The Singapore Exchange (SGX) has reprimanded Foreland FabricTech Holdings, two former company executives and a former director for breaching listing rules.
The SGX yesterday criticised the Chinese textile supplier for failing to promptly announce a significant customer claim of 290 million yuan (S$60 million) and for failing to put in place robust internal controls to address financial, operational and compliance risks.
A special auditor's report completed by BDO in May found that mainboard-listed Foreland might not have conducted proper due diligence before paying out compensation for a 400 million yuan contract for dyed textiles that went awry.
Fulian Knitting, a wholly owned unit of Foreland, entered into the deal with its customer Jiangxi Longdu, a winter jacket maker, in September 2013.
In November that year, Jiangxi Longdu complained to Fulian about the quality of the textiles supplied. Fulian had paid 280 million yuan to Jiangxi Longdu by May 2014.
The SGX noted that even though Foreland purportedly received the complaint from Jiangxi Longdu on Nov 17, 2013, it announced this only on Dec 13, nearly a month later.
The SGX said the claim by Jiangxi Longdu amounted to 290 million yuan, which was 45 per cent of Foreland's net asset value as at Sept 30, 2013, and is "significant" compared to the firm's pre-tax losses of 28.6 million yuan.
"If the company had received the legal claim, it should have disclosed this significant claim promptly and updated the market on what actions the company is taking," said the exchange.
The SGX also reprimanded former executive chairman Tsoi Kin Chit and former executive director Zhang Hong Lai, "who had, through their failure in carrying out their fiduciary duties, caused the company to breach its obligations under the listing rules".
The SGX said Mr Tsoi and Mr Zhang had "failed to exercise sufficient care and diligence to verify the veracity of the significant claims" before paying off the amount, while former non-executive director Chen Chao Ying had voted with Mr Tsoi and Mr Zhang for the settlement of the claim without conducting proper due diligence.
The SGX said that, by failing to act in the interests of the firm's shareholders, Mr Tsoi, Mr Zhang and Mr Chen had not demonstrated the character and integrity expected of directors and management of SGX-listed companies.
All three men resigned in August this year.
The SGX said that it had referred the breaches to the appropriate authorities.
It added that SGX-listed companies must consult the exchange before appointing Mr Tsoi, Mr Zhang or Mr Chen as a director or member of management.
Foreland FabricTech shares last closed at 1.1 cents on Nov 4, down 0.2 cent or 15.4 per cent from the day before.