SIAS calls on Hyflux board to step aside after criminal probe brings credibility into question

SIAS calls on Hyflux board to step aside after criminal probe brings credibility into question

Hyflux Singapore (1)
(Photo: Jeremy Long)

SINGAPORE: Investigations by local authorities have called into question the credibility of Hyflux’s board of directors who must now consider if it’s time for them to step down, said the Securities Investors Association of Singapore (SIAS) on Wednesday (Jun 3).

The investor advocacy group had as early as January last year called on the company’s board to step down, said its founder-president David Gerald, noting that retail investors are losing patience and confidence with Hyflux’s dragged-out restructuring.

Now that authorities are investigating possible “serious offences”, Mr Gerald asked: “How do you expect retail investors to continue to place trust in this board? The board must ask themselves whether they should step aside.”

“I think it’ll be a good and right thing to do to reconstitute the board with a new chairman and new independent directors with expertise, who will be able to evaluate if the company is still viable and be actively involved in the restructuring,” he added in a phone interview with CNA.

READ: Hyflux and directors under criminal investigation for suspected false and misleading statements

The police's Commercial Affairs Department (CAD), the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) said on Tuesday that they have launched a joint investigation into Hyflux and its current and former directors for suspected false and misleading statements, breaches of disclosure rules and non-compliance with accounting standards.

This followed a more than year-long review that “disclosed reasons to suspect that offences may have been committed”.

“The investigation will ascertain whether there were lapses in Hyflux’s disclosures concerning the Tuaspring Integrated Water and Power Project, as well as non-compliance with accounting standards between 2011 and 2018,” the joint statement read.

The authorities said they are probing directors who served on the company’s board between 2011 and 2018, but stopped short of naming them.

According to the company’s website, its current board of directors are founder-CEO Olivia Lum, lead independent director Teo Kiang Kok, as well as five other non-executive independent directors Gay Chee Cheong, Lee Joo Hai, Christopher Murugasu, Lau Wing Tat and Gary Kee.

Six of them, with the exception of Mr Lau, served on the board between 2011 and 2018. Mr Lau was appointed to the board in July 2014, replacing Mr Rajsekar Kuppuswami Mitta, who left the board in 2012 after having served as non-executive independent director since April 2007.

Mr Simon Tay, who joined the board in May 2011, also served as non-executive independent director of the company until his resignation on Feb 7 this year.

READ: From making waves to drowning in red ink: Hyflux, Tuaspring and ho

The issue of credibility was also raised by corporate governance advocate Mak Yuen Teen.

“I think stakeholders will have to ask – given the investigations and questions being raised about the conduct of the board, do we trust the board to oversee the restructuring and to make decisions in the best interests of all stakeholders?” he said.

National University of Singapore (NUS) Business School Associate Professor Lawrence Loh said it would be “quite inconceivable” for the current board directors to continue deal with negotiations or oversee the running of the company given ongoing investigations.

He added that it is time for Hyflux to “seriously” look at possibilities, such as having an interim board, for it to restore confidence among all stakeholders, including the High Court, if it intends to seek further debt moratorium extensions.


Authorities have said that the criminal investigations are “separate from (and) are not intended to interfere” with Hyflux’s ongoing corporate-rescue process.

United Arab Emirates utility firm Utico told CNA on Wednesday that it "remains committed" to investing in Hyflux, although its move to replace all cash payments for creditors with stocks has been lambasted by SIAS as a "considerably less favourable" deal.

Meanwhile, little-known suitor Aqua Munda has also stated its commitment to helping Hyflux complete its restructuring.

READ: Middle East investor Utico says it ‘remains committed’ to rescue deal despite Hyflux criminal probe

iFast Corp's senior fixed income analyst Ang Chung Yuh said while there could be potential suitors who would take the opportunity to negotiate for a cheaper restructuring package, the probe will not have a direct impact on Hyflux's restructuring progress.

The challenge for Hyflux remains how it would knock out a restructuring agreement to satisfy its vast group of creditors – a problem it had since day one.

"I think Hyflux still has a good chance of getting a restructuring agreement with an investor,” said Mr Ang.

“If it secures a formal agreement with an investor before the next court hearing (on Jun 11), I believe its chances of getting an extension (of the moratorium) should be high.”

But other experts think otherwise.

Assoc Prof Mak, an accounting professor at the NUS Business School, said Hyflux seemed headed for judicial management. 

Under judicial management, a court appoints independent managers to run the affairs of a financially distressed company in place of existing management, a move that is often looked upon favourably by creditors.

Hyflux’s creditors may push harder for the company to be put under judicial management now, said Assoc Prof Mak.

“The judicial manager can determine what is the best option (and this) could involve Hyflux being sold as a going concern, or they may apply to liquidate if they feel that’s the best."

When that happens, the company’s massive group of 34,000 retail investors will likely “get nothing” given that they are at the bottom of the pecking order, he added.

READ: When distressed companies opt for restructuring, can more be done to protect small investors?

But retail investors can consider seeking recourse in other ways.

Assoc Prof Mak mooted the possibility of civil claims by investors, citing how the Securities and Futures Act has civil liability provisions. “(It’s) not being used as far as I know but investors may be able to sue.”

SIAS said it has been approached by a number of Hyflux perpetual securities and preference shareholders, as well as medium-term noteholders, for help in initiating legal action against the company’s directors.

But Mr Gerald said such initiatives may hurt the company’s chances of carrying out a successful restructuring, adding that it remains “too early” to consider such legal action.

“We have advised the investors interested in legal action to seek their own legal counsel or wait for the right time that would warrant such an action,” he said.

Editor's Note: An earlier version of this article carried a quote from NUS Assoc Prof Mak Yuen Teen on the possibility of the Monetary Authority of Singapore initiating civil liability action on behalf of Hyflux's retail investors. This is incorrect and Assoc Prof Mak has since corrected his statement. This article has been amended to remove that quote. 

Source: CNA/sk(gs)