RE CHINA METAL RECYCLING (HOLDINGS) LTD

HCCW 210/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 210 OF 2013

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REASONS FOR DECISION

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Introduction

1. This is the trial of a public interest petition presented by the Securities and Futures Commission ( “Commission”) on 26 July 2013 and amended on 15 October 2014 (“Petition”) seeking a winding up on the just and equitable ground of China Metal Recycling (Holdings) Limited (“Company”).  The Petition is now undefended.  The Company has ceased to be represented in these proceedings and no longer contests the granting of a winding-up order.  It does not, however, admit the Commission’s allegations.  Although, the Petition is not contested it is necessary that I deliver a comprehensive decision.  There are three reasons for this.  First, it is necessary for the Commission to satisfy the court that it is in the public interest and, therefore, just and equitable to wind up the Company.  Secondly, there have, unfortunately, been a number of cases in recent years that have come before the Companies Court, involving fraud associated with the listing, not in all cases in Hong Kong, of business groups in the Mainland.  However, this is the first public interest petition issued by the Commission to wind up a company listed in Hong Kong.  It is desirable that the court explains comprehensively the principles by reference to which a petition of this sort in Hong Kong is to be determined.  Thirdly, given the attempts by a group of independent shareholders, earlier in these proceedings, and at the trial, to discourage the court making a winding up order, which I made when argument concluded, I think it desirable that there is a comprehensive summary of the extent of the fraud perpetrated on them and the market generally in order that they can better understand why the Commission initially, and now the court, take the view that it is necessary and desirable that the Company is wound up.

2. The Company, during the period that it was actively defending the Petition, filed an affirmation Mr. Yan Qiping (“Mr. Yan”) dated 9 October 2013.  Mr. Yan was authorised to conduct these proceedings on behalf of the Company.  This is the only evidence before the court which purports to contradict the Commission’s case.  However, as Mr. Yan admits he has little first hand knowledge of the matters relied on by the Commission to support its case, which I explain later, and Mr. Yan anticipated in his affirmation that the substance of the complaints would be addressed by Mr. Chun Chi Wai, who through Wellrun Limited (“Wellrun”) is the Company’s controlling shareholder, both of whom were for a period parties to the proceedings.  Through Wellrun, Mr. Chun owns approximately 53% of its issued shares.  Mr. Chun and Wellrun ceased to be parties on 12 November 2014.  As a consequence there is no evidence to dispute the substance of the Commission’s case.  My function is to assess the Commission’s evidence and satisfy myself that it justifies making a winding up order.

Parties and background

3. The Company is incorporated in the Cayman Islands and a non-Hong Kong company registered under section 333 (now repealed) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“C(WUMP)O”).  The date of its incorporation was 18 July 2007.

4. Mr. Chun was the Chairman of the Company and, until he was removed by the Provisional Liquidators appointed by me on 26 July 2013 (“Provisional Liquidators”), its former Chief Executive Officer.  Mr. Chun, together with his wife, Lai Wun Yin (“Mrs Chun”), are co‑founders of the business which became the group of companies held by the Company. 

5. The Company is the holding company of 38 subsidiaries in the British Virgin Islands (“BVI”), Hong Kong, Macao, the People’s Republic of China (“Mainland”), Singapore and Taiwan. The Company and its subsidiaries are collectively referred to as “Group” in this decision.

6. One of the Company’s subsidiaries is Central Steel (Macao Commercial Offshore) Limited (“Central Steel Macao”). It was incorporated in Macao on 21 March 2005 with limited liability and is an indirect wholly owned subsidiary of the Company.  Its sole shareholder is Huan Bao Steel Limited, which in turn is also an indirect wholly owned subsidiary of the Company.

Listing of the Company’s Shares

7. On 10 June 2009, the Company issued a Prospectus for a global offering (“Prospectus”), inviting applications to subscribe for shares in the Company.  On 22 June 2009, the shares of the Company (stock code 773) were listed on the Main Board of The Stock Exchange of Hong Kong Limited (“Stock Exchange”).  About HK$1,685 million, net of listing expenses, were raised by the initial public offering (“IPO”) of the Company.  There were 1,143,163,026 issued shares as at 30 June 2012.  According to the information obtained by the Commission, there were over 3000 investors holding the remaining 47% of the issued shares in the Company as at the date of the Petition.

8. The Prospectus of the Company contained information on the Company’s financial position, which one must assume was intended to be relied upon by investors in deciding whether to subscribe for shares.  The Commission is entitled to object to the listing of the shares of the Company if it appears to the Commission that a listing application and a prospectus are false or misleading as to a material fact or were false or misleading through the omission of a material fact, and, if such objection had been raised within the specified period under section 6 of the Securities and Futures (Stock Market Listing) Rules (Cap 571V), the shares of the Company would not have been listed.

9. According to the Prospectus, the Group mainly engaged in the scrap metal business with two business models: (1) purchasing scrap metal from suppliers and producing recycled scrap metal products that meet its customers’ requirements; and (2) reselling scrap metal that it has purchased without further processing.  Central Steel Macao was the sourcing arm of the Group for the acquisition of scrap metal from international markets for its operation in the Mainland.  It also claimed to sell scrap metal directly to external customers.

10. The Commission alleges that Central Steel Macao was at the centre of a fraudulent scheme that is the subject of this Petition. Central Steel Macao purportedly contributed a very substantial portion of the Group’s profit from 2006 to 2008 (“Track Record Period”) and thereafter until 2012, and the financial performance of the Group was heavily reliant on the apparent performance of Central Steel Macao:

Revenue and profit contributed by Central Steel Macao

Commission’s Investigation of the Company and History of these Proceedings

11. On 22 December 2009, the Commission began to investigate under its statutory power conferred by the Securities and Futures Ordinance (Cap 571) (“SFO”) whether persons might have engaged in disclosure of false or misleading information inducing transactions in the shares of the Company.  As it turns out, given the scale and complexity of the fraudulent scheme in which the Commission says the Company was involved, extensive investigations have been required.

12. Trading in the Company’s shares on the Stock Exchange was suspended from 28 January 2013 pending the release of a clarification announcement in relation to inside information of the Company.  On 28 March 2013, the Company announced that the Stock Exchange had imposed three conditions for the resumption of trading in its shares. The trading in the shares of the Company remains suspended.

13. Following the Commission’s investigation, which are described in detail later in this decision, the Company was placed into provisional liquidation by this court on 26 July 2013, the same day the Commission petitioned for its winding-up.  Mr Cosimo Borrelli and Ms Jocelyn Chi were appointed to be the joint and several Provisional Liquidators of the Company.

