DISCLOSURE failures and alleged breaches of fiduciary duties by Singapore Post director Keith Tay could open the door to regulatory action, following the release of a special audit report on the group's corporate governance late Tuesday night that shone a light on weak controls and lapses at the board.
Regulators told The Business Times that they would take action if needed, with some saying outright that they were reviewing the investigation findings.
Market observers also said they expect the relevant authorities to lay down the law where warranted, adding that there was also the question of whether the entire board should share some responsibility for Mr Tay's disclosure lapses.
The 52-page summary of a joint special audit into SingPost's corporate governance, released Tuesday, painted a picture of a board with potential inaccuracies in its records and no standard processes for evaluating acquisitions or for directors to disclose conflicts of interest.
While regulators declined to say on Wednesday whether they were investigating SingPost or Mr Tay for potential breaches, they suggested they were prepared to mete out sanctions where necessary.
A Monetary Authority of Singapore (MAS) spokesman said that "as a matter of policy, MAS does not comment on our dealings with individual parties". But she added: "Neither will we hesitate to take appropriate action against any individual or entity that flouts any legislation under MAS' purview." The SFA falls under MAS' purview while the Companies Act comes under ACRA's.
An ACRA spokesman said it would "work with the relevant agencies to review the findings from the special audit report to assess if any regulatory action is warranted". "In this regard, ACRA will take into account key considerations such as the sufficiency of public interest, whether any harm has been occasioned by the alleged breach and the culpability of the relevant parties."
On the Singapore Exchange's part, it said it was "reviewing the findings" in the special audit report. "We will take disciplinary action for any breaches of the listing rules and refer breaches to the relevant authorities, if necessary. We will also closely monitor the independent review of the company's implementation of the recommendations set out in the executive summary of the special audit report."
SingPost had disclosed to SGX the full findings of the probe but has thus far resisted calls to release the same to the public, which has been shown only a 52-page summary released via a SingPost bourse filing Tuesday.
SGX's statement on Wednesday came after it had said on Tuesday night that it "has asked SingPost to obtain independent confirmation" that the special auditors' recommendations are implemented, to be released "at the appropriate time taking into consideration the outcome of the CG (corporate governance) review".
SGX also stressed on Tuesday that directors must disclose their interests in transactions under Section 156 of the Companies Act and abstain from voting on such transactions, adding: "The board of a company is ultimately responsible for the announcements made by the company and must not abdicate its responsibility to any professionals especially where matters under consideration are not subjective but factual in nature.
"A company and its board must exercise due care in drafting, reviewing and approving SGXNet announcements. Any error must be promptly escalated to the board's attention for its deliberation and decision."
SingPost said in an email on Wednesday that it "accepted all the recommendations and will incorporate further recommendations that are forthcoming from our ongoing corporate governance review... We have committed to following through on the recommendations of the special audit plus those of the corporate governance review upon its completion". "Regardless of whether it is the incoming or outgoing chairman who will lead this exercise, SingPost, as a company, and our board of directors take corporate governance very seriously," it added.
It declined to confirm whether Singtel chairman Simon Israel was slotted to become its next chairman. The Infocomm Development Authority, which regulates the national postal operator, also told BT: "IDA does not comment on speculation regarding our licensees."
SingPost had commissioned the probe last December after admitting it had made an "oversight" in a 2014 deal disclosure. It had wrongly said no directors had an interest in its acquisition of freight forwarder FS Mackenzie - when Mr Tay in fact held 34.5 per cent of Stirling Coleman, which advised FS Mackenzie's seller.
The joint special auditors, PricewaterhouseCoopers and Drew & Napier, found in their report that Mr Tay was "arguably in breach of section 156(1) of the Companies Act" for not declaring his interest in a 2013 acquisition of Famous Holdings "as soon as practicable".
They also found he had breached some fiduciary duties relating to the Famous deal and SingPost's acquisition of Famous Pacific Shipping (NZ) in 2015. Breaches of fiduciary duties come under the Companies Act.
However, the auditors said Mr Tay's 2015 omission appeared to not have been deliberate, and that although some of Mr Tay's disclosures "may not have been made as soon as practicable, our interviews suggest that the lack of timeliness in the disclosures would have made no difference to the decisions to enter into the Famous acquisitions".
Still, corporate governance specialist and SingPost shareholder Mak Yuen Teen pointed out in a letter to BT that "while the special auditors have concluded that Mr Tay's actions did not appear to have influenced the transactions, something that may be difficult to conclusively determine without full access to all information and evidence, the special auditors are of the view that Mr Tay did breach his duties as a director".
"It is important for the regulators, who have access to the full report and who may be able to undertake further investigations, to determine if further action is needed."
When asked whom the special auditors had interviewed and whether the auditors were satisfied with the interviewees' claims that Mr Tay's lack of timely disclosure would have made zero difference, Drew & Napier's director of dispute resolution Hri Kumar said in an email: "I do not think it is appropriate for the special auditors to respond to your queries, unless SingPost specifically instructs us to. Even if SingPost does so, we would have to ascertain if the questions will in any way affect the special audit. Any statement by the special auditors may be construed as a supplementary report. That should be dealt with in an appropriate manner. "
SingPost told BT: "The special audit was conducted by independent auditors. It is not appropriate for SingPost to make any statements or provide more details to the report that has been presented by the auditors to SingPost and the regulatory authorities."
Aside from Mr Tay, some observers have also wondered whether SingPost's board itself may run into trouble with the SFA for disclosing incorrect deal-related information in a bourse filing, then failing to correct it.
Section 199 of the SFA, for instance, suggests that no one "shall make a statement, or disseminate information, that is false or misleading in a material particular" and is likely to induce people to trade in a stock or affect the share price, if he "knows or ought reasonably to have known that the statement or information is false or misleading in a material particular".
Market watchers said Wednesday that it was not clear whether Mr Tay or SingPost's board breached the Companies Act or the SFA through their disclosure failures, but did not rule it out. Some also suggested that SingPost's board ought to share some responsibility for disclosure failures.
"The duty of a director to disclose his personal interests in any transaction involving the company as soon as he is aware of the relevant facts is a statutory duty that is clearly set out in Section 156 of the Companies Act," Gibson Dunn partner Robson Lee noted. "While the special audit has uncovered instances and has stipulated that Mr Tay appears to have breached his fiduciary duties to SingPost, it is not clear at this juncture whether the lapses in question amount to a statutory breach of the Companies Act that may lead to any regulatory enforcement proceedings against Mr Tay."
Mr Lee said he did not think Section 199 of the SFA was relevant to SingPost's incorrect disclosure in 2014, but added that the special audit findings were "a good case study for all directors who may in their course of discharging their roles and responsibilities encounter situations that require timely due disclosure of any personal interest or any potential conflict of interest".
"The board of directors and every director must be well informed of their joint and several statutory and common law duties to the company. directors should at all times adhere to best practices that are consistent with the spirit and not merely compliance with the letter of the law."
David Gerald, president of investors' lobby Securities Investors Association (Singapore), or SIAS, said it was "for the relevant authority" to "take appropriate action under the relevant laws". "We are confident that, if there are any breaches of the relevant laws, that is what would be done.
"Ultimately, the board is collectively responsible for any lapses in disclosure of any material fact. The question is whether the board should have enquired from Mr Keith Tay whether he had any conflicting interest in the transaction. This has not been addressed in the report."
Mr Gerald said it was the "responsibility of the board, on behalf of the company, to put in place sufficient safeguards to avoid any breakdown of disclosure by any director or manager, of material facts that would affect the interest of shareholders".