Creditors of KTL, NutryFarm may not share boards' faith in chairman Wu Yongqiang

KTL Global and NutryFarm International have been busy trying to convince shareholders and the regulator that their newly appointed chairman is someone with no character or integrity issues, and that his appointment does not breach any listing rules.

Wu Yongqiang was appointed in December as non-executive chairman of KTL Global, a mainboard-listed company that recently diversified into the distribution of fresh vegetables and fruits. The company has since fielded several queries from Singapore Exchange (SGX) about the suitability of Wu for the position.

Wu was also appointed chairman of mainboard-listed durian and health food distributor NutryFarm in March. And the company has faced similar queries.

Among the concerns raised is Wu's involvement in a spate of lawsuits in China, where he had managed varied businesses and companies.

Could Wu discharge his duties and responsibilities as a director as well as comply with the listing rule on character and integrity, the SGX asked, given that he has been sued in several cases and there are unsatisfied judgments against him?

KTL Global, in its response, said Wu's lawsuits were all of a commercial nature. Some of the suits arose from amounts owed by Wu or entities associated with him for which he was said to be the guarantor, the company said, while others arose from business disputes.

It further noted that most of the lawsuits and unsatisfied judgments date back to around 2014.

Wu, meanwhile, contended that he was not at fault, or that there was commercial ambiguity as to whether he should assume full or partial liability for the lawsuits. He further stated that there has not been further action taken by the creditors and/or the courts against him after he made contributions that, in his view, were "fair and equitable" to satisfy some of the judgments.

NutryFarm International added that Wu chose not to pay or satisfy the outstanding judgments "mainly for business or commercial reasons".

Both NutryFarm International and KTL Global also noted that Wu is not an undischarged bankrupt nor has he ever been adjudged one, although he is subject to restrictions against high consumption spending in China.

KTL Global therefore believes there is "no basis and/or reason to assume that there was any fraud, dishonesty, misrepresentation, mismanagement or other offence" that would cast doubt on Wu's character and integrity as well as suitability as a director.

NutryFarm International, meanwhile, stated it is satisfied with the character and integrity of Wu.

Lawsuit in China

Checks done by The Business Times showed that at least one lawsuit named Wu and his wife Zhang Xuemei as the only defendants without any entities associated with them involved. They had purchased a vehicle using a loan from Mercedes-Benz Financial Services and were sued by the financier when they subsequently defaulted on loan repayment.

Neither Wu nor Zhang turned up for the court hearing and they did not make any written submissions to defend themselves, according to the Chinese court judgment dated Mar 23, 2015.

After they failed to make good on the outstanding balance as ordered by the court, Mercedes-Benz Financial Services applied to the court to enforce the judgment to recover over 500,000 yuan (S$107,000) outstanding.

Wu and Zhang were ordered to declare their assets, and their bank accounts were checked and then placed under restrictions against high consumption spending.

Such restrictions ban them from taking the premium class when using public transport; spending at high-end hotels, night clubs and golf courses; buying immovable assets; building a new home; expanding their home or renovating lavishly; renting high-end offices or premises as workplaces; purchasing vehicles for non-business purposes; taking holidays; enrolling children into private schools that charge high fees; purchasing high premium insurance products; and taking high-speed trains or riding in premium cabins in other types of trains.

Debtors flouting such restrictions would be fined or remanded, and breaches could be constituted as a criminal offence under some circumstances.

Despite seizing Zhang's vehicle for auction to set it off against the debt owed - after the court had exhausted all measures to investigate the couple's assets and found no other assets in China - 140,000 yuan remains outstanding from the couple, which Mercedes-Benz Financial Services reserves the right to claim.

Wu and Zhang also did not turn up at a hearing that found them liable for a loan of about 20 million yuan that Wu took, and for which at least one company that he owned was ordered to pay up as guarantor if the couple did not make good on the loan.

Moreover, Wu and his wife did not take action to defend themselves in these 2 cases. Yet, Wu has claimed that he was not at fault

and/or there was commercial ambiguity about his liabilities for all the cases in which money is owed by him or entities linked to him.

KTL Global has also claimed that it is not "uncommon" for someone with Wu's years of business experience to be involved in as many as 12 to 18 lawsuits.

KTL Global put Wu's age at 43 in the announcement of the appointment while NutryFarm International stated it as 45. Wu can therefore be assumed to have about 20 to 25 years of corporate experience - which works out to nearly 1 lawsuit a year. Whether or not this is common is debatable.

Duties to creditors

According to court filings on Wu's case with Mercedes-Benz Financial Services, Wu and his wife have no other assets under their names in China. This was why the court slapped restrictions on them against high consumption spending.

Yet, Wu lent S$10 million to KTL on Mar 1. This was labelled an interested person transaction because Zhang has a 12.75 per cent stake in KTL Global. Wu himself is a substantial shareholder of NutryFarm International with a 13.97 per cent stake.

The additional cash is handy for KTL, which is diversifying into a new business. But it would probably offer little comfort to Wu's creditors in China.

The boards at KTL Global and NutryFarm International may not see Wu's lawsuits as a reflection of any flaws in his character or integrity. The directors clearly do not believe the suits undermine his ability to discharge his duties and responsibilities as a chairman. But the trade or other creditors of these companies might feel differently, given the attitude Wu exhibited towards loans, guarantees and court judgments.