On 16 February 2022, Catalist-listed Kimly Limited, announced that Mr Lim Hee Liat, its founder and former executive chairman, and Mr Chia Cher Kiang, its former executive director (ED), had been fined $150,000 and $100,000 respectively under the Securities and Futures Act (SFA). They were charged in relation to the company’s failure to notify SGX that the company’s acquisition of Asian Story Corporation Pte Ltd (ASC) was an interested person transaction which required an immediate announcement. As a result, the company had committed an offence under section 203 of the SFA pertaining to continuous disclosure.
Mr Lim also gave consent to one charge under section 156(1) of the Companies Act to be taken into consideration, relating to the requirement for every director or chief executive officer of a company to timely disclose any direct or indirect interest in a transaction or proposed transaction that a company is entering into.
Both were further disqualified from acting as directors and/or directly/indirectly managing a company for a period of 5 years.
The potential culpability of Mr Lim and Mr Chia was first disclosed by the company on 29 November 2018, when the company announced that the company and ASC had received letters from CAD and MAS requesting for the provision of certain documents and equipment, and Mr Lim and Mr Chia also received similar requests. On 4 December 2018, the company announced that Mr Lim and Mr Chia had been arrested and released on bail, with no formal charges made against them yet.
About three years later, on 11 November 2021, the company announced that Mr Lim and Mr Chia had been charged and both had resigned as directors of the company. Mr Lau Chin Huat, an independent director of the company, was redesignated as Non-Executive Independent Chairman, while Ms Karen Wong, the company’s finance director and a member of the board since 29 November 2018, was “redesignated as Executive Director and will also be appointed to the Nominating Committee to replace Mr. Lim.” As a senior executive and a board member, Ms Wong was effectively already an ED.
The company also announced the appointment of its finance manager as financial controller and the addition of two other members of its current management team as executive officers.
In the announcement of Ms Wong’s re-designation, the company said she was to “assist the Board in managing the Group’s overall business development, expansion and various business processes.” Given that Ms Wong working experience and occupations as disclosed by the company were in accounting and finance roles, it does not appear that she has the necessary experience to assist the Board in the areas specified in the announcement.
In response to SGX Regco’s queries on 16 November 2021, the company said it did not expect to appoint new EDs and that the Board “is confident that these changes to the management structure will sufficiently allow it to oversee the Group and its businesses.” The company also said that Mr Lim and Mr Chia were to remain as employees of the Group to assist with the transition, initially for three months. It said that it was engaging a “reputable human resource consultant to assist in the evaluation of their continued involvement within the Group.”
On 2 March 2022, Kimly announced that it had engaged Mr Lim and Mr Chia as “independent consultants in order to leverage off their more than 50 collective years of experience, knowledge, market intelligence and relationship with stakeholders and participants in the coffeeshop and F&B industry.” The advisory and consultancy services they are to provide to the Group and its management are extensive, and generally fall within the responsibilities of executive directors and key management personnel of companies. It would appear that the current management team do not have the capabilities to take over the responsibilities of Mr Lim and Mr Chia.
The company also said that it has commissioned Willis Towers Watson Consulting (Singapore) Pte Ltd (WTW) to provide its proposal on appropriate fee benchmarking and incentives. It also explained the salient considerations considered by the Nominating Committee in approving the engagement of Mr Lim and Mr Chia as independent consultants.
The decision of the Board to appoint Mr Lim and Mr Chia as independent consultants raises numerous issues, including:
- How would the authorities ensure that Mr Lim and Mr Chia do not become directly or indirectly involved in the management of the company as required under their disqualification, or that they are not de facto directors?
- Would there be a periodic independent review or audit of their involvement to ensure that they are complying with their disqualification and are not involved in managing or directing the company?
- What steps did the Board and Nominating Committee take as part of succession planning to ensure business continuity, after it was notified of the arrest of Mr Lim and Mr Chia more than three years ago?
- Why did the Board decide not to appoint new EDs or key management who have the requisite experience to take over the responsibilities of Mr Lim and Mr Chia?
- Over what period would Mr Lim and Mr Chia provide consultancy services and what are their deliverables under the consultancy engagement?
- Why are Mr Lim and Mr Chia considered “independent consultants” when Mr Lim was the founder and executive chairman, and Mr Chia an executive director, of the company before their resignation? In what sense are they “independent”?
- How would WTW do fee benchmarking in such a situation where it will likely be difficult to find comparables in terms of responsibilities and type of companies?
As the consulting engagements are in essence interested person transactions, given the close relationships between the company and both Mr Lim and Mr Chia, SGX should require the company to fully disclose the terms of the consultancy engagements, including the number of hours that each is contracted to provide and the fee per hour. The consulting engagements should be subject to the requirements of chapter 9 for interested person transactions, including any applicable requirements for approval by independent shareholders.
There are other companies where directors are currently under investigation which could also result in their disqualification from being involved as directors or management of companies. The relevant authorities and regulators need to ensure that companies and individuals are not circumventing disqualification orders through consulting engagements. Companies and individuals should be reminded that breaching of disqualification orders is itself an offence.