The former independent directors and management of a Singapore-listed company that went belly up - while owing hundreds of millions of dollars - are being sued for breach of director's duties.
The liquidator of the failed Celestial Nutrifoods has detailed claims against the men that could total more than $22 million.
The High Court suit comes after liquidator Yit Chee Wah, from FTI Consulting, won a landmark Court of Appeal ruling last year that allowed him access to documents that could throw light on the failure of the S-chip, which was an investor favourite until it crashed in 2009. Bondholders recovered just seven US cents on the dollar.
Celestial Nutrifoods also made headlines when it defaulted on convertible bonds worth nearly $235 million.
Mr Yit, in his role as liquidator, is suing Celestial executive chairman Ming Dequan, former independent directors Lai Seng Kwoon and Loo Choon Chiaw, and two former directors and shareholders of raw material supplier Power Charm Group, Mr Ken Okubo and Mr Ming Dexin.
The Straits Times understands Mr Ming Dequan and his brother Ming Dexin, who are both Chinese nationals, and Mr Okubo, a Japanese national, have not been served with the suit yet.
Celestial ran into trouble in June 2009 when its shares were suspended after it failed to repay about $234.8 million owed to bondholders. The High Court appointed Mr Yit on Dec 24, 2010, to take control and investigate Celestial's subsidiaries in the British Virgin Islands (BVI) and China.
According to the suit, most of the funds raised from the bonds were transferred to Celestial's Chinese units through its BVI subsidiaries.
Three weeks before the company was put into liquidation in 2010, Celestial's entire shareholding in the Chinese units was "surreptitiously disposed of in an auction" in China, court papers said.
The shares of these Chinese units had purportedly been pledged to China Construction Bank in 2009 and 2010, but those pledges were not disclosed in Celestial's audit reports.
"Celestial's shareholders and creditors were thus left holding shares and debt in Celestial, whose assets had apparently been completely stripped," the suit said.
It also alleges that Mr Ming Dequan, Mr Loo and Mr Lai authorised US$12.1 million (S$16.6 million) in payments from the bond funds to one of Celestial's Chinese units, Daqing Weitian Energy. The payments were allegedly for palm acid oil purchases from Power Charm.
But the value of the oil amounted to only US$2 million and the palm acid oil was not delivered. No explanation could be found in records for this discrepancy, the suit said.
Power Charm also allegedly used the funds to pay US$605,620 to Germany-based firm C. Melchers for a luxury Patek Philippe watch.
The suit alleges that Mr Ming, Mr Loo and Mr Lai were aware that Celestial had only cash resources of about $20 million but liabilities of $235 million. Despite this, they allegedly caused the company to "dissipate almost all of its cash resources to meet the liability of a subsidiary".
They were also accused of paying $5.79 million of Celestial funds to themselves in directors' fees, performance bonuses and expense reimbursements at the expense of the company's creditors. They also allegedly wrongfully authorised the company to pay $316,022 to Mr Lai's accounting firm and Mr Loo's law firm, Loo & Partners. An estimate of all these payments, including the US$12.1 million figure adds up to a total of more than $22 million.
Mr Lai, who is represented by lawyer David Chan from Shook Lin & Bok, has denied that he breached his duties as a director of Celestial.
In defence papers, he said he "acted honestly and reasonably in the best interests of Celestial" and that the payments of directors' fees and expense reimbursements were legitimate operating expenses. Mr Loo could not be reached for comment.