SGX asks for court order in China Sky case
In what could be an unprecedented move, Singapore Exchange (SGX) has resorted to applying for a court order to enforce its directive on a defiant S-chip company.
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It takes unprecedented move following the latter’s continued defiance
By LYNETTE KHOO
07 January 2012
In what could be an unprecedented move, Singapore Exchange (SGX) has resorted to applying for a court order to enforce its directive on a defiant S-chip company.
China Sky Chemical Fibre missed a Thursday deadline to appoint special auditors to investigate transactions between the company and a former independent director as well as a failed land acquisition in China, among other things, and SGX is having none of it.
The exchange said yesterday that it has applied to the High Court for a court order to enforce its directive. Its application was made against China Sky and its directors, Huang Zhong Xuan (CEO), Cheung Wing Lin (non-executive chairman), Song Jian Sheng (executive director) and Wang Zhi Wei (non-executive director), to compel compliance with its listing rules. The court hearing for the application is scheduled for Jan 16.
‘Despite every opportunity offered, China Sky persists in its non-compliance with the directive. SGX, has therefore, escalated the matter to the High Court,’ SGX said.
SGX has also applied to the High Court for China Sky and its directors to comply with Listing Rules 221 and 720(3) that respectively require China Sky to appoint at least two independent directors resident in Singapore and to obtain SGX approval for the appointments.
The exchange wants China Sky to fill the vacancy within the audit committee within seven days or such other time as the High Court sees fit. China Sky is left with no independent directors (IDs) after all its three stepped down on Thursday given the group’s continued defiance of SGX’s directive to appoint special auditors.
Lending weight to SGX’s unprecedented move yesterday, the Monetary Authority of Singapore pointed out that the Securities and Futures Act empowers the exchange to apply for a court order to enforce compliance with its listing rules.
‘In the case of China Sky, SGX has legitimately exercised this power as part of its regulatory obligation to maintain a fair, orderly and transparent market for the trading of securities,’ said a MAS spokesman.
SGX first directed China Sky on Nov 16 to appoint special auditors to probe areas of concern. These include interested party transactions between China Sky and its then-audit committee chairman Lai Seng Kwoon, the aborted acquisition of land in Fujian province and certain repairs and maintenance costs.
But China Sky has resisted the directive for more than a month and a board split over this matter only started to show recently. All three IDs stepped down on Thursday when the group failed to meet the final deadline to appoint special auditors, even though the IDs had apparently approached some audit firms.
Lawyers are watching with great interest to see how things pan out from here but they are unsure as to whether the move by SGX would yield results.
Yap Wai Ming, a partner at Stamford Law, noted that if China Sky directors do not show up for the court hearing, the court could make a default judgment and issue an order to the company to comply with SGX’s directive. ‘If the court issues the order and the directors refuse to comply, that will be a contempt of court,’ Mr. Yap said. This could lead to contempt proceedings against the directors but it is unclear if the directors would come to Singapore to face the court.
Mr. Yap said that in the case of a forced delisting, the major shareholders are unlikely to provide minority shareholders with an exit offer. ‘It’s not good for investors and I’m not sure if that’s the outcome that we all want to see.’
On SGX’s directive for at least two IDs to be appointed, Mr. Yap wondered if anyone would step forward to accept the appointment under such circumstances.
China Sky, which is incorporated in the Cayman Islands according to its IPO prospectus, has three operating subsidiaries in Fujian province held under a BVI (British Virgin Islands) company.