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HC Surgical forms litigation committee, shareholder plans to sue CEO
HC Surgical Specialists (HCSS) on Sunday night said it has constituted a litigation committee and continues to liaise with its legal advisers in relation to an allegation by minority shareholder Serene Tiong, whom the group’s surgeon Julian Ong had separately sued for defamation unsuccessfully in his personal capacity.
In an April 30 letter from her solicitors Ong Ying Ping ESQ, Ms Tiong claimed that HCSS chief executive officer (CEO) and executive director Heah Sieu Min breached his duties as a director in relation to the group’s acquisition of an additional 19 per cent interest in Dr Ong’s private practice in late 2019. HCSS said last week that it believes this allegation is "frivolous" and "without merit".
On May 8, Ong Ying Ping ESQ sent another letter to HCSS’s legal advisers WongPartnership, informing the company that Ms Tiong is giving the requisite 14 days’ notice of her intention to apply to the court under Section 216A(2) of the Companies Act for leave to bring an action in the name and on behalf of the company against the CEO in respect of the allegation.
Section 216A allows minority shareholders to bring an action in the company’s name to redress wrongs done to the company where those in control of the company are allegedly causing harm. Such corporate wrongs - as opposed to personal wrongs - are to be litigated via a derivative action under Section 216A, and the shareholder must obtain permission from the court before they can sue the wrongdoing director(s) in the company’s name.
HCSS on Sunday said that as the matter is the subject of impending litigation, it shall not comment further except where appropriate and necessary to update its shareholders of any material developments as may be required under Catalist rules.
In June 2018, Ms Tiong lodged a complaint with the Singapore Medical Council (SMC) against Dr Ong, claiming that he and another specialist colluded to have sex with “vulnerable” female patients. She then forwarded the SMC complaint to other doctors, prompting Dr Ong to file the defamation lawsuit against her, which he lost in early April. District Judge Lynette Yap dismissed his action with costs, finding that Ms Tiong's claims were justified.
HCSS bought a 51 per cent stake in Julian Ong Endoscopy & Surgery (JOES) for S$2.2 million in February 2017, before bumping up its stake by 19 per cent for S$3.8 million, in a deal which was proposed in September 2019 and completed in October 2019. Ms Tiong bought her 100 HCSS shares in September 2019.
On Saturday, the board of directors also said it was of the view that Dr Ong has “sufficient financial strength” to buy back the company’s 70 per cent stake in his practice, in the event that a put option is exercised to require him to do so. The board has assessed the surgeon’s financial ability to repurchase the shares, taking into account the value of Dr Ong’s assets, including his property and investments.
Moreover, HCSS will be able to sue Dr Ong should he not fulfill his contractual obligations, and legal remedies will be available to the company, the board added.
The directors were responding to further queries from SGX, although the Saturday bourse filing largely reiterated the replies given in their previous filings.
The board had said in a May 4 filing that HCSS will receive more than what it paid for the 70 per cent interest in JOES, if the put option is exercised in the event Dr Ong’s employment is terminated.
SGX also pointed out that JOES is a significant contributor of the goodwill of the company, and asked whether HCSS has performed a goodwill impairment evaluation given the current operating environment, the Parkway Group suspension of Dr Ong’s accreditation and clinical privileges, and other developments such as the SMC’s ongoing investigation.
In response, the board told the bourse operator on Saturday that the company has not begun its audit as it has not reached its financial year end of May 31, 2020. As such, discussions with its auditors in relation to its full-year audit, including any impairment of its investments, have not started.
SGX also asked HCSS to assess whether Dr Ong’s notification to the board of the SMC investigation was material information that required immediate disclosure. HCSS previously said that Dr Ong informed the company of the complaint on Feb 27, 2019, before the management took steps in early 2019 to assess Ms Tiong’s allegations.
On Saturday, the board of directors said it determined that the complaint was not, at that time, trade-sensitive information or materially price-sensitive information that required immediate disclosure under Chapter 7 of Catalist rules.
One reason for this determination was that the SMC probe was still in its early stages at the time, as the company understands that such investigations typically take several months to a few years to be finally determined. The company was also of the understanding that there was no merit to the nature of the SMC complaint in relation to Dr Ong’s professional behaviour or his interactions with his patients.
“The company further notes that the SMC proceedings are confidential and are as of the date of this announcement still ongoing. Any announcements made at that point in time may unduly prejudice such proceedings,” HCSS said on Saturday.
Shares of the Catalist-listed medical services group were flat at S$0.34 as at 9.01am on Monday.