SGX has issued a Notice of Compliance to the current Board of Datapulse

On  Valentine&rsquo s Day, Datapulse Technology issued an announcement  indicating a lack of love for minority shareholders. It  said that it plans  to hold the EGM for its Proposed Business Diversification and the requisitioning shareholders&rsquo Proposed Change of Board  by  April 27, 2018. If it does hold the EGM requisitioned by shareholders  on  April 27, it would be a full four months since the shareholders first requisitioned the meeting.

April 27 is the last Friday of April and the second last business day to hold AGMs for companies having December year-ends. Based on past studies of AGMs undertaken by Chew Yi Hong and me, I would expect  that there would probably be between  80  and 90 AGMs held on that day. In fact, many AGMs will likely be held on each  of the last five business days of April.  Holding the EGM during  the busiest time of the year for  AGMs would mean that many of the 9,000-plus minority shareholders who hold shares in other companies may have other AGMs that they would like to attend. Is Datapulse hoping that many shareholders would not be able to attend and would not bother giving their proxies to others who can attend, ask questions and vote on their behalf?

For those shareholders who are unable to attend, it is critical that they do not let their votes be wasted. They should give their proxies to someone who is able to attend and vote on their behalf. Given all that has happened, my view is that shareholders should instruct their proxies to  vote  against the diversification resolution proposed by the current board  (in case SGX  does not reject the proposed change in business, which it can under the rules) and  vote for all the resolutions proposed by the requisitioning shareholders. The reasons should have been clear from the series of articles I have published. Here is a summary, with some additional information.

Why Mr Low Beng Tin should be removed

When the current chairman, Low Beng Tin, was appointed to the Datapulse board, it was disclosed that there had been no regulatory action against any of his companies. The same disclosure was made when he was appointed to the boards of Fuji Offset Plates Manufacturing and Lian Beng.  These turned out to be incorrect as he was  the lead independent director at China Yongsheng which was reprimanded by SGX in 2009 and warned by MAS in 2011. As the disclosure is required under SGX rules, it is a breach of the listing rules for these three appointments.  Of course, it remains to be seen if SGX will take action or when it will do so. Why should shareholders support the retention of a director who does not even make the correct disclosure?

In a posting on December 24, 2017, I had questioned another possible incorrect disclosure in the appointment template for Mr Low when he was appointed to Datapulse&rsquo s board. Item (b) in the template asks: &ldquo Whether at any time during the last 10 years, an application or a petition  under any law of any jurisdiction  was filed against any entity  (not being a partnership)  of which he was a director  or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity  or at any time within 2 years from the date he ceased to be a director  or an equivalent person or a key executive of that entity,  for the winding up or dissolution of that entity  or, where that entity is the trustee of a business trust, that business trust,  on the ground of insolvency?&rdquo . According to Datapulse, the answer  to this question for Mr Low is &ldquo No&rdquo . In the list of directorships held over the last 5 years, one of the companies is OSEC Shipyard Pte Ltd. OSEC Shipyard was a wholly-owned subsidiary of SGX-listed OEL (Holdings) Limited (formerly Oakwell Engineering), where Mr Low was Executive  Director prior to being re-designated as a non-executive director (he was its Chairman and Managing Director until March 1, 2016) . Mr Low resigned as non-executive director  of OSEC Shipyard on  December 15,  2014. On December 13, 2016, OEL announced that a company called Oceanfront Trading Ltd had filed a winding up application with the Singapore High Court on  December 12, 2016  to wind up OSEC Shipyard on the basis that OSEC had failed to pay or satisfy a sum of US$562,464. Given that the winding up application was on December 12, 2016 and Mr Low resigned as a director from OSEC on December 15, 2014, it would appear to me that the answer to question (b) should have been a &ldquo Yes&rdquo (even if was just by a few days).

Shareholders should also consider Mr Low&rsquo s track record as a director. Mr Low was managing director at OEL Holdings from September 2004 to October 2016. In March 2017, OEL&rsquo s external auditors included a &ldquo material uncertainty related to going concern&rdquo section in the auditors&rsquo report for the financial statements for the year ended December 31, 2016. Although the auditors did not modify its opinion, OEL is facing financial difficulties. Further, as mentioned above, Mr Low was executive director, chairman and managing director at various times in OSEC Shipyard, a wholly-owned subsidiary of OEL, which was being liquidated following a winding-up petition filed by a creditor.

