A venture fund approved under the Government's Global Investor Programme (GIP) is under scrutiny after 16 of 22 remaining preference shareholders took legal action against it.
At dispute is the amount of return capital the fund, TAP Venture Fund I, can make to these 16 shareholders, who have invested some $35 million in it. The other six, who invested another $10.5 million, have yet to redeem their capital as well. TAP was put under interim judicial management earlier this month, in what is believed to be the first time that a GIP fund is in such a situation.
In court documents seen by The Straits Times, plaintiffs said they had "good reason to believe that the (management) of the fund will not act in its best interest".
They earlier also charged that there were "serious conflicts of interest on the part of the management", which had caused losses to the fund, suggesting that the situation could worsen if left unchecked.
The GIP aims to attract high-level investors and entrepreneurs to live in Singapore, allowing foreigners to apply for permanent residency if they invest at least $2.5 million to start or expand a business here, or in a GIP fund that invests in Singapore-based companies. It is run by Contact Singapore, a division of the Economic Development Board (EDB).
Funds approved under the programme such as TAP are assessed by an independent agency and selection panel, while GIP fund managers must be based in Singapore and regulated by the Monetary Authority of Singapore (MAS).
Replying to queries, EDB and MAS spokesmen said the agencies are aware of the legal proceedings involving TAP, although both said they cannot comment on the case as it remains before the court.
About GIP funds
Under the Global Investor Programme (GIP), foreigners can apply for permanent residency if they invest at least $2.5 million into starting or expanding a business here, or into a GIP fund that invests in Singapore-based companies.
Last year, GIP funds totalled $1.5 billion, said then senior minister of state for trade and industry Sim Ann in January, responding to a question in Parliament.
As at June last year, 1,826 applicants of the GIP scheme had been granted permanent residency.
To prevent abuse of the scheme, the Economic Development Board (EDB) assesses each applicant's track record, business and investment plans, as well as potential contribution, said Ms Sim.
The EDB also engages a risk assessment consultancy to run independent checks and it works with agencies for security screening, she added.
Investors undergo a fresh round of checks before their re-entry permits are renewed.
GIP funds are assessed by an independent rating agency and a fund selection panel, and managers of GIP funds are subject to the Monetary Authority of Singapore's (MAS) regulatory regime for fund management companies.
Responding to queries about GIP funds, MAS said it takes allegations of misconduct against financial institutions that it regulates seriously and will assess whether wrongdoing took place if it receives feedback or complaints. Investments brought in under the GIP generated $1.8 billion in total business spending from 2011 to 2016.
The ongoing case was initiated in June by TAP's preference shareholders, Mr Yu Linqing and 15 others, who are collectively represented by lawyers led by Mr David Chan of Shook Lin & Bok.
TAP Private Equity, the fund's sole ordinary shareholder which managed its investments, is owned by Attilan Group, which was formerly called Asiasons Capital and among the companies involved in the 2013 penny stock crash.
TAP, formerly the Asiasons Venture Fund, is obliged to redeem each investor's preference shares at the end of five-year holding periods, said plaintiffs. But it stopped doing so in December last year.
The amounts shareholders receive also depend on the fund's net asset value, typically calculated at the end of the holding period. In July last year, the plaintiffs were told that TAP's net asset value had fallen by about a third from the original. They also noted that the companies TAP invested in have been in default of interest payments, as well as their principal repayment.
The plaintiffs took legal action in a bid to safeguard their capital. Believing the fund is effectively "cash-flow insolvent" given its likely difficulty in repaying shareholders, they applied to put it under judicial management. But the fund's position is that it is not insolvent and should have latitude to make payment when it has enough money from realising its investments.
It also maintains it has enough to redeem shares of preference shareholders, but plaintiffs dispute the amount due. In more recent draft valuations, the fund's value has fallen to about 5 per cent of its original - which the plaintiffs cast doubt on.
Both sides also disagreed on the issue of conflicts of interest, with the plaintiffs noting that conflicts came to light in the legal process. For example, TAP's former directors Jared Lim and Ng Teck Wah were found to have had indirect ownership interest in companies that TAP invested in.
But the fund, represented by lawyers Nazim Khan and Leonard Hazra of UniLegal, said its investment decisions had to be approved by a committee led by an independent party.
The plaintiffs suggest the fund's management did not act in its best interest.
In one case, the plaintiffs flagged that TAP lost about $1.2 million in an investment in a company called Mega Bersatu, to which it loaned money for a 40 per cent purchase of another company in 2014. The $10 million used for this purchase should entitle TAP to around a 45 per cent share of sale proceeds, said the plaintiffs, but TAP maintained it was under an agreement to receive only 28 per cent.
TAP's affairs are now handled by interim judicial managers from Deloitte and Touche, who will oversee its valuation and verify if it is indeed insolvent. They are expected to provide updates next month.
Correction note: This article has been edited for clarity.