Fibrechem Technologies (Suspended)

[Musicwhiz]

Evidence looks terribly damning!

Business Times - 28 Dec 2011

Financial discrepancies at FibreChem uncovered

Missing HK$777m, unauthorised share transfer among nTan's findings

By LYNETTE KHOO

THREE years of investigations have uncovered several financial and accounting irregularities at FibreChem Technologies, including an unauthorised share transfer and HK$777 million (about S$130 million) in missing cash.

Such were the discrepancies found at the Fujian-based textile firm 'over an extended period of time' that led nTan - engaged by the group as investigator and financial adviser - to question FibreChem's published financial statements over the years.

nTan noted in its findings that it would be 'reasonable to conclude that the financial and accounting irregularities were probably carried out at the direction or with the knowledge of senior members of the PRC management, in particular Mr Zhang and Mr Zheng'.

James Zhang was the group's executive chairman and CEO, while Zheng Peirong was chief financial officer.

The damning report was released yesterday, after three years of investigations that were fraught with obstacles since nTan was appointed as independent investigator and financial adviser of the group.

'A strong corporate culture that respects internal control measures does not exist at the PRC subsidiaries,' nTan concluded.

'Such an environment may have created a fertile ground for the abuse and overriding of internal controls which allowed the financial and accounting irregularities to be perpetrated at will.'

The red flag at FibreChem was first raised in early 2009 when its auditors could not finalise an audit of its trade receivables and cash balances for the year ended Dec 31, 2008.

An investment rescue plan for the group from Indonesian firm Prima Andalan Sentosa recently lapsed, prompting creditors to again issue statutory demands on FibreChem.

nTan said its investigations had uncovered a significant number of different types of irregularities beyond transactions involving the group's trade receivables and cash balances.

There were several financial and accounting misstatements by the group - its net assets were overstated by HK$382 million, its cash balance was overstated by HK$686 million, and there was an unaccounted cash balance of HK$777 million.

Based on a revised group balance sheet, the worst-case scenario would be an embezzlement of the missing cash balance of HK$777 million, said nTan.

Around HK$450 million of loans from Chinese banks between 2005 and 2008 and a subsequent loan default were not disclosed in the group's published balance sheets. Other group assets and liabilities, too, may not have been properly recorded.

When questioned during the probe, Mr Zhang said he had no reason to doubt the expertise of his CFO, Mr Zheng, in preparing and finalising the financial statements of the group and 'had relied on Mr Zheng to ensure that the PRC bank loans (as well as all other accounting items) would be accurately reflected in the group's published financial statements'.

These 'significant' financial misstatements constitute breaches of disclosure rules under the Securities and Futures Act and Singapore listing rules, nTan said.

nTan also found that during a restructuring exercise in December 2008, FibreChem management transferred 51 per cent of its shareholding in Xiamen Microfibre from one subsidiary to another without informing the board.

This resulted in the group's assets being placed out of reach of its offshore creditors.

Mr Zhang had procured funds to pay for the group's expenses on the independent investigation, its trading resumption proposal and other operating expenses.

But nTan said it faced several roadblocks during its probe: it was granted limited access to accounting records of FibreChem's Chinese subsidiaries; the computers used by the PRC accounting team were missing; and the relevant accounting records of the group were incomplete and deemed unreliable.

'Unlike other investigative assignments that we had carried out in Singapore, we did not have statutory coercive powers in the PRC to enable us to require the cooperation of, inter alia, the present and former employees of the group, certain customers and suppliers of the group who were all in the PRC,' nTan said.

[mrEngineer]

I have always wondered how did the chinese firms are able to blatantly overstate their cash balances or receivables and this articles indeed share some insights with undeclared bank loans.

nTan also found that during a restructuring exercise in December 2008, FibreChem management transferred 51 per cent of its shareholding in Xiamen Microfibre from one subsidiary to another without informing the board.

This resulted in the group's assets being placed out of reach of its offshore creditors

This is an interesting topic to me. If an alternative corporate structure was created and assets were handed over to the other structure, rendering the initial structure insolvent, the creditors (let us assume the banks) because of the legal disadvantage have no choice but to write down the loans, would this mean the company can book a profit from this activity? (Debit liabilities, credit income).

This would means that it is possible to legally cheat the lenders and also possible explanation how chinese companies are somewhat able to prop up their balance sheets and misstating their operational abilities completely if such practices (misusing corporate entities) are rampant. I can imagine if they have done this to overseas investors, they were have done it to countless of farmers, villagers in their homeland and because of corruption manage to get away scot free.

[freedom]

1. although loan can be written down by then banks, it does not mean the company does not need to pay the banks. Unless the banks discharge the liability from the company, the company is always liable to repay the loan.

2. oversea investor might have difficulty to recover their investment, it would be a totally different case for domestic fraud. farmers, villagers can sue them and the court can seize the assets if convicted.

