LAI Sun Garment (International) appointed its auditor to the board of one of its listed subsidiaries just six days after shareholders were asked to approve his firm as auditor at an annual general meeting, according to company documents. The annual report of Crocodile Garments, issued this week, records that on December 29, 1993, accountant Edward Wan Yee-hwa was appointed a director of Crocodile. Mr Wan's company, Edward Wan and Co, has long audited the accounts of Lai Sun Garment, the holding company of property developer and garment manufacturer Lai Sun Group, that owns about 55 per cent of Crocodile's shares. The notification of Lai Sun Garment's 1993 annual general meeting records that Edward Wan and Co was proposed for re-election as auditor by the board. That meeting was held on December 23 last year, Edward Wan and Co having signed the previous year's audit report on November 5. At some point during the company's financial year, Edward Wan and Co resigned as Lai Sun Garment's auditor. The documents show that this happened before June 28, the date on which the board appointed Ernst & Young to fill its place. The documents do not indicate whether at any time Mr Wan was in the unusual position of being simultaneously the auditor of a company as well as a director of one of its major subsidiaries. Shareholders have yet to receive any explanation of Mr Wan's resignation as auditor. Lai Sun Garment's annual report states merely that Ernst & Young was 'appointed by the board of directors of the company [Lai Sun Garment] on June 28, 1994, to fill the casual vacancy created by the resignation of Edward Wan and Co'. Both Mr Wan and the company refused to make any further explanation, despite two days of repeated requests. As of July 31, the annual report records that Mr Wan owned no shares in Lai Sun Garment, Crocodile or either of the two listed firms in the Lai Sun Group. However, the Crocodile annual report does record that the company paid $84,000 in directors fees, a separate sum to that paid as salary to full-time executive directors. The replacement of Edward Wan and Co by Ernst & Young coincides with sharply higher audit costs for Lai Sun Garment, rising 45 per cent. The audit fees for the current set of accounts are $5.2 million, against $3.6 million for the previous set signed by Mr Wan. Compared with its parent, Crocodile's boardroom payout is a relatively modest $2.3 million, a nine per cent drop from 1993. Glynhill International, another Lai Sun-listed group, has been equally thrifty. The group's annual report, issued this week, shows directors pay is down 51 per cent to $2.3 million. The consolidated cash flow statement in the Crocodile annual report shows that although the company made a profit attributable to shareholders of $50.1 million, down from the previous year's $70.5 million, cash has been flowing out of the company requiring it to increase its bank borrowing. The major cash drain on Crocodile was $124 million spent on 'investing activities', of which $108.7 million went on property. and $103.1 million of this was in Hong Kong and the rest in China. The firm took a $60 million secured bank loan and extended its unsecured borrowings to pay for this.
