Spackman Entertainment Group says it has issued a formal warning to its CEO, John Ko, after a series of undisclosed transactions were made by Frame Pictures prior to its proposed disposal. The transactions were also made without the requisite board approvals.
On Dec 23, 2021, Spackman had entered into a sale and purchase agreement (SPA) with High Vision Co to dispose of 100% of its stake – representing 10,000 common voting shares – in Frame Pictures.
The proposed disposal was completed on Dec 30, 2021.
On Nov 18, Spackman revealed that prior to the completion of the proposed disposal, Frame Pictures had acquired a property at 218, Yeoksam-ro, Gangnam-gu, Seoul in South Korea for a consideration of KRW22.0 billion (US$18.6 million or $22.4 million).
The acquisition of the property was funded by a KRW17 billion bank loan obtained by Frame Pictures from Wooribank, which was secured by a mortgage over the property. In addition, a personal loan amounting to KRW5.1 billion was extended by High Vision Co to Kim Jun-young, the CEO of Frame Pictures. Kim, in turn, extended a loan for the same amount to Frame Pictures.
Based on a confirmation provided by Wooribank, the property was valued at around KRW20.4 billion.
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According to Spackman, the transactions – the acquisition of the property, the bank loan, as well as personal loans – were not reported to the board by Spackman’s CEO Ko. The company adds that the board was not aware of the transactions till sometime in April, after the completion of the proposed disposal.
Based on the board’s inquiries, Ko said that the transactions were not reported as he felt that there was no financial risk on the part of Frame Pictures or Spackman as the purchaser assumed all financial risks and provided guarantee against any damages arising out of the acquisition of the transactions.
Further to its statement, Spackman says the transactions have no material impact on the company’s consolidated financial statements for the FY2021 ended Dec 31, 2021, as well as its statements for the 9MFY2022 ended Sept 30.
It adds that its Korean lawyers, Law Firm Seopyeong, have confirmed that the transactions did not cause the company to take on any legal or financial risks.
Furthermore, there appears to be no “material prejudice” to Spackman’s shareholders, says the company in its statement.
In its statement, Spackman says the board has taken “disciplinary and corrective actions”.
In addition to the formal warning issued to Ko, he has also been put under probation to seek the board’s approval for all corporate actions for a year from Dec 30, 2021. Dec 30, 2021 is the date of the completion of Frame Pictures.
The probationary period will vary depending on the nominating committee’s assessment of his performance at end-December 2022.
Despite the warning, Spackman says it has decided to retain Ko as CEO as he “continues to play a crucial role in the group’s upcoming development in the Korean film and drama sectors in light of his extensive industry network and expertise”. Some of the film and drama projects which the CEO has been working on have received international recognition and awards, Spackman adds.
In addition, the board has appointed two new independent directors as part of its endeavour to “refresh and enhance the independence of the board” and to “improve the board’s capabilities and diversity” among other things.
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Spackman continues that its board will also be working closely with the sponsor and the SGX-ST on strengthening its internal controls.
No disciplinary action was taken against Kim, as he is no longer a part of the group.
Shares in Spackman closed 0.1 cent higher or 33.33% up at 0.4 cent on Nov 18.
