Singapore Exchange Regulation (SGX RegCo) has directed furniture company Lorenzo International to be delisted on Feb 10.
The regulator highlights Lorenzo’s announcements on Aug 13, 2019 and Dec 11, 2020 on the proposed disposal of its wholly-owned subsidiary, Lorenzo Furniture (Kunshan).
While Lorenzo Kunshan had ceased its operations in 2017, it continued to own a property in Kunshan within the Jiangsu province in Shanghai which accounted for more than 20% of the group’s total assets during the material time.
Trading in the company’s shares has been suspended since Dec 14, 2018 following the disclaimer of opinion issued by its external auditor on Lorenzo’s ability to continue as a going concern.
Following SGX RegCo’s review of the draft circular on the proposed disposal of Lorenzo Kunshan, KPMG Forensic Services was appointed to look into the circumstances surrounding the proposed disposal, particularly on the veracity of the sale, parties involved and the basis of the sale price.
The findings, announced on Feb 10, were reported directly to SGX RegCo and the company’s audit committee.
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The share transfer agreement pertaining to the disposal of Lorenzo Kunshan dated July 15, 2019 was executed between July 17, 2017 and July 15, 2019 relating to the lease of the property in Kunshan and sale of the equity interest in Lorenzo Kunshan.
These four agreements that were not disclosed included a supplemental share transfer agreement expressly purported to amend the terms of the share transfer agreement.
The key differences between Lorenzo’s Aug 13, 2019 announcement and the actual terms and conditions in the share transfer agreement and its supplemental agreement include that Lorenzo’s announcement stated the proposed sale price would be RMB88 million ($17.17 million), when the share transfer agreement stated that the sale price would be RMB88 million less the total indebtedness of Lorenzo Kunshan.
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Secondly, Lorenzo’s announcement stated that the proposed sale would be subject to shareholders’ approval — this condition was not required in the supplemental agreement. On Sept 19, the buyer filed a legal proceeding against Lorenzo to enforce its legal rights so as to compel the company to transfer its entire interest in Lorenzo Kunshan to the buyer and seek compensation for the long delay in the completion of the shares transfer.
The judgement, issued by a court in China on Oct 30, 2020, ordered Lorenzo to complete the sale by Nov 30, 2020 and to compensate the buyer RMB18 million in damages by Nov 9, 2020.
The company’s draft circular on the proposed disposal had not been sent to shareholders as the court’s judgement, which compelled Lorenzo to complete the sale, took precedence over shareholders’ approval.
Between Nov 16, 2020 and March 28, 2021, the company made various announcements on the legal proceedings. In its announcement of Nov 16, 2020, it disclosed that the buyer had commenced legal proceedings to enforce its legal rights and was seeking compensation for the delay in completion of the shares transfer.
On March 29, 2021, Lorenzo referred to its previous announcement of Nov 16, 2020 and updated that the court had ordered the company to complete the sale within one month from March 17, 2021 and to compensate the buyer RMB18 million in damages.
While the company provided periodic updates on the legal proceedings, KPMG noted that it did not disclose the court’s judgement on Oct 30, 2020 in the Nov 16, 2020 announcement. It also did not disclose that the court’s judgement referred to in the March 29, 2021 announcement was the result of an appeal raised by the company.
KPMG reported that the buyer was an independent third party who was unrelated to the group and its key management. The group’s personnel who were apparently involved in the negotiations and the execution of the various agreements were unable to provide proper explanation of the key events from the initiation of the proposed disposal, determination of the sale price to its conclusion.
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Additionally, with the absence of supporting documents, KPMG was unable to form a clear understanding of the group’s governance of the proposed disposal or to demonstrate whether or not the negotiations and agreements took place appropriately and in good faith.
Due to this, KPMG highlighted potential contraventions of Section 157 and 199 of the Companies Act.
SGX RegCo has noted the findings and will report the alleged contraventions to the relevant authority. As Lorenzo has to-date not submitted any resumption proposal nor submitted any application for a further extension of time to meet the requirements under Mainboard Rule 1304, SGX RegCo will be directing the company to delist.
Shares in Lorenzo last traded at 1.6 cents before its trading suspension on Dec 14. 2018.
