Updated on April 15 at 12 pm to correct year of complaint from 2017 to 2018 and period of time that complaint has been with SMC.
By Mak Yuen Teen
Over the last few days, I have followed with interest the news about the dismissal of the defamation suit filed by Dr Julian Ong Kian Peng against Ms Serena Tiong, a business development manager at Thomson Medical Centre, who had an affair with Dr Chan Herng Nieng, a former senior consultant of psychiatry at the Singapore General Hospital, while she was also a patient of the latter.
This was widely reported in the media, including in the April 14 edition of Today which I am drawing from and which can be accessed here: https://www.todayonline.com/singapore/surgeon-loses-defamation-suit-against-woman-who-claimed-he-and-another-doctor-took-sexual
Ms Tiong had told other doctors that Dr Ong and Dr Chan were taking advantage of vulnerable female patients to have sex with them. She sent a complaint to the Singapore Medical Council (SMC) and also forwarded the complaint through email to a number of doctors in SGH, as well as to two doctors in private practice.
She accused the two doctors of “colluding” to take advantage of “other vulnerable woman patients” and suspected that Dr Chan was using his reputation together with Dr Ong to ‘source’ and ‘groom’ patients into victims. She said that both doctors exchanged potential patients and colleagues who were deemed easily taken advantage of to “satisfy their immoral desires”.
District Judge Lynette Yap said in her judgement that based on the evidence, including what the defendant and Dr Chan said during cross-examination, Ms Tiong’s claims were justified. Other evidence included a series of WhatsApp messages between the two doctors.
It was reported in The Straits Times (ST) on April 11 that Ms Tiong last heard from the SMC on December 5, 2019 about her complaint and was told that its complaints committee is at the inquiry’s final stage. That same evening, Business Times reported this in its breaking news.
Beyond the issue of medical ethics, the case also raises a number of corporate governance issues. This is because Dr Ong’s practice, Julian Ong Endoscopy & Surgery Pte Ltd (JOES), is 70% owned by HC Surgical Specialists, a Catalist-listed company.
Let’s consider the timeline of the events reported in the media reports. The relationship between Ms Tiong and Dr Chan started in January 2017, and she submitted her complaint against both doctors in June 2018. Dr Ong started his defamation suit against Ms Tiong in July 2018.
Some questions that immediately come to my mind:
- When did HC Surgical become aware of the complaint against Dr Ong?
- On becoming aware, did the company initiate its own investigation into the allegations?
- Did the board and management take steps to ensure that Dr Ong’s patients and employees are adequately protected (since they cannot be sure that the allegations are untrue without a proper investigation)?
On April 11 at 4.34 pm, the company issued an announcement in response to the Straits Times article, disclosing that Dr Ong’s defamation suit has been dismissed with costs, and that he is solely responsible for the costs.
It also said the Board does not approve of the matters alluded to in the suit and that it understands that the SMC is “in the process of determining the complaint” and that “the Board will await the decision of the SMC’s Complaints Committee before determining if any further action will be necessitated”.
It added: “In the interim, the Group has reviewed the matters alluded to in the Suit and has stressed upon Dr Julian Ong of his obligations under the SMC’s Ethical Code and Ethical Guidelines” and that it has “further reminded and stressed upon the doctors of their obligations” under the same Code and Guidelines, “in particular to maintain propriety and observe appropriate boundaries in their relationship with patients as well as to maintain always a professional code of conduct”.
I felt the response of the company was grossly inadequate for a number of reasons. It did not say that it had initiated any investigation. In fact, the response would suggest that it has not but was waiting for the SMC to conclude its investigation before deciding if any action needs to be taken. While I understand about letting due process work with regards to the SMC investigations, the information that was reported in the media reports was very damning, including what Dr Ong admitted in the cross-examination and the WhatsApp messages. SMC has already been at it for 1.5 years (from June 2018 to December 2019) and who knows how long that process will take.
The company also did not say when it became aware of the allegations, and also did not disclose whether any steps have been taken to protect Dr Ong’s patients and employees.
