SINGAPORE: The former executive chairman and director of Kimly, one of Singapore’s largest traditional coffee shop operators, were fined by a court on Wednesday (Feb 16) for failing to disclose that its chairman had a 30 per cent stake in a company Kimly was acquiring.
Then-executive chairman of the Catalist-listed company Lim Hee Liat, 56, was fined S$150,000. The director of Kimly at the time, 47-year-old Vincent Chia Cher Khiang, was fined S$100,000 for his involvement. They were both disqualified from acting as directors for five years.
Both men paid their fines in full on Wednesday.
They pleaded guilty to one count each of intentionally failing to notify the Singapore Exchange (SGX) that Kimly’s acquisition of Asian Story Corporation (ASC) was an “interested person transaction”, as required under SGX Catalist Listing Rules. Lim had a second charge taken into consideration.
The court heard that Kimly was one of Singapore’s largest traditional coffee shop operators at the time, with subsidiaries operating restaurants and confectionaries.
Kimly was first incorporated in Singapore as a private limited company in May 2016, and listed on the Catalist board of SGX in March 2017.
At the time of the offences in 2018, Lim was the executive chairman of Kimly’s board of directors, and a founding shareholder. He held about 42 per cent of Kimly’s shares and oversaw the overall development and performance of the group.
This included setting and executing strategic directions, planning for expansion and sourcing for investment opportunities to promote business growth.
Chia was on the board as executive director of the company. He was responsible for strategising and implementing improvements to the group’s processes and assisted Lim. Chia was also responsible for listing compliance matters after Kimly was listed on SGX, including ensuring that the company complied with all relevant listing rules.
THE COMPANY THEY WANTED TO ACQUIRE
Asian Story Corporation was incorporated in December 2009 and was in the business of supplying and distributing traditional Asian drinks such as chrysanthemum tea and soya bean beverages.
The beneficial shareholders of the company were Amos Wang Chia Ye, Chin Gim Wah and Alain Ong Eng Sing, the former chief executive of beverage company Pokka International. At the time of ASC’s incorporation, Wang legally owned 100 per cent of the company’s shares.
Around 2009 or 2010, Ong and Wang approached Kimly’s Lim asking him to invest in ASC. In 2010, Lim invested around S$300,000 in ASC, but was never involved in its operations or management.
After Lim’s investment, the beneficial ownership of the shares in ASC were split as such: 30 per cent to Lim, 40 per cent to Ong, 15 per cent to Wang and 15 per cent to Chin.
From 2009, Chia knew that Lim had invested S$300,000 into ASC and beneficially owned 30 per cent of it. In 2017, Lim also told Chia personally that he had a 30 per cent of shareholding in ASC.
Chia believed that Lim did not want to hold the ASC shares in his own name or act as a director of ASC as Lim was concerned that Kimly’s competitors might not buy ASC’s products if this was the case.
On Jul 2, 2018, Kimly announced that it had acquired all the shared and fully paid-up ordinary shares in the capital of ASC at a consideration of S$16 million, paid by Kimly to Wang in cash.
THE FAILURE TO DISCLOSE
This was after a valuation report was made for ASC, and after the proposed acquisition was approved by Kimly’s board of directors in May 2018.
At two board meetings, Lim did not disclose that he had a beneficial interest in ASC. He also did not disclose this to the board at the time the directors’ resolution was passed in writing to approve the entry into a sale and purchase agreement with Wang for the acquisition of ASC.
Chia likewise knew that Lim’s ownership of ASC meant that the acquisition should be flagged out as an interested person transaction – a transaction between an entity at risk and an interested person.
However, he chose not to disclose it for several reasons. He said he was concerned about Lim’s credibility and perceived integrity with his long-term partners, who were also partners of Kimly, as this “old guard” had a culture of bringing deals to the table to share with each other, but Lim had not told them about his interest in ASC.
Chia also felt that the “window of opportunity” to disclose the transaction had been missed during the IPO of Kimly or initial discussions on the acquisition of ASC.
Chia knew that both Ong and Chin had interests in ASC, as Lim had told him so. He was concerned about the employment of Ong and Chin by Pokka, as he was concerned that if Lim’s interest in ASC was disclosed, Ong and Chin’s interest in ASC would likewise be disclosed.
Chia was also concerned that this would affect plans at the time for Ong to succeed Lim and become CEO of Kimly.
The deal was eventually called off after Pokka Corp’s notice to Kimly in November 2018 to end its manufacturing agreement with ASC.
When probed by investigators from the Commercial Affairs Department, Lim suggested that it is possible that he did not disclose his interest in ASC because if he did so, it might lead to questions about who owned the remaining 70 per cent of ASC’s shares.
Lim’s ultimate intention at the time was to consolidate all of the businesses together, including ASC’s business, under Kimly to “create an ecosystem that was good for Kimly’s overall business”.
Prosecutors sought a S$150,000 fine for Lim, a S$100,000 fine for Chia, and the required five-year disqualification from acting as a director of any company for both of them.
“UNABASHED CHOICE” NOT TO DISCLOSE: PROSECUTOR
Deputy Public Prosecutor Suhas Malhotra said the case involves “an intentional and blatant refusal to comply with the disclosure obligations which apply to all publicly listed companies in Singapore”.
He said the offences “strike at the heart of the disclosure-based corporate governance regime which undergirds the entire securities market”.
On Lim’s conduct, Mr Malhotra said this was “an unabashed choice by Lim to not disclose his interest in ASC, in contravention of the law”.
“That the executive chairman of a public company can treat his company’s obligations in such a cavalier manner is troubling, to say the least,” he said.
He urged the court to impose the fine sought to remind not only the accused but all other listed company directors of the need to treat the obligations on their companies seriously.
Lim was defended by a team of lawyers led by Senior Counsel Davinder Singh, who agreed on the S$150,000 fine. Chia was represented by Mr Terence Tan Li-Chern.
Ong, whose actress wife Vivian Lai used to appear in Pokka’s advertisements, faces charges under the Companies Act and is set to return to court for a pre-trial conference next month.