Recent breaches (Jun 2021) include former chief executive officer (CEO) and former executive director of Trek 2000 International for failure to make requisite immediate disclosure on IPT transactions relating to agreements by Trek 2000 with T-Data Systems (S) and S-Com Solutions (Hong Kong) as well as failure to seek independent shareholders’ prior approval for these IPTs. In addition, Trek 2000’s management did not put in place review procedures for identifying interested persons and IPTs, as well as for valuing, approving and reporting IPTs.
In Nov 2015, Sunvic Chemical Holdings Limited was reprimanded by SGX Regco for similar IPT breaches relating to failure to make immediate announcements of and seek shareholders’ approval for IPTs conducted in three financial years (FY2013, FY2014 and FY2015) with associates of Sun Xiao, the Company’s Executive Director and Chief Executive Officer and the former Executive Chairman and CEO.
Notably, in most or all IPT breaches, they relate to failure in at least 2 of the following 3 areas:
- Prompt Disclosure
- Proper Disclosure
- Proper Independent Shareholder approval
Specifically in the Sunvic Chemical Holdings Limited case, although immediate and prompt IPT disclosure was make, its IPT disclosure in its Notes to the Accounts in its Annual Report was not done in the prescribed format for IPTs as required under Chapter 9 of the Listing Manual. It is therefore important that Companies understand the right disclosure and do it right.
The failure to procure timely and independent shareholders’ approval is a common failure in most IPT breaches. Arm’s length IPTs that were beneficial and not prejudicial to the interests of the Company and its minority shareholders are not exempted from immediate disclosure under Chapter 9 of the Listing Manual. It is precisely the present of potential conflict of interest amongst interested parties that the shareholders rather than the Company is given the power to judge and bless these IPTs as being wholesome.
We have expected the wider IPT requirements will be increasingly tightened as SGX Regco catching up with the development of market bad behaviours in our earlier article “The Best of both worlds – Interested Party Transactions” in 21/5/2019. If there was indeed any best of both worlds in 2019 for the Companies, this is fast disappearing as melting glaciers of the global climate change.