14. On 4 April 2014, the Company issued a summons for discharge of the Provisional Liquidators and other relief. On 2 May 2014, the Company applied to amend the summons dated 30 April 2014 by adding an alternative relief to replace the Provisional Liquidators with new provisional liquidators (“Discharge Application”).

15. On 18 August 2014, witness statements of facts were exchanged by the parties.

16. The Discharge Application was heard on 14 and 15 October 2014. I dismissed the application, and found that it was “clearly brought in bad faith” and “a transparent attempt to delay so far as possible the Provisional Liquidators obtaining control of the [Company’s] subsidiaries pending determination of the winding-up Petition”.

17. At a Case Management Conference before me on 12 November 2014, leave was sought and granted for Mr. Chun and Wellrun to withdraw from these proceedings.

18. On 9 January 2015, Bank of China Limited Guangzhou Development Zone Branch (“BOC”) took out a summons for leave to present a creditor’s winding-up petition against the Company.  Unusually I granted leave for reasons explained in my decision dated 19 January 2015. BOC has not presented a petition.

19. By letter dated 27 January 2015, solicitors of the Company, Chong & Partners, informed the court and the Commission that:

(1)  Given the intended petition by BOC and the Company’s “inability to pay the loan due to BOC”, a winding-up was “inevitable”;

(2)  Mr. Yan had decided, without admission of any of the Commission’s allegations, to cease supporting the Company’s participation in these proceedings.

20. Counsel for the Company confirmed at the Pre-Trial Review on 28 January 2015 that Chong & Partners had issued a summons applying for leave to cease to act in these proceedings and on 18 February 2015 leave was granted.

21. Despite the Petition being undefended the Commission has to satisfy this court that, on a balance of probabilities, a winding-up order against the Company is justified in law and on the evidence.

Mr. Chun, the Directing Mind of the Company

22. Shortly after these proceedings were commenced by the Petitioner in July 2013, on 2 August 2013, Mr. Chun asked for leave to be joined as a party.  He (and Wellrun) subsequently filed affirmations in opposition, their Points of Defence, followed by witness statements from Mr. Chun and Mr Chen Sijin (the head of the China Southern Region of the Group) in response to the Petitioner’s substantive allegations against the Company.

23. It is clear from the Company’s original Points of Defence and Mr. Yan’s affirmation that the Company did not independently advance a substantive defence, choosing, instead, to rely almost entirely on the defence and evidence put forward by Mr. Chun.

24. Mr. Chun played a significant role throughout these proceedings, including in the Discharge Application.  In my assessment Mr. Chun, in conjunction with Mr. Yan, has been uncooperative and has used excuses to avoid assisting the Provisional Liquidators in taking control of the Company’s subsidiaries: paragraphs 36-37 of the Discharge Application Judgment.  It is plain that Mr. Chun, who indisputably was the Company’s founder, Chairman and CEO and the person exercising control over the Company and its subsidiaries prior to the appointment of the Provisional Liquidators, clearly would have knowledge of the matters which give rise to the Commission’s complaints.  Mr. Chun was the main protagonist in these proceedings and had worked closely with Mr. Yan in the conduct of the defences. It seems an obvious inference that every major step taken by Mr. Yan on behalf of the Company in these proceedings was taken with the knowledge or approval of Mr. Chun.

Basis of the Petition

25. The Amended Petition was presented by the Commission to seek a winding-up order against the Company under provisions of the C(WUMP)O and section 212 of the SFO.  Section 212(1) of the SFO provides that:

“If-

(a) a corporation, other than an authorized financial institution, is of a class of corporations which the Court of First Instance has jurisdiction to wind up under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32); and

(b) it appears to the Commission that it is desirable in the public interest that the corporation should be wound up,

the Commission may present a petition for the corporation to be wound up under that Ordinance on the ground that it is just and equitable that the corporation should be so wound up, and that the Ordinance shall apply to such petition as it applies in relation to a petition presented under the Ordinance.”

26. Section 177(1) of the C(WUMP)O provides that:

“A company may be wound up by the court if-

…

(f) the court is of the opinion that it is just and equitable that the company should be wound up.”

27. Section 212 gives the Commission the standing to apply for a winding‑up order when it considers that such relief is desirable in the public interest, and the court may grant the order on the ground that it is just and equitable and after considering the circumstances of the case. The section was derived from section 45 of the (now repealed) Securities and Futures Commission Ordinance (Cap 24) (“SFCO”) and section 59 of the (now repealed) Leveraged Foreign Exchange Trading Ordinance (Cap 451).[1]

28. This is the first trial coming before the court on a public interest petition to wind up a company presented by the Commission under section 212 of the SFO.  The Commission has exercised its power before under this section, and its predecessor provision, section 45 of the SFCO, to make applications to court but the nature of the relief and the underlying facts of the cases which resulted in reasoned decisions are so different from the present Petition that they provide limited assistance in determining how the Petition is to be assessed.  Guidance can, however, be found in decisions of the English courts on section 212’s equivalent statutory provision in the United Kingdom (“UK”), section 124A of the Insolvency Act 1986.

Court’s approach to a public interest petition

29. In Re Walter L. Jacob & Co. Ltd.[2], which involved a petition for winding up presented by the UK Secretary of State under the Insolvency Act 1986,  Nicholls LJ described the court’s approach to such petitions in the following terms[3].

“In considering whether or not to make a winding-up order under sec. 122(1)(g), the court has regard to all the circumstances of the case as established by the material before the court at the hearing. Normally that will involve the court, faced with a petition presented by a creditor or a contributory, considering primarily the conflicting interests and wishes of the opposing parties to the petition, whether creditors or contributories or the company itself. The court will consider those matters which constitute reasons why the company should be wound up compulsorily, and those which constitute reasons why it should not. The court will carry out a balancing exercise, giving such weight to the various factors as is appropriate in the particular case.

In principle the exercise to be carried out where the petitioner is the Secretary of State is the same. The only difference lies in the nature of the reasons being put forward by the petitioner for the making of a compulsory winding-up order. On petitions presented pursuant to sec. 440 of the Companies Act 1985 and sec. 124(4) of the Insolvency Act 1986, the matters being placed before the court by the petitioner as reasons why the company should be wound up are rooted in considerations of the public interest. This is the very raison d’etre of the petition. This is apparent from the language of the sections.

