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Samson Paper: Auditor's Findings Led to Joint Resignation of Independent Non-executive Directors and Non-executive Director

Name: Samson Paper: Auditor's Findings Led to Joint Resignation of Independent Non-executive Directors and Non-executive Director (English version)
SKU: HK1323

Liu, Ramee; Li, Xu

Product #:HK1323

Supplier:The University of Hong Kong

Discipline:General Management

Setting:Hong Kong

Details:Case (PDF) • 19 pages • 2021-11-17

Subjects:

Corporate governance Cash flow Accounting Corporate social responsibility Business management Corporate finance Finance and investing Leadership and managing people Management

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Samson Paper's (SEHK: 731) main business was the manufacturing, trading, and marketing of paper products in China. After the company failed to file its year-end 31 March 2020 annual report before the deadline, the stock was suspended. Following the suspension, a board meeting was held on 11 July 2020, after which the board received resignation letters from one non-executive director (NED) and three independent non-executive directors (INEDs). In a public announcement on 14 July 2020, Samson declared that at the board meeting, Samson's auditors had advised: "There were substantial payments made to the company's connected party's suppliers. Such payments were booked to inter-company accounts rather than amounts due to the connected party." According to Samson's announcement, the NED, INEDs, and the auditor did not receive satisfactory replies from management on the commercial substance and intentions of these transactions during the meeting. The management denied any wrongdoing in relation to these transactions. On 18 July 2020, after the company had defaulted on a HKD780mn loan, it filed for voluntary liquidation.

Learning Objectives

After studying the case, students will be able to: 1. Understand the important corporate governance roles of NEDs, INEDs, and external auditors of Hong Kong-listed companies. 2. Grasp the negative impact of earnings manipulation conducted by a company. 3. Appreciate the difficulties of a company with little capital to obtain external financing at a time when it is recording a loss on its income statement, which highlights investors' fixation on earnings. 4. Appreciate the importance of good cash flow management and show how a shortfall in cash flow can dramatically impact a company's value.