The senior partner of your firm has handed you the following file with instructions to prepare a draft opinion for him. He will be meeting the client shortly and needs to have a first cut of the advice that will be rendered. Your client is Mr Abel Tan. He holds 20% of the shares of Golden Fortune Trading Pte Ltd. 30% is held by his half-brother Baker. A further 30% is held by Mdm Doris Yong, the widow of Charlie Tan, another half-brother. The company was founded by their father, the late G F Tan, who ran it in the usual autocratic Chinese fashion while he was alive.
Baker, his eldest son by his first wife, was the Managing Director, a post he continues to hold. During G F’s lifetime he would instruct Baker what to do. The board of directors consisted of Baker, Charlie and Eldon Tan (G F’s third son, also by his first wife). Abel was only appointed to the board three years ago, just before G F’s death. The company’s business is the importation of abalone for the Singapore market. This trade depends almost entirely on personal contacts with suppliers in China.
When Abel joined the board he discovered that the Chinese suppliers actually ship the goods to a Hong Kong company, New Fortune Seafood (Hong Kong) Ltd. As far as Golden Fortune’s records show, New Fortune is the major supplier to Golden Fortune, accounting for well over 80% of the business on average. It does not appear to be related to Golden Fortune. A suspects that New Fortune is owned by Baker and Charlie but has been unable to obtain confirmation of this. His information was gleaned from conversations with employees of Golden Fortune.
Baker has been the one running the business since G F was incapacitated by a stroke 10 years ago (Your client was in university then and took no part in the family business). Charlie occasionally dealt with suppliers when Baker was otherwise engaged, but since Charlie’s death two years ago, the business has been in Baker’s hands exclusively. Your client was busy with his career and paid little attention to the business. He only agreed to become a director because his mother (G F’s second wife) had insisted that their family needed to be represented.
There have been no formal board meetings since he became a director at the beginning of 2007. Whenever papers were sent to him, he signed them. As he did not keep copies, he has only a vague recollection that these were customs forms and various documents from banks in relation to the financing of the business. He can recall signing off on the company’s accounts. When G F died at the end of 2007, his estate was in a mess and Abel was involved in sorting it out. In the course of this, he became aware that Golden Fortune appears to have been under-declaring the value of the abalone imports, for reasons that he cannot fully understand.
He suspects that this may be part of some elaborate tax avoidance or money-laundering scheme. His half-brother Baker Tan is rumoured to have triad connections in Hong Kong, but again he cannot prove this. Abel Tan has approached your firm for advice. He is worried about his exposure should his worst fears be realized and the company is exposed to be carrying on an illegal tax-avoidance or money-laundering scheme. He wants to know what liabilities he might face and what he should do next.