…

It is important, however, to note what is the statutory function of the opinion of the Secretary of State. Under sec. 440 the opinion of the Secretary of State that it is expedient in the public interest that a company should be wound up is prerequisite to the presentation by him of a winding-up petition under sec. 124(4)(b).

Forming and holding the relevant opinion give the Secretary of State standing to present his petition. That is their only legal effect…

A petition having been duly presented by the Secretary of State, the next stage is when the petition comes before the court. At this second stage the court is concerned with the whole of the evidence before it, and the submissions made thereon by the parties. The court is not concerned with what was the material before the Secretary of State at the earlier stage when he formed his opinion. Nor, it seems to me, is the opinion as such of the Secretary of State, or an official in his department, reached at the earlier stage on whatever factual matter was before him in a report made by inspectors, or resulting from a books and papers investigation, normally of materiality to the Companies Court when it decides the petition. The court’s task, in the case of so-called public interest petitions, as in the case of all other petitions invoking the court’s winding-up jurisdiction under sec. 122(1)(g), is to carry out the balancing exercise described above, having regard to all the circumstances as disclosed by the totality of the evidence before the court. In respect of all such petitions, whoever may be the petitioner, the court has to weigh the factors which point to the conclusion that it would be just and equitable to wind up the company against those which point to the opposite conclusion. It is to the court that Parliament has entrusted this task, in all cases. Thus, where the reasons put forward by the petitioner are founded on considerations of public interest, the court, if it is to discharge the obligation to carry out the balancing exercise, must itself evaluate those reasons to the extent necessary for it to form a view on whether they do afford sufficient reason for making a winding‑up order in the particular case.

In the case of “public interest” petitions, the court will, of course, carry out that evaluation with the assistance of evidence and submissions from the Secretary of State and from other parties. When doing so the court will take note that the source of the submissions that the company should be wound up is a government department charged by Parliament with wide‑ranging responsibilities in relation to the affairs of companies. The department has considerable expertise in these matters and can be expected to act with a proper sense of responsibility when seeking a winding-up order. But the cogency of the submissions made on behalf of the Secretary of State will fall to be considered and tested in the same way as any other submissions. His submissions are not ipso facto endowed with such weight that those resisting a winding-up petition presented by him will find the scales loaded against them. At the end of the day the court must be able to identify for itself the aspect or aspects of public interest which, in the view of the court, would be promoted by making a winding-up order in the particular case. In many, perhaps most, cases that will be a simple exercise in which the answer will be self-evident. In other cases the answer may not be so obvious.

…

I return to the present case. It follows from what I have said above that, in my view, Harman J. did not misdirect himself when he proceeded on the basis that, before making a winding-up order, he had to be satisfied that the winding-up order was in the public interest. If he was not so satisfied he could not have been of the view that it was just and equitable that the company should be wound up, because in that event the petitioner would have failed to satisfy him that the reasons put forward, in the public interest, why there should be a winding-up order were made out.”

30. As is apparent from this passage the court has to be satisfied that it is in the public interest to make a winding-up order on the just and equitable ground.  This is so even when the petition is undefended: see Secretary of State for Trade & Industry v Driscoll Management Facilities Ltd. & Ors [4].

“Public interest”

31. The expression “public interest” is not defined in the relevant statutes in Hong Kong.  In ascertaining what in the present context the expression means it is instructive to consider at the outset the regulatory objectives and functions of the Commission as set out in sections 4 and 5 of the SFO.  

(1)  The Commission’s regulatory objective is “to provide protection for members of the public investing in or holding financial products [5]” and “to minimize crime and misconduct in the securities and futures industry”: see section 4 (c) and (d) of the SFO; and

(2)  The Commission’s function is “to secure an appropriate degree of protection for members of the public investing in or holding financial products, having regard to their degree of understanding and expertise in respect of investing in and holding financial products” and “to suppress illegal, dishonourable and improper practices in the securities and futures industry”: see section 5(1)(l) and (n).

32. In In re The Inertia Partnership LLP [6] a petition had been presented by the UK Financial Services Authority (“FSA”) under section 367 of the Financial Services and Markets Act 2000.  The court said there was a close analogy between this section and its “well established jurisdiction to make winding up orders on the petition of the Secretary of State” under the Insolvency Act 1986[7].  One of the reasons for allowing the petition was the Judge’s acceptance of the FSA’s submission that a winding-up order would satisfy its statutory objectives by maintaining confidence in the financial system, promoting public awareness of the financial system, protecting consumers and reducing financial crime[8].  Clearly it is in the public interest that where necessary the Commission seeks orders from the court to advance and achieve the regulatory objectives referred to in the previous paragraph.

33. The significance attached by the legislature to the integrity of the material produced for the purposes of dealing in securities is evidenced by the inclusion in the SFO of provisions that make it an offence to disseminate false or misleading financial information:

(1)  Section 298 of the SFO:

“(1) A person shall not, in Hong Kong or elsewhere, disclose, circulate or disseminate, or authorize or be concerned in the disclosure, circulation or dissemination of, information that is likely-

(a) to induce another person to subscribe for securities, or deal in futures contracts, in Hong Kong;

(b) induce the sale or purchase in Hong Kong of securities by another person; or

(c) to maintain, increase, reduce or stabilize the price of securities, or the price for dealings in futures contracts, in Hong Kong,

if-

(i) the information is false or misleading as to a material fact, or is false or misleading through the omission of a material fact; and

(ii)  the person knows that, or is reckless as to whether, the information is false or misleading as to a material fact, or is false or misleading through the omission of a material fact.”

(2)  Section 300 of the SFO provides that:

“(1) A person shall not, directly or indirectly, in a transaction involving securities, futures contracts or leveraged foreign exchange trading-

(a)  employ any device, scheme or artifice with intent to defraud or deceive; or

(b)  engage in any act, practice or course of business which is fraudulent or deceptive, or would operate as a fraud or deception.”

(3)  Section 342F of the C(WUMP)O provides that:

“(1) Where a prospectus relating to shares in or debentures of a company incorporated outside Hong Kong (whether the company has or has not established a place of business in Hong Kong) which is issued, circulated or distributed in Hong Kong after the commencement of the Companies (Amendment) Ordinance 1992 (86 of 1992) includes any untrue statements, any person who authorized the issue, circulation or distribution of the prospectus in Hong Kong shall be liable to imprisonment and a fine, unless he proves either that the statement was immaterial or that he had reasonable grounds to believe and did up to the time of the issue, circulation or distribution of the prospectus in Hong Kong believe that the statement was true.”

