China Sky Chemical Fibre

[d.o.g.]

Singapore Exchange (“SGX”) has today applied to the High Court of Singapore for a Court Order to enforce its directive to China Sky Chemical Fibre Co. Ltd (“China Sky” 中国天宇化纤有限公司) to appoint a Special Auditor.

Given that the directors in question are based in China and will probably not return to Singapore for the foreseeable future, how is the High Court going to force them to appoint a Special Auditor? Even if the SGX itself appointed and paid for the Special Auditor to go to China, the directors don't have to cooperate, assuming they can be located to begin with.

I don't see how SGX can possibly win this fight. The most they can do is delist the company, which would suit the directors just fine. The SGX Listing Manual is toothless, as none of its provisions have the force of law.

About the only good thing that can come out of this is that it may embarrass SGX into finally screening its IPO candidates properly to prevent junk listings.

[Musicwhiz]

The Straits Times
Jan 7, 2012
SGX files court order against China Sky
It seeks to compel firm to appoint a special auditor after it defied directive

By Melissa Tan

THE bitter standoff between the Singapore Exchange and China Sky Chemical Fibre escalated yesterday when the regulator went to the High Court to force the firm to appoint a special auditor.

The legal move came a day after China Sky defied the final deadline of Jan 5 set by the SGX to appoint an auditor.

The Monetary Authority of Singapore (MAS), which had earlier urged China Sky to comply with the directive, weighed in again yesterday to underline that the SGX has the right to go to court to get firms to comply with 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 the MAS.

The SGX said in a statement yesterday that it applied for a court order 'to compel compliance with the listing rules'.

The exchange had wanted a probe into certain transactions in the group, including the purchase and return of a piece of land in Fujian province, the purchase of new production facilities, certain repairs and maintenance costs.

SGX had also wanted a more in-depth look at the deals the company conducted with independent director Lai Seng Kwoon.

The court application will be dealt with on Jan 16 in a closed door hearing.

It names China Sky and its four Chinese directors - chairman Cheung Wing Lin, chief executive Huang Zhong Xuan and executive directors Song Jian Sheng and Wang Zhi Wei.

China Sky's three independent directors stepped down on Thursday in protest against the stand taken by China Sky over the SGX directive.

Mr Lai was one of them. Mr Er Kwong Wah, who quit along with Mr Yeap Wai Kong, said the three had flown to Beijing to meet the four Chinese directors on Thursday afternoon and stepped down after a 90-minute attempt to persuade the management to appoint a special auditor failed.

Mr Er told The Straits Times over the phone: 'We could not sit back and do nothing.

'The independent directors felt that if the company does not comply, there will be serious consequences that we are in no position to shoulder.

'We felt it was going nowhere... We resigned on the spot.'

The four Chinese directors argued that the SGX lacked sufficient justification for its directive.

They also said that a special audit would cause the financial statement audit to be delayed.

The SGX had said last week that it was willing to extend the deadline for the firm's financial statements if it appoints a special auditor.

Mr Er, who was appointed chair of the audit committee on Jan 1, said he believed the audit of the financial statements for 2011 by China Sky's external auditor Deloitte and Touche was still ongoing.

Lawyers say that if China Sky fails to comply with a High Court order, it could be charged with contempt of court.

'If they have nothing to hide, I think it's time to call it quits and not fight and just comply... If they don't do it, all shareholders are going to suffer,' said minority shareholder Mano Sabnani.

He also noted that the SGX should not expel China Sky because that would leave minority shareholders in the lurch.

Mr Sabnani added that he was 'disappointed that the independent directors resigned... Directors have a responsibility to stay on and fight the battle, meaning resolve the problem with results instead of jumping ship.'

Trading in the counter has been suspended since Nov 17.

melissat@sph.com.sg

[ken]

Agreed.

To China Sky Co., they have turn SGX into Singapore Garbage Exchange, and still poke at them.

Maybe the those holding China Sky shares may like to to share why they bought into this counter ?

[corydorus]

Clearly to me there is something to hide else this would have been non issue long ago.

[Stocker]

Mas and SGX just have to put up a show that they care for the minority shareholders, because they are the one who brokered the deal and bring them in to ride on the minority shareholders. MAS and SGX made their monies thru listing the company, and the PRCs make a big scoop and now they are poking and laughing at MAS , SGX and the minority SHs.
What can MAS or SGX do to them , the most is to delsit the company and this is what the PRCs want it to be in the first place.
MAS and SGX are jst laughing stcoks in the eyes of these PRCs.

[freedom]

a lot of people has made their fortune in s-chip. maybe SGX and MAS come out to clean the scene and bury everything. let's move on to the next boom.

[Musicwhiz]

Bad situation.....I feel sorry for the minority shareholders....

Business Times - 07 Jan 2012

SGX asks for court order in China Sky case

It takes unprecedented move following the latter's continued defiance

By LYNETTE KHOO

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.

Robson Lee, corporate lawyer and deputy secretary of the Securities Investors Association (Singapore), said that enforcement is a 'fundamental problem with foreign issuers' if the directors choose to ignore the court order and not show up, as the directors do not reside in Singapore.

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.

[d.o.g.]

Robson Lee, corporate lawyer and deputy secretary of the Securities Investors Association (Singapore), said that enforcement is a 'fundamental problem with foreign issuers' if the directors choose to ignore the court order and not show up, as the directors do not reside in Singapore.

Finally, a lawyer dares to speak the plain truth in public.

Two (out of many) possible outcomes of the China Sky saga are:

1. SGX starts doing proper background checks and refuses to allow dubious companies to list. This cuts the foreign IPO pipeline, but those that make it through are of good quality. Eventually, investor confidence improves and SGX becomes a credible venue for foreign issuers.

2. SGX is revealed to be a paper tiger. Investor confidence declines and foreign companies are valued at a huge discount i.e. S-chip type valuations are accorded to all but the most blue-chip foreign issuers. The quality of foreign listings declines as the poor valuations discourage credible companies, while the dodgy ones are perfectly happy to sell worthless shares for 2-3x PE.

I wonder if Magnus Bocker is paying any attention to this case at all, or if he's too busy looking for something else to acquire.

[Stocker]

Let's be honest , MAS and SGX have to "do something" to restore investor confidence.
Although they are papar tiger to foreigners but still must wayang to show they are serious about regulations, but ultimately, the minority SHs are the losers.

Rather surprised, these 4 PRC directors don't give a shiiit to SGX at all , not even a minimum respect to the regulator of the stock exchage of a country.

[freedom]

if SGX delists China Sky Chem, will minority shareholders protest in front of SGX/MAS? After all, if they have done their proper jobs, minority shareholders should be protected in some way.