FOOD and beverage company GS Holdings : 43A 0% has issued a letter of demand to its non-independent and non-executive chairman Zhang Rongxuan and his company Kaifeng Jufeel Biotechnology to recover a S$18.5 million debt.

If Zhang or his company does not respond to the demand by Nov 7, or is not able to back up his proposals for settling the debt with evidence that he has the ability to do so, the board of directors at GS Holdings may consider taking legal action against him and his company.

GS Holdings also announced in a bourse filing on Tuesday (Oct 17) that the board has decided to suspend Zhang from his duties as the non-independent and non-executive chairman of the company with immediate effect.

The board had taken into account the nominating committee’s recommendation and views before concluding that suspending Zhang was necessary, stated the filing.

The decision to issue a letter of demand to Zhang and suspend him came about after talks to acquire the healthcare and wellness business of a Chinese company failed.

This potential acquisition was proposed by Zhang as a means to settle part of his debt to GS Holdings, according to the company’s interim financial statements for the quarter ended Jun 30, 2023.

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The Chinese company, which is wholly owned by an individual shareholder, had plans to expand its elderly care business overseas, particularly in South-east Asia, indicated the financial statements released on Aug 14.

The owner had informed GS Holdings’ management that she was willing to help Zhang settle a portion of the S$18.5 million debt as part of their private arrangement.

However, preliminary due diligence performed by GS Holdings found that the Chinese company had to implement several measures to improve its business processes and accounting records. Time and resources were needed to fulfil those requirements.

Hence, it decided not to proceed with the acquisition due to commercial reasons and the substantial time and resources required to complete the deal, said GS Holdings in a bourse filing on Oct 12.

With the deal off, the owner of the Chinese company is no longer willing to help Zhang settle part of his debt owed to GS Holdings.

In a separate filing on Tuesday, GS Holdings said it has found, through bank statements obtained, that the Chinese authorities have retained 22 million yuan (S$4.1 million) from a Bank of China account held by its subsidiary, Wish Health Management (Shanghai).

GS Holdings said it will be engaging lawyers in China to obtain further information on the circumstances leading to the retention of funds, liaise with the relevant authorities and the bank officers on the matter and advise them on the next steps they can take for the funds to be released.

Shares of GS Holdings rose 3.1 per cent or S$0.002 to close at S$0.067 on Tuesday.