DARCO Water Technologies has received a whistleblower report concerning its China-based subsidiary Wuhan Kaidi Water Service Co (WHKD), it said in a filing to the Singapore Exchange late Thursday night.

 

According to the whistle blower, the company' s executive chairman had instructed WHKD' s head of finance to modify certain key financial figures for its FY2019 financial statements, which in turn were submitted to a bank in China that has extended banking facilities to WHKD.

 

The banking facilities granted comprised facilities for the issuance of performance bonds amounting to 13.58 million yuan (S$2.83 million) as guarantees for the performance by WHKD for obligations specified in the contracts with WHKD' s customers and for the advancement of a short-term loan of three million yuan.

 

Based on preliminary investigations, the accounts submitted showed WHKD had recorded a profit of 1.7 million yuan for FY2019 as opposed to a loss of 23.2 million yuan as reported to the company.

 

Darco said: " Currently as far as the board is aware, only the executive chairman, Wang Yaoyu, together with the head of finance of WHKD and a staff from the finance department are involved in the misrepresentation ... but have assured the company that the misrepresentation and use of the modified accounts were confined to the submission of such accounts to the bank."

 

Darco added that based on preliminary assessments, the audited financial statements of the group for FY2019 and FY2020 are not affected by the modified accounts.

 

The board has obtained legal opinions from Morgan Lewis Stamford and compliance adviser, W Capital Markets.

 

The company has been advised by the lawyers that under the relevant Chinese laws, the act of modifying certain key financial figures in WHKD' s audited financial statements and submitting such accounts to the bank would constitute a violation of Chinese laws. This could result in fines, among other things.

 

The executive chairman has resigned from the board while the two other personnel involved are to be placed on leave of absence immediately. Zhao Yongchang, the chief operating officer, will take over the oversight and supervision of WHKD' s finance department.

 

Darco will also - together with an external auditor - check whether the audited financial statements that were modified were confined to FY2019 and whether WHKD' s audited financial statements used for consolidation in the group' s audited financial statements for FY2019 and FY2020 are valid.

 

Following an initial assessment by the company' s management and " assuming a worst-case scenario where the bank withdraws the banking facilities" , the board has been advised that currently the group as a whole will not encounter any going-concern issue and that the company will remain in a net assets position (including a net current assets position)" , Darco highlighted.

 

The announcement also noted that the group' s existing cash position stood at S$20.2 million, and that it has not provided any guarantee for WHKD' s business and operations.

 

The total banking facilities from various banks in China - comprising facilities for the issuance of performance bonds totalling 20.57 million yuan as guarantees for the performance by WHKD for its obligations specified in contracts with its customers and for short-term loans amounting to 4.17 million yuan extended to WHKD - represents 11.5 per cent of the group' s net assets based on the group' s FY2020 audited financial statements.

 

Darco said it will make further announcements as and when there are material findings or developments.

 

DARCO Water Technologies' Robert Wang Zhi has stated his desire to retire from his directorship and as deputy chairman, and will not seek a re-election at the next annual general meeting.

 

This was disclosed in the company' s response to queries from the Singapore Exchange (SGX), following Darco' s March 17 disclosure that it had received a letter from a group of shareholders urging the company to commence legal action against Mr Wang and another individual.

 

In Tuesday' s response, the company said that the nominating committee has accepted and respects Mr Wang' s decision to retire and will recommend to the company not to put him up for re-election.

 

But it added that: " Nothing has come to the attention of the nominating committee which would suggest that Mr Wang Zhi is not fit or suitable to continue as a director if he had elected not to retire from his directorship."

 

This was in response to SGX' s request for the committee' s assessment of Mr Wang' s suitability to carry on as director. Darco replied that Mr Wang' s expressed wish makes this assessment " no longer relevant" , but if he had decided to stay on, the board would continue with the evaluation.

 

SGX also asked who was the " one other person" against whom the group of shareholders had asked the company to commence action, alleging wrongdoing. Darco replied that he was Pek Thiam Keong, also known as Patrick Pek, and he is neither a director, employee nor member of the management of Darco.

 

These shareholders had on March 17 alleged that the two individuals had breached duties through their involvement in transactions with Qarah Consultancy, which Darco said it had engaged to independently assess the group' s projects in Singapore, Malaysia, China and Vietnam. It engaged the consultancy for three months on a retainer basis and paid a fixed monthly retainer fee of S$7,000, or S$21,000 in all.

 

Mr Wang was appointed to the board in April 2018, and had, for some time, faced opposition from a group of shareholders, including founder Thye Kim Meng, who stepped down as chief executive in 2019.

