Hyflux sues Olivia Lum for more than S$690 million over alleged negligence, fiduciary duty breach

OLIVIA Lum Ooi Lin has been sued by water treatment firm Hyflux which she had helmed for claims of at least S$690.6 million over alleged negligence and breach of fiduciary duty.

Lum has denied the allegations in the defence she filed last week through her lawyers, Davinder Singh and Jaikanth Shankar.

Hyflux, Hydrochem and Tuaspring are companies in the group bringing the legal action against the 61-year-old, with the two liquidators for the group joining as plaintiffs. The plaintiffs are represented by Eddee Ng of Tan Kok Quan Partnership.

Lum, noted the statement of claim filed in October, controlled the group in her capacity as the executive chairman and chief executive officer during the period that the financial statements were allegedly misstated.

Specifically, she had failed to recognise material impairments and provisions in respect of the Tuaspring desalination and power plants, resulting in Hyflux’s 2011 to 2017 financial statements being grossly overstated and the 2014-2017 statements wrongly prepared on a going concern basis, alleged the five plaintiffs.

Such misstatements would have required Lum to make an announcement as soon as practicable to the market and stakeholders on the uncertainty of Hyflux and the group’s ability to continue as a going concern.

Lum had failed to realise that Hyflux and the group, by the time the 2014 financial statements were published, had no realistic alternative but to cease trading or otherwise undertake a drastic restructuring, argued the plaintiffs.

Hence, she was said to have led Hyflux, Hydrochem and Tuaspring to be in breach of the prohibitions against wrongful trading, when she should have known these firms would be unable to repay debts and obligations taken on subsequently.

She had further allegedly wilfully permitted the loss-making Hyflux to pay out dividends in breach of the Companies Act, which stipulates that dividends must be paid from profits only. The plaintiffs noted: “If Hyflux’s financial statements had given a true and fair view of its financial position, Hyflux would not have had sufficient distributable reserves for it to be lawful for it to make any of the dividend payments…”

The plaintiffs are claiming over S$690.6 million from Lum, including S$6.7 million in remuneration, fees and benefits paid to her from 2011 to 2018, S$260.6 million in dividends paid out to shareholders from 2012 to 2018, S$113.6 million in financing costs incurred from 2014 to 2017 on perpetual securities, and S$306.5 million in financing costs incurred from 2012 to 2018 on external borrowings.

The plaintiffs are also seeking to recover funding loss incurred during the period when the group continued operating even though it was allegedly already not a going concern, with the quantum of compensation to be assessed.

Besides Lum, Hyflux’s auditor, KPMG, is also facing a S$684.6 million lawsuit from the three Hyflux plaintiffs over alleged negligence in auditing the accounts. The smaller claim does not include the remuneration and benefits paid to Lum.

The amount Hyflux manages to claim in these proceedings, the plaintiffs said, will be accounted for so that there is no double recovery.

Lum, on the other hand, claimed that the statement of claim was vague and unclear, for example, the use of the terms “founder” of Hyflux and “dominant controller” within the group to describe her. She acknowledged that as a director of Hyflux, she owed fiduciary and statutory duties to it, but denied she had breached them.

The financial statements of Hyflux for FY2011-2017 were prepared by its staff with the relevant accounting expertise and audited by KPMG, as well as reviewed by Hyflux’s audit committee, Lum noted.

She thus believed she was entitled to defer to KPMG and Hyflux’s staff and audit committee, given that they have the competency and expertise. She also claimed that she had acted in good faith, had made proper inquiry where needed and did not know that such reliance on their input was unwarranted.

She noted that KPMG has stood by its audit and maintained that the FY2011-2017 financial statements had no misstatements as alleged by the plaintiffs.

She further flagged that claims sought for alleged breaches that took place before March 2016 are time-barred because they fell outside the time limit allowed by law, given that this legal action began in March this year.

On the claims that she led Hyflux, Hydrochem and Tuaspring to engage in wrongful trading and in breach of the law by paying dividends despite Hyflux being in the red, Lum criticised these claims of not setting out a reasonable cause of action (the set of facts for making claims), being not sustainable in law, scandalous, frivolous, vexatious and an abuse of process.

In any case, she denied that she had caused the losses that the plaintiffs are claiming for, calling their case “wholly misconceived, based on an entirely artificial and contrived alternative reality and designed to create claims where none exist”.

Lum has separately been charged with three counts of violations of the Securities and Futures Act and the Companies Act.