AUDITORS of JES International Holdings Limited could not issue a clean bill of health for the group in view of "material uncertainties that may cast significant doubt" on the group's ability to continue operating and staying afloat.
BDO LLP also flagged that limited information was made available to enable them to perform procedures to determine the appropriateness of the going concern assumption by directors who prepared the financial statements.
The Chinese shipping firm had incurred a net loss of 290.5 million yuan (S$58.8 million) and had net cash outflows from operating activities of 212.8 million yuan for the financial year ended Dec 31, 2014. As at Dec 31, 2014, the group's current liabilities exceeded current assets by 590 million yuan.
Subsequent to the financial year-end, the group is required to refund relevant deposits to certain customers the relevant deposits collected from ship construction contracts and related imputed interests arising from court judgement or settlement with these customers.
One of its subsidiaries Jiangsu Eastern Heavy Industries Co Ltd (JEHI) had also filed an application to the intermediate court in Taizhou, Jiangsu Province, on March 4, 2015 to restructure its debts and liabilities.
As a result of the proposed restructuring, the recoverability of the assets and completeness of liabilities of the group cannot be reliably determined, BDO said. "We were unable to obtain sufficient audit evidence to assess and ensure that there are no further liabilities required to be recorded in the group's consolidated financial statements arising from the ongoing disputes and lawsuits between JEHI and its creditors, bankers and customers etc."
All these, among other factors, result in "material uncertainties", BDO said in its independent auditor's report.
Financial irregularities related to the group's former CEO and chairman Jin Xin were uncovered last year. The group's financial records - including account books, cheque books and financial seals - had been removed from its possession by relatives of Mr Jin.
The management is still unable to recover all the missing accounting records of JEHI, BDO said.
Since last August, JES International has ceased operations and only retains a "skeletal staff" to run the group, as part of its process of controlling costs. It has also reconstituted its Board after a slew of resignations by its directors.