Note: This article was updated on 21 August 2023 at 6.30 pm to amend the part about the remuneration paid to Dato’ Michael Loh for FY2021. I had missed the breakdown of the additional payment shown further down below the remuneration table as the company disclosed it separately. However, my concerns about the termination payment made to him, and the high remuneration paid to him over many years while the company was doing poorly remains.

 

On 22 August 2023, an EGM called by ASTI shareholders holding at least 10% of the shares under section 177 of the Companies Act, will be held. At this EGM, shareholders are asked to vote on 11 resolutions – five resolutions to remove the five current directors, five resolutions to appoint five new directors, and one resolution to remove any new director who may be appointed between 18 July 2023 and the date of the EGM.

I do not always support proposals by requisitioning shareholders to remove existing directors and appoint new directors. However, in the case of ASTI, the case for removing all the current directors and appointing new directors is in my view indisputable.

For the current directors, there is no need to repeat what I have said in terms of the many questionable actions that have happened under their watch. Shareholders can look at my series of articles posted on this website:

https://governanceforstakeholders.com/?s=ASTI

As for the proposed directors, I do not know them personally and have not looked extensively into their backgrounds. My overall assessment is that collectively, they appear to have a reasonable mix of skills, competencies and experiences. I do not recall seeing their names in companies that have imploded. I cannot vouch for their integrity. Whether they will act independently if appointed is something I am unable to assess. However, I appreciate that they have stepped forward. If they are appointed, I will look at their actions in the same way as I have looked at the actions of the current and previous directors.

I would now like to talk about several issues that may be relevant to shareholders’ decisions as to whether to attend/vote at their coming EGM on 22 August 2023 and the long-awaited AGM convened by the company for FY2021 on 31 August 2023.

The board’s comments about the validity of the EGM

The board said: “Any attempt by the requisitioning shareholders to carry on with the clearly invalid proposed EGM on Aug 22 (ie nine days earlier), is likely to cause pandemonium and confusion as to the carrying out of the FY2021 AGM. This will be harmful to the company’s good governance and business, and will be to the detriment of both the company and the general body of shareholders of the company.”

The company is proposing to hold an AGM, not a Taylor Swift concert, so it is unlikely to cause pandemonium. The only confusion I can foresee is that if the resolutions at the 22 August EGM are successfully passed and the EGM was indeed validly convened, the current directors should not be presiding over the AGM to be held on 31 August as they would no longer be in office. If anything, if the EGM resolutions are passed, the AGM should probably be postponed – even though I have been calling for it to be held.

The less said about the board talking about good governance the better, since I have been looking for any sign of good governance in this company for a long time.

I take exception to the board’s comments that the 22 August EGM is “invalidly called and the Proposed EGM itself is invalid” in its announcement and press release on 14 August. The board may challenge whether the notice of the proposed EGM was validly given, to which the requisitioning shareholders have responded. This is a matter for the Court to decide, not the board based on advice from its own lawyers.

What I believe is plainly wrong for the board to say is that “The Requisitioning Shareholders are usurping the rights, powers and entitlements of the Board to scrutinize, attend and conduct the Proposed EGM….to be actually, properly and validly held and conducted by the Board in all respects in compliance with the Constitution and such laws.”

The EGM is called under section 177 of the Companies Act.

Section 177(1) states: “Two or more members holding not less than 10% of the total number of issued shares of the company (excluding treasury shares) or, if the company has not a share capital, not less than 5% in number of the members of the company or such lesser number as is provided by the constitution may call a meeting of the company.”

Section 177(2) states: “A meeting of a company or of a class of members, other than a meeting for the passing of a special resolution, must be called by written notice of not less than 14 days or such longer period as is provided in the constitution.”

Section 177(4) states: “So far as the constitution does not make other provision in that behalf, notice of every meeting must be served on every member having a right to attend thereat in the manner in which notices are required to be served by the model constitution prescribed under section 36(1) for the type of company to which the company belongs, if any.”

