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Posts Tagged ‘directors’

Spare a Tot or more on Sino-Environment

In China, Corporate governance on 26/12/2009 at 10:22 am

It’s party time, but spare a tot for the independent directors of Sino-Environment.

They are not having a good time. They have gone to court to get orders to hold an EGM to remove the executive directors, and to restrict the EDs’ actions.

If at the EGM the EDs are not removed, the two IDs could find themselves personally  liable for a lot of  legal bills, including the cost of getting the court orders. And looking really dumb. But if they didn’t do anything, they might be sued by some investors or troubled by the authorities.

Already the EDs have complained, “The Independent Directors have apart from legal advice rendered to them by the solicitors to the Company, sought and obtained separate legal advice for themselves in their personal capacities, at the expense of the Company. We have informed them that they should do the right thing by not using Company’s funds to pay their own legal fees.”

“The fees charged by WP to the Company for acting for the IDs from April to date amount to the sum of S$268,946.00.”

And “The IDs had appointed PwC to carry out the “special audit” before they informed the EDs about the appointment … The EDs have never agreed to any fee structure or fee of PwC as alleged …The EDs strongly object to the unjustifiable fees that PwC charged to the Company to date, amounting to the sum of S$952,874.00. “

Come the start of the Lunar new year in February, will the nightmare continue for the IDs? It could, as it is difficult to think the EDs would take what is happening lying down. They said, “The EDs’ reasons and explanation as to why they have not acceded to the IDs’ calls to step down have already been fully explained.”

They wouldn’t say this would they, if they didn’t think they have the votes? IDs could find that despite an open share register (Remember, SIAS said that the share register of Sino-Environment is open, with no controlling shareholder), the EDs have the votes.

What price the IDship of a S-Chip? You could find yourself liable to shareholder suits or suits from the company. And the authorities may ask you questions.  And there is the reputational damage. Based on the last available annual report, the then IDs each got $250,000 or less. How much exactly was not disclosed (perfectly legal this).


To whom do directors owe their duties to?

In Corporate governance on 22/12/2009 at 10:48 am

As lawyers who are fans of MU should know,when MU (when it was a listed company) became the target of a highly leveraged buy-out offer by the Glazers, the directors sought legal advice on their duties towards shareholders and MU.

They were advised that directors owe a duty to the company and not its individual shareholders. In many instances, the distinction is not significant, since what is good for the corporation will also benefit its shareholders. Maximising the return to shareholders (or creating “shareholder value”), in many cases, does not conflict with the interests of the company.

But there may be situations where the interests of the company and shareholders may conflict.

The interests of shareholders may lie in realizing a short-term gain on their investment, something which the directors may decide is not the in the interest of the company in the long term. For example, the debts that MU incurred in going private, might have prevented the club from buying the players MU needed to win trophies. It didn’t happen at MU; despite its debts MU has the wagga (dosh) to buy players. But the example of Liverpool FC shows that this fear was reasonable and legitimate.

The interests of majority shareholders may not also be the same as the interests of the company. Controlling shareholders may want the corporation to take certain action that may be in its interest, but not necessarily in the best interests of the corporation. Hedge funds, with a controlling stake, may want the company to pay a high dividend because they (the controlling shareholders) want to maximise the returns to their investors. But the company may need the cash to expand its production lines.

The correct answers to these kinds of issues depend very much on the facts of each situation: something the independent directors of Sin0-Environment are finding out the hard way.

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