the Englishman was away, I met with the representative. During the conversation, I was able to ascertain that the negotiations were for a substantial parcel of Lori Malaysia shares that would give control of Lori Malaysia to the purchaser. The sticking point was that the price per share asked by the Englishman was considered to be too high. The purchasing company was keen to buy but, the company representative said, the asking price was $MYR 3.75 ringgit per share, valuing the parcel at about $MYR 9 million ringgit and they felt that was too much. The representative asked me how I would value the shares, given the problems the company was facing.
Share sale review. I had no reason not to discuss such an issue and the conversation provided me with the best opportunity yet to find out what the Englishman was up to. So I suggested to the company representative that because of the high level of corporate debt, the traditional methods of share valuation could not be used in this case. Of course, this high level of debt could be attractive to a takeover company that was flush with funds and needed some taxation offsets. I pointed out that Lori Malaysia’s growth projections were excellent, Lori Malaysia was in a privileged position from a marketing point of view (having many government contracts and permits) and the rigs were all relatively new and in excellent condition.
Giving some weighted emphasis to various elements of Lori Malaysia, I calculated on the back of an envelope that a fair price would probably be in the region of $MYR 2.50 to $MYR 2.80 ringgit per share, valuing the parcel at about $MYR 6 million ringgit. The company representative then informed me that that was about the figure that they themselves had calculated, but the Englishman would not accept the figure. That was the situation existing at the date of the Englishman’s arrest
Greed. The Englishman’s strategy, in the light of the above facts, seemed to defy logic because of greed. If he had not been so greedy and had concluded the deal for $MYR 6 million ringgit, he could have secretly sold the shares and received a cheque for $MYR 6 million ringgit. The cheque received as consideration for the sale and purchase would then have been deposited in the company bank account and immediately withdrawn. Remember here that the Englishman was the only signatory to the Lori Malaysia bank account. Having got the money, the Englishman would have then just disappeared into the sunset, leaving the three company directors and myself to face the music!
In retrospect, the only redeeming feature in the whole incident was the Englishman’s greed. If he had not been so greedy, things would have turned out vastly differently with much greater adverse consequences for the remaining directors and me. The situation would however have been catastrophic for the previous shareholders/directors who had sold the company to the Englishman in the first place. The Bank would have undoubtedly called-in the shareholders/directors personal guarantees for the company’s debts.
Facing the Music: on the carpet at the Bank
Preparing for the worst. As referred earlier, the Englishman’s arrest took place at the exact time that the Englishman was to have paid $MYR 1.5 million ringgit to the Bank as a first payment to reduce the debt held by the Bank. While the solicitor director went to the Police Station to make a formal statement to the Police, the other two directors undertook the unpleasant task of explaining the unfortunate developments to the Bank. The Bumiputra directors were not confident that the Bank would allow Lori Malaysia to continue trading. They requested me to accompany them to the meeting with the Bank officials.
Our party met with four very senior executives of the Bank. The situation in which Lori Malaysia was now embroiled was explained in detail. Then one of those once-in-a-lifetime beneficial coincidences occurred to breathe some life into the all-but-dead corpse of Lori Malaysia. The newly appointed Lori Malaysia Managing Director was a Malay businessman held in very high esteem by the Bank. In the recent past, he had been appointed Managing Director of a large public company that the Bank had placed in receivership. The businessman had returned the company to profitability in a notably short period, earning the Bank’s gratitude and respect.
Unexpected salvation. The Bank officials were not aware that the businessman had joined Lori Malaysia, but as he was now the Lori Malaysia Managing Director, the Bank officials conceded that this was a significant event from their point of view. After a quick meeting among themselves, they announced that they would give Lori Malaysia a further chance to return to profitability. Presumably, this decision had the added incentive that it may also get the Bank off the hook, because at this point, the Bank must have realised that it was also culpable to some extent because it also had not sought to verify the Englishman’s financial credibility.
Lori Malaysia was asked to urgently prepare a comprehensive two-year business survival plan for approval by the bank.
Back to the Future
Bootstrap plan prepared & accepted. I personally prepared a two-year business plan incorporating a pragmatic turnaround recovery strategy. Within a week, the Bank accepted the plan without amendment. Approval for continued operations however was conditional: Lori Malaysia had to show some actual improvement in profitability within a reasonably short period and submit regular reports of progress towards full profitability. Therefore, I had prime responsibility for effective team leadership and business direction. The pressure of this position was significant because if the company closed down:
- 200 staff would be sacked without any pay in lieu of notice or redundancy benefits,
- shareholders stood to lose their investment, and
- creditors would have to completely write-off their debts.