As long as section 177 is complied with, the requisitioning shareholders are entitled to call the EGM – that right is not subject to the company’s constitution and by calling it, the shareholders are not usurping the rights, powers and entitlements of the board. They are simply exercising their rights provided under the Companies Act.

In fact, by unilaterally declaring that the EGM is invalidly called and that the proposed EGM is invalid, and telling shareholders not to attend, the board is arguably usurping the rights of shareholders provided under the Companies Act to call an EGM.

While ACRA, which is responsible for administering the Companies Act, would understandably not want to opine on whether an EGM is validly called, I wish it would remind the board, and all boards, that the section 177 right to call meetings is not subject to the constitution.

Shareholders should ignore what the ASTI board has said and attend/vote at the EGM. Any disputes about the validity can be settled in court after the EGM.

The potential exit offer

The board has dangled the carrot of a non-binding letter of intent (LOI) for a potential exit offer to gain the support of shareholders and keep their seats.

In its response to SGX queries on 11 August 2023, it said: “From our discussion with the Potential Offeror, they are able to accept modified audit opinion for FY2021 but not for FY2022. As the new auditors for FY2022 have not commenced their work and thus we are unable to comment on the audit opinion for FY2022.”

The company may have just barely got over the line to produce audited financial statements for FY2021 by the extended deadline of 15 August 2023, as it managed to publish its annual report for FY2021 on 16 August 2023 with a disclaimer of opinion for the FY2021 financial statements. However, the potential offer is still subject to the audit for FY2022 (which has not yet started) being completed and the proposed new auditors to be appointed, RT LLP, providing an unmodified opinion for the FY2022 financial statements. The potential offer is still very much up in the air as there is no certainty that the new auditors will provide an unmodified opinion.

The potential offeror is a consortium comprising Capital Engineering Network Public Company Limited (CEN), a company listed on the Stock Exchange of Thailand (SET), and Mr Heah Theare Haw (Mr Heah), a substantial shareholder of the company.

I have looked at the announcements by CEN on the SET to see what they have said about the potential offer for ASTI. I only found one “clarification” announcement on 14 July 2023 which referred to an announcement by ASTI on 10 July 2023. It said: “Please be advised that the Company is currently studying additional information regarding the investment in ASTI, as well as making application to the Singapore regulators on rulings relating to the Singapore Code on Takeover and Mergers. The Company will provide updates as and when there are material developments to the proposed investment in ASTI”. There have been no further announcements by CEN.

In the case of Mr Heah, an individual with the same name became a substantial shareholder of Singapore-listed coal-mining group Geo Energy Resources in April 2015. A google search did not find much information about him, except the ICIJ Offshore Leaks Database shows him as a director or substantial shareholder of three BVI entities which are struck off, defunct or deregistered. Note that appearance on this database does not necessarily indicate any impropriety.

ASTI shareholders should note that, as the company disclosed in its response to SGX queries on 11 August 2023,  “non-fulfillment of the conditions of the LOI may result in the termination of the exit offer unless the conditions are waived or amended”. It also said: “The Potential Offeror has received queries from the SIC on the application submitted, and is working through these with the SIC. At this point, the Potential Offeror is not able to give an indication on when the Potential Offeror may expect to receive a reply from the SIC.”

ASTI shareholders may understandably feel that a bird in the hand, in the form of a potential offer, is better than two in the bush. But that bird is still very much out  in the wild, and it is far from clear that the current board would be able to catch it.

Latest annual report raises more questions

Let me now talk about the long-awaited annual report for FY2021 just published by the company. To no one’s surprise, the auditors, EY, has issued a disclaimer of opinion. There are three matters that resulted in the disclaimer. The first is relating to impairment assessments for the group’s interest in the associate, Eocell Limited, which is held through ASTI’s subsidiary, Dragon Group International Limited (DGI). Eocell is of course the investment which two valuers were unable to finalise and sign off their valuation reports, and which was reason given by the company for the long delay in finalising the audited accounts and convening the AGMs.

The second relates to impairment assessments for ASTI’s interests in DGI, much of which is related to DGI’s investment in Eocell.