On 12 April, 10.57 am, HC Surgical released an update to its response. In addition to reiterating its commitment to high levels of professionalism and making other “motherhood” statements, it said it recognises the gravity of the matters and said that it is important “for due process to run its course, pending the findings of the SMC’s Complaints Committee”.
It now disclosed that “Dr Julian Ong shall, with immediate effect, prior to any consultation, inform all patients of the matters alluded to in the Suit prior to any consultation and obtain the consent of each patient to act as their physician if they should so agree, save for any emergency consultation”.
Even assuming that the consent of the patient is in writing, how would the company ensure that the full facts of the case are disclosed to the patient? Should Dr Ong himself be the one disclosing to his patients about the matters in the case?
The fact that Dr Ong launched the defamation suit presumably means that he disputes the allegations. The company also did not disclose if Dr Ong is appealing the judgement.
Beyond the company’s responses, other questions arise.
HC Surgical initially bought a 51% stake in JOES in February 2017. The total purchase consideration was $2,175,000 made up of: (a) $1,569,100 in cash, (b) and 1,000,000 shares at an issue price of $0.6059 per share. The vendors are Dr Julian Ong and Julian Ong Surgery Pte Ltd (which is wholly owned by Dr Ong). Following this, Dr Ong effectively owned 49% of JOES and became an employee of HC Surgical. The company said then that it intended to buy the remaining 49% by April 1, 2021.
Dr Ong provided two profit guarantees, the first for a four-year period starting from his employment date (later confirmed to be April 1, 2017), and the second for a further six-year period starting from the end of the first profit guarantee period. In other words, the two profit guarantees together will cover a 10-year period starting from April 1, 2017. In the event the profit guarantees are not met, Dr Ong has to pay the company the shortfall within 30 days of the company’s written notice.
The company said “the board had no further discussion on the manner of the compensation” in the event the profit guarantees are not met given its “assessment of the profit and cash flow potential of JOES, the quantum of the Profit Guarantees across the period of the Profit Guarantees and the consideration by the Board that the acquisition of JOES and the employment of Dr Julian Ong is expected to be a long term commitment between both parties with close oversight and collaboration expected within the Group in supporting the Profit Guarantees”
In other words, it appears that the board did not further discuss how it would enforce the compensation should the profit guarantees not be met. Was that prudent of the board?
The shares issued to Dr Ong was subject to a moratorium as follows. He is not allowed to sell any of the shares in the first year. For the second year, he must retain at least three-quarters of the shares (or 750,000 shares). For the third year, he must retain at least half the shares (500,000 shares). For the fourth year, he must retain at least a quarter (or 250,000 shares).
Based on the annual reports of HC Surgical, Dr Ong was listed among the top 20 shareholders in the 2017 and 2018 reports, but not in the 2019 report. As of August 23, 2017 (shown in the 2017 report), Dr Ong held 1,000,000 shares. On August 23, 2018 (2018 report), he held 750,000 shares. As of August 22, 2019, Dr Ong was no longer among the top 20 shares. The 20th largest shareholder held 625,555 shares.
Dr Ong is not a director or substantial shareholder, so his share transactions do not have to be announced. Assuming he did not transfer any shares to nominees or other parties (while retaining a beneficial interest), Dr Ong has been selling his shares in HC Surgical, but it is subject to the moratorium terms.
Bearing in mind that the defamation suit had not been announced by the company until 11 April 2020, isn’t there a risk of insider trading? According to the Business Times report today (April 14), HC Surgical shares fell as much as 10.5 percent yesterday following the news of the defamation suit over the weekend, although it recovered to close down 1.32 percent.
On September 3, 2019, HC Surgical announced that it was acquiring another 19% of JOES, bringing its stake up to 70%. It paid $3,795,000 for the additional 19% stake. It reiterated its earlier plan to buy the remaining 49% of JOES.
