According to a report by The Edge, DRB-Hicom may have fair grounds to defend itself against a civil suit served by Goldstar Heavy Industrial to Proton Automobiles China Ltd (PACL) amounting to RMB860.6 million (RM523 million at the time of the Bursa announcement).

As a recap, PACL is a wholly owned subsidiary of Perusahaan Otomobil Nasional Sdn Bhd (PONSB), which in turn is a 100% subsidiary of Proton Holdings Berhad (PHB) – DRB-Hicom currently owns a 50.1% stake in PHB.

The suit involves the termination of a contract between PHB, Lotus Group International Limited (LGIL) and Goldstar to establish a joint venture company named Goldstar Lotus Automobile (GLAC) to produce and sell Lotus cars, engines, parts, components and accessories in China.

However, after the JV company failed to obtain the required manufacturing licence within 24 months from the date of the JV’s business licence, the contract was cancelled on January 22 last year, resulting in GLAC being unable to commence its business. The deadline was originally set for September 25, 2017, which was then extended to December 31, 2017 – the extension was made out of good faith between the parties.

The JV company’s inability to obtain the manufacturing licence within the stipulated time frame is one of the defences that is a viable to DRB-Hicom, as it is a condition precedent for the deal to proceed.

This lawsuit comes one year after the termination date, likely due to both parties being unable to reach a mutual agreement. Based on an earlier Bursa announcement dated April 27, 2015, upon termination of the JV, the parties could acquire the other’s party’s registered capital valued by an independent evaluator.

GLAC was incorporated on September 25, 2015, with the current amount of issued and paid-up capital listed at RM180 million – the registered shareholders of GLAC are PHB (40%), LGIL (10%) and Goldstar (50%).

If not exercised, Proton would be allowed to transfer its share of registered capital to a third party. Should both options not be carried out, the JV will then proceed to liquidate itself. As Lotus has already been sold off to Zhejiang Geely Holding (ZGH) Group by Proton in September 2017, the third option was the only viable one, hence the lawsuit to reclaim costs incurred by Goldstar.