PN17: Listed Companies in Financial Distress

What is PN17?

In this article, I will talk about on listed companies that are classified as PN17. PN17 stands for Practice Note 17/2005 and is issued by Bursa Malaysia; relating to companies that are in financial distress. Companies that fall within the definition of PN17 will need to submit their proposal to the Approving Authority to restructure and revive the company in order to maintain the listing status.

While there are more than a thousand companies listed in Bursa Malaysia, not all of them are in a financially sound position. Although at the point of listing, these listed companies must meet the Listing Requirements of Bursa Malaysia, given time, the company’s financial position and business direction can change for the better or for the worse.

There are many reasons for these changes, such as change in management, risk profile, management team’s experience, foresight, financial appetite, over-gearing etc.

Prior to 2005, listed companies that are in this PN17 condition are classified under PN4.

Is your company PN17 classified, or know a friend’s company that does? If so, request for your free consultation with KLM on how to restructure. Contact us now!

Criteria for a listed company to be classified as a PN17 company are as follows:-

  1. Shareholders’ fund is equal or less than 25% of the total issued and paid up capital of the listed company; or
  2. Receivers and/or managers have been appointed to take control of at least 50% of the total assets employed of the listed company on a consolidated basis; or
  3. Winding up of a subsidiary or associate company which makes up at least 50% of the total assets employed of the listed company on a consolidated basis; or
  4. The auditors have expressed adverse or disclaimer opinion on the listed company’s latest audited accounts; or
  5. For any default in payment, the listed company must announce its inability to provide a solvency declaration through Practice Note 1/2001 or PN1; or
  6. The listed company has suspended or ceased all or a major part of its operations.

There are many reasons and circumstances for a listed company to fall under the classification of PN17. For example, some cases are classified as PN17 due to external factors such as currency fluctuation and economic forecasts.

Since the mid of 2008, we’ve started experiencing certain number of economic problems, but many never expected the situation and impact to be that serious. Examples of some foreign giants that are badly affected by the “sudden” adverse change in global economic conditions are General Motors and Citigroup.

For other companies like AIG, their problems probably arise due to high risk appetite as well as economic miscalculations.

PN17 – Regularizing & Change of Business Direction or Policy

When a company is announced as a PN17 company (list of PN17 companies in Malaysia), it has to undergo a few exercises to comply with the requirements of Bursa; in which failing to do so will result in suspension in trading list securities (5 market days from the day of notice, the next day) de-listed from the market or both.

  • Regularize its condition within 12 months (1 year) from the date it was announced a PN17 company.
  • Submit a regularization plan to the Securities Commission of Malaysia to see if the regularization plan will result in a significant change in the business direction or policy, or;
  • Submit a regularization plan to Bursa Malaysia to obtain approval (and implement) the regularization plan (that will not result in a significant change in the business direction or policy.)
  • Implement the plan according to the time stipulated by Bursa or Securities Commission; whichever is applicable.

No longer considered PN17 company

For a PN17 company to no longer be considered PN17, it has to first:

  1. Complete the implementation of approved regularization plan.
  2. Submit an application & necessary documents to Bursa to prove that it’s no longer a PN17 company.