At this time, Lori Malaysia’s sole income was from work in progress; it had no reserve funds at all and of course, it never received the capital injection that promised by the Englishman as part of the sale and purchase take-over arrangements. The complex financial, trading and organisational problems faced by the company, when coupled with the tight period imposed by the Bank to demonstrate a successful return to profitability, required me to exercise a positive leadership role.
In that regard, team members developed and applied constructive marketing, financial, administrative and human resources policies and practices that created a workplace climate that encouraged a high commitment by staff generally to the achievement of shared team goals. My achievements therefore (set out below), would not have been possible without the total backing of my small multidisciplinary management team:
Lori Malaysia Berhad: business success milestones
- I personally prepared, for Bank approval, a comprehensive two-year business survival plan based on proactive marketing and business development objectives that were accepted without amendment as the basis for future commercial activities. This included asset management and inventory control, operations and task management scheduling control, safety issues, vehicle operations and maintenance functions, staff job allocation and roster control. It also included a cash flow management régime, a credit management process and a corporate debt reduction program.
- As the company’s previous internal management and accounting controls were ineffective or nonexistent, I imposed and enforced effective management control protocols, cost control systems and pragmatic risk management strategies to ensure a high level of fiduciary responsibility.
- Within a short period, the company’s sales increased from a negligible sales income base to the achievement of sales exceeding $MYR 140,000 ringgit per month, a figure accepted by the Bank as indicative of the company’s return to profitability. This was the pleasing response to the attention paid by staff to meeting customer service expectations.
- Rig serviceability was given priority with the result that rig serviceability increased from 4% to 70% during the sales expansion period, financed entirely from work in progress as investment funds promised by the Englishman were obviously never received.
- I implemented proactive human resources and employment management systems that applied policy discipline to the application of best practice human resources policies and procedures.
- I coordinated a positive management-client operating regime under which the company avoided the necessity of resorting to protective legal devices available under the Malaysian Companies Act to evade its debts and other legal liabilities.
While the directors and staff enjoyed the success outlined above in the period following the arrest of the Englishman, the Englishman continued to remain in custody while the Police undertook further enquiries. Unfortunately, about five months after his arrest and detention, the Englishman appealed for help to the British High Commission. He had entered Malaysia as a British citizen with a British passport.
He alleged to the British Consul that he was the victim of a boardroom coup and needed release from detention to clear his name and regain ‘his company’. The British Consul obviously believed him because a couple of weeks later, through the intervention of the British High Commission, the Englishman was released on bail.
He immediately sought an injunction from a High Court Judge in Chambers that:
- he be returned to the position of Managing Director,
- all the Ordinary Shares be transferred back to his control, and
- the Lori Malaysia bank accounts be frozen until he returned to the position of Managing Director.
High Court injunction granted. Under Malaysian law there is no requirement for either the Court or the plaintiff seeking an injunction to notify other parties that may have an interest in the proceedings before the Judge. Consequently, neither the Lori Malaysia directors nor I were aware of the Englishman’s actions. The injunction was granted in part, with a proviso from the Judge that the Englishman could only maintain present commercial operations and status quo and not take any action to reduce assets, sack staff, employ new staff or otherwise damage the company. The Judge did not make any decision relating to ownership of the Lori Malaysia shares. The Judge set down a date for a future hearing for all parties to decide whether the injunction should be removed or made permanent.
Events Turn for the Worse
Counterattack. The first time that the Lori Malaysia directors and I became aware of the Englishman’s actions was that the Bank telephoned about 11 am one morning and advised that the Lori Malaysia bank accounts were frozen by Order of the High Court. There was about $MYR 85,000 ringgit in the bank account at the time. A few minutes later, the local Police telephoned to advise that, under the authority of the High Court, they were to assist the Englishman to return to the Company premises as Managing Director. They advised that they would accompany the Englishman to the Lori Malaysia premises to ensure a peaceful change of management control, and they would be there in twenty minutes.
In charge! – but of what? The directors felt that prudence dictated that they should not be involved in a direct confrontation with the Englishman or the Police. They authorised me to deal with the Police and the Englishman on their behalf and departed from the premises. A few minutes later, the Englishman arrived accompanied by a contingent of police officers. When the police officers realised that there would not be any opposition to the return of the Englishman, they left the premises.