(4)  Section 384 of the SFO provides that:

“(1) Subject to subsection (2), a person commits an offence if-

(a) he, in purported compliance with a requirement to provide information imposed by or under any of the relevant provisions, provides to a specified recipient any information which is false or misleading in a material particular; and

(b) he knows that, or is reckless as to whether, the information is false or misleading in a material particular.

…

(8) In this section, specified recipient means-

(a) the Commission.

…  ”

34. The significance of the matters which it is contended engage the public interest also being capable of constituting offences was noted by Deputy Judge Jones Q.C. in ReUK-Euro Group plc [9].  The more serious the nature of the matter complained of the greater the public interest is likely to be in restraining or sanctioning it.

[10].  The principal concern is the interests of the investing public and the integrity of the market. In Re Walter L. Jacob & Co. Ltd. (supra) Nicholls LJ[11] observed (at 256E) that:

“For many years Parliament has recognised the need for the general public to be protected against the activities of unscrupulous persons who deal in securities… The public interest requires that individuals and companies who deal in securities with the public should maintain at least the generally accepted minimum standards of behaviour, and that those who, for whatever reason, fall below those standards should have their activities stopped. ”[12]

36. The more serious and extensive the contravention the more stringent the remedy necessary to address it.  The appropriate sanction where there has been fraud in the promotion of the company will normally be the liquidation of the company.  As Deputy Judge Mann QC observed in Re Derek Colins Associates Limited [13]:

“In effect, if not technically, [the case] involves a business being run on the back of a fundamental misrepresentation or falsehood. That is sufficiently contrary to the public interest to require the companies to be wound up to promote the public interest that the business of companies should have an honest, not a dishonest, base.”

37. Similarly, in In re Highfield Commodities Ltd.[14] Megarry VC says this:

“The mischief of a fraudulent company is likely to be more effectively dealt with by winding up the company than by leaving it in existence and relying on prosecuting those who have taken part in any criminal activity;…”

38. As is apparent from the passages I have quoted these cases involved serious and extensive fraud.  Isolated acts may not be sufficient to justify a winding up; any misstatement or omission will have to be “of some significance for the severe sanctions of a compulsory winding up to be appropriate” [15].  In Re Walter L. Jacob & Co. Ltd. Nicholls LJ[16] considered it to be in the public interest to wind up a company which “raised substantial sums of money on misleading documentation, and then ceased trading, with the consequence that hundreds of investors have been left with shares of questionable value” [17].

39. The fact that offending activities have ceased does not mean that a more lenient approach should be taken.  As Jones Q.C. explains in Re UK-Euro Group plc [18]:

“The fact that the subject company may have ceased its offending activities prior to presentation of the Secretary of State’s petition is a factor, and an important factor, to be taken into account (if, indeed, the public is no longer at a risk from the offending activity) but it is by no means a crucial or determinative factor. Balanced against it must be the fact that it would offend ordinary notions of what is just and equitable that, by ceasing its offending activities on becoming aware that the net is closing around it, a company which has misconducted itself can, thereby, enable itself to remain in being despite its previous history. By winding up such a company, the court will be expressing, in a meaningful way, its disapproval of such misconduct. Further, in addition to this being a fitting outcome for the company itself, such a course has the further benefit of spelling out to others that the court will not hesitate to wind up companies whose standards of dealing with the investing public are unacceptable.”

40. It seems to me that this applies in Hong Kong just as much as it does in the UK.  It is important that it is clear to those involved in the promotion of companies and the raising of finance in the equity markets that deceptive and misleading practices in the promotion of a company are likely to result in a winding up.  In the earlier stages of these proceedings, in particular during the Discharge Application, it was suggested that the Company should not be wound up because this would destroy some of its value.  Indeed this assumption underlay the last minute attempt by a group of independent shareholders to adjourn the Petition. Although the economic interests of creditors and minority shareholders are relevant in determining a petition such as the present, as the authorities to which I have referred make clear, the overarching consideration is the broader interest of market participants as a whole.  That interest requires that serious misconduct is subject to unequivocal censure.  The appropriate order in a case where a listing has been obtained by wholly dishonest fabrication of accounts would, in my view, almost invariably be a winding‑up order.

Evidential Basis

41. In summary, it is the Commission’s case that:

(1)  The Company had operated round robin funds flow schemes operated among Central Steel Macao, its suppliers or purported suppliers (“Suppliers”) and its customers or purported customers (“Customers”) during 2007, 2008, 2009 and 2012, by virtue of which substantial amounts of funds paid out by Central Steel Macao to the Suppliers were passed on to the Customers and eventually circulated back to Central Steel Macao;

(2)  As such, a large percentage of the purported purchases by Central Steel Macao from its Suppliers were not genuine transactions.  A fortiori, the purported sales of the goods from Central Steel Macao to its Customers were fictitious;

(3)  It is obvious from the evidence that Mr. Chun or persons affiliated with him were closely connected with various suspicious entities which were involved in the round robin funds flow schemes.  Indeed, the irresistible inference from the evidence is that Mr. Chun and/or persons affiliated with him were behind the fraudulent schemes.

(4)  The above scheme resulted in the substantial overstatement of the financial position of the Company for the relevant years, which covered the Track Record Period, 2009 and the year immediately before the presentation of the Petition;

(5)  The aforesaid conduct by the Company also amounted to serious mismanagement of its affairs, intentional and dishonest deceit of the public, and contravened the statutory provisions referred to earlier.

42. Until shortly before the commencement of trial it has been anticipated that the Petition would be contested.  As a consequence the Commission has filed extensive factual and opinion evidence supporting its case.  This includes:

(1)  Evidence from the forensic accounting expert, Mr Kenneth Morrison (“Mr Morrison”), who has conducted funds flow tracing analyses in respect of transfers of funds among Central Steel Macao and its Suppliers and Customers in 2007, 2008, 2009 and 2012.

(2)  Evidence from the expert on shipping matters, Mr Pottengal Mukundan (“Mr Mukundan”), who analysed the bills of lading concerning purported shipments of scrap metal from various world ports to China between 2007 and 2009, 2012 and 2013 in relation to purported transactions among Central Steel Macao and its Suppliers and Customers.

(3)  Evidence in the form of witness statements from a large number of factual witnesses.

43. In the following sections of this decision I address the following components of the Commission’s case:

(1)  Set out the operation of Central Steel Macao and its Suppliers and Customers;

(2)  Explain the round robin funds flow schemes involving transfers of funds among the aforesaid entities as analysed by Mr Morrison;

(3)  Refer to findings by Mr Mukundan on the bills of lading relating to purported transactions among the aforesaid entities;

(4)  Set out other suspicious circumstances involving the aforesaid entities and the key persons in this case;

(5)  Outline the extent of the overstatement of the Company’s financial position.

