Leadership departures compound Asia Fashion's many ills

Singapore

ASIA Fashion Holdings may now find it even harder to cure its ills after yet another key executive abandoned the health food products distributor.

The latest departure happened on Nov 14, when 31-year-old chief executive Airy Wang Jieyao stepped down for "personal reasons", less than eight months into the job, according to a filing to the Singapore Exchange (SGX).

Han Yue Gao, the company's executive director, has taken on Ms Wang's duties as the company looks for a replacement.

Her exit brings to six the number of directors or key executives (including chief operating officer and chief financial officer) who have left the firm this year.

Earlier in November, two independent and non-executive directors quit the board of the China-based firm on the same day.

The resignations have left the former fabric maker with no independent director resident in Singapore.

The holes in its leadership may prove especially challenging for Asia Fashion, whose stock has been suspended from trading since Aug 27 amid funding shortfalls and uncertainty about its financials. If the company does not file a proposal to resume trading within a year of the suspension, the market regulator could force a delisting under listing rules.

One of the most pressing issues for the company is to raise capital.

One of the independent directors who left in November, Kwok Wei Woon, has been owed S$62,500 in director's fees since July 2017.

When the company suspended trading of its stock on Aug 27, it said it was having trouble gaining access to new sources of liquidity to pay EY to conduct an independent review of certain transactions. As a result, the company could not reasonably assess its financial position and its status as a going concern.

This was despite the S-chip reporting 109 million Chinese yuan (S$21.6 million) in cash as at September 2017. The company's reported cash balance stood at just 1.7 million yuan as at June 30, 2018.

Asia Fashion is in a bind. It needs money to assure investors of its financials; yet without confidence in its financials, it may be hard to get investors to part with their money. A company in such straits typically relies on its board and management to help it break out of the Catch 22 situation. For Asia Fashion, directors and executives are now in short supply as well.

The Business Times attempted to reach the company on its published China-based telephone number, but the calls were picked up by an answering machine that did not offer the option to leave messages. Attempts to send queries by fax returned error messages that said the other party was either busy or had no signal.

The company does not have an e-mail address in the public domain.

The situation has raised red flags for some observers.

David Gerald, who heads the investors' rights watchdog Securities Investors' Association Singapore (Sias), commented: "The situation appears quite disturbing. This is another China listing on our bourse that has become troublesome."

He suggests that minority shareholders "can and must act in the current circumstances to protect their interests".

Shareholders can get together, perhaps under the Sias banner, to call for an extraordinary general meeting to appoint directors to the board in order to gain a majority position and then conduct a special audit.

If a special audit is not possible, the board should "seriously consider appointing a judicial manager to conduct this special audit".

Sias has offered to provide guidance on how shareholders can proceed.

Mr Gerald said: "I think it is important for the shareholders of Asia Fashion Holdings to know the consequence of rejecting the offer for guidance and whether staying with the company would be the better choice if they think that the company can do better in time to come. They need to see us, as thus far Sias has not received any complaints from the shareholders of this company."

On the other hand, corporate governance advocate Mak Yuen Teen of the National University of Singapore Business School told BT that minority shareholders may find their options extremely limited.

"In general, it is costly for minority shareholders to take action, even in the case of Singapore companies.

"For foreign listings such as this, it's even more so because legal action will almost certainly have to be be taken in their principal place of business."

To him, the problem lies with the fact that it is a foreign listing with its principal place of business overseas; Asia Fashion Holdings is incorporated in Bermuda. These immediately pose problems in terms of the laws that apply and the ability of Singapore to enforce its rules when things go wrong.

"Due diligence at the point of listing is critical, but even then, it is no guarantee," Prof Mak said.

Investors of other companies may want to learn from this lesson and look for possible red flags in their other holdings, he added. Sudden changes in business, numerous regulatory queries and unexplained changes in financials, for example, should raise concern, he said.