Best World 'exploring adjustments' to its China sale and distribution model

BEAUTY products firm Best World International said it is "exploring adjustments" to its business model to ensure compliance with China's laws on direct-selling and chuan xiao, also known as multi-level marketing.

This is in conjunction with the company's plan to transition to a direct-selling model in China. However, the Ministry of Commerce has suspended all approvals for such applications amid a nationwide crackdown on exaggerated advertisements and harmful products in the health products market.

Once the ministry resumes accepting applications, Best World intends to apply to expand the scope of its direct-selling licence, the group said in a bourse filing on Thursday.

The legality of its skincare sale and distribution model in the country as well as its financials have come under scrutiny recently. PwC's independent review of the group's business uncovered questionable deposits by its franchisees into the personal bank accounts of individuals and other potential breaches of Singapore's Companies Act.

In July this year, the Singapore Exchange's regulatory arm SGX RegCo said that the trading suspension in Best World's shares, in place since May 2019, will remain indefinitely until the company addresses concerns over accounting practices that have cast doubt on its actual financial position.

Mainboard-listed Best World last month announced it had submitted a resumption proposal to SGX RegCo. Since then, it has "addressed several rounds of queries from SGX RegCo" relating to those areas of concern, the company said on Thursday.

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Best World noted in July that its long-term plan was to eventually shift to a direct-selling model in China, to address the potential risks under the country's chuan xiao and direct-selling laws, as observed by the company's legal advisers in relation to certain features of the business model.

"This transition will involve the expansion of the geographical coverage of the existing direct-selling licence obtained by Best World (China) Pharmaceutical Co Ltd and the list of products covered by the direct-selling licence," the company said on Thursday.

Generally, expanding the geographical coverage will involve establishing branch offices in every Chinese province that it intends to operate in, and setting up service outlets in every district of every city in which its products are to be sold via direct selling, according to Best World.

It noted that it does not rely on the direct-selling licence which it received from the Ministry of Commerce in June 2016; that licence covers certain health supplement products over a limited geographical area in China.

Best World previously considered transitioning from the export model to a direct-selling model, but instead adopted the franchise model.

Separately, the company and its founders in October dropped their defamation lawsuit against short-seller Bonitas Research, after the writ of summons expired. Bonitas had questioned the authenticity and legality of Best World's profits in a 28-page report published in April 2019.

READ MORE: Best World must address concerns over accounting practices: SGX