Central Steel Macao, Suppliers and Customers

44. Central Steel Macao was said to be the sourcing arm of the Group for the procurement of scrap metal from international markets for its operation in the PRC.  It has maintained sales and purchases day books, which recorded details of its sales and purchases with Customers and Suppliers.

45. Some of the major Suppliers of Central Steel Macao were:

(1)  Cheung Fat Metal Recycling Company Limited (“Cheung Fat”);

(2)  Jason Metal Recycle Corp. (“Jason Metal”) (formerly Asian Steel (U.S.A.) Corporation);

(3)  Lane Tone International Material Inc. (“Lane Tone”);

(4)  Pacific Metal Recycle Corp. (“Pacific”); and

(5)  Smith Steel Corp. (“Smith”).

46. Some of the major Customers of Central Steel Macao were:

(1)  Qi Le Metal Recycling Co (“Qi Le”) (formerly Kwong Kee Metal Recycling Co.);

(2)  Metallurgical Industry Limited (“Metallurgical”);

(3)  Hoi Cheung Metal Recycling Limited (“Hoi Cheung”);

(4)  Chak Kwan Metal Recycling Limited (“Chak Kwan”); and

(5)  Qing Yuan Xin Xin Metals Recycling Limited (“Qing Yuan Xin Xin”).

47. The purported transactions among Central Steel Macao and its Suppliers and Customers involved transfers of funds and generated transaction documents including purchase and sale agreements, invoices and bills of lading.  These documents, in particular the bills of lading, have formed a crucial part of the Commission’s investigation.

Round Robin Funds Flow

48. Mr Morrison has performed funds flow tracing exercises on the transfers of funds among Central Steel Macao, its Suppliers and Customers for the years 2007, 2008, 2009 and 2012 based on the relevant bank ledgers, statements and accounting records.  It is Mr Morrison’s conclusion that, for all the years in question:

(1)  Funds sourced from the bank accounts of Central Steel Macao were transferred to the Suppliers’ bank accounts;

(2)  A substantial amount of those funds were almost immediately transferred to the Customers’ bank accounts;

(3)  A substantial amount of those funds were then circulated from the Customer’s bank accounts back to the bank accounts of Central Steel Macao in no time, thereby completing the round robin flow of funds.

49. Taking the year 2008 as an example:

(1)  According to its internal accounting records, Central Steel Macao made 85 payments totalling US$272,484,590.66 and HK$35,359,630.22 to the Suppliers, namely Cheung Fat, Lane Tone and Jason Metal.

(2)  The payments to Lane Tone were recorded in the internal accounting records to be for settlement of purchases from Lane Tone, but the underlying documents revealed that they were actually paid into bank accounts of Cheung Fat and Lane Tone (HK) Material Limited (“Lane Tone (HK)”).  Lane Tone (HK) has a similar name as Lane Tone but there was no apparent commercial relationship between the two entities, or between Lane Tone (HK) and Cheung Fat.

(3)  Transfers totalling US$273,810,257.61 and HK$35,312,768.07 which were sourced from Central Steel Macao were found to be made from the Suppliers to the Customers, namely Qi Le and Metallurgical.  Each transfer of funds from Central Steel Macao to the Suppliers and then from the Suppliers to the Customers occurred within 8 days.

(4)  Thereafter, a substantial portion of the funds transferred to the Customers’ bank accounts, totalling US$276,702,855.11 and HK$4,679,830 (after deducting bank charges), were circulated back to Central Steel Macao within 8 days.  The funds flow circulation in 2008 is illustrated in a diagram in Mr Morrison’s report.

(5)  Combining the above findings with Mr Morrison’s findings on the payments from Central Steel Macao made in early 2008 (which were recorded in the 2007 accounting records), the amount of funds which were circulated back to Central Steel Macao (i.e. US$320,001,881.46) made up of 99.95% of funds which were originally paid out of Central Steel Macao to the Suppliers (i.e. US$320,174,953.14).

50. Taking the year 2012 as a further illustration:

(1)  According to its payment vouchers and the underlying supporting documents, Central Steel Macao made 431 payments totalling US$2,397,822,505.70 to the Suppliers, namely Cheung Fat, Smith and Pacific.

(2)  419 payments totalling US$2,380,779,438.57 were received by one New Metal Recycle Corp. (“New Metal”) from the Suppliers.  Of this amount, US$2,373,474,101.45 was found to be sourced from Central Steel Macao.

(3)  374 payments totalling US$2,352,965,392.76 from New Metal were then found to be received by the Customers, namely Metallurgical, Hoi Cheung, Chak Kwan and Qing Yuan Xin Xin.

(4)  Thereafter, funds totalling US$2,338,130,866.43 were found to be circulated back to Central Steel Macao. This amounted to 97.51% of the funds originally paid out of Central Steel Macao (i.e. US$2,397,822,505.70).  The entire round robin circulation in 2012 was complete within a timeframe of 12 days, and is captured in Mr Morrison’s diagram below:

51. Mr Morrison has found that in the years he has reviewed:

(1)  The amounts involved in the round robin funds flows had increased exponentially.

(2)  The amounts of funds circulated back to Central Steel Macao consistently formed a high percentage of the funds which were originally paid out of Central Steel Macao.

(3)  The number of entities involved in the round robin schemes had grown over the years.

52. Mr Morrison concluded that the circular funds flow transactions were unusual and lacking in commercial substance. The Company has failed to provide any sensible explanation for the circular funds flow.  I am satisfied that the Commission has demonstrated on the balance of probabilities that the round robin funds transfer described above took place.

Bills of Lading relating to the purported transactions

53. Mr Mukundan has investigated the bills of lading relating to the alleged transactions between Central Steel Macao and its Suppliers or Customers to ascertain whether or not the relevant shipment of scrap metal had genuinely taken place.  The scope of his investigation covered the years 2007 to 2009, 2012 and 2013.

54. The vast majority of the bills of lading which formed the subject of investigation were issued by Non Vessel Owning Common Carriers (“NVOCC”).  Some of the Suppliers identified above, such as Pacific and Smith, have appeared on various NVOCC bills of lading as “shipper”.

55. Mr Mukundan has divided the approximately 1,042 bills of lading four categories.  In short, the vast majority of them (71.50%) were found not to represent genuine shipments, and a further 9.60% were considered unlikely to represent genuine shipments.

