Allied Tech suspends trading, appointing special auditor to probe 'concerns'

Singapore

CATALIST-listed Allied Technologies has recommended that its trading halt be converted to a voluntary trading suspension with immediate effect, until the concerns raised by its auditors have been satisfactorily resolved, and a special audit has been undertaken.

The company's shares last traded at 1.1 Singapore cents on May 2, before it requested for a trading halt the next day.

In a regulatory filing on Wednesday, Allied Tech said it is in the process of appointing a special auditor to undertake a "special review" and further analysis on concerns identified by its auditors. The company also noted that the SGX has granted it a two-month extension to hold its FY2018 annual general meeting by July 1, and a 1½-month extension to release its Q1 FY2019 results by the same date.

The firm's auditors, Ernst & Young LLP (EY) are now in the process of completing the group's audit for FY2018, and Allied Tech noted that it will require additional time, as it is still working on the auditors' queries.

The delay is also exacerbated by the fact that Allied Tech's chief executive was appointed on March 1, and its chief financial officer (CFO) took office only on Feb 1. In January, Allied Tech's CFO, Andrew Wong, left the firm barely two months into his new job, after raising concerns over expenses classification and an audit of Asia Box Office (ABO), a ticketing platform that Allied Tech invested in last year. The company had acquired a 51 per cent stake in ABO for S$30 million on Apr 4, and another 51 per cent stake in Activpass Holdings, which provides software as a service solutions for businesses for S$25.2 million on Apr 3.

Among issues raised, EY questioned the business rationale for the involvement of an external party in an agreement between ABO and an event financier for a concert financing. As the event was cancelled, a S$1.7 million deposit should have been returned to ABO within seven business days. This was not done as at Dec 31, 2018, and EY observed that ABO did not charge interest to the event financier. Instead, the funds were transferred from ABO to an external related party, Platform Capital Asia Singapore (PCA). On the same day, S$1.68 million was transferred from PCA to the event organiser. PCA's director Kenneth Low was also appointed executive director of Allied Tech in June last year, after the deal was entered into.

In addition, EY raised concerns over transactions between ABO and the event financier regarding a revolving loan agreement for a sum of up to S$3 million, of which S$0.35 million was drawn down as at end-December. The event financier in turn loaned the money to external parties. The auditors are probing the rationale for granting this interest-free loan facility, and flagged legal implications, as well as corporate governance issues.

Lastly, EY noted that of the group's total cash and bank balances of S$43.6 million as at end-December, S$1.09 million from ABO and S$33.4 million from Allied Tech were held in trust and/or in escrow by a Singapore law firm, JLC Advisors LLP. Pok Mee Yau, an independent director of Allied Tech, is a salaried partner at JLC. As at Apr 2, ABO's S$1.09 million in funds had been returned. However, the auditors raised concerns over maintaining the funds with the law firm for a prolonged period of time, when there is no clear purpose for the use of such funds, and no interest generated.

EY also noted that while there is a formal escrow agreement between Allied Tech and JLC, no such agreement nor operating mandate exists between ABO and the law firm. Instead, the trust account is operated by the law firm based on verbal instruction from Mr Low. Here, the auditors flagged the credit risk involved, and that recovery of Allied Tech's funds remains outstanding to date.

SGX issued a notice on Wednesday evening, requiring Allied Tech to obtain the funds held with JLC and to place them, together with the ABO funds and any excess cash and bank balances not needed for operations, in an account opened with and operated by an escrow agent from a licenced financial institution.

The independent directors, excluding Ms Pok, are to be the authorised signatories for the account and must seek approval from SGX's regulatory arm to draw down from it. Allied Tech is also required to inform the group, shareholders and SGX via SGXNet announcements of the monthly valuation of the group's cash balances, including the escrowed funds and any other cash, and the use of the funds.