SBI Offshore: Corporate governance over the edge?

Published November 16, 2017

By Mak Yuen Teen

First published in Business Times on November 15, 2017

LAST year, I wrote two commentaries on SBI Offshore (SBIO) regarding the boardroom tussle, the questionable transactions at its centre, and the role of the sponsor (“Stand taken by SBI Offshore sponsor highly disappointing”, BT, Sept 14, 2016; “SBIO: corporate governance at the edge”, BT, Sept 22, 2016). I said that what was happening there pushed the boundaries of good corporate governance.

Over a year later, corporate governance is at risk of taking a further turn for the worse at SBIO.

Let’s recap the saga so far. The first salvo was fired on July 18 last year when three substantial shareholders who together owned about 31 per cent of the shares requisitioned for an extraordinary general meeting (EGM) to consider the removal of SBIO’s CEO Chan Lai Thong as a director, and the appointment of four directors. One of these shareholders, Tan Woo Thian, was an executive director of SBIO at the time of its listing in 2009, while another, Hui Choon Ho, was the executive chairman and CEO. Mr Hui was to be re-appointed as one of the four new directors.

Another proposed director was Lau Yoke Mun, an SBIO employee from 2014 to 2015, who was later appointed as a service provider for the group’s renewable energy business in South Africa.

Mr Hui and Mr Lau made various allegations against Mr Chan to support his removal. In turn, the board raised questions about the conduct and performance of Mr Lau, the conduct of Mr Hui, and the involvement of Mr Hui and Mr Tan in transactions relating to Jiangyin Neptune Marine Appliance Co Ltd (NPT), a PRC company.

The board recommended that shareholders vote against the appointment of Mr Lau and Mr Hui.

The day before the EGM on Sept 16, 2016, SBIO announced the appointment of four new directors – James Kho Chung Wah, Lawrence Kwan Hon Kay, Ling Yew Kong, and Mark Edward Pawley. This could be considered as an action to frustrate the requisitioning shareholders and is questionable from a corporate governance standpoint, although it may be an attempt to help avoid a worse outcome at that time. As it turned out, the EGM was adjourned and none of the resolutions were voted on.

Nevertheless, as they were appointed as an 11th hour defensive manoeuvre, there is unlikely to have been a proper nomination process and thorough assessment of independence, competencies, commitment and personal attributes of the directors. Further, since they came forward as a slate, there may be close relationships among them which may affect their individual ability to exercise independent judgement – even if the Code of Corporate Governance doesn’t explicitly consider relationships among independent directors in the assessment of independence. I said then that “the newly constituted board may not be fit for purpose”.


Shortly after the EGM, one of the independent directors who was on the board before the saga resigned. Another independent director resigned in August this year citing “competing time commitment” and in October, Mr Pawley, one of the four independent directors who joined the board just before last year’s EGM, followed suit citing the same reason.

In June this year, the non-executive chairman was re-designated as executive chairman, which turned out to be the prelude to the subsequent ousting of the CEO under contentious circumstances. On Aug 16, the company announced that the CEO’s service agreement was not renewed. It said that the current sponsor, Asian Corporate Advisors, was not able to conduct an exit interview with the CEO and it was unable to obtain his confirmation as to the contents of the cessation announcement.

On Sept 4, the company announced that the CEO had ceased to be an executive director “to pursue own interests”. This announcement gave the CEO’s version of his departure and said that “the terms of cessation remain unresolved” and noted that “there has been a delay in the issuance of the final report by relevant professionals engaged despite follow-ups made by CEO”. In response, the board said that the CEO’s cessation was related to the ongoing “review of the Group’s operations, performance and strategy” and explained the delay in the issuance of the final report.

With these changes, the board is back to five directors, with two directors who were present before the saga remaining.

Further changes may be in store because Mr Tan, who has direct and deemed interests of almost 14 per cent, has now requisitioned for an EGM and proposed to appoint himself to the board.