56. Mr Mukundan has detailed his methodology and analyses in his report, and given various examples to illustrate his reasoning. In summary the major reasons why he has regarded a bill of lading purportedly representing a transaction of Central Steel Macao as being unlikely to represent a genuine shipment are as follows:

(1)  Non-compliance with the ISO 6346 container numbering system: it is not common practice for containers on ocean going international voyages to be numbered differently from ISO 6346;

(2)  No corresponding master bill of lading issued by the shipping company: every NVOCC bill of lading is supposed to have a corresponding master bill of lading with identical details of the name of the vessel, voyage number, container number, port of loading and discharge evidencing the physical movement of the goods. Such master bill of lading would have been required if the physical carrier had actually transported the containers;

(3)  Significant discrepancies between the master bill of lading as obtained by the Commission from the shipping company and the NVOCC bill of lading: when ports of loading or discharge are geographically in locations which made it impossible for the container to be loaded at a particular port as described on the NVOCC bill of lading, or descriptions of cargoes are different;

(4)  NVOCC’s contact details missing from the bill of lading: this is unusual because the consignee or party to be notified of the shipment would not know how to contact the carrier or whom to contact so as to have the cargo delivered to them at the port of discharge or if they have a claim for loss or partial loss of the cargo;

(5)  Goods received by consignees under the master bill of lading or further processed by them at the end of the sea passage: this would mean the bill of lading operation had come to an end and the different shippers and consignees mentioned on the NVOCC bill of lading could have no role in the shipment;

(6)  Confirmation from the physical carrier, shipper and/or consignee on the master bill of lading regarding the actual commercial transaction and shipment (which are different from those contemplated on the NVOCC bill of lading), or confirmation from the physical carrier that it had no relationship with the NVOCC enabling it to issue the NVOCC bill of lading or no knowledge of the NVOCC;

(7)  The master bill of lading being “Non Negotiable Unless Consigned to Order”: where the shipment is not consigned to order and the master bill of lading has a named non‑NVOCC shipper and consignee, the physical carrier would deliver the container to the named consignee, and there would be no role for the NVOCC in the shipment;

(8)  No record of the vessel (named under the NVOCC bill of lading) existing or operating at the relevant time; and/or;

(9)  At least one container on each master of billing was loaded with cargoes other than metal/scrap.

57. The Commission has in its evidence integrated the findings of Mr Morrison and Mr Mukundan and prepared spreadsheets which demonstrate that a high percentage of the money transfers among Central Steel Macao and its Suppliers and/or Customers relate to at least one false bill of lading, or at least one bill of lading that is considered unlikely to represent a genuine shipment for the years from 2007 to 2009.  In 2012, there were 431 payments from Central Steel Macao to the Suppliers.  Out of these 431 payments in 2012, 138 of the payments relate to bills of lading that have been analysed by Mr Pottengal Mukundan and all of these bills of lading he considers to be false.

Fabricated Bills of Lading Produced by Mr. Chun

58. The Commission has adduced evidence that Mr. Chun provided 17 fabricated master bills of lading purportedly issued by one Orient Overseas Container Line Limited (“OOCL”) (a shipping company) and the associated NVOCC bills of lading to Deloitte Touche Tohmatsu in Hong Kong (“Deloitte”) during the 2012 audit work. 

59. In a meeting on 15 May 2013 among Deloitte, Mr. Chun and other representatives of the Company, Mr. Chun tabled one set of transactions which occurred during the year ended 31 December 2012 between Central Steel Macao and Smith and the goods were sold to Qing Yuan Xin Xin. Mr. Chun provided Deloitte with one house bill of lading for 20 containers issued by a freight forwarder, Ocean Line Logistics, Inc, which was supported by 17 master bills of lading purportedly issued by OOCL.  Mr. Chun told Deloitte that the names of the shippers on the 17 master bills of lading were redacted for “confidentiality reasons”.

60. The evidence from OOCL is that the seal numbers (which are included for security reasons) stated on the 17 master bills of lading were not generated by OOCL.  Mr Mukundan, who has also investigated the documents, concluded that the shipment as stated on the associated NVOCC bills of lading did not take place.  Further, it appears that the 17 master bills of lading provided by Mr. Chun to Deloitte are not the same as the relevant master bills of lading provided by OOCL to the Commission.

Suspicious circumstances

61. The evidence from the two experts clearly points to a major orchestrated deception perpetrated by those in charge of the Company.  However, the Commission has adduced evidence of other matters concerning the operation of the Central Steel Macao and its dealings and/or relationships with its Suppliers and Customers, which support the conclusion of the two experts

Setting Up of Companies

62. The Commission has adduced evidence that most of the Suppliers and Customers referred to above were set up upon the instruction of Mr. Chun or persons associated with to him.

63. According to the evidence of Simon Chan, a number of entities incorporated in Hong Kong or the BVI were set up by his accounting firm and a company secretarial company he also operated on the instructions of Choy Ling Ling (Bobo Choy), Lu Baoyu (Ar Yuk) and a “Ms Ng”.  Bobo Choy was the administration manager of the Company and a former director of Central Steel Macao’s sole shareholder, Huan Bao Steel Limited and Ar Yuk was a staff member of the Group stationed in Guangzhou.  The companies include:

(1)  Cheung Fat (a Supplier in 2007 to 2009 and 2012);

(2)  Lane Tone (HK) (which received funds from Central Steel Macao in 2008 and 2009, although the funds were recorded as payments to Lane Tone);

(3)  Hoi Cheung (a Customer in 2012);

(4)  Chak Kwan (a Customer in 2012); and

(5)  Qing Yuan Xin Xin (a Customer in 2012).

64. The Hong Kong-incorporated companies, namely Cheung Fat, Lane Tone (HK), Hoi Cheung and Chak Kwan all used the office address or storage address of Simon Chan & Co. as their registered business address.  Initially, the correspondence addressed to these companies would be delivered to Mr. Chun’s former office premises in Wanchai, Hong Kong, or collected by a messenger of the Company or by Xie Baixing.  Later, Simon Chan was instructed by Bobo Choy to redirect the posts to Ar Yuk or one Ms Ng at Asia Steel Building in the Mainland.

65. As regards the entities in the United States of America (“USA”), it is the evidence of Qiu Guoming, a former Deputy General Manager of Jason Metal responsible for sourcing scrap metal and steel, that they were set up upon the instruction of Mr. Chun through one “Tina Accountant” (owned by a Taiwanese woman named Tina Chiang). They include:

(1)  Pacific (a Supplier in 2012); and

(2)  New Metal (an entity involved in the round robin funds flow scheme in 2012 which received funds from Suppliers and transferred funds to Customers).

