ISLAMABAD: An inspection and subsequent actions including initiation of investigation proceedings by the Securities and Exchange Commission of Pakistan (SECP) into Unity Foods Limited has led to the registration of a criminal case by the Federal Investigation Agency (FIA) over alleged misuse of shareholders’ and company funds, falsification of accounts and other serious financial irregularities.
Unity Foods is a public listed company on the Pakistan Stock Exchange (PSX) and has raised funds from public shareholders. The case assumes particular significance from an investor-protection perspective as the alleged irregularities include the possible diversion of funds specifically raised from shareholders for identified business purposes.
According to the SECP reference, Unity Foods raised Rs3.75 billion through a rights issue in 2019 for expansion and diversification, including acquisition of assets, additions to its refinery at Port Qasim and establishment of an oil terminal.
SECP’s examination found that approximately Rs2.87 billion of these proceeds were allegedly diverted from their stated purposes as the Company failed to provide evidence of utilization of the same.
The SECP probe also identified several other transactions warranting further investigation.
These included alleged payments of Rs5.318 billion from company funds to the former CEO’s mother under the guise of loans’ receipts and repayments, for which appropriate banking instruments and board approvals were not produced. Another Rs2.6 billion was allegedly advanced through a subsidiary to two undisclosed parties, besides other related-party exposures and transactions.
The investigation also raised serious questions about the disposal of company’s subsidiaries and the alleged use of Unity Foods’ funds, inventory and other resources for the benefit of connected entities of the accused.
The FIA will investigate the beneficiaries, movement of funds and the role of directors, officers and other persons involved in these transactions.
A major part of the case concerns the reliability of the company’s financial reporting. Material referred by SECP indicated an alleged Rs44.7 billion difference between the company’s published accounts and its internal SAP records.
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The case also involves an alleged Rs5.2 billion discrepancy between inventory recorded in SAP and physical stock, around Rs5 billion in aged receivables without corresponding evidence of delivery of goods, and other accounting inconsistencies.
