By Mak Yuen Teen

On May 9, HC Surgical Specialists (HCSS) responded to the latest set of four queries from SGX  in relation to the acquisition of Julian Ong Endoscopy & Surgery Pte Ltd (JOES) and the SMC investigation into Dr Julian Ong.

In response to query 1, the company said that “the Board has assessed Dr Ong’s financial ability to buy back the JOES shares should the put option be exercised, taking into account the value of Dr Ong’s assets, including his property and investments, and is of the view that Dr Ong has sufficient financial strength to buy back the JOES shares”.  The company also reiterated its April 24 announcement that “the Board had assessed Dr Ong’s and the Vendor’s historical performance when the revised terms were put to them”.

As I mentioned in my article “HC Surgical Specialists: Further Thoughts on the Second Transaction” (April 16), it is unclear whether the put option is enforceable.

There are two separate matters here. First, did the Board consider if the put option was enforceable at the time it entered the second transaction? This is different from just assessing Dr Ong’s and the Vendor’s historical performance, which is what the company said in its April 24 response. This is particularly important because the company was already aware of the SMC investigation at that time, and if it had appreciated the seriousness of the allegations, it ought to have considered the possibility of having to terminate Dr Ong’s employment and exercising the put option. It is not just how well he and his practice had been performing historically. Surely in any investment decision, future performance is what matters.

Second, the company has confirmed that “the Board has assessed Dr Ong’s financial ability to buy back the JOES shares should the Put Option be exercised”.

Documentary evidence, such as board or board committee meeting minutes, should be available to support the company’s responses and deal with these matters once and for all. As the company’s financial year end is May 31, SGX could ask the statutory auditors for assistance to confirm these matters  as part of the year-end statutory audit.

In response to query 4, which asked whether Dr Ong’s notification to the Board of the SMC investigation is material information that required immediate disclosure, the company said that that Board had determined, at that time, that the information was neither trade-sensitive nor materially price-sensitive that required immediate disclosure under Chapter 7 of the Catalist Rulebook. It also said that Dr Ong is not a key officer and is one of eight doctors and specialists that the group currently employs.

While the company said that Dr Ong is not a key officer, he is certainly a key employee based on the company’s 2019 annual report. He was featured quite prominently in the annual report and listed as one of the five specialists in the group.

According to the chronology of events set out in the company’s April 24 response to SGX’s queries, Dr Ong informed the CEO about the SMC investigation on February 27, 2019.  Further enquiries were then said to be made by the company. The chronology  did not indicate that the Board had then discussed the matter and made a considered decision that the matter was neither trade-sensitive nor price-sensitive and, therefore, no disclosure was required at that time.  It showed that the Board discussed the Suit and Complaint on July 25, 2019 – five months after the company was first notified by Dr Ong – when it discussed the acquisition of the additional 19 percent stake.

In addition, from the company’s responses to earlier queries, it was clear that it did not conduct any investigation into the matter, as it was relying on the SMC to complete its investigation. The company’s account showed that it relied on Dr Ong’s version of the allegations and did not attempt to contact the complainant. That being the case, how did the Board arrive at the decision that it was not trade-sensitive or price-sensitive, and whether there was any substance to the allegations which may impact the performance of JOES and the group? Again, there should be minutes of meetings that can confirm what actually transpired.