In assessing whether the board and shareholders should support the appointment of Mr Tan as a director, the findings on the NPT transactions are relevant. The current board had on March 10, 2017 announced the interim findings on these transactions in a progress update by UniLegal LLC, which was appointed in November last year as the legal advisor to “perform review of the PwC findings on the NPT transactions and the facts and circumstances surrounding Mr Lau Yoke Mun’s conduct as a service provider”. It advised the Special Investigation Committee (SIC) “to compel Mr Tan and Mr Hui to answer the unanswered questions by way of legal proceedings, including taking Interrogatories Before Action based in the main on proposed causes of action for breach of director’s duties”.

In the case of Mr Tan, UniLegal’s interim findings said “the information available points to a clear case of breach of director’s duties” in relation to the disposal equity transfer agreements (ETAs) because as an executive director and CEO at that time, he signed a second disposal ETA even though he was instructed by the Board not to do so. Further, on the acquisition ETAs, it said that “there appears to be a cause of action for breach of directors’ duties as well as of providing misleading information to the Board and in relation to statements made in the Prospectus . . . issued in connection with its listing on SGX”. UniLegal recommended that the board “commence proceedings against Mr Hui and Mr Tan for breach of directors’ duties and seek Interrogatories Before Action to have all unanswered questions answered as a precursor to the main action”.

The final UniLegal report, released on Sept 30, 2017, was less definitive and assertive. However, it reiterated that Mr Hui and Mr Tan did not appear to have drawn attention to the existence of another dated acquisition ETA for the preparation of the Prospectus at the time of its IPO, even though both were aware of its existence. Further, it questioned whether Mr Tan ought to have signed the second Disposal ETA against the express instructions of the Board.

UniLegal now said that the board “should consider whether to take further steps, including legal proceedings for breaches of duties and/or obligations to the Company” in relation to the NPT transactions but that “the Board should weigh the ‘costs vs benefits’ of any such proposed action, taking into account the likelihood that there has not been any direct financial loss so far resulting from those discrepancies”.

Given that UniLegal said that it had not done an “audit” and that it “has not undertaken any accounting exercise”, it is not in a position to assess whether there is any direct financial loss. Further, it now said that it does not recommend for now the taking of any Interrogatories Before Action against either Mr Tan or Mr Hui, contrary to its recommendation in the company’s earlier announcement on 10 March 2017.


On Oct 6, the company announced that having evaluated the “commercial net benefits” of any legal action and “after taking into account that there has been no direct material financial loss so far for the Company and the Group, the Board has decided without prejudice that the Company will not take action for now against Mr Tan or Mr Hui”. It also said that it will update shareholders in due course on the Nominating Committee’s and Sponsor’s assessments of the suitability of new directors to be proposed at the EGM and that such assessments will take into consideration the findings by UniLegal LLC.

There appears to be little doubt that Mr Tan should not have signed the second disposal ETA against the instructions of the board. If he thought that the board had changed its position, he should have sought confirmation directly from the board before proceeding to do so. Further, Mr Tan should have drawn attention to the existence of the dated acquisition ETA.

Based on the information that has been made public, it is not clear that there has been no financial loss to the company. The UniLegal final report noted that the acquisition was accounted through book entries, by offsetting an amount of US$1,750,000 that was owed to SBI by NPT, with NPT then paying the vendor on SBI’s behalf according to a supplementary agreement.

If NPT settled a US$1,750,000 debt to SBIO with an NPT stake that only cost US$350,000 (the amount stated in the dated acquisition ETA), then there is a financial loss. The fact that the amount in the undated acquisition ETA happens to be exactly equal to what was owed by NPT to SBIO, together with the somewhat unusual settlement arrangement, may also warrant a more thorough investigation.

While the board may have decided that no further action is necessary at this time based on a “costs versus benefits” assessment, it should not support the appointment of Mr Tan just because it believes that the company may not have suffered a financial loss. If the current board, which resulted from a defensive manoeuvre to prevent the appointment of the two directors last year when there were questions about their suitability, decides to support the appointment of Mr Tan, shareholders deserve a fulsome explanation from the board.

Regulators should also consider whether there have been breaches of the listing rules and other relevant legislation. Regulatory action should not be predicated only on whether there is a financial loss to a company, but also whether the relevant rules and regulations are complied with and whether investors are misled.

The writer is an academic and corporate governance advocate who blogs at



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