Epicentre's acting CEO uncontactable; company facing demands from creditors

Singapore

EPICENTRE Holdings executive chairman and acting chief executive officer Kenneth Lim Tiong Hian has been uncontactable since May 24, the Catalist-listed former Apple reseller said on Thursday, after requesting a trading suspension that morning.

Epicentre said it will not be proceeding with a proposed placement of up to about 79.7 million new ordinary shares in its capital, saying that Mr Lim, "who has been key and instrumental to the proposed placement", has been uncontactable. It does not have any monies held in escrow.

To repay existing liabilities, Epicentre said it is trying to come up with a workout plan. Having received statutory demands dated May 21 and May 27 from three creditors, it is seeking legal advice and assessing the potential impact on the group.

"This potentially raises issues in terms of the group's and the company's ability to continue as a going concern," it said.

"In the absence of Mr Lim, the company remains under the leadership of the independent directors, who are considering all possible options in the best interests of the company."

Separately, an independent review of Epicentre's FY2017 accounts has found "governance and internal control issues" relating to agreements Mr Lim was involved in that might have breached listing rules.

After market close on May 30, Epicentre provided a summary of the findings, noting that they were unrelated to the voluntary suspension of trading. "The company has since taken steps to improve its internal controls and will keep shareholders updated on this via a further announcement in due course," it said.

On Oct 9, 2017, Epicentre said its auditor BDO had withheld its opinion on several matters in its FY2017 accounts, saying it had not been given "sufficient appropriate audit evidence regarding the veracity of the purported transactions".

Epicentre appointed Deloitte & Touche LLP to conduct an independent review. The accumulative net impact of the transactions reviewed, as at Oct 9, 2018, was an increase in cash holdings by S$4.21 million and a net income gain of S$3.9 million.

One area of review were three agreements under which Epicentre provided consultancy services: a S$1.4 million contract with LaVita (Thailand) Co, later raised to S$1.45 million; and two contracts with KT Pacific Group for a total of S$2.5 million.

Both firms were "personal contacts" of Mr Lim's. The review noted a Sy Meng Meng, a director of KT Pacific and son of its controlling shareholder, and who held a 6.42 per cent stake in Epicentre as at Oct 2, 2017.

Deloitte & Touche said there "have clearly been governance and internal control issues".

Epicentre's core business was in running IT retail outlets. Providing consultancy advisory was not part of its ordinary business.

There was no record that management had consulted the board of directors before the agreements, and no board resolutions were passed.

"The materiality of these agreements and the breach of internal controls suggest that, in this regard, the company did not have a robust and effective system of internal controls and therefore may not have met the requirements of Listing Rule 719," said Deloitte & Touche.

It added that Epicentre should have announced the agreements in line with disclosure rules, with the failure to do so potentially amounting to a breach of Listing Rule 703.

Deloitte & Touche said the flow of funds was "unusual and has not been fully evidenced". It recommended that management review and enhance policies on credit and material transactions, and ensure adherence.

A second area of review was a supply agreement with Shenzhen Blueway Technologies Co, for an original contract value of S$5.33 million with a discount of S$888,000 if Epicentre paid S$4.44 million in advance.

The advance was paid into two escrow agents, one owned by Epicentre shareholder Leow Kok Meng and the other by Mr Lim. The escrow funds were later disbursed.

Deloitte & Touche said management should have disclosed the terms of the agreement and Mr Lim's involvement to the board. "There should also have been a discussion with the Catalist sponsor on whether this constituted an Interested Person Transaction, and if the appropriate disclosure should have been made."

A third and final area of review was a S$1.76 million bridging loan taken on Sept 7, 2016 from Encore Investment Group, with a contracted interest rate of 24 per cent per annum, to meet payment obligations to Apple. On Oct 27 that year, Epicentre entered a novation agreement to novate the loan to Mr Lim, with the loan now interest-free.

Deloitte & Touche said it was advised by management that Encore is beneficially owned by Wong Kum Yong, who held an 8.03 per cent stake in Epicentre as at Oct 2, 2017.

"Management should have disclosed the Encore loan and the novation to the board of directors, and the novation should have been discussed with the Catalist sponsor on whether this constituted an interested person transaction," it said.