[mrEngineer]

1. although loan can be written down by then banks, it does not mean the company does not need to pay the banks. Unless the banks discharge the liability from the company, the company is always liable to repay the loan.

2. oversea investor might have difficulty to recover their investment, it would be a totally different case for domestic fraud. farmers, villagers can sue them and the court can seize the assets if convicted.

1. I am not good with corporate structures so I do not know much. But if the company is essentially bankrupt and has zero links found to the new entity formed the company directors, the bank can also do nothing right? For e.g., the company can sell its assets to the other entity at $1 and making it an empty shell. At most, one of the directors (maybe a farmer) would have to be made a scapegoat and be jailed or whatever. Is this possible?

2. China and like many emerging countries have bullied these farmers and villagers legally and non-legally. Some of these farmers do not have the title deeds or own the land but because they reside in the land and have plantation, they claim ownership but would run away at the immediate sight of military force (Indonesia Suharto era). This may be more difficult nowadays with the Wukan riot as an example.

[freedom]

1. although loan can be written down by then banks, it does not mean the company does not need to pay the banks. Unless the banks discharge the liability from the company, the company is always liable to repay the loan.

2. oversea investor might have difficulty to recover their investment, it would be a totally different case for domestic fraud. farmers, villagers can sue them and the court can seize the assets if convicted.

1. I am not good with corporate structures so I do not know much. But if the company is essentially bankrupt and has zero links found to the new entity formed the company directors, the bank can also do nothing right? For e.g., the company can sell its assets to the other entity at $1 and making it an empty shell. At most, one of the directors (maybe a farmer) would have to be made a scapegoat and be jailed or whatever. Is this possible?

2. China and like many emerging countries have bullied these farmers and villagers legally and non-legally. Some of these farmers do not have the title deeds or own the land but because they reside in the land and have plantation, they claim ownership but would run away at the immediate sight of military force (Indonesia Suharto era). This may be more difficult nowadays with the Wukan riot as an example.

for 1, normally, for SPVs or certain subsidiaries, banks will ask the corporate parent for guarantee of the loan.

for 2, sadly, it is very true in a lot of countries.

[Musicwhiz]

Business Times - 29 Dec 2011

SGX ready to act on FibreChem findings

Exchange says it has been keeping tabs on probe and will act accordingly

By LYNETTE KHOO

THE Singapore Exchange (SGX) stands ready to take action against any breach of its listing rules after investigations into FibreChem Technologies pointed to potential breaches.

'We have been closely monitoring the development of the investigation,' an SGX spokesman told BT. 'Based on the findings of the report, we will review and take appropriate enforcement action against breaches of the SGX listings rules.

'For possible breaches of the Securities and Futures Act (SFA) or Companies Act, the exchange will refer the matter to the relevant agencies.'

SGX was responding to queries on FibreChem, which released on Wednesday the findings of its independent investigator, nTan Corporate Advisory.

When contacted, some independent directors of the Bermuda-incorporated S-chip declined to comment.

nTan was appointed in February 2009 to carry out an independent assessment of FibreChem's trade receivables and cash balances as at Dec 31, 2008.

Three years of investigations, costing the group about $4.64 million in fees to nTan, have unearthed several discrepancies at FibreChem 'over an extended period of time' since its listing in 2004.

nTan found that there were numerous financial and accounting irregularities, an unauthorised change of corporate structure, and HK$777 million (S$130 million) in missing cash.

If the unaccounted cash balance of HK$777 million did not in fact exist, the overstatement of cash balance and profits and the omission of the PRC bank loans over an extended period of time 'are possibly attempts to artificially inflate the group's cash balance and profitability', nTan said.

Once a market darling with sterling published earnings year after year, FibreChem shares plummeted in early 2009 on news that its auditors could not finalise an audit of its trade receivables and cash balances for the year ended Dec 31, 2008. A trading suspension has since been imposed.

nTan noted that if the group's financial results had in fact been overstated in its initial public offering prospectus or quarterly financial results, 'it would be reasonable to draw the conclusion that such misleading, false or deceptive disclosure of inflated financial performance of the group was made to induce or an attempt to induce the investing public to purchase or trade in FibreChem's shares'.

These financial mis-statements may constitute breaches of a provision in the SFA relating to false or misleading statements or fraudulent inducement of persons to deal in securities, nTan added.

Corporate lawyers also highlighted other provisions in the SFA that could have been breached, including disclosure requirements for prospectuses.

Under the SFA, an entity is guilty of making a false or misleading statement if, a) there is a false or misleading statement in its prospectus; b) it fails to include any information that relates to its assets and liabilities, profits and losses, and financial position and performance in its prospectus; or c) it fails to state a new circumstance that has arisen since the prospectus was lodged with MAS.

