SGX RegCo slaps ecoWise with compliance notice, CEO flags concerns on group's management

Singapore

SINGAPORE Exchange Regulation (SGX RegCo) on Friday served ecoWise Holdings a notice of compliance to appoint two new independent directors (IDs), commission an internal audit and an audit of its first-half 2021 results, as well as to form a new auditing committee (AC).

Shortly after, executive chairman and chief executive Lee Thiam Seng flagged, in an open letter, more concerns on the group's management under the day-to-day supervision of deputy chief executive Cao Shi Xuan.

These concerns were also shared by two former IDs who departed in May. They had flagged similar weaknesses in the course of the board evaluation conducted earlier this year, Mr Lee said.

These developments come amid a board tussle that led to Mr Lee changing the locks of the company's server rooms and suspending Mr Cao.

A bone of contention was over the release of ecoWise's financial results for H1 2021, with Mr Lee's concerns stemming from receiving insufficient information provided by the finance team reporting to Mr Cao, according to the group's response to SGX queries on Friday.

Mr Lee had requested information on several transactions so the board could make an informed determination whether the group's H1 results provided an accurate and updated position of the group's financial and cash flow position and whether any further disclosures were needed.

These transactions include status updates on ecoWise's ongoing arbitration against contractor China Huadian Engineering Co; the liquidation of China-UK Low Carbon Enterprise Co; and the disposal of Malaysia subsidiary Saiko Rubber. There is a dispute between Mr Lee and Mr Cao over the use of Saiko Rubber's disposal proceeds.

On this matter, Mr Lee has claimed, in his letter, difficulties in obtaining information on the company's business and operations from the management team in the past year. He said that Mr Cao "has not been very forthcoming" when asked the same, and told the former not to approach the management team.

Mr Lee also alleged that Mr Cao has not been forthcoming when the board asked for further information to evaluate potential transactions and legal matters.

That being said, Mr Lee has highlighted that he is not "making any allegation of wrongdoing relating to the management of the operations of the group at this stage".

"However, there are sufficient concerns and questions about the governance and internal control of the group to require me, in the fulfilment of my fiduciary duties as a director, to ask the questions and seek information," he added.

According to ecoWise's response to SGX RegCo, the board was divided on the timing to release the group's H1 2021 results on June 14, with Mr Lee requesting a delay until after trading hours so he could seek the clarifications needed.

However, the results were released in the early hours of the same day as Mr Cao and lead ID Er Kwong Wah were concerned over the deadline, even though releasing it after trading hours would still be within said deadline.

In its compliance notice on Friday, SGX RegCo voiced concerns over the "lack of a strong and independent element on the board", particularly a well-constituted AC comprising at least three non-executive directors. As the two former IDs resigned, the company's AC no longer has the requisite minimum of three members. Only Mr Lee, Mr Cao and Mr Er remain on the board.

SGX RegCo is also concerned over the accuracy of the company's H1 2021 results; the adequacy and effectiveness of internal controls in relation to ecoWise's financial reporting, release of announcements, escalation and information flow to the board; and safeguarding the group's assets.

The group will need to commission its statutory auditor RSM Chio Lim to perform an audit of its H1 2021 results. The scope of work must cover transactions and concerns raised by Mr Lee, movements of cash in the group and its cash balances. The auditor will report to the new AC, SGX RegCo and sponsor Zico Capital.

A separate internal audit will determine the adequacy and effectiveness of internal controls over SGX's aforementioned concerns. The new AC will see through the completion of both audits. It will also comprise the two new IDs as well as Mr Er.

In a June 22 filing, Mr Lee claimed he engaged IT firm Stone Forest as there was an "urgent need to preserve the assets, evidence, books and records of the company in order for him to investigate various corporate governance and internal control issues of the group".

The company said in its June 25 response to SGX that it refutes Mr Lee's allegations that there were possible lapses in corporate governance by the management team.

In his letter, Mr Lee said that Stone Forest is a specialist company that is affiliated with the company's auditors. He had engaged the company to "secure the premises and the computer equipment".

"There has been no loss or damage to the assets of the company. On the contrary, my actions were taken to secure the same," he added.

He also said that he welcomes SGX RegCo's directives.

Catalist-listed ecoWise suspended the trading of its shares on June 18 following a trading halt called on June 15. The counter last traded at 7.8 Singapore cents on June 14.