Writing Off RM74 million using a 50-inch TV

Is the 50-inch twice the size of a 25-inch?

How did we use this simple concept to Write off and SAVE our clients RM 74 million (approx 17 million USD)?

When I first met one of the defendants (the ones being sued) Mr Saifu and his family after the court found him liable to pay RM74 million as damages, I told myself, I can help this gentleman and his family.

Little did I know that, that promise to myself will take me to present argument on this matter from the High Court, the Court of Appeal and all the way to the Federal Court (the highest court in Malaysia). We are grateful to all the judges who sat patiently and listened to our agreement.

It was an uphill task. We will illustrated why.

The Plaintiffs Already Won Half the Battle!
When we took over the conduct of this matter, the High Court had already ruled that the three Defendants must pay damages (albeit to be assessed) to the Plaintiffs. Half the battle is already won by the Plaintiffs, all the Plaintiffs had to do was to prove (by showing) to the court how much they have lost. The court will then order that sum as damages to be paid by the Defendants.

Is the 50-inch TV twice the size of a 25-inch TV?

The size of a TV, WHY is this relevant in a RM74 million damages suit? One will ask…

When it comes to accounting, top lawyers must explain to the court, “legal and accounting concepts” using easy to understand, everyday language.

In this particular matter, we explained the method of valuation of shares using the concept of “Is the 50-inch TV twice the size of a 25-inch TV?”

Most people would have said yes!

So I used a piece of A4 paper folded it right in the middle and then folded it again in the middle. You can use that to represent the 25-inch TV. Then when you unfold it again, you will clearly see that a 50-inch is 4 times that of a 25-inch. See the illustration below…

Claiming For Damages In Malaysia

In Malaysia and other commonwealth countries, the Plaintiff (claimant) must prove every single cent he wants the court to award to him for damages.

The Crux of the Case

Our Clients sold 50% shares in company A
A owns 45% in Company B (the other 55% is owned by Kumpulan Perangsang Selangor Bhd (KPSB), a State Owned Investment Company)

B had a market value of RM441 million

KPSB then called for rights issues Clients sold 50% shares in company A

At the end when the 50% shares were transferred to the plaintiffs
company A’s shareholding in B was reduced to 9%

Damages was ordered by the court to be paid due to the delay
441m x (45%-9%) x 50%= 74m

HOW DID WE SOLVE THE PUZZLE

In the valuation of shares, we convinced the Court that one cannot take the ‘linear’ approach above. We illustrated the concept using the 50-inch TV vs 25-inch TV concept and explain to the Court the proper way the Plaintiffs should have adopted in the calculation of the value of the shares which the Plaintiffs did not.

One of the ways to calculate losses was, the value of the 45% shareholding in Company A at the time of the ‘sale’ and the value of the 9% shareholding after the rights issue. Find out if there was a difference and if there was one, in whose favour that difference was.

The grounds of judgment clearly showed that not only the Plaintiffs did not ‘lose’ anything, the rights issues increased the value of the shares they are holding.

Therefore we convinced the high court on appeal that RM74 million should be reduced to nothing, not even RM1.