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New Lakeside ex-CFO pleads guilty; judge slaps S$80,000 fine, 3-year directorship ban
FORMER New Lakeside Holdings chief financial officer (CFO) Oh Gim Teck has been fined S$80,000 and banned from holding any company directorship for three years for his role in the company's breach of the Singapore Exchange's (SGX) disclosure rules.
Oh pleaded guilty to one charge under the Securities and Futures Act on Thursday before District Judge Jasvender Kaur.
Oh was New Lakeside's acting CFO from October 2004 to February 2007, and appointed CFO from February 2007 to June 2010. He resigned on June 15, 2010.
The deputy public prosecutor handling the case is Hon Yi. Oh was defended by Melvin Lum and Russell Pereira of Wong Partnership.
New Lakeside was in the business of producing and selling apple juice concentrate. The firm was incorporated in Singapore in September 2002. As at Dec 31, 2016, New Lakeside Fruit Juice Xu Zhou Co (NLX) was a wholly owned subsidiary of New Lakeside; while Sanmenxia Lakeside Fruit Juice Co (SFJ) was a former subsidiary of New Lakeside, which was fully disposed on Aug 31, 2006, following a restructuring exercise.
On Jan 27, 2006, SFJ had obtained a 15 million yuan (S$3.1 million) loan to be repaid by Jan 27, 2007 from the Bank of China (BOC). This was followed by another 15.5 million yuan loan taken on Feb 17, 2006, to be repaid by Aug 17, 2006. Both loans were guaranteed by NLX.
SFJ eventually defaulted on the February loan, and the BOC sent repayment notices to both SFJ and NLX stating that an outstanding amount of 7.5 million yuan was due.
On Aug 30, 2006, Sanmenxia Tianyu Investment Company (Tianyu) agreed to idemnify NLX against its corporate guarantees in relation to the loans SFJ had obtained from the BOC. The remaining amount outstanding from the loans at that time was 22.75 million yuan, and the indemnity by Tianyu was documented via a counter guarantee contract between Tianyu and NLX.
Then on Dec 4, 2006, the BOC filed a legal suit in China against SFJ and NLX to recover the outstanding loan amount of 22.75 million yuan. A Chinese court in February 2007 adjudged that SFJ and NLX are liable to make this repayment. NLX had requested Tianyu to be named a co-defendant in the lawsuit, but this application was denied. An appeal against the court's judgement to repay the loan was similarly dismissed on Aug 16, 2007.
According to court proceedings, New Lakeside only announced - for the first time - on Jan 26, 2010 that the BOC had taken action against NLX for the repayment of its outstanding loan. As a result of this repayment, NLX's liabilities would exceed its assets. This means that NLX would be considered insolvent after making full provisions for the BOC claim.
Rule 703 of the SGX listing manual provides that a company must announce any information known to it concerning its subsidiaries (in this case, NLX), which is necessary to avoid the establishment of a false market, one where information that would likely influence one's decision to buy or sell the securities, is not made available.
In particular, NLX's liability on their corporate guarantees to SFJ had crystallised as early as August 2006 when SFJ defaulted on the repayment of the February loan to the BOC. At that time, New Lakeside was reporting a net loss of 12 million yuan, and the company was in the net current liability position at the end of the financial year of December 2006.
By intentionally failing to notify the SGX of information that was likely to materially affect the price or value of New Lakeside securities until about four years later, the firm had breached Rule 703 of the SGX listing manual.
Significantly, NLX's finance manager had also informed Oh of the crystallisation of NLX's liability on their corporate guarantees in the second half of 2008. Despite having knowledge of this, Oh had failed to promptly inform New Lakeside's independent directors about the need to disclose this information to the SGX.
In addition, Oh also consented to conceal this information as he believed that New Lakeside's former CEO, Go Twan Heng, with whom he had a long working history with, would be handling the matter and be personally responsible for it.
New Lakeside was renamed Zhongxin Fruit and Juice in March 2013. The counter last traded at 0.9 Singapore cent apiece on May 2, and the company has a market cap of S$9.5 million.