First published in Business Times on December 13, 2017

By Mak Yuen Teen

I refer to my letter “Datapulse Technology’s disclosures about its operations throw up more questions than answers” (BT, Dec 8) and the Hock Lock Siew column “Minorities in the dark over Datapulse’s fate” (BT, Dec 12).

In its Dec 8 announcement providing further information on the sale of shares by the director and substantial shareholder, the company disclosed that the letter from the new shareholder, Ng Siew Hong, said:

“Given that the core business of the Company is no longer profitable and the Company will be ceasing its manufacturing business soon, it will be detrimental to shareholders if efforts are not made to diversify the core business of the Company. It would be in the interests of the Company and its shareholders to diversify the business of the Company to include multi-industry investments as part of the core business of the Company”.

In the company’s response to SGX queries on Nov 18, it had stated (a) that management was considering ceasing its manufacturing activities, (b) that it does not expect a material impact if it ceases its manufacturing activities, and (c) that in the event that management decides to continue its manufacturing activities and alternative premises cannot be secured in time, there will be some disruption to its manufacturing activities.

In the company’s Nov 23 and 25 announcements on the sale of shares by Ng Cheow Chye, the CEO, deputy chairman and substantial shareholder, Datapulse said “the Company is currently conducting its business in the ordinary course”.

Was the information communicated to the public different from that communicated to the new shareholder, leading Ms Ng to make the definitive statement that the company will be ceasing its manufacturing activities soon? In its Nov 25 announcement, the company also said that it was told by Mr Ng that he understood that the buyer would like board representation and that on the issue of board control, the board will have to wait for the buyer’s proposal.

By Dec 11, five of the six directors had resigned, with Mr Ng the sole director remaining on the board as an executive director. Among those who resigned were the three independent directors, including the chairman, Hee Theng Fong, who had been on the board since 1994 and Hilary Quah Lam Seng, who had been a director since 1999.

Directors owe their duties to the company and all shareholders, and not just to controlling shareholders. It is disappointing that the independent directors in particular did not stay on to ensure that the company’s and minority shareholders’ interests are protected.

They would have had the opportunity to have themselves heard at an extraordinary general meeting that the new shareholder will have to call to remove them if they had chosen not to resign. They should also explain the rather perplexing disclosures made by the company leading up to the entry of the new shareholder.

This episode once again casts doubt on how “independent” can independent directors truly be when there is a controlling shareholder, as the independent directors immediately resigned with a change of controlling shareholder, and the new independent directors are effectively appointed by the new controlling shareholder.

The nominating process in this situation is non-existent and the new independent directors have been deemed independent without any proper assessment. It is therefore unsurprising that the process of voting for independent directors is being reviewed or has been modified in a number of countries.

The new controlling shareholder is able to gain board control by acquiring 29 per cent of the total issued shares, which is below the 30 per cent threshold for a mandatory general offer.

Perhaps, our regulators should consider whether board control should also be considered when determining whether a mandatory general offer should be required – given that many key decisions of a company are made by the board.

As mentioned in my earlier letter, regulators should review the company’s disclosures and transactions. Directors, including those who have resigned, should be asked to explain.

Mak Yuen Teen