DARCO Water Technologies has received a letter from a group of shareholders who collectively hold substantial interest, urging the company to commence legal action against non-executive deputy chairman Wang Zhi.

 

Darco Water, in its regulatory statement on Wednesday, disclosed that a group of shareholders with total stakes of 16.1 per cent has called for legal action against Mr Wang and one other person - unnamed in the statement - over allegations of various wrongdoings.

 

The complainants alleged that the duo have breached their duties in transactions pertaining to payments for a consultancy agreement entered into by the company, the undertaking by Mr Wang to procure the transfer of a water treatment asset or concession, and the now-aborted acquisition of a majority stake in PT Panghegar Energy Indonesia in relation to a waste-to-energy project in West Java.

 

The complainants also threatened that they would apply to the court to commence legal proceedings in the name of the company, if the board fails to take out legal action as called for within 14 days. Further, they will claim the litigation fees and expenses incurred in such legal proceedings from the company.

 

Darco Water is consulting the lawyers on this matter and will take actions where necessary in response to the letter. It stated any director who is in a position of conflict with regard to the allegations will be asked to recuse from participating in any deliberations and decision-making concerning such allegations.

DARCO Water Technologies on Monday announced that on Sept 9, its legal counsel managed to serve a writ of summons and statement of claim on its former director and chief executive officer, Thye Kim Meng, by way of personal service at his residence.

 

Mr Thye has acknowledged this service, and entered an appearance in the lawsuit on Sept 11, the mainboard-listed firm added in its bourse filing. A defendant who is served with a writ of summons and wishes to contest the plaintiff' s claim has to enter an appearance in the legal action by a deadline.

 

Last Wednesday, Darco had said that it filed the writ and statement to claim relief for Mr Thye' s alleged breach of duties in a water project and a solar project, but that its legal counsel' s attempts to serve the legal documents on him on Sept 4 and Sept 6 were unsuccessful.

 

The company also said last Wednesday that he did not respond to a letter of demand issued on Aug 12 for US$1.6 million in losses and damages suffered by Darco due to his alleged breach of duties in respect of the same two projects.

 

Mr Thye on Aug 14 responded to those allegations, calling them " an attempt to undermine the work and contributions" which he made to the company.

 

On Monday, Darco noted that it will make further announcements as appropriate to update shareholders accordingly.

DARCO Water Technologies&rsquo minority shareholders have fired back at non-executive deputy chairman and controlling shareholder Wang Zhi, following his comments, made in an interview in The Business Times, that the minorities were hampering the company&rsquo s growth.

 

In a letter to the Singapore Exchange Regulation (SGX RegCo) from Choi Chee Sun, investment manager of Sofos Infrastructure Investment Fund, and Alexander Robert Stone, the shareholders said Mr Wang had brought the &ldquo mistrust&rdquo and &ldquo resentment&rdquo towards him upon himself.

 

In the letter, the shareholders again complained about a proposed placement that was subsequently aborted. They also resurfaced previous concerns that minorities had been recommended by Darco&rsquo s executive chairman Wang Yaoyu to accept an &ldquo unfair and unreasonable offer&rdquo for their shares.

 

The offer for Darco had been triggered after Mr Wang Zhi purchased a 14.27 per cent stake in Darco from Wuhan Liankai Investment Co (WHLK).

 

They also said that Mr Wang Zhi&rsquo s comments to BT about not voting for the re-appointment of certain independent directors because they were &ldquo too passive&rdquo contradicted with the reasons ex-director Tay Von Kian gave in his cessation notice on June 26.

 

Mr Tay, who was among the independent directors not re-elected at Darco&rsquo s annual general meeting, had in his notice said he had voiced objections to a project Darco had hoped to be involved in. He also said that some other directors had seemed to be against the project, but added that this was merely his observation.

 

&ldquo Minority shareholders have been concerned about the management changes in the Darco board. We have written to Darco on a few occasions, and we were pleased that SGX had also on certain occasions raised questions to ask the company to provide clarity and transparency.

 

&ldquo However, Mr Wang (Zhi) has dismissed such inquiries as having a &lsquo negative impact on the company&rsquo s operation if this continues&rsquo and said such inquiries were &lsquo false allegations&rsquo ,&rdquo the shareholders said.

They have therefore suggested that the regulators make further enquiries on the matters raised in their letter.

 

According to Bloomberg data, Sofos Infrastructure Investment Fund and Mr Stone own a combined stake of about 15 per cent in the company.