Best World's China skincare accounting froze its shares: sales cash in personal accounts

Best World International, the Singapore-listed premium skincare distributor selling through a franchisee network in China, had its shares suspended in May 2019 — and on 24 July 2020 SGX RegCo ruled they would stay suspended indefinitely until the company addressed accounting concerns that cast doubt on its actual financial position. A PwC review uncovered questionable deposits into personal bank accounts by franchisees, potential breaches of the Singapore Companies Act, and prompted auditor EY to issue a disclaimer of opinion on the FY2018 financial statements.

The review's picture of the China operation was damning. Changsha Best, the former import agent owned by CEO Dora Hoan's brother-in-law — who told PwC he was unaware of his company's performance or even that he was its sole shareholder — recorded only about 60% of sales proceeds in its official accounts in FY2017 and FY2018, with the other 40% deposited into six personal bank accounts, three in a Best World employee's spouse's name. Best World employees held Changsha Best's bank tokens, and its staff deferred to Best World management for approvals.

Marketing agent Vicstar sat in a back-to-back arrangement that marked up every sale without handling goods or issuing invoices, its accounts prepared by Best World employees, with no commercial rationale PwC could establish — and Best World could be liable for them. The China subsidiary BW Changsha deposited 20% of sales proceeds into personal accounts, possibly breaching Section 199 of the Companies Act on proper accounting records; the group also lacked an audit trail between its CRM system, sales orders and cash collection.

SGX RegCo said trading could not resume in a fair, orderly manner without clarity on the group's true financial position and the legality of its business under PRC regulations. Best World got no deadline to restore itself to investability, leaving shareholders' funds stuck; it had until 30 September 2020 to publish audited FY2019 accounts, on which SGX RegCo would decide the listing's future. The company proposed the 20% deposits were trade rebates — an explanation PwC could not corroborate.

Shares suspended since May 2019 and ruled indefinitely suspended in July 2020; E&Y issued a disclaimer of opinion on FY2018; shareholders' funds stuck with no fix-by date

Large slices of China sales proceeds — 40% at the import agent, 20% at the subsidiary — flowed into personal bank accounts instead of official company accounts.

The import and marketing agents were nominally independent but substantially run by Best World: its employees held bank tokens, prepared Vicstar's accounts and sought its management's approvals.

The Vicstar back-to-back structure marked up every transaction with no invoices and no commercial rationale PwC could verify, undermining the substance of reported revenue.

The audit committee itself did not know about key Vicstar arrangements, so internal controls could not catch what the group's own structure hid.

If your revenue only makes sense through side entities nobody else controls, the auditors and the exchange will treat the whole structure as the risk.

As of the 24 July 2020 ruling the shares remained suspended with no resumption date; Best World had until 30 September 2020 to publish audited FY2019 accounts, after which SGX RegCo would determine whether the listing continued at all. The company proposed that the 20% deposits represented trade rebates, an explanation PwC said it could not corroborate.