Bitter wait for CoAssets noteholders as investments turn sour

Singapore

IT is likely to be a long-drawn affair for CoAssets' promissory noteholders to claw back their investments - if they were to get back any at all, said industry watchers.

This comes as hundreds of retail investors - mainly promissory note holders of CoAssets' various subsidiaries - stand to see their investments go up in smoke, following reports in December that the group had disposed US$30 million of receivables to Hong Kong-based debt recovery company Sunfits.

The receivables have been found to be mostly irrecoverable bad debt, with Sunfits having since filed a police report after uncovering irregularities in CoAssets' accounts. It is considering legal action, but said that it is currently focused on debt recovery. Investors have also filed police reports against CoAssets' co-founders Getty Goh and Seh Huan Kiat, and have grouped together to explore legal options.

The Business Times (BT) understands that the Commercial Affairs Department (CAD) has since called in various parties such as real estate firm DWG's director Denka Wee and CoAssets staff to help with investigations. A representative from Sunfits is also due to give a statement to the CAD.

Mr Wee took on the posts of group chief executive officer (CEO) and nonexecutive chairman in 2020, amid talks of a potential merger between DWG and CoAssets that later broke down. He resigned from the positions in December. It is unclear who is currently running CoAssets, with only nominee directors left. BT understands that the group is seeking new directors to run the company.

In a letter sent to investors in May 2020, then-group CEO Mr Goh had convinced investors to stay onboard and extended the payment deadlines for many of the promissory notes that were set to mature, claiming that the notes were contractually guaranteed by DWG and Mr Wee.

However, these guarantees were later voided, with DWG flagging several issues relating to their authenticity, such as the alleged witness not actually seeing the document signing and the lack of details and information of total debts.

Mr Wee told BT that he does "not recall signing the document".

Meanwhile, Mr Goh had denied blame for the fiasco in a Facebook post that was later taken down, giving a differing account of what transpired between DWG and CoAssets.

He remains CEO of the MASlicensed CA Funding that is in the process of winding down. He had declined to comment to queries by BT on his role in the saga.

Bart Zhou Yueshen, assistant professor of finance at Insead, noted that the investments will "likely go through a prolonged legal process before it is clear whether who will get how much, if at all". "In any case, the process for investors will likely be a slow wait," he said.

Shaun Leong, partner, Dispute Resolution and Litigation, Withers KhattarWong, said that promissory notes, which lie at the heart of the CoAssets' episode, are "essentially promises to pay the investor a sum of money at a specified date or on an occurrence of a prescribed event" and are "legally binding".

He highlighted two "pressure points" in this episode: the first is if the extension of the repayment deadlines for notes are actually backed by enforceable guarantees; and secondly, whether it could be perceived that CoAssets was getting around MAS regulations by creating multiple sister companies to issue notes to take advantage of the "small offers exemption".

He added that any dispute might involve a "classic clash between the black letter law and the spirit or policy behind the regulations".

Under this "small offers exemption", offerors can raise personal offers of securities to investors of up to S$5 million within any 12-month period, without a need for a prospectus subject to certain conditions.

This exemption is intended to make fundraising easier and less costly for startups, small and medium-sized enterprises.

"It may not necessarily be problematic to issue promissory notes through subsidiaries, but investors would expect transparency in how the funds invested are used and by whom," said Mr Leong.

He said that it is possible for the guarantees provided by DWG to be void if wrongdoing or misrepresentation as alleged is involved, but the purported "suspicious activity" would have to be sufficiently serious to void the guarantees. By law, that would effectively mean that the guarantees as contemplated did not exist in the first place, added Mr Leong.

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