Some directors of troubled Singaporean firm Hin Leong Trading are facing potential lawsuits over the cover-up of US$800 million (S$1.1 billion) of losses, which is considered a serious lapse in corporate governance.
The oil trader’s founder, Lim Oon Kuin (OK Lim), said he had ordered his company’s finance department not to disclose the US$800 million losses incurred from oil futures, according to a filing with Singapore’s High Court. The Commercial Affairs Department (CAD), the white-collar crime unit of Singapore police, is investigating Hin Leong, one of Asia’s largest independent oil traders, according to media reports.
Singapore’s Accounting and Corporate Regulatory Authority (ACRA) is monitoring this case and will assess if further action is warranted, an ACRA spokesperson told the Independent.
“The payments made by HLT (Hin Leong Trading) to satisfy margin calls made in respect of such losses were reflected as ‘accounts receivables’ and remained recorded as such after the losses were realised,” Lim, who is roughly 75 years old, said in the court document.
Creditors will likely seek legal remedies against directors of a company, if these directors knew or should have known that the company’s financial accounts, for which they are responsible, were fraudulent or false, David Webb, a Hong Kong-based corporate governance activist, told the Independent.
Hin Leong has three directors who are also shareholders of the company, according to Singapore corporate records. The three directors are OK Lim, his son Evan Lim Chee Meng and his daughter Lim Huey Ching. OK Lim owns 75 percent of the company which has an issued share capital of S$30 million, while Evan Lim owns 15.4 percent and Lim Huey Ching owns 9.6 percent.
On April 17, Hin Leong filed an application in the Singapore High Court for temporary legal protection from creditors. On April 27, the High Court granted the company interim judicial management.
Hin Leong owes over US$3 billion to more than 20 banks including HSBC. Three leading Singapore banks – DBS, UOB and OCBC – are owed over US$600 million by Hin Leong, reported Business Times. Other banks which are creditors of Hin Leong include Societe Generale, ABN AMRO and Sumitomo Mitsui Banking Corporation, according to Singapore corporate records.
The court filing cites a collapse in oil prices and the COVID-19 pandemic which severely slashed demand for oil and increased costs for Hin Leong. The pandemic caused US oil future prices to fall below zero for the first time in history on April 20.
As far as civil lawsuits are concerned, suspicion of fraud causing financial loss would be grounds for legal action by parties who suffered the financial loss against the fraud suspects, said Webb. “You can’t sue somebody just for bad luck.”
“I expect the auditors will have to answer for their apparent failure to detect the hiding of the losses,” Webb added.
Hin Leong’s auditor Deloitte & Touche did not reply to the Independent’s questions. A Singapore-based spokeswoman told Reuters, “We stand behind the quality of our work. Our audit was performed with the highest standards of audit and compliance with the information made known to us at the time.”
Since Hin Leong is an exempt private company, auditor requirements are far less strict compared to listed companies, said Mak Yuen Teen, associate professor with the National University of Singapore Business School.
Hin Leong’s failure to disclose US$800 million of losses is a serious lapse in corporate governance, said Mak. “The US$800 million is apparently just undisclosed losses from futures trading. But the hole appears much bigger.”
According to the court document, the firm’s total liabilities in April were US$4.05 billion while its unaudited total assets were US$714 million, far less than its audited assets totalling US$4.56 billion as of October 31, 2019. In less than six months between last October and April, the company’s assets dropped dramatically by more than 80 percent.
“Covid-19 and the drop in oil prices may have contributed but do not explain the US$800m in undisclosed future losses and the allegations of margin calls being recorded as accounts receivables,” Mak added.
If Hin Leong is not an exempt private company but a listed company, the lapses would have shown up earlier, Mak pointed out. Being an exempt private company, Hin Leong’s audited accounts are not publicly available.
In Hin Leong, there are no checks and balances like a board overseeing management – the board and management are the same and they are the family members, Mak noted. There are no independent board members in Hin Leong, corporate documents show.
“To me, one of the major problems here is that even though it is very large with more than US$20 billion in revenues, it could still be considered an exempt private company because it has fewer than 20 shareholders and no corporate shareholders. To me, that is a big gap. The family has the protection of limited liability of a company with very few safeguards. A recipe for disaster,” said Mak.
Hin Leong did not reply to questions that were emailed to them.
Toh Han Shih is a Singaporean writer in Hong Kong.