The board of Kitchen Culture Holdings has on July 30 filed a report with the Commercial Affairs Department over suspected “payroll irregularities” of some $520,000 paid to two former employees.
The two individuals, who were not named, used to work for the company’s subsidiary KHL Marketing Asia-Pacific.
“The CAD is now in possession of the relevant documents provided by the company to assist in its investigations,” states non-executive chairperson Hao Dongting in a July 31 filing.
“The board and the members of management will fully co-operate with the relevant authorities if and when needed,” Hao adds.
The filing did not specify if this police report is linked to the company’s move to remove its CEO Lim Wee Li on July 8 “over gross default or grave misconduct in connection with or affecting the business of the company.”
Back in March 22, the board’s audit and risk committee appointed Baker Tilly Consultancy (Singapore) to undertake an internal control review.
Lim, who brought the company to IPO back in 2011, is in dispute with the board over some of the findings.
Among others, Baker Tilly’s interim report has raised questions over the timeliness and accuracy of announcements in relation to use of proceeds from Kitchen Culture’s fund-raising exercises.
According to Baker Tilly, there were internal control weaknesses in cash management and processes, as well as breaches and potential breaches of the Catalist rules.
The board and Lim are also in disagreement whether he had been given time to respond to the relevant findings.
see also: Kitchen Culture refutes outgoing CEO Lim's statement on his termination
Loans and cars
The company’s share has seen unusual trading activities – triggering a query by the SGX RegCo on June 23.
Following the news of Lim’s sacking by the board, SGX RegCo, in a notice of compliance, has directed Baker Tilly to expand the scope of the internal review to include among others, the circumstances leading to the breaches of Catalist Rules and internal control weakness, as well as identify parties responsible for the breaches.
In a July 31 response to SGX RegCo’s notice of compliance, Kitchen Culture listed several instances of potential breaches and irregularities allegedly flouted by Lim.
They include him extending a $1.2 million loan to a “third party” without written board approval and business justification.
The company was found to have transferred $700,000 to Lim with no documented board approval and supporting justification.
There’s also the risk of misuse of company’s funds from undocumented loan repayments made by Lim on behalf of the company to private lenders. The repayments were subsequently recorded to be in the amounts of $200,000, $250,000 and $304,771 due to Lim himself.
Three vehicles, costing a total of $1.1 million, were bought without board approval and business justification.
“Mr Lim’s conduct (as described above) has a serious impact on the Company’s reputation (being a SGX-listed company) and contributed to significant material weaknesses in the Company’s internal controls,” states the company.
Kitchen Culture was in the news last September for buying a 30% stake in big data firm Ooway Technology for $23.92 million.
Well-known commodities cheerleader Jim Rogers is a co-founder of Ooway Group, which is selling the stake in Ooway Technology to Kitchen Culture.
The acquisition was paid by issuing 90 million new shares at 26.58 cents each, making the Ooway shareholders new substantial shareholders of Kitchen Culture with a stake of 21.19%. Lim, meanwhile, saw his stake trimmed from around 28% to just below 22%.
“With the complementary strengths of Ooway and Kitchen Culture, I believe that our collaborations will yield exciting results in the future,” he said then.
Lim called the acquisition a chance for the company to explore alternative businesses. “We have high hopes that this investment would deliver great value to our shareholders,” he said.
"Fell apart"
There is, however, an independent director Yap Sze Hon who disagreed with the board’s firing of Lim.
In a statement filed together the July 31 response to the notice of compliance, Yap notes that ties between Lim and the new controlling shareholders from Ooway “fell apart” and on July 1, they asked for Lim’s resignation within 3 days.
“Given the underlying tension between the 2 controlling & largest shareholders, care has to be exercised to ensure fairness with due regard for the larger interest of the Company and all shareholders,” states Yap.
Citing meetings with Kitchen Culture’s internal auditor and lawyers, it was “ascertained” that there’s no evidence of fraud, dishonesty or attempt to conceal information. The lapses flagged by Baker Tilly were “most technical” in nature, “known to certain directors and not likely to be repeated” by Lim, states Yap.
“It is premature and unjust to lob the blame of systemic weaknesses squarely onto certain individuals. Most of the lapses were the cumulative result of vague boundaries and customs that need to be rectified by a resolute board working in unison,” says Yap.
Yap adds that while Lim was chairman and CEO, it is a “known fact” that he was focused more on fundraising and the business side rather than “paper work” and “procedural formalities.”
“He is akin to a car owner who engages a chauffeur and relies on the latter to display the right parking coupons. If there is a parking violation, a fine rightly has to be paid; but should the registered owner be flogged or disqualified from driving for having ‘caused’ the said violation?” states Yap.
Yap also points out that Lim, as Kitchen Culture's founder, had “put in millions of dollars into the company while it was in “financial trouble”.
“The lapses occurred not only in a pandemic year, but also amid turbulent changes in the Board leadership, and in a frenetic period when $19 million was raised and the finance department was constantly fire fighting,” adds Yap.
Kitchen Culture shares have been suspended for trading since July 7.
