By Mak Yuen Teen

I am often asked how I decide which company to look into or select for writing a case study. The appointment and departure of directors, including independent directors, is one of the key starting points. This is because while certain corporate actions require shareholders’ approval, most are made by the board of directors. If there are questions surrounding the integrity, independence, competence or commitment of directors on a board, that is usually an early warning sign.

One company which caught my attention on Christmas Eve was Catalist-listed Metech International, which announced the appointment of 71-year old Mr Chng Hee Kok as independent director with effect from Boxing Day. Mr Chng is a name who is familiar to me because he had been sanctioned as a director before. This was disclosed in his appointment which states: “Mr Chng was fined $5,000 in August 2007 under section 156 of the Companies Act, Chapter 50 and was given warning under section 28(B)(b) of the Prevention of Corruption Act, Chapter 241”. (in case readers are wondering, $5,000 remains the maximum fine under the Companies Act in Singapore; in contrast, the maximum fine under the Malaysian Companies Act for a similar offence is RM3 million).

The appointment template states the following comments from the Board and Nominating Committee about this appointment:

“The Board, having considered the recommendation of the Nominating Committee, and having assessed the qualifications, experience and strong business network of Mr. Chng Hee Kok, is of the view that he has the requisite experience and capabilities to assume the duties and responsibilities as an Independent Director of the Company. The Nominating Committee has also taken note of Mr Chng’s multiple board representations, and having considered that he has no principal commitment and his good attendance record at meetings in his other listed entities, is satisfied that he will be able to dedicate sufficient time to fulfill his role as an Independent Director of the Company”.

Mr Chng is already an independent director of 8 other listed companies, and Metech will be his 9th. According to the Singapore Directorship Report 2018 published by the Singapore Institute of Directors, the maximum number of listed company directorships held by any independent director is 8. So, this will make Mr Chng the independent director with the most number of directorships (based on the 2018 numbers).

Neither the Board nor the Nominating Committee mentioned that they had considered Mr Chng’s prior conviction under the the Companies Act and the warning under the PCA. To be fair, that conviction happened 12 years ago and I am not saying that a person should not be given a second chance. Nevertheless, the question is whether the Board and NC considered this matter and also considered other candidates for appointment.

The continuing sponsor for Metech is RHT Capital. Under Practice Note 2C Guidelines for Continuing Sponsorship in the Catalist rulebook, the sponsor is supposed to “advise the issuer on the suitability of directors arising from proposed changes in the board of directors” and “investigate and consider the suitability of each director and proposed director of the issuer”. It is unclear whether RHT Capital has done so for Mr Chng’s appointment.

However, there is also the matter of whether RHT Capital’s objectivity is impaired because of relationships between the RHT group and certain Metech directors. Mr Chay Yiowmin, an independent director of Metech, is a director of RHT Chestertons Valuation and Advisory Pte Ltd., based on Metech’s 2019 annual report. According to public information, RHT Chestertons is a collaboration between real estate firms Chestertons and RHT Wealth Holdings, which is part of the RHT group.

Another independent director, Mr Ricky Sim, was Managing Director of Chesterton Suntec International Property Consultants. A November 2017 Business Times report mentioned that he was the non-executive chairman of RHT Chestertons.

Can the continuing sponsor, RHT Capital, which is part of the RHT group, objectively advise on the suitability of directors on Metech’s board when two of the independent directors have relationships with its affiliates? Can it be perceived to be able to objectively investigate and consider the suitability of the two directors who have relationships with its affiliate?

Appendix 2D on Sponsor Independence under the Catalist rules states” “No partner, director, employee of a sponsor or associate of any such partner, director or employee may hold the position of a director of a sponsored issuer”. Is RHT Capital interpreting this rule strictly in accordance with the letter and therefore does not consider directors who sit on the boards of its affiliates? If they only follow the letter of the rules, how can we expect the companies they supervise to follow spirit?

The controlling shareholder, Chairman and CEO of Metech is Mr Simon Eng. Pursuant to Rule 720(5) of the Catalist Rules, Metech is required to set out in the annual report the information specified in Appendix F of the Catalist Rules for the retiring directors who are seeking re-appointment. Mr Eng retired and was re-elected at the October 2019 AGM and therefore information about him was set out from pages 16 to 20 of Metech’s annual report for the year ended June 30, 2019.

On page 20 under “Response to questions (a) to (f) under Appendix 7F of the Catalist Rules”, it says “Negative confirmation”. Item (f) in Appendix 7F states: “Whether he has been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued any warning, by the Monetary Authority of Singapore or any other regulatory authority, exchange, professional body or government agency, whether in Singapore or elsewhere?”

How can the company say “Negative confirmation” when Mr Eng had been reprimanded only back in October 2015 at Advanced SCT (now called Citicode) as can be seen from this announcement: https://links.sgx.com/FileOpen/20151030_SGX_reprimands_Advance_SCT_chairman_and_CEO_and_non_exec_director.ashx?App=Announcement&FileID=375894

Will this be yet another “inadvertent omission” that SGX Regco will let pass with just a clarification? This is just the latest of the incorrect disclosures in our so-called disclosure-based regime.

With the questions surrounding the board and the continuing sponsor, investors in Metech should certainly follow developments closely and with caution.