By Mak Yuen Teen

In January this year,  Bursa Malaysia introduced changes to its listing rules for Main and ACE Market companies. One of these changes is that all publicly-listed companies (PLCs) must have in place a fit and proper policy that addresses board quality and integrity for the appointment and re-election of directors, which must be published on the PLCs’ websites, from 1 July 2022. PLCs must disclose the application of the fit and proper policy in their annual reports for FY ending on or after 31 December 2022.

Under the Bursa listing requirements, the high-level considerations that underpin a fit and proper policy for directors include character and integrity, experience and competence, and time and commitment. Although it remains to be seen how listed issuers in Malaysia will develop and apply the fit and proper policy, the enhancement of the rules in this regard is timely and many would argue long overdue.

Banking and prudential regulators  would generally impose fit and proper criteria for directors and key management of licensed financial institutions, which would often also require these persons to be able to manage his or her debts or financial affairs prudently.

In the case of companies that are not financial institutions, comprehensive fit and proper criteria often do not exist. As long as a person meets minimum age requirements (18 years old in Singapore) and is not disqualified, he can be a director.

In Singapore, Rule 210(5) in the SGX Rulebook states that directors and executive officers should have appropriate experience and expertise to manage the group’s business. Those with no experience as directors of listed companies have to comply with some minimal training requirements. In addition,  “the character and integrity of the directors, management, founding shareholders and controlling shareholders of the issuer will be a relevant factor for consideration”.

On 14 December 2021, KTL Global announced that it had appointed Mr Wu Yongqiang as non-independent chairman of the company. The announcement template said that he is ” seasoned businessman with extensive experience, expertise and connection in various industries, such as food, construction and real estate, and has a track record in owning, running, advising and ultimately growing, varied businesses and companies, both in Singapore and the People’s Republic of China”. It also disclosed that Mr Wu “was a director and shareholder of Weifang Shengxing Property Co., Ltd (“WFSX”), a company incorporated in Shandong, People’s Republic of China which was declared to be insolvent and bankrupt by the district courts in Weifang city, Shandong on 13 April 2015 pursuant to an application for liquidation by several of WFSX’s creditors”. In addition, it said: “Judgement in various civil suits initiated in PRC” has been entered against Mr Wu, in his capacity as personal guarantor for various companies including WFSX.

The company said that the board of directors, “having considered the Nominating Committee’s recommendation and assessment of Mr Wu’s background, qualification, commitment, and his past contributions to the Group, is of the view that Mr Wu has the requisite experience to assume the responsibilities of a Non-Executive Non-Independent Director. With Mr Wu’s significant contacts in the business world, Mr Wu would be able to among others, procure the injection of new businesses into the Group and continue to provide leadership in moving the Group’s businesses forward”. Notwithstanding the fact that Mr Wu has no prior experience of a listed company on SGX, the Nominating Committee (NC) and board considered that he is suitable to be appointed not only as a non-executive director but as the board chairman.

On 10 January 2022, the company published responses to SGX’s queries regarding the appointment of Mr Wu, including  compliance with Rule 210(5) regarding the consideration of the character and integrity of directors and management. The company said that in assessing Mr Wu’s suitability as a director of the company, the NC noted and understands the following:  “…the WFSX case and the civil suits against Mr Wu are commercial in nature and arose from business disputes and/or the defendants’ failure to pay the sums owing. Some of the civil suits resulted solely from Mr Wu acting as a guarantor for certain loans taken out by entities whereby Mr Wu was a director and/or legal representative. In view of Mr Wu’s relatively long record of being a businessman, such civil suits are not uncommon. In addition, the NC noted…that notwithstanding the dates of the unsatisfied judgements, the commencement of most of the underlying civil suits occurred on or around 2012 to 2014”.

It also said that based on queries made by the PRC lawyers, “there were  no case records pertaining to Mr Wu being a personal bankrupt in PRC”. It added that, based on the legal opinion from the PRC lawyers , “Mr Wu has no criminal record in the PRC, in particular any conviction pertaining to dishonesty, fraud or other offence which may lead the NC to doubt Mr Wu’s character or integrity and affect Mr Wu’s suitability to be appointed as a director of the Company”.

