Business : Kenmark's problems continue

Kenmark made two regulatory filings on 9 July:

1)

KENMARK INDUSTRIAL CO. (M) BERHAD ("Kenmark" or "the Company")

- PN1 Announcement – Default in Banking Facilities from RHB Bank BerhadContents :Pursuant to Practice Note 1, the Company wishes to inform that the Company has on 14 June 2010 defaulted on the banking facilities from RHB Bank Berhad (“the Bank”). The Company has unsecured credit facilities of RM3.0 million from the Bank and as at 14 June 2010 there is an amount outstanding of RM2,160,086.85. (“the outstanding sum”)The default arose as the Company was unable to settle the outstanding sum upon the termination of the Banking Facilities on 1 June 2010 following the May 2010 incident.This together with the other defaults announced earlier will have a material financial and operational impact on the Group. The Company is unable to provide a solvency declaration. The appointed Advisors, Ferrier Hodgson MH Sdn Bhd is still in the midst of assessing the financial position of the Group.The default will constitute an event of default on the other credit facilities of the Company and its subsidiary companies.This announcement is dated 9 July 2010.

2)

KENMARK INDUSTRIAL CO. (M) BERHAD ("Kenmark" or "the Company")- Winding-up petitionContents :Further to the announcement dated 8 July 2010, the Company also wishes to inform that it is unable to quantify the full impact of the expected losses arising from the winding up proceedings but of immediate effect would be the loss on use of the credit facilities from the banks and a write down on the cost of investment in the subsidiary to be wound up, together amounting to RM130 million.This announcement is dated 9 July 2010.

On 8 July, the company made the following filing:

KENMARK INDUSTRIAL CO. (M) BERHAD ("Kenmark" or "the Company")- Winding-up petitionContents :The Company has today received the following winding-up petition from the solicitors of Export-Import Bank of Malaysia Berhad:1. Winding-up petition on Kenmark in respect of their claim of indebtness of RM16,314,614.55. The Court has fixed the matter for case management on 20 July 2010. The claim comprises of principal amounted to RM14,773,000.00, interest /penalty of RM1,533,066.11 and other charges of RM8,548.44. The petition arouse from the non-payment of the sum demanded within the time stipulated in the Section 218 notice that was served to the Company on 4 June 2010.2. Winding-up petition on wholly-owned subsidiary of Kenmark, Billion Dynamic Sdn Bhd which is also a major subsidiary in respect to the indebtness of RM44,922,695.72. The Court has fixed the matter for case management on 4 August 2010. The claim comprises principal amounted to RM40,668,000.00, interest/penalty of RM4,233,238.22 and other charges of RM21,457.50. The Company’s total cost of investment in Billion Dynamic Sdn Bhd is RM7,581,690.58.. The petition arouse from the non-payment of the sum demanded within the time stipulated in the Section 218 notice that was served to the Company on 4 June 2010.The winding-up petition will have a material financial and operational impact on the Kenmark Group.The Company will seek advise from its solicitors to defend the action.This announcement is dated 8 July 2010

On the same day, the company - which has new management, also issued a statement on the shareholdings of the "disappeared" former management. It said:

KENMARK INDUSTRIAL CO. (M) BERHAD ("Kenmark" or "the Company")-Latest shareholding of Director, Mr Hwang Ding Kuo @ James Hwang and Ms Chen Wen-LingContents :With reference to our announcement dated 22 June 2010, Kenmark wish to inform that based on the Record of Depositories dated 18 June 2010, the correct shareholding of Mr Hwang Ding Kuo @ James Hwang is 6,263,792 Kenmark shares and not 6,083,532 Kenmark shares as announced earlier due to typographical error. However the shareholding percentage, which is 3.51% was accurate.Based on the Record of Depositories dated 30 June 2010, the shareholding of Mr Hwang Ding Kuo @ James Hwang is 6,263,792 Kenmark shares or approximately 3.51% which is the same amount as at 18 June 2010.Ms Chen Wen-Ling's shareholdings in Kenmark based on the Record of Depositories dated 30 June 2010 is 13,832,400 Kenmark shares or approximately 7.76% which is the same amount as last disclosed on 22 June 2010.Kenmark also wish to inform that there is no new substantial shareholder in Kenmark based on the Record of Depositories dated 30 June 2010.This announcement is dated 8 July 2010

But it was the "Update on Business Divisions" that has provided some insight into whether the Group has any chance of survival. It makes disturbing reading:

Kenmark Industrial Co (M) Berhad (“the Company or Kenmark”)- Update on status of business divisionsContents :Kenmark wishes to update the status of the following business divisions :-a. Trading Division (Trading in LCD TVs and other furniture) - No trading is done at this moment as the Company is not able to contact the end customers directly. Management will continue to try to make contact with the end customers.b. Printing Division - Most of the important parts from the machinery have been located and is awaiting installation. We have successfully negotiated with the machine repairers to commence repairs and subsequently conduct a test run of the machinery. The Company has a limited stock of raw materials for production and will need to purchase new raw materials to meet future orders. Some of our local suppliers had indicated their willingness to continue supplying the Company with raw materials subject to payments made to overdue accounts. As some raw materials are imported from Thailand, Taiwan and Europe, the Company would need to raise funds and/or secure trade financing to secure these raw materials for future orders. The average sales for the Printing Division is RM800,000 per month and in light of the recent developments, most of our customers have switched their orders to other manufacturers. The Management of the Company is now attempting to persuade these customers to place orders with the Company and we expect 20% of the orders to return. On the manpower front, 67 of the 125 employees previously employed had returned to work with the Company.c. Plastic Moulding Division -The principal activity of the mould division is to inject plastic parts for the manufacture of wooden furniture, as well as plastic components to buyers outside of the Group. In-house sales (sales within the Group) took up 85% of the total production capacity of the division, while the remaining 15% is for sales to outside buyers. In the absence of fresh orders for the wood division, the production activity is expected to reduce by at least 85%. As for the remaining 15% to the outside buyers, Management is anticipating to lose a further 10% as customers are losing confidence in the Company's ability to supply further. As for the division's workforce, there are currently 26 employees and this will be sufficient to start production again. Some of the raw material stock was found to be missing and is in the process of being replaced.d. Vietnam operation - All machineries in Vietnam are intact but operations cannot re-commence as the Taiwanese key management staff have not returned to Vietnam. Management have been trying to contact Mr Chang Chin-Chuan on his handphone but to no avail. The raw materials in Vietnam premises are prohibited by the bank's security to be taken out from the country without authorisation from the Taiwanese key management staff. The workers in Vietnam have been released with no liability incurred.The Board of Directors is exploring options to increase the utilisation of the capacity of all its operations.The above reply is made on the collective approval of the Malaysian Directors of the Kenmark only, namely Dato’ Abd Gani bin Yusof, Mr Ho Soo Woon, En Ahmed Azhar bin Abdullah and Mr Woon Wai En.This announcement is dated 8 July 2010

The state of the business report shows the dangers of allowing all authority to reside in the hands of one or a small number of people.

Simply, the company in Vietnam cannot function because all its decisions must be made by managers who are no longer taking any part in the company: even the company's assets and bank accounts are under the control of those managers, to the exclusion of the Group board.

But it also appears that the Group board were not, or were probably not, in possession of full facts about the state of the various subsidiaries. Stock was missing, machines had parts missing and all manner of other surprising aspects of what appears to be mis- or non-management are visible.

In the words of Thomas Renyi, Chairman of Bank of New York (as was, Bank of New York Mellon, now) addressing shareholders a decade or so ago, "We placed our trust in a senior employee. That trust was misplaced."