The Workers' Party (WP) risks losing support among residents if its leaders do not handle the civil lawsuit filed by Aljunied-Hougang Town Council (AHTC) well, political observers said yesterday.

They gave two reasons why the latest turn of events was serious: First, it is now before the courts.

Second, the independent panel that directed the lawsuit in AHTC's name was appointed by the WP MPs themselves in February.

"The town council is not only being investigated, it is being sued. This is quite a big step back for them because they were the ones who appointed the members of the independent panel," said National University of Singapore (NUS) political scientist Reuben Wong.

He was one of five political watchers interviewed on how the lawsuit might affect the WP's standing among constituents and Singaporeans, and whether it would fracture the party itself.

AHTC wants party leaders Low Thia Khiang and Sylvia Lim to account for over $33 million in payments to then managing agent FM Solutions and Services (FMSS) and service provider FM Solutions and Integrated Services (FMSI).

It also alleges that they breached their fiduciary duties by, among other things, directing long-time WP supporter How Weng Fan and husband Danny Loh to set up FMSS.

Some will see the lawsuit as the latest salvo by the authorities against the WP, while others will be genuinely concerned, said NUS Associate Professor Bilveer Singh. "To the first group, no matter what, their faith in the party will not be affected. They will see it as continued persecution by the ruling People's Action Party (PAP)," he said.

But to the second, "much more discerning" group, the lawsuit is a credible cause for concern, he said. "They will ask, should we continue to support them? This is a society that does not tolerate mismanaging of public finances."

Observers noted that the town council's financial issues already cost the WP votes during the 2015 General Election. It held onto Aljunied GRC with a razor-thin margin of 50.96 per cent of the vote, down from 54.72 per cent in 2011, when it first won the constituency.

AHTC has been unable to submit an unqualified set of accounts since it was formed after the WP won Aljunied GRC, a point PAP candidates repeated in the 2015 polls.

Last October, audit firm KPMG also found that over $33 million in payments to FMSS and FMSI were co-signed by persons with conflict of interest or FMSS employees.

Associate Professor Wong said of the suit's impact on the WP: "If the court case does not develop in their favour, they will lose some more votes."

Added ISEAS - Yusof Ishak Institute research fellow Norshahril Saat: "If they do not come out strongly now, and fail to prove their innocence, residents will definitely be affected."

Residents had mixed views on the lawsuit, with some worried and calling for transparency, while others were unconvinced or unperturbed.

Private tutor Lisa Wu, 35, hoped a thorough investigation would shed light on the accounts.

The Upper Serangoon Road resident said: "I would appreciate transparency, and I think the WP is in a rather precarious position as it did not win by a large margin in the most recent general election."

Tutor Sharlynn Ng, 28, disapproved of the conflicts of interest in the way FMSS was appointed. "Those kind of things should be avoided. Just find another contractor," she said.

But a 50-year-old businessman and Lorong Ah Soo resident, who gave his name only as Mr Eng, said the saga had gone on for too long. He said: "We should be focusing on other important things, like how to improve our lives, especially when the economy is so bad now."

A 35-year-old IT manager who lives in Bedok Reservoir and wanted to be known only as Mr Zhou, said: "As long as the estate remains in good condition, where the lift is still working and the rubbish is still cleared regularly - which is still the case - it is of no concern to me."

Political observer Derek da Cunha said the WP should have been more open once it took over Aljunied GRC. He said: "It should have been absolutely upfront... about the institutionalised difficulties it faced in transitioning a GRC from the government to opposition control."

Publicly, more prominent party members are closing ranks behind their leaders, declaring support on Facebook. But observers noted how Aljunied GRC MP Chen Show Mao challenged Mr Low for the WP's top post in internal elections last year.

Prof Singh said: "To what extent is this issue of credibility going to intensify and ossify the internal divisions? If the party does not manage this, it might split two ways."

This would be a tragedy for opposition politics and a step back for Singapore's democratisation, he said. "But it will also be a lesson that if you are dirty, you will be destroyed," he added.

ISEAS - Yusof Ishak Institute research fellow Mustafa Izzuddin said the WP now needs to present a united and confident front. "What would be required is strong leadership by the Central Executive Council to convince its members, volunteers and supporters that the leadership is on top of things, and there is no danger the party will collapse despite the lawsuit," he said.

•Additional reporting by Sean Lim and Revathi Valluvar