Sen Yue's chairman may have breached fiduciary duties, independent review finds

SINGAPORE (THE BUSINESS TIMES) - The executive chairman of waste-management group Sen Yue Holdings may have breached his fiduciary duties as a director through the "wilful non-disclosure" of his relationships with seven customers of the company, a final independent review has suggested.

This caused Sen Yue to breach Catalist rules 905, 906 and 907 related to interested-person transactions, the review conducted by Foo Kon Tan Advisory Services (FKT) said.

FKT concluded that the breaches arose as a result of the chairman's non-disclosures, which went undetected by Sen Yue's existing internal controls.

The report noted that executive chairman Koh Mia Seng likely indirectly controlled seven customers with whom Sen Yue's wholly owned subsidiary SMC Industries (SMCI) had business transactions.

There are reasons to believe that the sale of Mr Koh's shares in some of the customer companies were not bona fide transactions, and that he indirectly controlled the companies through certain employees and shareholders, the report said.

The report also suggested that by causing Sen Yue to extend large credit limits to the seven customers, Mr Koh caused the company to be exposed to potential large losses.

Sen Yue said on Wednesday (Feb 10) that the material and long outstanding accounts receivables are currently not considered recoverable, in the light of the historical payment track record of these customers for the past year.

Mr Koh, who was also managing director of SMCI, was suspended from all executive functions on Jan 8, and redesignated as non-executive chairman on Jan 13.

FKT reiterated its earlier stance - that there were possible fraudulent and/or fictitious transactions between SMCI and some customers. For instance, the total liabilities of one customer - Foshan City Nanhai District Sea Sheng Waste Materials Recycling Co, or FSS - as at Dec 31, 2019, was stated as 2.1 million yuan (S$413,200). However, SMCI's accounting records showed that the amount due from the customer was $21.3 million.

"Such a huge difference between the financial information of FSS and SMCI's accounting records is alarming, and suggests that the bulk of the amount due from FSS as per SMCI's accounting records is not recognised by FSS in its accounts," FKT wrote in a summary of the review.

The transactions between SMCI and the seven companies amounted to $51.4 million in financial year 2020, based on FKT's collation of sales and purchases.

The review further found that criminal offences might have been committed. The possible offences involved, among other things, possible forgery of a bank remittance advice and a possibly false sales-and-purchase agreement created for improper purposes.

Sen Yue chief executive and executive director Neo Gim Kiong and audit committee chairman Chim Suan Kit Mark filed a report with the Commercial Affairs Department on Jan 5 over the same matters highlighted in FKT's independent review released in June.

Sen Yue's ability to operate as a going concern is partially dependent on continued provision of bank facilities and extension of time for repayment granted by SMCI's creditors, the group said. The steering committee of SMCI is currently driving negotiations with the creditors.

Sen Yue called for a trading halt at the end of April 2020, before converting it to a suspension in May. Its shares last traded at 2.2 cents on April 27.