The company also provided information on the 18 cases “involving compulsory enforcement and restrictions on high consumption spending”, with 14 cases “owing to Mr Wu’s failure to comply with court judgements” which are outstanding, and the other 4 cases where the status of performance in respect of enforcement is not clear. For the 11 cases where the amount involved in the enforcement case is known, the total is nearly RMB62 million.

The NC and board stood its ground in supporting the appointment of Mr Wu.

On 21 February, the company responded to further queries from SGX about “the implications of unfulfilled judgements including the impacts of Mr Wu’s abilities to discharge his duties and responsibilities as a Non-Executive Director and Non-Executive Chairman”. The company said that Mr Wu “is currently a person subject to restrictions against high consumption spending in the People’s Republic of China…”  and repeated the earlier replies. It said that to the best of the board’s knowledge, “the board is not aware of any adverse implication which arises directly/solely from the unfulfilled judgements which impacts on Mr Wu’s abilities to discharge his duties as a Non-executive Non-Independent Director and Non-Executive Chairman”.

The company also responded to SGX’s queries seeking details of the NC’s assessment “of each civil suit including Mr Wu’s role and accountability for the relevant debts which resulted in the court judgements” and “how each suit will affect Mr Wu’s ability to meet the requirements” under the SGX rules relating to character and integrity. Based on a signed written statement from Mr Wu, “the NC understands that most of these pending cases and unsatisfied judgements date back to 2014/5 and are related to commercial disputes”. The NC agreed to Mr Wu’s request for “more time to prepare a comprehensive and accurate written statement” and said that it will engage in further deliberations and assessment based on the signed written statement before rendering its opinion/response to SGX’s query. However, by this time, the company had already appointed Mr Wu as chairman more than two months ago.

Once again, the NC and board held firm, saying that the outstanding civil suits are commercial in nature and arise solely from Mr Wu’s standing as principal debtor and/or guarantor, that Mr Wu has no criminal record in PRC or any pending or threatened prosecution or investigation by any governmental or regulatory body in the PRC or in any other jurisdiction, he has never been adjudged bankrupt and is not an undischarged bankrupt and to the best of his knowledge, and there is no bankruptcy proceeding or action initiated against him to date.

Clearly unconvinced, SGX issued further queries, following up on the company’s earlier response regarding giving Mr Wu more time to provide a comprehensive and accurate written statement. SGX said that the company had not responded to certain items in its earlier queries, and said that in the absence of the NC’s response, “the continued appointment of Mr Wu as the Non-Executive and Non-Independent Director and Non-Executive Chairman would be a potential breach of [the listing rules] relating to the character and integrity of directors and management of an issuer”. The company responded to these latest queries late last night (22 March).

Despite Mr Wu not having fully collated the information  required for the written statement, the company continued to hold firm to its position, maintaining the the civil suits are commercial in nature and does not affect the NC’s assessment of his character or integrity, that Mr Wu “genuinely believes that he was not at fault and/or there existed commercial ambiguity” as to whether he is fully or partly liable, and that he has given an undertaking that he has sufficient financial resources to satisfy any outstanding claims and to take all necessary steps to resolve other judgements. He has also given an undertaking to resign from the board should he become the subject of a bankruptcy application, or there are further developments on the outstanding judgements which may disqualify him or adversely affect his ability to continue as a director, or should there by any new information which in the reasonable opinion of the NC and/or the board may disqualify or adversely affect his ability to continue to act as a director of the company.

The company said the NC is of the view that there is no basis and/or reason to conclude that Mr Wu does not fulfil the listing requirements relating to character and integrity.

While SGX rules require directors to have appropriate experience, expertise, character and integrity, they do not sufficiently capture “fit and proper criteria” which should also cover competence of a person and his ability to manage his debts or her financial affairs prudently. KTL is an extreme case, but not the only case, of an issuer which is determined to appoint a director that most NCs and boards would not seriously consider appointing. One can only ask why the NC and board are so insistent in appointing Mr Wu to the board despite the clear reservations of SGX.

SGX and other regulators should hold the entire NC and board accountable if the appointment of Mr Wu causes detriment to the company or causes it to breach listing rules or other regulations. After all, he is now the company’s chairman.