Continual disclosure requirements of the SFA and SGX listing rules also state that companies must notify the exchange of 'information on specified events or matters as they occur' so that the SGX can disseminate the information to the stock market.

The board and audit committee (AC) of FibreChem probably should offer their views on the report before a call can be made on whether any relevant law has been breached, said Robson Lee, corporate lawyer and deputy secretary of the Securities Investors Association (Singapore).

'The AC should state its position on the findings of the report,' Mr Lee said. 'In particular, the AC should advise the market whether the disclosure and other listing rules have been adhered to with respect to the relevant transactions identified by the report.'

[Musicwhiz]

No one can be reached for comment? Wow.

Business Times - 30 Dec 2011

FibreChem creditors may seek S-chip's liquidation

Move comes after deadline to meet demands for loans repayment passes

By LYNETTE KHOO

(SINGAPORE) Creditors of FibreChem Technologies are considering filing a petition to liquidate the S-chip after their statutory demands for loans repayment were not met.

'We have not decided on liquidation, but it's a serious possibility and one of the options that creditors are considering,' said their lawyer Edwin Tong, a partner at Allen & Gledhill.

Mr Tong is acting for United Overseas Bank and a consortium of local and international banks led by OCBC that have demanded repayment of US$58.7 million and $29.1 million respectively.

The creditors had issued statutory demands to FibreChem after a rehabilitation plan that involved a capital injection by an Indonesian firm lapsed last month. The deadline for FibreChem to meet the statutory demands was Dec 26.

Mr Tong told BT that the creditors are currently looking at whether there are any assets of FibreChem that could be recovered.

But he conceded that after the Singapore High Court grants the liquidation order, the creditors could still run into the 'technical issue' of enforcing the order in China through PRC courts as FibreChem's assets are based in Xiamen.

The group is incorporated in Bermuda and is not subject to Singapore's Companies Act.

FibreChem's default on the loans was triggered by a trading suspension of its shares in February 2009 after its auditors could not finalise an audit of its trade receivables and cash balances for the year ended Dec 31, 2008.

Just this week, a damning report was issued by FibreChem's investigator and financial adviser nTan Corporate Advisory, which flagged several financial and accounting irregularities in the group and some HK$777 million (S$130 million) of missing cash.

nTan noted in its findings that it would be 'reasonable to conclude that the financial and accounting irregularities were probably carried out at the direction or with the knowledge of senior members of the PRC management, in particular Mr Zhang and Mr Zheng'.

James Zhang was the group's executive chairman and CEO, while Zheng Peirong was chief financial officer.

BT understands that one possible option available to creditors of FibreChem is to file their claims against Mr Zhang since the latter was a director of the group at the material time when the alleged fraudulent activities took place.

Another option could be to issue a garnishee order to collect what FibreChem owes by reaching those assets that could be in the hands of other third parties.

Meanwhile, FibreChem's directors were either uncontactable for comment or declined comment on the investigation findings.

When contacted, non-independent director Low Check Kian, chairman of NewSmith Capital Partners (Asia), said he was travelling and not in Singapore.

Mr Low had been non-executive director of SGX since 2000 before retiring this year. He was also senior vice-president at Merrill Lynch and has sat on the boards of some Singapore government agencies.

Ong Tiong Seng, FibreChem's lead independent director (ID) and chairman of the audit committee (AC), could not be reached for comment. He had worked with the Economic Development Board (EDB) prior to founding Provenance Capital and becoming chairman of Cogent Financial (HK) Ltd.

The other two IDs are Chong Weng Chiew, a former member of parliament and former CEO of Ang Mo Kio Hospital who is now an ID of United Envirotech; and Lim Chin Tong, who held senior appointments at EDB, later became CEO of Xpress Holdings and is now a director at a few listed companies.

Both Mr Chong and Mr Lim could not be reached for comment yesterday.

[corydorus]

What can SGX do ? The most delist ... but money already gone ...

[Stocker]

This is exactly what the PRC men want, delist it once and for all, afterall they have pocketed the monies. Creditors/SGX infact are doing them the favour, otherwsie they have to do it themselves.

[Musicwhiz]

This is exactly what the PRC men want, delist it once and for all, afterall they have pocketed the monies. Creditors/SGX infact are doing them the favour, otherwsie they have to do it themselves.

Sounds like a tried and tested formula eh?

List a company in an IPO, have it marketed through roadshows and have lots of fanfare, jack up the share price. Throughout this time, quietly siphon money away and do a lot of other illegal stuff while everyone else is happy trading the shares based on fictitious profits and cash flows.

When the Sh** hits the fan, either disclaim or disappear. The law can't touch anyone since it's incorporated in Bermuda and jurisdiction is in China. No extradition treaty either, so the perpetrators get away scot-free!

Who says crime doesn't pay?