SINGAPORE - Sunvic Chemical Holdings will be appointing, at the request of its independent directors, a special investigative committee - comprising external auditors and legal advisers - to probe further into corporate guarantees provided for loans amounting to some 222.5 million yuan (S$44.3 million), which was first reported in January.

Its subsidiaries, Yixing Yinyan Import & Export Co (Yixing Yinyan) and Jiangsu Jurong Chemical Co (Jiangsu Jurong), had received letters of demand in relation to these corporate guarantees.

In addition, the board is temporarily suspending the rights of the subsidiaries' legal representatives given their involvement in providing the guarantees. This is to ensure that both of them would not be able to enter into any agreement for and on behalf of Jiangsu Jurong and Yixing Yinyan without the prior approval of Sun Xiao, executive director and CEO of Sunvic Chemical, the company said in its filing with the Singapore Exchange (SGX).

Jiangsu Jurong's legal representative Yang Guoqiang also has his rights as a Sunvic Chemical director temporarily suspended. Liu Wen represents Yixing Yinyan and is vice-president of banking and finance for China operating entities.

Corporate guarantees were extended to the borrowers - Jiangsu Donglai Real Estate Development Co (Jiangsu Donglai) and Jiangsu Dahe Lvjian Chemical Co (Jiangsu Dahe). Yixing Yinyan had extended a corporate guarantee to Jiangsu Donglai, whose creditor is Yixing City Futao Rural Micro Credit Co (YFC), while Jiangsu Jurong extended a corporate guarantee Jiangsu Dahe, whose creditor is Bank of China (BOC).

The company, in response to the SGX's queries on why the guarantees were extended in the first place, said that the YFC guarantee was extended by Yixing Yinyan to Jiangsu Donglai at the verbal request of the borrower and its bank to facilitate the grant of a YFC loan to Jiangsu Donglai. This was coordinated by the Chinese government, with the intent to enhance and promote the relationship between Yixing Yinyan and Jiangsu Donglai's bank.

The YFC loan was a bridging loan to allow Jiangsu Donglai to repay its bank. Jiangsu Donglai had expected its bank to release the same amount back to it within one week to repay the YFC loan. Mr Liu represented Yixing Yinyan in both instances.

Sunvic Chemical had earlier said that a member of the management did not have board approval before signing the YFC corporate guarantee. The company clarified that Mr Liu was the member of management and that he had executed the guarantee on his own initiative as the legal representative.

"The execution of the YFC corporate guarantee was not expressly authorised by any member of the board. No member of the board was aware of the execution of the YFC corporate guarantee at the time the YFC Corporate Guarantee was entered into," Sunvic Chemical said in the filing.

Meanwhile, the BOC corporate guarantee was extended to Jiangsu Dahe because of a cross-guarantee agreement with Jiangsu Jurong. Under this Dahe guarantee arrangement - started in 2010 - both parties would provide corporate guarantees to help each other secure their own bank loans at the time. Mr Yang was the representative then.

Sunvic Chemical also clarified that Mr Yang, a board member, had executed the BOC corporate guarantee on his own initiative as the legal representative of Jiangsu Jurong. This was not "expressly authorised" by any other member of the board, Sunvic Chemical said, adding that no other member of the board was aware of the execution of the BOC corporate guarantee at the time.

The company, in response to what had led to the delay of the informing of the board of the letter of demands, said that Mr Liu, Mr Yang and its CEO Mr Sun took some time to clarify the demands with the borrowers and lenders involved, which resulted in the delay.