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Midas' audit committee flags unauthorised debt guarantee by unit

THE audit committee of troubled railway parts maker Midas Holdings on Tuesday said its subsidiary was found to have given an unauthorised guarantee to an unrelated third party.

It said its unit Dalian Huicheng Aluminium Co Ltd (DLHC) had provided a guarantee for all the debts owed by Chongqing Huicheng Aluminium Co, Ltd (CQHC) to a supplier of raw material for two years after the expiry of the debt fulfillment period. This Chinese supplier had on Feb 26 filed a civil complaint against CQHC and DLHC over a sum of 28.7 million yuan (S$5.98 million).

"CQHC is unrelated to the company, and is controlled by LakeForest Capital," whose sole shareholder is Chen Chen, the nephew of Midas' executive chairman Chen Wei Ping, said Midas' audit committee. It further noted that this transaction does not benefit the group.

"The guarantee was not reported to the board of directors of the company," the audit committee added.

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Midas this year said that it uncovered several litigations, enforcement orders and court documents involving companies within the group during the course of audit and subsequent searches by the company's counsel.

Its CEO since 2004, Patrick Chew, resigned from his post and all directorship positions at Midas on March 22. The resignation was due to "health reasons as well as legal troubles surrounding the group".