Independent directors go public after disagreement with management
By TEH SHI NING
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(SINGAPORE) A stolen truck carrying accounting records. A mysterious power failure. Missing disk drives. All these were made public by three independent directors (IDs) of China Sun Bio-Chem, who felt these incidents would 'severely limit' an independent review of the company's finances.
Lai Seng Kwoon, Teo Moh Gin and Loo Choon Chiaw yesterday broke ranks with China Sun's management to release an update to the Singapore Exchange (SGX).
The board had appointed KPMG to conduct the review in late March, after external auditor PricewaterhouseCoopers (PwC) said that it could not complete its audit due to unverified bank and trade receivable balances worth a total of 929 million yuan (S$202 million).
The IDs said they felt 'compelled' to inform shareholders of recent developments and their 'serious concerns', despite the objections of the executive directors.
Yesterday, they released email correspondence between them and China Sun's executive chairman and CEO Sun Gui Ji, the other directors, and chief financial officer Herman Wong.
In an April 30 email, Mr Sun and two executive directors, one of whom is his son, objected to a twice-revised draft of yesterday's announcement. They said that they 'had reservations about the accuracy and appropriateness of contents', and warned that they would hold the IDs 'fully responsible for any losses and expenses' resulting from disclosure.
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The next day, the IDs replied in an email that they 'noted the express threat levied against the IDs' but would 'continue to discharge their fiduciary duties and act in the best interest of the Company without fear or favour'.
Mr Lai, who chairs the audit committee, also sent Mr Sun an email requesting details on the status and whereabouts of 592 million yuan worth of corn purchased last year (which PwC had not been able to verify) by 4pm on May 4.
In their statement, the IDs said that Mr Sun 'expressly and flatly refused to confirm, explain and account for and provide the details' regarding those transactions in a telephone conference on April 29, leading to their 'grave concerns over the authenticity of the transactions'.
They also said that the KPMG review, which began on April 1, ran into roadblocks at China Sun's Suzhou office the very next day.
KPMG was told that all accounting records since FY2002 had been moved to the Shenyang office for an audit. Some 15 minutes into their computer forensic procedures, the Suzhou office staff tried unsuccessfully to remove four computers.
Another 15 minutes later, the electricity supply to the office was cut. A manager there attributed it to a power trip; KPMG termed it 'an unusual phenomenon', observing that one computer in the office was still working. After power was restored, KPMG resumed forensic operations but could not detect any disk drive on one of the computers.
On that same day, over at the Tongliao office, the KPMG team was told that the truck transporting accounting records back from Shenyang had been stolen the night before, while the driver was having dinner.
The CFO informed KPMG that he was not aware of accounting records being moved to Shenyang in the first place. KPMG conducted checks on four of six computers in the Tongliao finance office but sighted no accounting records.
The IDs said that because the CEO and CFO could not shed light on the audit exceptions identified by PwC in March, and given that the KPMG independent review can now 'no longer be meaningfully achieved', they are not able to determine the impact of these irregularities on the company's financials for both FY2008, and the present year.
The IDs have called for an urgent board meeting tomorrow. Trading in the company's shares has been halted since March 23.
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