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Date Submitted: 06/04/2016 10:14 PM
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MANFOLD TOY COMPANY: CORPORATE
GOVERNANCE AND ETHICS FOR DIRECTORS
AND PROFESSIONALS
On the evening of 14 February 2007, Joseph Wan, founder and chairman of Manfold Toy
Company Ltd (“Manfold Toy”), was preparing for an audit committee meeting, to be held on
the following day. His hope was that the audit report would give a very positive picture of the
company. This would pave the way for a takeover by Mitchell & Meyer, an American
exercise equipment manufacturer interested in acquiring the listed bath and water toys
producer. Joseph was anxious to sell his 68% stake in Manfold Toy and had been
instrumental in soliciting the bid.
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However, only a handful of people was aware that the audited accounts might not have taken
into consideration some of the financial risks Manfold Toy was facing. Fred Wong, one of
Manfold Toy’s independent non-executive directors (INED) and chairman of the company’s
audit committee, was one of those people. In addition to his directorship at Manfold Toy,
Fred was an INED at two other listed companies. He was also a director of On Yee Exports
Ltd, a private company and Manfold Toy’s sole distributor in Australia & New Zealand. Fred
heard a persistent rumour that On Yee Exports was on the brink of bankrupcy. When Fred
informed Joseph about this threat on February 11th, Jospeh’s reaction was to wave off Fred’s
concern. Instead, he questioned whether Fred was forsaking his duty as a director of On Yee
Exports by passing on this rumour.
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With the audit committee meeting only one night away, both Joseph and Fred were feeling
anxious. Joseph was keen to sell his company, whereas Fred was worried about the possible
liability he might face if the true financial state of Manfold Toy became public knowledge.
Fred wondered what he could have done otherwise in his position as INED and chairman of
Manfold Toy’s audit committee. Had he fulfilled his role as a director according to the
standards set by the...