Confrontation & Retribution
No friendly greetings. As soon as the police officers left, the Englishman came directly to my office. He offered no salutations, and none was expected. He simply said to me, ’Fuck off, you bastard. I don’t want you anywhere near this place anymore. Give me your office keys and the keys to your car’. I asked him politely if he was terminating my employment (knowing that he did not have authority for such action). His response was a grunt, followed by another terse ‘fuck off now!’ The Englishman then left my office. I put my keys on the desk, told my team members what had transpired and left the premises. My team followed me out.
The new regime takes over. Over the next two or three days, all the transport rigs disappeared. The 10 acres of the Lori Malaysia premises became a deserted wasteland, although the Englishman was still using the office. One of my team telephoned the Englishman and asked where the vehicles were. The response was a tirade of invective directed at my team member that ended with a threat that my team member, his wife and children would be beaten up. The Englishman concluded the ‘conversation’ by threatening to firebomb my team member’s home.
Still no friendly greetings. Shortly thereafter, the Englishman personally telephoned me, suggesting that I had put my team member up to calling him. I then received similar threats to my person if I did not stop ‘harassing’ him. The situation was now getting much more serious, made more so because my team became aware through intelligence sources that the Englishman had recruited some persons as ‘bodyguards’ who were known to Police as criminal members of an unlawful Chinese Triad gang.
Protection. The Police advised that they could not provide any protection, apart from periodically checking our residences. So we hired a private security firm to give us a measure of protection. Bank officers also advised me (on the quiet) that the $MYR 85,000 in the Lori Malaysia bank accounts had been withdrawn (surprise! surprise!).
Legal Repercussions: the end is nigh!
Another curve-ball thrown. At this point, the original Lori Malaysia shareholders/directors, who were still in jeopardy because of their personal guarantees to the Bank for the debts of Lori Malaysia, suddenly became aware that their situation had become extremely tenuous. The original Lori Malaysia shareholders/directors therefore threw another legal hand-grenade into the mix from out of left field. They filed appropriate documents in the High Court that attested to their rights as lawful owners and operators of Lori Malaysia and sought to have the sale and purchase agreement between themselves and the Englishman annulled, thus transferring all Lori Malaysia shares back to themselves.
Legal minefield. Their strong point was that the Englishman had not acted in accordance with the terms of the sale and purchase agreement. However, because of Lori Malaysia’s status as a Bumiputra company, because of the present status of the Lori Malaysia Board and the confidential terms of agreement between the present Bumiputra directors and the Englishman that related to the Lori Malaysia shares, the legal situation relating to ownership of the company was unclear.
Receivership. The High Court then came to a realisation that it had a complex legal situation before it. Consequently, the High Court placed Lori Malaysia in receivership, thus preventing any further commercial trading. A High Court receiver, unlike a Companies Act receiver, is not empowered to operate the company. The receiver simply closes everything down to protect what assets are available until the Court can resolve the company’s overall situation. The Receiver reported that there were no funds in the Lori Malaysia bank accounts.
Lori Malaysia has not traded since that date and is unlikely to ever resume trading. The Banks were able, with High Court acquiescence, to repossess the rigs.
The survival case study of Lori Malaysia Berhad: the last word
For about three months following my eviction from Lori Malaysia, my team members and I constantly had cars with Chinese men inside just parked opposite our homes. They never approached us, it was just a silent form of intimidation. However, we did have one very alarming incident. The solicitor who provided all the evidence against the Englishman was driving his teenage son to school one morning. As he pulled up at traffic lights at a busy intersection, a motor cycle pulled up along side him and the pillion passenger fired two bullets into the solicitor at point blank range. He was hit in the shoulder, so it was clearly a warning, not a murder attempt. The perpetrators were never identified or caught.
Although this story does not have a happy ending, I have included its essential elements because, to the point that the Englishman was granted bail and created the adverse situation that lead to Lori Malaysia’s demise (a situation beyond my control), Lori Malaysia was a very successful company turnaround. The lesson, if there is one, is that as a survival manager, you must always expect the unexpected!
Thus ends the survival case study of Lori Malaysia Berhad.
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This website and the associated webpages content are produced by Graham Segal trading as Chiron! the business doctor.™. They are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License based on Graham's work at http://chironthebusinessdoctor.com.
Date this Case Study last reviewed/updated: 6 May 2013