The third titled “Others” states: “We noted that a key executive director was located overseas in 2021 whilst fulfilling the employment arrangement with the Company. Based on management’s evaluation and information available to us, we have not been able to obtain sufficient appropriate audit evidence regarding the Group’s and Company’s compliance with the relevant tax and other laws and regulations to determine whether there could be material impact to the financial statements. Additionally, further review of these or other matters may require further adjustments or disclosures to the financial statements.”

In FY2021, the company had two executive directors, Dato’ Michael Loh, the group CEO, and Lim Boon Liat Timothy, whose appointments ceased in December and November 2021 respectively.

Who was the executive director who was located overseas? Was it only because he was prevented from being here because of Covid-19 lockdown? How long has he been located overseas? How was his fulfilling his duties as an executive director?

The remuneration report in the FY2021 annual report (shown below) discloses that Dato’ Michael Loh was paid $1,378,000. The footnote at the bottom of the table states: “The remuneration for Dato’ Michael Loh Soon Gnee does not include the aggregate payment of S$1,973,270 pursuant to his employment contract”. Therefore, in total, he was paid S$3,351,270.

The S$1,973,270  includes a the termination payment of S$1,378,270 paid to him in December 2021. I had questioned this payment in my post titled “ASTI Holdings: A “Discounted” Termination Payment?” published on 23 December 2021. The company had then said that he was contractually entitled to an aggregate of S$2,040,750 as part of his termination but that the board had decided to pay him only an aggregate amount of S$1,378,270.

It said that as this amount did not exceed the threshold stipulated under Section 168(1A) of the Companies Act, the approval of shareholders in a general meeting was not required.

Section 168(1)  states that “it shall not be lawful for a company to make to any director any payment by way of compensation for loss of office as an officer of the company or of a subsidiary of the company or as consideration for or in connection with his retirement from any such office…unless particulars with respect to the proposed payment, including the amount thereof, have been disclosed to the members of the company and the proposal has been approved by the company in general meeting…”

Section 168(1A) states that shareholder approval is not required “if the amount of the payment does not exceed the total emoluments of the director for the year immediately preceding his termination of employment; and the particulars with respect to the proposed payment, including the amount thereof, have been disclosed to the members of the company upon or prior to the payment.”

I had pointed that according to the remuneration table in the company’s annual report for the year ended 31 December 2020, the total amount of remuneration paid to Dato’ Loh was S$1,294,000. Therefore, the termination payment should have been approved by shareholders.

The company then claimed that there was a clerical error and the amount stated in the FY2020 remuneration table was incorrect, and that the correct amount should have been S$1,378,270 – that is, exactly the amount of the termination payment.

Now it is disclosed that in addition to the S$1,378,270 termination payment, Dato’ Loh was also paid about S$510,000  in lieu of notice and a contractual bonus of S$85,000 for FY2020 paid in FY2021.

I had also pointed out that the corporate governance report stated that “there are no termination, retirement or post-employment benefits provided for in the employment contracts with the directors, CEO or top five key management personnel”, and asked why the board was now saying he was contractually entitled to a termination payment.

The company’s response was that there was “an inadvertent oversight”. It said that in fact “Dato’ Loh’s employment contract dated 8 August 2020 does contain a clause on termination benefits”.

ASTI shareholders should ask themselves – should they continue to put their faith in the current directors or appoint the new directors? The only reason I could see shareholders keeping the faith in the current directors is the potential offer. However, as I have mentioned, there is considerable uncertainty as to whether the potential offer will eventuate.

A new board may be able to explore other options, including other potential offers. It may also be able to look into the actions of the current directors and previous directors to assess if they have discharged their duties, and if they have not, to consider options to hold them accountable.

__________________

The author holds 1,800 shares in ASTI Holdings. Unfortunately, due to other commitments, he is unable to attend the EGM on 22 August or the AGM on 31 August. He has voted his shares for the EGM in support of all the resolutions. The views in this article are his personal views.