66. It is also suspicious that Pacific, Smith (another Supplier in the USA in 2012) and Cheung Fat Metal Recycling Co., Limited (a USA company with the same name as the “shipper” in various NVOCC bills of lading) were all incorporated in 2010 or 2011, and all dissolved in 2013 or 2014 after the commencement of these proceedings.

67. Qiu Guoming was assigned by Mr. Chun to work in Jason Metal. According to Qiu Guoming, Jason Metal (whose office address was a residential property of Mr. Chun) was a “window company” controlled by Mr. Chun with only a small volume of business in 2004 to 2008, and no business at all since 2009 until it was closed down in 2011 by Mr. Chun after the Commission commenced investigation into the company.  This is in stark contrast to the significant volume of purported purchases by Central Steel Macao in 2007 to 2009 as recorded in the latter’s sales and purchase day books.

68. Finally, the Commission’s investigation has revealed that for almost each of the Suppliers involved in the round robin funds flow schemes, there was one or more Hong Kong, USA or BVI company with a very similar name to it, and that all of these entities were associated with either Mr. Chun and or the Company.

Engagement of Simon Chan & Co. and CPK Secretarial Company Limited and Delivery of Documents

69. In addition to being engaged to set up various companies in Hong Kong and the BVI, Simon Chan also provided services to various companies on the instructions of Bobo Choy, Mr. Chun, Ar Yuk parties associated with them.  These services include:

(1)  Provision of company secretarial and auditing services to Cheung Fat, Lane Tone (HK), Hoi Cheung, Chak Kwan;

(2)  Provision of nominee shareholder and nominee director services;

(3)  Delivery of bank documents on behalf of various companies including Cheung Fat, Metallurgical, Hoi Cheung, Chak Kwan, Qing Yuan Xin Xin etc.);

(4)  Company secretarial and auditing services for subsidiaries of the Company and Mr. Chun’s private companies; and

(5)  Other ad hoc services, for example, collecting and redirecting mails for Metallurgical and paying rent of Metallurgical’s business centre, settling sundry petty expenses for Metallurgical and Cheung Fat.

70. Simon Chan explains in his witness statement that he personally met Mr. Chun once in early 2013 after the Commission commenced its investigation.  Mr. Chun provided him with the names of contact persons and the addresses of Cheung Fat, Lane Tone (HK), Hoi Cheung and Chak Kwan, and instructed him that if someone asked who the contact persons for the four companies were, he should inform them (including the Commission) that the contact persons were those Mr. Chun referred to instead of Mr. Chun.

Other Suspicious Incidents

71.According to Yuki Ip, the former sales manager of Central Steel Macao, she had been instructed by her supervisor in the company to issue emails from her work email account to various Suppliers and Customers, including Cheung Fat, Pacific, Smith, Metallurgical, Hoi Cheung, Chak Kwan and Qing Yuan Xin Xin.  It appears from those emails that she was contacting Suppliers and Customers to confirm certain purchases or sales with them, although according to her such purchases or sales had actually been discussed and agreed previously.  In response, the Suppliers or Customers would sometimes attach to their replies confirmation which in fact had been previously issued.

72. Yuki Ip also explains that all of the email addresses of the Suppliers or Customers which she was supplied with by her supervisor were web mail (i.e. Gmail or Yahoo mail) instead of the email addresses of the relevant companies.

73. Yuki Ip says that she was expressly told by her supervisor that since the auditor of the Company, i.e. Deloitte, had asked the Company to contact its Suppliers and Customers for confirmation of their business transactions, the Company would like to “make up some proof of contact and confirmation for the purpose of coping with (the request of) the auditor”.

74. As regards Qiu Guoming, his evidence is that he had more than once been instructed by Mr. Chun to impersonate individuals relating to Suppliers of Central Steel Macao, or to deploy the company stamp of a Supplier.  For instance:

(1)  He was asked to give telephone interviews to the sponsors of the Company’s IPO in 2008 and 2009 on behalf of Jason Metal (as “Wilson Chan”) and Lane Tone (as “Jo Huang”). He was given sample questions and answers by Mr. Chun for the purpose of the interviews.

(2)  He was instructed to sign on confirmation letters prepared by Mr. Chun to the Commission on behalf of Jason Metal (as “Wilson Chan”) and Lane Tone (as “Happy Zhao”), and to affix the company stamp of Lane Tone (which was given to him by Mr. Chun).

(3)  He was instructed by Mr. Chun to affix Lane Tone’s company stamp on the audit confirmation dated 9 January 2009 issued by Deloitte.

Alleged Role of Suppliers and Customers as Agents

75. The Company has previously represented to Deloitte that some Customers of Central Steel Macao, including Metallurgical, Qi Le, Hoi Cheung and Chak Kwan, had been acting as the agents or intermediaries of certain end customers of the Group for the settlement of payments.  The same point was made in paragraphs 74-82 of the Points of Defence of Mr. Chun and Wellrun, which was adopted in the Amended Points of Defence of the Company.

76. There is no evidence to support these contentions which I find simply not to be credible in light of the evidence concerning the circular flow of funds identified by Mr Morrison, which was replicated throughout the years that were subject to his investigation.  Why would there be massive transfers of funds from Central Steel Macao’s Suppliers to these agents and intermediaries, and in amounts which were almost identical to the amounts they eventually transferred back to Central Steel Macao?  There is no sensible explanation other than that suggested by the Commission.

77. Nor do the Company’s assertions explain why a significant portion of the money transfers identified by Mr Morrison relate to bills of lading which are quite clearly do not represent genuine shipments.

