CEO Morning Brief

Former Directors of MMAG's Air Cargo Subsidiary Counter-sues the Group for RM49.85 Mil

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Publish date: Fri, 14 Jul 2023, 09:04 AM
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TheEdge CEO Morning Brief
They also contended that their suspension and eventual removal as M Jets directors were unlawful, unconscionable and in breach of their agreements. They alleged that the defendants had acted in concert in abusing their positions to cause M Jets to suffer financial losses and to wrongfully oust them from M Jets' management and operations, and to injure their investments in the company.

KUALA LUMPUR (July 13): Two former directors of MMAG Holdings Bhd's 80%-owned air cargo logistics unit, M Jets International Sdn Bhd, has slapped the group and its directors with a RM49.85 million counter-suit for allegedly conspiring to injure the duo's investments in M Jets.

The two — Gunasekar Mariappan and Philip Phang Kim Ming — were suspended by MMAG in February this year pending the outcome of an investigation by the Malaysian Anti-Corruption Commission (MACC) following a raid on M Jets' office. They were subsequently removed from their posts and sued by MMAG via legal action filed by M Jets, for alleged breach of fiduciary duties in April. In that suit, MMAG sought special damages of RM23.17 million plus interests from the duo.

In the duo's counter-suit, Gunasekar and Phang named eight others besides MMAG as defendants, namely: businessman Victor Chin Boon Leong; two of MMAG's directors, Kenny Khow Chuan Wah and Chong Koon Meng; M Jets; and JT Aerotech Solutions Sdn Bhd (JTAS) and three of its shareholders — R Shanmugananthan, Anton Alex Schubert and M Saysu — who collectively hold a 30% stake in JTAS. The remaining 70% stake in JTAS is held by Gunasekar and Phang. The suit was filed via Messrs Bodipalar Ponnudurai De Silva.

Gunasekar and Phang claimed Chin is the directing mind and will, alter ego as well as shadow director of MMAG, whose directors are used to taking instructions from him. They claimed he is represented in MMAG’s board of directors by his wife and nominee, Chan Swee Ying. Chan is a non-independent and non-executive director of the group, with a 13.36% stake in the group.

The duo alleged that they had inked a term sheet with Chin to acquire the then M Jets International from its original owner in November 2020, to convert it into an air cargo business. They claim that Chin, as an investor nominated by MMAG, would acquire 80% equity in M Jets International, while the balance 20% would be taken up by Gunasekar and Phang under JTAS as their vehicle for the acquisition.

Prior to the acquisition, Gunasekar and Phang claimed they were introduced to Chin, who had expressed an interest to enter into the logistics business by acquiring M Jets International, which was then doing private jet charters, and turning it into a logistics company.

The trio had inked a term sheet for the venture, with Chin agreeing to contribute RM46 million for the acquisition and the working capital that is needed for the business, while Gunasekar and Phang would put up RM10 million. Based on their equity sharing, this worked out to Chin, via MMAG, paying RM21.36 million for the acquisition from the pooled funds, with the remaining RM4.65 million from Gunasekar and Phang via JTAS.

Gunasekar and Phang alleged that they agreed to contribute RM4.35 million each to JTAS for the venture, while Saysu contributed RM300,000 and Shanmuganathan contributed RM1 million to make up the promised RM10 million. Schubert declined to pay.

The duo were then made directors of the new business, with Gunasekar as managing director and Phang its chief financial officer. The duo, who were made responsible for the daily running of the new business, then turned M Jets into an operational cargo airline by securing the lease of three aircraft, renewing its air operating certificate and managing its fuel arrangements.

Problems, however, arose when Chin and MMAG failed to provide an additional funding of RM20 million needed for business expansion in December 2021-January 2022, according to the duo, with Chin and MMAG making a "sudden, unilateral turnaround", saying they needed to revisit the venture's finances.

This delay caused M Jets to incur RM16 million worth of losses and fail to meet their investment target of tripling the value of the company within three to five years, the duo claimed. They further claimed Chin and MMAG attempted to disrupt M Jet's business by not renewing a corporate guarantee for its fuel credit. Subsequently, in March 2022, Chin and MMAG attempted to buy out JTAS' investment at a low value.

Gunasekar and Phang also claimed that the raid on M Jet's office by MACC on Feb 13 this year and the subsequent investigation on them was due to a complaint filed by Chin and MMAG to the MACC over purported wrongdoings in the company's management.

The duo, who said they cooperated in the investigations, slammed Chin and MMAG's complaint as baseless, unsubstantiated and just a ploy to oust them from M Jets.

They also contended that their suspension and eventual removal as M Jets directors were unlawful, unconscionable and in breach of their agreements. They alleged that the defendants had acted in concert in abusing their positions to cause M Jets to suffer financial losses and to wrongfully oust them from M Jets' management and operations, and to injure their investments in the company.

They are suing for a return of their original investment sums, together with general and aggravated damages, among others.

Read also:
MMAG suspends two executives at 80%-owned MJets pending outcome of MACC probe
MMAG sues former directors over alleged breach of fiduciary duties

Source: TheEdge - 14 Jul 2023

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