A YEARS-LONG special audit into mainboard-listed United Food Holdings has found several “unusual” cash transactions and potential contraventions of SGX listing rules, among other issues.
KPMG Forensic, a division of KPMG Services, was appointed by United Food’s audit committee to conduct the special audit in December 2021.
This came after the company’s external auditors issued a disclaimer of audit opinion on its financial statements for FY2020 and FY2021.
Issues raised by the external auditors related to two companies, namely Hebei Xingrun Shengwu Keji Gufen (HBXR) and Chengde Purun Shengwu Zhiyao (CDPR). United Food announced in October 2017 that it was acquiring an 80 per cent stake in both these companies,
While HBXR’s primary activity is in the production and sale of an antioxidant product and its related equipment, CDPR is said to primarily produce and sell animal feed and traditional Chinese medicine extracts.
United Food in May 2023 announced the termination of its proposed acquisition of HBXR, CDPR, and another company as it was “not optimistic about the prospects of these businesses going forward”.
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‘Unusual’ cash transactions
Another subject of the external auditors’ disclaimer of opinion involved three closed bank accounts belonging to two United Food entities, Shenzhen Yi Kei Logistics Supply Chain (SZYK) and Shenzhen Bao Yao Agricultural Products (SZBY).
In a special audit report issued Monday (Aug 5), KPMG Services said it found “unusual” cash transactions between these two entities and third parties based on SZYK and SZBY’s general ledgers from Jan 1, 2018 to Dec 31, 2021.
Such transactions included receipts and payments made via the three closed bank accounts. United Food’s audit committee said they were not aware of these receipts and payments.
The cash transactions in question mainly involved payments totalling 174 million yuan (S$32.2 million) to Zeng Qiwen, the legal representative of HBXR’s business partner, Huizhou Kangweijian Biotechnology.
Another group of cash transactions flagged by KPMG comprised 35 payments amounting to 85 million yuan made by SBZY to Shenzhen Yizhe Technology, which United Food’s chief executive Laurent Wu said was related to the group’s proposed acquisition of Shenzhen Shareihome Technology (SST).
KPMG noted that United Holdings’ announcements regarding SST’s acquisition framework agreement at the time “may be inaccurate”.
This is given how United Food’s controlling shareholder and non-executive chairman, Song Yanan, was found to have had a 14.7 per cent effective interest in SST, despite the group declaring that none of its directors had an interest in the SST framework agreement.
“We did not identify evidence that Ms Song declared her indirect interest in SST, nor did we identify evidence that the company performed due diligence procedures into SST prior to entering into the SST framework,” said KPMG.
Potential breaches of listing rules
In its report, KPMG said United Holdings and its directors had potentially breached several listing rules, laws and regulations in relation to HBXR and CDPR, such as failing to provide a complete and accurate context on their proposed acquisition.
This included an opinion issued by the financial adviser on the acquisition related to the commerciality of patents held by CDPR, as well as a potential impact to both HBXR and CDPR’s operations resulting from the Chinese government’s mandate to transition from coal-based boilers to renewable energy.
It was also highlighted that United Food did not make any announcements on the impact of not meeting a profit warranty by the companies’ vendors for FY2020 to FY2022.
Other concerns flagged by KPMG include potential lapses in the group’s internal controls and corporate governance.
The professional services firm advised United Food to seek legal counsel to assess these potential contraventions and its potential failure to safeguard the company’s interest.
It also recommended that the company seek legal advice to assess if there was a potential breach of fiduciary duties of the board under Section 157 of the Companies Act.
Shares of SGX watch-listed United Food have been suspended from trading since September 2021.
