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SGX RegCo reprimands Dapai and its executives for false statements, other breaches

SINGAPORE Exchange Regulation (SGX Regco) has reprimanded suspended backpack maker Dapai International Holdings Co along with three of its present and past officers for breaches of the listing rules.

Singapore-listed companies are advised to consult the market regulator before appointing Dapai executive chairman Chen Xizhong, former chief executive Chen Yong and former chief financial officer (CFO) Lawrence Lam Pong Sui as directors or management.

SGX RegCo made its decision based on findings from separate independent probes by BDO LLP and Kordamentha into transactions by the Dapai Group in China. It said that the company had made non-factual, false and misleading statements about the supposed opening of 500 retail outlets in China, as well as payments to certain distributors and contractors involved.

The company's statements in its 2009 and 2010 annual reports - about how its internal controls systems were adequate for Dapai's needs in its business environment - were also found to be non-factual, false and misleading, while the board's confirmations were false and misleading, said SGX RegCo.

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SGX RegCo asserted that Dapai "had no procedure in place to keep track on how and when the 500 retail outlets were started".

"There was also no proper centralised documentation in place, the journal entries on payment to distributors and contractors were brief and poor controls were prevalent for the opening of the 500 retail outlets," it also said. BDO had noted that Dapai failed to retain accounting records that it should have kept for 15 years, under Chinese law.

SGX RegCo added that no further action on internal controls was taken, even though both the internal auditor and Terence Ng Kiat Peen - who was CFO from June 2011 to May 2017 - had highlighted the issue at two audit committee meetings in 2012.

SGX RegCo said it was of the view that the three executives, who were held responsible for the payment and reporting of the transactions relating to the opening of the outlets, "failed to demonstrate the character and integrity expected of directors and management of listed issuers".

Mr Lam did not ensure that Dapai had a robust and effective system of internal controls addressing financial, operational and compliance risks, and made significant payments for the 500 outlets without supporting documents and without verifying the existence of those outlets, said SGX RegCo.

It also said that both Mr Chens "have failed to act in the interest of shareholders as a whole by failing to safeguard the interest of the company and shareholders", and none of the three men responded to the show-cause letters issued in relation to their breaches of listing rules.

SGX RegCo added that it "has referred the case to the relevant authorities".

Dapai faces delisting, and trading has been suspended by the exchange since August 2017.