By Mak Yuen Teen

On 22 October 2021, SGX Regco issued a set of queries to Raffles Education Corporation (REC) relating to its FY2021 annual report and the audited statement of directors’ emoluments published pursuant to a requisition under section 164A of the Companies Act.

One of the queries was about the salary paid to Mr Liu Ying Chun, the company’s “non-executive director” (NED). Mr Liu is CEO and executive director (ED) of Oriental University City Holdings (H.K.) Limited (OUCHK). OUCHK is listed on GEM in Hong Kong and is 75% owned by REC. The s164A statement shows that Mr Liu was paid S$168,000 by REC. Under OUCHK, it showed that he received another S$60,079  “from OTHER business unit”.

In the remuneration table for directors under the Corporate Governance Statement of REC, Mr Liu’s remuneration was shown as “Below S$250,000” with 100% derived from salary. It also showed that he retired w.e.f. 30 October 2020, indicating his salary was for a period of four months from 1 July 2020 to 30 October 2020.

SGX Regco asked why REC paid his salary of S$168,000 instead of OUCHK, and why he was paid a salary rather than director fees as an NED who is not employed by the company.

REC’s response was that Mr Liu’s total remuneration for FY2021 was S$228,079, “out of which $168,000 was received by Mr Liu in his capacity as an employee of the Company from July 2020 to June 2021 and $60,079 was paid in connection with his annual remuneration as the Chief Executive Officer of OUCHK. Mr Liu retired from the Board of the Company on 30 October 2020 and no director fees was paid to him by the Company.”.

On reading the response, I posted on LinkedIn that it looks like we have a new category of director called “Employee Non-Executive Director”. Clearly SGX Regco was as bewildered as me and as part of a further set of queries issued on 27 October 2021, it asked further questions about Mr Liu.

SGX Regco asked why Mr Liu was disclosed as an NED when he is an employee of the company. This was REC’s response issued two days later:

“Mr Liu was not part of the executive team of the Company, not engaged in the day-to-day management of the Company but nevertheless is involved in the policy making and planning exercises in relation to the Company’s independent investments in the PRC and acts as the Chairman and legal representative of Wanbo Institute of Science and Technology, a wholly owned subsidiary of the Company in the PRC. Mr Liu is an employee of the Company. Following his secondment to OUCHK, in his day-to-day functions/duties as executive director and CEO of OUCHK, he is not involved in executive functions of the Company. In these circumstances, when Mr Liu was appointed as a director of the Company’s Board, the Company bona fide considered him to be a non-executive director of the Company.”.

If a student classifies Mr Liu as an NED in my examination, my bona fide assessment is that he is bound to fail.  The fact is that Mr Liu is an employee which the company has acknowledged. He clearly plays key executive roles within the group, being seconded to run OUCHK, holding key positions in another wholly-owned subsidiary of REC in China (including as legal representative), and is extensively involved in decision-making relating to the company’s  investments in the PRC. He is clearly a key executive for the company’s PRC business. Based on REC’s reasoning, an employee of  a company managing overseas operations who serves on the parent board can be classified as an NED.

If not for the s164A statement, the disclosure of his “100% salary” in the directors’ remuneration table in the FY2021 annual report and the queries from SGX Regco, shareholders may never know that Mr Liu is an employee of REC and that much of his salary is paid by REC. It was not disclosed in the appointment template or his cv when he was appointed as a “non-executive director” in November 2019, or in the cessation template when he resigned as “non-executive director”.

SGX Regco also asked about “the role, responsibilities and designation of Mr Liu in the Company…and all the financial periods he was employed and paid by Raffles Education Limited as an employee of Raffles Education Limited”. REC did not answer SGX Regco’s question about all the financial periods he was employed and paid by REC.

Over the years, REC has consistently refused to disclose the identity of the top five key management personnel (KMP), their individual remuneration even in bands, or the aggregate remuneration of these KMP. Was Mr Liu a KMP and for how long? How much has he been paid over the years as an employee? I believe SGX Regco should seek more clarity from REC regarding Mr Liu.

The s164A statement and REC’s response to the queries is that Mr Liu was paid S$60,079 by Langfang Development Zone Oriental University City Education Consultancy Co. Ltd (OUCEC), a wholly-owned subsidiary of OUCHK. In Hong Kong, section 383 of the Hong Kong Companies Ordinance and the Companies (Disclosure of Information about Benefits of Directors) Regulation require the disclosure of exact remuneration of directors, broken down into different components, in the annual report. OUCHK’s annual report for the financial year ended 30 June 2021 shows that Mr Liu was paid nothing for both FY2021 and FY2020 by OUCHK. It further states: “During the years ended June 30, 2020 and 2021, Mr Liu Ying Chun, a director of the Company, whose emoluments were borne by REC”. So did OUCHK pay him S$60,079 according to REC, or did OUCHK (or its subsidiary OUCEC) pay him nothing according to OUCHK’s annual report?

When a company has poor corporate governance and transparency, it is impossible to gain the trust of investors and other stakeholders. REC only has itself to blame for the scrutiny and criticism it is facing.

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Note: The author is not a shareholder of Raffles Education Corporation.