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ORIENTAL Group said on Tuesday its two subsidiaries in China face legal claims over unauthorised guarantees that had been given for a company linked to two of its directors.
The steel trading and manufacturing company has set up an independent review committee to investigate the matter and the company's options. The two directors, non-executive chairman Wu Dingron and his son-in-law Sun Lu, have taken an immediate leave of absence and have been stripped of all authority at the company.
Oriental said that around Nov 11, 2013, the common seal of wholly owned subsidiary Jiangyin Chengsheng Machinery Manufacturing Co (JYCS) was used to provide a guarantee for a 30 million yuan (S$6.54 million) loan taken by Jiangyin Rongda Jingmao Co from China Merchants Bank Co.
On Jan 10, 2014, the common seal of wholly owned subsidiary Xinghua Rongcheng Precision Manufacturing Co (XHRC) was also used to provide a guarantee for a 20 million yuan loan taken by Jiangyin Rongda from Industrial Bank Co.
Neither guarantee was disclosed to the board of directors and are not authorised transactions, Oriental said. Mr Wu's brother, Wu Dingcheng, was then the legal representative of XHRC, although Mr Wu has since taken over the responsibility from his brother, a change that Oriental's other directors did not know about. Mr Sun was the legal representative of JYCS. Jiangyin Rongda is a steel trading company in which Mr Wu holds a 58 per cent interest. Mr Wu replaced his brother as XHRC's
Industrial Bank began legal proceedings on its loan on Feb 3, 2015, while China Merchants Bank began proceedings on its loan on Nov 19, 2015. Oriental said there are other guarantors involved who are also liable for the loans.
On Oct 23, Industrial Bank obtained judgment against XHRC and the other guarantors for about 22.0 million yuan. XHRC's account with Jiangsu Xinghua Rural Commercial Bank Co was also frozen.
The company was not informed of the legal developments, Oriental said.
Oriental said lead independent director Chua Hung Meng, independent director Tan Song Kwang, group financial controller Lee Ong and lawyer Lawrence Tan from Eldan Law will form an independent committee to investigate the matter.
Executive director and chief executive Lee Wan Sing and Mr Lee Ong will also take over management of JYCS and XHRC, including taking possession their seals.
Oriental has also obtained a fixed first charge over 68 million Oriental shares that are held by Dingji Investments, a vehicle whose ultimate beneficiary is Mr Wu. Mr Wu has also given a personal guarantee to Oriental to indemnify the company from any losses that may be incurred from the guarantees and related legal proceedings.
Oriental shares will begin trading on Wednesday after being halted for the announcement. The counter last changed hands at 12.7 Singapore cents on Jan 14.