Extent of the overstatement

78. It is instructive to conclude by illustrating the extent of the overstatement arising from the round robin transfers described earlier in this decision.  The following are the overstated revenue and gross profit of the Company for the years 2007 to 2009 calculated respectively by the Commission and by Mr Morrison under the two approaches used by him in his report, the precise details of which are not relevant for present purposes:

Calculated by:	Overstated gross profit	Overstated revenue
The Commission	US$143,291,911 (73.22%)	US$1,049,036,307.00 (46.67%)
Mr Morrison under Approach 1	US$140,555,466.41 (72%)	US$1,034,447,611.47 (46%)
Mr Morrison under Approach 2	US$113,480,065.38 (58%)	US$817,478,313.33 (36%)

79. As for the year 2012, Mr Morrison’s calculation is as follows:

Calculated by:	Overstated gross profit	Overstated revenue
Mr Morrison	US$147,185,227.18 (49%)	US$1,341,877,306.15 (12%)

Conclusion

80. In my view the evidence adduced by the Commission establishes that a fraud on a massive scale has been perpetrated by those in charge of the Company on investors, the Stock Exchange and others involved in the listing of the Company.  It seems highly likely that Mr. Chun caused the round robin transactions and the creation of bogus bills of lading with a view to producing significantly better figures than would otherwise be the case.  This must have been done in order to advance the IPO and induce investors to subscribe for shares.  Having started this process necessarily it had to be continued.  There would appear to have been at the very least serious contraventions of section 298 of the SFO and section 342F of the C(WUMP)O.

81. As will be clear from the earlier parts of this decision this is not a case of isolated wrongful acts which are unlikely to be repeated.  Neither is this a case of wrongdoing which initially was limited in scope but which circumstances caused the instigator to lose control of as it grew like topsy.  Clearly this was a carefully planned and carefully implemented scheme to create accounts which significantly overstated the business and profit of the Company for the purposes of the listing and thereafter.  This was fraud on an industrial scale, which goes directly to the integrity of the listing.  It is difficult to think of a clearer case of it being in the public interest that a petition be brought by the Commission for a winding up.  This case would appear to fall firmly into the category of cases in which the courts take the view that a winding-up order is appropriate.

Adjournment Application

82. The evening prior to the commencement of the trial of the Petition an application was received from a group of shareholders of the Company for an adjournment of the Petition.  The reason for this was that they had been approached by a prospective investor who is interested in acquiring the Company.

83. It will be appreciated that given the gravity of this case it would take very strong reasons to deflect the court from making a winding‑up order.  The independent shareholders’ application comes no where near providing them.

84. On 18 February 2015 Chiu & Partners, a firm of solicitors, wrote to Chong & Partners, who had acted for the Company in these proceedings, stating that they act for Jiangsu Xin Changjiang Group Company Limited (“JXC”) and enclosing a restructuring proposal.  The proposal has a number of unusual features:

(1)   Normally such proposals emanate from a company’s management and owners, liquidators or, on occasions, a company’s bankers.  The present proposal did not emanate from the Provisional Liquidators or its bankers.  There is no explanation of how JXC, about which the court has been given little information other than that it is a private company incorporated in the Mainland involved in ship building and related industries, became aware of the Company and its present situation and decided to try and acquire it.  Mr. Kat, who appeared for the shareholders, suggested that JXC is independent of Mr. Chun, but it seems to me far more likely that Mr. Chun had some involvement in introducing the idea to JXC.

(2)   JXC will acquire the Company for HK$400,000,000, which is roughly the value of a bare listed company.  This in itself is not unusual.  The following terms are.

(3)   The Company’s subsidiaries will be transferred to a special purpose vehicle to be held by the administrators of the scheme of arrangement which the proposal assumes, correctly, would be a necessary component of the restructuring.  The subsidiaries which hold the Company’s business would be disposed of by the administrators and the proceeds used to pay creditors and if there is any surplus it would be distributed to the Company and its shareholders.  In a letter from Chiu & Partners dated 24 February 2015 to the Commission it was suggested that after a restructuring “synergic effect and value can be created out of the Company’s then operating assets and business opportunities then available”.  It appears to be envisaged that JXC will be the purchaser.  I was told by Mr. Kat that part of the attraction of JXC’s proposal was that it could use its “connections” to assist the administrators overcome the hurdles that the Provisional Liquidators have experienced in taking control of the Company’s subsidiaries in the Mainland.  It was not explained how this would happen.  It is implicit that JXC’s connections can gets things done that the Provisional Liquidators appointed by this court cannot using conventional legal means in the Mainland.  This is not a very attractive proposition.  I also think it should be treated with suspicion.  If, as seems probable, Mr. Chun has orchestrated non‑cooperation in the Mainland it is perfectly possible that JXC anticipate being able to purchase the operating subsidiaries at discounted prices to reflect the difficulties liquidators may face in realising assets and have done a side deal with Mr. Chun to facilitate this.  This is one, obvious, explanation for why JXC are not offering to acquire the whole group at this stage.

(4)   An open offer to shareholders to acquire the entire issued share capital of the Company for HK$343,500,000, which is HK$0.292 per share.  It is the Company position, and that of its bankers it would appear, that the Company is insolvent.  It thus makes no apparent commercial sense to include an open offer in the proposal. The only reason I can think of for doing so is to buy the cooperation and support of the independent shareholders, who own approximately 43% of its shares.  It will be appreciated that the application for the adjournment was made by a group of shareholders. 

85. It seems to me that the realisation of the assets of the Company for the benefit of its creditors, and if there is a surplus, for shareholders, should be carried out in a liquidation under the supervision of experienced liquidators who can ensure transparency and the propriety of the process.  This last minute attempt to avoid a winding up order smacks of an attempt to achieve the opposite.  I would add this.  It should be borne in mind that to the extent that the presentation of the Petition has impacted negatively on the business of the Group this has in very large part been the result of the action taken in the Mainland, it is a compelling inference by Mr. Chun, to prevent the Provisional Liquidators securing the group’s assets.  This in my view makes the present case worse.  As I indicated during case managements hearings at a time when the Company was contending it should not be wound up even if the Commission’s complaints were made out but a new board be appointed independent of Mr. Chun to run the Group and maximise its economic value, this argument was hardly viable if the Company was unable, as it was also arguing at the time, to deliver control of the operating subsidiaries.  As Mr. Chun no doubt appreciates if the Company is would up and the Liquidators are able to realise the Group’s assets, he will probably receive nothing after creditors and independent shareholders are paid.  I have little doubt that this is the reason the Provisional Liquidators have been met with constant problems in the Mainland and suggests that JXC’s approach may be part of another effort by Mr. Chun to try and remove assets from the Group.  Some of the evidence filed by independent shareholders earlier in the proceedings suggests that the Commission have been in the wrong in this matter because they commenced the destruction of the Company, a process, they suggested, exacerbated by the Provisional Liquidators’ attempts to secure its assets.  I would emphasise that the damage done to shareholders’ interests is the result of the fraudulent listing and efforts to prevent the Provisional Liquidators receiving the assets of the Group and thus reduce the amount available to compensate independent shareholders.

86. It seems to me that the appropriate remedy given the gravity of what has taken place is clearly an immediate winding up of the Company.