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China Sky’s Woes Continue, Deloitte Quits as Auditor

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by Ernie B. Calucag

Deloitte & Touche LLP has resigned as the auditor of mainboard-listed China Sky Chemical Fibre Co with immediate effect.

In a filing with the Singapore Exchange (SGX) Monday, China Sky said Deloitte has informed the company that it is unable to discharge its responsibility as auditor of the company due to the lack of independent directors.

Deloitte said the current board composition at China Sky only consists of one executive director and two non-executive directors without the board presence of any independent non-executive directors and does not have any audit committee members who are independent since January 2012.

The auditing firm also said that it would not be in a position to complete the audit of the company in the near foreseeable future.

Commenting on behalf of the minority shareholders, Mr David Gerald, the President and CEO of Securities Investors Association (Singapore) (SIAS), called on China Sky to fulfil its duties by filling vacancies in its board.

“The recent developments in China Sky have caused serious concern to minority shareholders. It is the duty of the board to fill vacancy on the board, appoint financial controller and replace the auditor who has resigned,” Mr Gerald said.

“The board has to be transparent and must explain to shareholders what steps they are taking to fulfil their responsibilities in appointing independent directors and filling the vacancies,” he added.

If no explanation is forthcoming, Mr Gerald noted that the disconcerted minority shareholders can petition the board for an extraordinary general meeting (EGM); if this fails, he advised shareholders to apply to court for such remedies that are available to them under the law.

“SIAS would assist the minority shareholders with appointing lawyers with the legal application, if they so desire. We hope that the board will not allow such development to happen and will act in the interest of the shareholders and the company,” Mr Gerald said.

For its part, China Sky said it has started the procedures for sourcing an auditing firm to replace Deloitte.

“The company is actively sourcing for replacements not only to fill the vacancies of independent non-executive directors but also to fill such key financial executive roles to ensure that the continuing obligations of the listing rules can be complied with on time,” it said.

In the same statement, China Sky added that it has applied to the SGX for a further extension of time in relation to the release of the 2011 full-year results and 2011 annual general meeting.

The China-based nylon-fibre maker is currently being investigated for possible regulatory breaches.

Trading in China Sky shares has been suspended since November 17 last year, a day after the exchange first ordered the company to appoint the special auditor.

The shares closed trading on November 16 at S$0.102, tumbling 96 per cent from their peak of S$2.74 in October 2007.