Kannan Ramesh established his client Sharon Tan’s state of mind on why CHC had to redeem the amended Xtron bonds.
This morning in court, senior counsel Kannan Ramesh sought to establish through his client the reason for the redemption of the Xtron bonds from the books of City Harvest Church.
The court heard this morning that since he took over the accounts of CHC, auditor Sim Guan Seng had expressed his concerns over the unquoted Xtron bonds.
Taking his client through an audit committee meeting minutes on Dec 3, 2008, Ramesh focused on the first meeting Sharon Tan had with Sim when he took over auditor Tiang Yii as the engagement partner for CHC’s accounts. Tan recalled Sim asking about the Xtron bond and its convertibility feature. He told her that since it was an unquoted bond, there was no point in doing third party valuation; CHC should do an internal assessment of the bond instead.
Tan recalled that she was puzzled by Sim’s comment because the valuation had been done upon the request of his colleagues Tiang and audit manager Foong Ai Fang.
Sim also said in the meeting that CHC should have given a direct loan to Xtron instead. Tan had the impression that Sim did not like having unquoted bonds in CHC’s books. She conveyed this to the audit committee members who were not present at the meeting—Suraj and John Lam—as well as the board members. However, as the valuation assessment was already underway, the board did not take the issue further.
Subsequently, there were no more queries from Sim. Foong Ai Fang repeatedly asked for the Xtron valuation report in order to close the accounts.
When the report was given to the audit team, Foong replied to Sharon Tan on Apr 8 to express the audit firm’s objection to the valuation that was done. This led to a meeting between CHC’s representatives, Tan Ye Peng, John Lam, Sharon Tan, Lai Baoting, and the audit team Sim and Foong the next day.
Ramesh also established that at that same period of time, starting October 2008, CHC was negotiating for the acquisition of Suntec Singapore. Sharon Tan said negotiations were nearing success at the time. The board was updated on the progress of negotiation at every board meeting and she recalled being asked for the status of the church’s building fund very often.
At the meeting between the audit team and the CHC team, Sim questioned Tan Ye Peng and Lam on the reasons behind CHC investing into Xtron. Both Tan and Lam tried to explain the purpose of Xtron being the vehicle to help CHC search for a commercial property for its worship services, and that the bonds were for the purchase of a Riverwalk unit.
Sharon Tan testified that the meeting was intense with both parties standing firm on their positions. Sim was not convinced by the reasons for structuring the bonds and could not understand why CHC and Xtron’s books could not be consolidated.
Sharon Tan explained again to the court that CHC did not want consolidation because Xtron would be seen as one entity with CHC, ie a religious organization. This would make it difficult for Xtron to negotiate for the commercial property and to seek bank loans.
She also said that she was “very puzzled” by Sim’s position because CHC’s senior pastor Kong Hee had told the executive members in the extraordinary general meeting of Aug 10, 2008, that the auditors and lawyers knew that CHC and Xtron must remain independent of each other.
Sharon Tan left the meeting with the impression that if the Xtron bonds were not redeemed, Sim would consolidate the Xtron and CHC accounts for the following financial year. She said that Tan Ye Peng and Lam would share the same understanding.
Ramesh went on to produce Blackberry messages exchanged between Tan Ye Peng and Chew Eng Han which discussed ways to redeem bonds on Apr 10, the day after the meeting with Sim.
Tan Ye Peng also sent an email to Foong Daw Ching to ask for a meeting.
Court resumed at 2.20pm.