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SGX orders Best World’s franchisee in China to hand over company documents

SINGAPORE — The Singapore Exchange (SGX) has taken unusually tough measures against embattled cosmetics firm Best World International after the company confirmed its main franchisee in China was related to its chief executive officer and managing director Dora Hoan.

Cosmetics firm Best World International's franchisee in China will have to hand over accounting and corporate records to the Singapore Exchange's regulatory arm SGX RegCo. Its other import agents will also have to assist SGX RegCo in accessing and contacting their customers, warehouses and logistics providers.

Cosmetics firm Best World International's franchisee in China will have to hand over accounting and corporate records to the Singapore Exchange's regulatory arm SGX RegCo. Its other import agents will also have to assist SGX RegCo in accessing and contacting their customers, warehouses and logistics providers.

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SINGAPORE — The Singapore Exchange (SGX) has taken unusually tough measures against embattled cosmetics firm Best World International after the company confirmed its main franchisee in China was related to its chief executive officer and managing director Dora Hoan.

The SGX on Monday (May 13) ordered the franchisee in China, Changsha Best, and other import agents to hand over their accounting and corporate records, as well as other documents containing financial information to its regulatory arm, known as SGX RegCo. Best World must also obtain an independent legal opinion “on the legality of the group’s sales and distribution business under the franchise model”.

Best World has said it set up the franchise arrangement last year. Before that it operated an export model. It has been fending off allegations that it runs fraudulent schemes.

The company’s shares have been suspended from trading since last Thursday.

The SGX directive came after Best World confirmed, in an SGX company filing earlier on Monday, that Ms Hoan is the sister-in-law of Changsha Best’s owner and sole shareholder, Mr Koh Kim Chuan.

In a statement to the SGX, Best World argued that the two entities are independent of each other despite the family connection for the following reasons:

  • Mr Koh was a passive investor, and he and his wife were not involved in the management or operations of Changsha Best or Best World.

  • Ms Hoan was not involved in Best World’s decision to partner with Changsha Best as the distributor of its skincare products in China.

  • Mr Yan Weijun, a Chinese national unrelated to any management of Best World, was responsible for Changsha Best’s operations.

Best World also said that Mr Yan set up Changsha Best in 2014, with Mr Koh providing the initial capital of US$100,000 (about S$137,000) as a “personal investment”.

Despite such assurances, SGX said in a notice of compliance on Monday that the revelation of the relationship between Changsha Best and Best World’s CEO and managing director “raises serious concerns about the veracity” of the firm’s sales in China and “whether these were conducted on normal commercial terms”.

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Besides handing over these records, Changsha Best and other import agents will also have to assist SGX RegCo in accessing and contacting their customers, warehouses and logistics providers.

This is on top of directing PricewaterhouseCoopers (PwC) — the independent reviewer appointed by Best World to review its franchise business in China — to report solely to SGX RegCo on its findings.

When PwC was first appointed by Best World in March this year, it was supposed to report its findings directly to both SGX RegCo and the company’s audit committee.

Best World had earlier said that it transited to the franchise model in June last year after operating as an export business.

SGX has also asked that PwC expand the scope of its review.

Originally tasked to investigate sales transactions under its new franchise model, PwC would now also have to determine the veracity of its China sales from 2015 when it was operating the export model and whether these were conducted on “normal commercial terms”.

Best World’s filing on Monday is a response to queries from SGX last Thursday. Besides requesting confirmation on the relationship between Ms Hoan and Mr Koh, SGX also asked the company’s board to explain why Changsha Best is an independent party.

SGX queries came after reports by two short-sellers brought up questionable and fraudulent business practices on the part of Best World.

Bonitas Research claimed that Best World fabricated at least S$31 million of its reported sales in 2017 to Changsha Best, while Valiant Varriors said that it had evidence that Changsha Best and Best World were related.

Best World strongly refuted Bonita Research's report before the bourse operator suspended its shares last Thursday.

Once one of the best performing stocks on the stock exchange, more than S$1 billion of its market value has been wiped out since February, when an article by The Business Times raised questions on the sales of its premium skincare line DR’s Secret in China.

Related topics

SGX Best World audit accounting

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