During his tenure as managing director of OEL, Mr Low was also serving on the boards of  three other SGX-listed companies &ndash China Yongsheng, Cosmosteel and Lian Beng (he joined Fuji Offset&rsquo s board after he resigned from OEL). While the Singapore Code of Corporate Governance does not prescribe a specific limit on number of directorships, one has to question whether a director should be holding a managing director position in a listed company and, at the same time, serve on so many other external boards (one also has to question OEL Holdings for permitting him to do so). Surely, his primary responsibility should be to the company where he has his full-time job and which is paying him his salary. Perhaps shareholders of OEL Holdings should have questioned this vigorously.

Mr Low has been a director of  Cosmosteel since November 2005 and is its independent chairman. Cosmosteel entered the SGX watchlist in June 2017 due to the MTP criteria. In December 2017, it announced that it has made three  consecutive  years&rsquo of losses.

In other words, over the last few years, Mr Low has held key leadership positions (as chairman, lead independent director  or managing director) in several companies that have faced performance or compliance issues.

If Mr Low comes up for election in any company where I am a shareholder, I would definitely vote against his election &ndash which also means voting for his removal when there is a chance to do so.

Why the other directors should also be removed

The other two independent directors should also be removed. Ordinarily, I would not object to the appointment of independent directors who have no prior experience as directors of listed companies &ndash which is the case for these two other directors &ndash as  long as they are individuals  who have integrity and  the appropriate skills and experience. Otherwise, we will end up just recycling the same directors across different companies. However, this is not an ordinary situation. These two individuals are not only  business associates of the new controlling shareholder, Ng Siew Hong, but they participated in approving the hasty acquisition of Wayco Manufacturing, which is owned by a close business associate of  Ms Ng. The acquisition is in substance an interested person transaction and was done without proper due diligence. I have extensively questioned its commercial merits in my articles.

The fact that the board has used every technicality it could find to delay the EGM requisitioned by shareholders, and that it is now considering holding the EGM only four months later and possibly during the peak  AGM season, also suggests a lack of regard for the rights and interests of minority shareholders.  Shareholders should not support the appointment or retention of directors who do not treat minority shareholders with respect.

Why the board&rsquo s diversification plan should be rejected

The board&rsquo s diversification plan should be rejected because it made a poor acquisition and the diversification plan seeks to build on this poor acquisition. Shareholders should not throw good money after bad. If the board has been so hasty in making the Wayco acquisition, how can shareholders be confident that it would not repeat this?

Why the resolution by the requisitioning shareholders to stop further diversification for now should be supported

Datapulse now has $90 million-plus in cash. A careful study should be undertaken to determine what is the best use for this cash. No one is arguing that Datapulse should just continue doing what it had been doing all these years as its business has clearly been disrupted. A study could determine the areas that Datapulse could diversify into in order to deliver shareholder value and sustainable performance. However, it is also possible that the best decision for shareholders is to sell the company as a going concern or even go through a voluntary liquidation and distribute the cash back to shareholders. Too often, companies diversify into areas that they have no competitive advantage in or where they do not have the necessary capabilities to succeed, leading to destruction of shareholder value &ndash when a better decision would have been to return cash to shareholders.

Why the resolutions to appoint the new directors should be supported

The proposed directors are  considered in their action.  They are not asking shareholders to approve a hastily-concocted diversification plan of their own, but merely asking shareholders to appoint them so that they can ensure that a thorough study is first undertaken before any diversification plan is put to shareholders for approval.

Under the circumstances that the company is in, not many good candidates would want to put themselves forward. This is particularly so because the odds are stacked against them to begin with &ndash given the 29 percent versus 16 percent votes that each side is assured of getting. They know there is a good chance that they will lose if the other minority shareholders do not support them. I am pleased that they have stepped forward.  At least, shareholders get to vote on their appointment. The same cannot be said about the current directors.

If they succeed, I would certainly urge them to review the board composition again to ensure that the best directors  are appointed to take the company forward.

The SIAS dialogue session 

The company has announced that the board, management and professional advisors will participate in a dialogue session to be organised by SIAS on April 17. I see that this is at the direction of SGX to give shareholders an opportunity to ask questions about recent events. To be honest, I  am sceptical about  the value of having a dialogue with a board that should not have been appointed  talking about an acquisition that should not have been made in the first place, or about a proposed diversification built on a shaky foundation.    I am sure they would be well prepared, with the help of advisors, to try to make a case for the Wayco acquisition (and the proposed diversification plan) even though the Wayco acquisition was clearly highly questionable with a lack of commercial merit. I would ask that the whole session be recorded so that regulators and shareholders can ensure that information that is disclosed in the session is accurate. Although I have reservations about the session, I plan to attend as a shareholder so that other shareholders do not just hear from one side.

I also hope that SGX will direct the company to not hold the EGM during the peak AGM season.