PrimePartners Corporate Finance was the continuing sponsor, having being the full sponsor for HC Surgical’s listing on November 3, 2016. Novus Corporate Finance Pte Ltd was the financial adviser for this second transaction. On November 3, 2019, exactly 3 years after its listing – which is also the minimum retention period for the full sponsor as continuing sponsor after listing – HC Surgical terminated the sponsorship of PrimePartners. Novus Corporate Finance took over as continuing sponsor on November 4, 2019.
For this transaction, the company said: “Further to renewed negotiations between the Company, the Vendor and Dr Julian Ong, the terms of the SPA provide for, among others, the cessation of the Profit Guarantees with immediate effect, and for the structure of the 49% Shares Sale to be amended to be carried out in two tranches, namely the Proposed Acquisition and the Additional Sale Shares tranche. Details of the Additional Sale Shares are set out in paragraph 4 of this announcement”.
Paragraph 4 stated that the revised plan is to buy the remaining 30% by 31 October 2021 or such other date to be agreed, at an amount that is “ten times the audited profit after tax of JOES for the financial year ending 31 May 2021, multiplied by 0.30”.
The consideration for the additional 19% stake was $3,795,000, with $2,846,712 in cash, and 1,760,000 new shares at an issue price of $0.5388.
The company’s rationale for the acquisition of the additional shares is that it is “in line with the Group’s long-term plans for growth….the Company is of the view that the Proposed acquisition will motivate Dr Julian Ong, having commenced his employment with the Group since 1 April 2017…who recognises the synergies of being part of the Group, and the Proposed Acquisition will continue to enhance the working relationship upon which Dr Julian Ong, coupled with the Company’s resources, will be able to further improve the profitability of JOES”.
A similar moratorium applies for the shares as for the first transaction.
Bear in mind that by this time, Ms Tiong’s complaint has already been lodged with the SMC for more than two years.
Again I ask, did the board know about the case and properly assess the allegations, before it agreed to buy the additional 19%?
In April 2017, the Singapore Medical Association (“SMA”) said that profit guarantees are incompatible with the profession’s ethical guidelines. This probably explains why the profit guarantees from the first transaction were cancelled, although the company did not cite this reason in its announcement.
While I agree with the SMA position, the cancellation of the profit guarantees removes the protection for the company in the event that Dr Ong receives an adverse ruling from SMC or JOES does not perform according to expectations.
For the second transaction, the company negotiated put options for both the 70% stake and the total 100% stake, which gives it the right to require the Vendor to buy back JOES shares if Dr Ong or the company terminates his employment. For the option relating to the 70% stake, it is exercisable within the 30th to 48th month of Dr Ong’s appointment. By my calculation, this means from October 2019 to April 2021.
The company said: “Should the Put Options be exercised, the Vendor will be required to buy back the Sale Shares and the Additional Sale Shares (as the case may be), in cash, where the consideration will be based on a percentage of the Purchase Consideration or Additional Sale Shares Consideration (as the case may be), such percentage to be dependent on the timing of the termination of the Employment.”
Perhaps the board believed that the put options provide a suitable substitute for the profit guarantees. However, the terms of the put options as disclosed by the company are so lacking in specifics that one wonders if the board “held any further discussion” of the terms of the options and their enforceability before agreeing to cancel the profit guarantees.
In particular, what does “such percentage to be dependent on the timing of the termination of the Employment” mean? How confident is the board that Dr Ong would be able to come up with the cash to buy back the shares, even if the terms of the put options are enforceable?
HC Surgical has paid Dr Ong $4,415,812 in cash and issued him 3,760,000 shares to acquire its 70% stake in JOES. That investment could be at significant risk and the put options that the company has agreed to may not be enforceable.
The board has many questions to answer regarding the decisions it has made in relation to the two transactions culminating in its present 70% stake in JOES, the lack of disclosure by the company on the defamation suit, and its response to the outcome of the defamation suit.
Presumably the financial advisor and now continuing sponsor, Novus Corporate Finance, provided advice on the merits of the second transaction and the terms of the put options. Perhaps it can also shed some light on this? Was it aware of the defamation suit when it was advising on this transaction?
