SECURITIES AND FUTURES COMMISSION v. KWOK WING AND OTHERS

HCMP 3392/2013

[2019] HKCFI 2322

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3392 OF 2013

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D E C I S I O N

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Introduction

1.  This is the hearing of the application of the petitioner (“SFC”) for a disqualification order against the 2^nd respondent (“Michelle Kwok”) under the Carecraft procedure.  The parties have agreed that:

(i)  a disqualification order be made against Michelle Kwok on the basis of section 214(1)(b) and (c) of the Securities and Futures Ordinance, Cap 571 (“the Ordinance”);

(ii)     the proper period of disqualification is 6 years; and

(iii)    Michelle Kwok do pay SFC’s costs, to be taxed if not agreed.

The parties have agreed a statement of facts which is attached to this judgment as a Schedule and it is upon these facts that this court gives an order in terms of paragraphs 79-80 of the Schedule. 

2.  The original petition was made in respect of the business and affairs of Tack Fat Group International Limited (“the Company”, subsequently renamed Tack Fiori International Group Limited and further renamed “Life Healthcare Group Limited”).

3.  Since issuance of the petition in 2013, proceedings against the 1^st respondent (“Kwok Wing”), the 5^th and the 6^th respondents have been discontinued in 2017.

4.  Proceedings against the 3^rd and 4^th respondents respectively have been disposed of, also by the Carecraft procedure, on 9 October 2014 and 27 March 2015 respectively.  In both instances, G Lam J adopted the parties’ agreement and made a disqualification order for a period of 6 years against each of the 3^rd and 4^th respondents; and ordered them to pay SFC’s agreed costs.

Legal principles

5.  The court must be satisfied, based on the agreed facts, that the business or affairs of the company have in fact been conducted in a manner that contravened one of the limbs in s.214(1) of the Ordinance and if so, determine the scope and duration of the disqualification order to be made:  Re Riverhill Holdings Ltd [2007] 4 HKLRD 46, §7, Kwan J (as she then was).

6.  The court is not obliged to make a disqualification order and is not bound to any period of disqualification agreed between the parties.  However, the court is likely to be guided by the agreement that the SFC, as the responsible regulator, has reached as to the appropriate sanction to be imposed: Re Medical China Ltd, HCMP 1023/2011, 26 September 2012, Barma J (as he then was), §5; SFC v Ho Yik Kin Norman, HCMP 3392/2013, 9 October 2014, G Lam J. 

Misconduct under s.214(1) of the Ordinance

7.  The Company was listed on the Main Board of the Stock Exchange of Hong Kong Limited on 29 April 2002.  Between 1 September 2007 and 20 March 2009, Michelle Kwok was at all material times an executive director of the Company. 

8.  At all material times, Kwok Wing was the Chairman of the board of directors and a substantial shareholder of the Company.  Trading in the Company’s shares was suspended on 30 July 2008.  In September 2008, the Company filed a petition for its own winding-up and provisional liquidators were appointed.  In August 2011, upon the successful restructuring of the Company and its subsidiaries, the Company’s provisional liquidators were discharged and its shares resumed trading.

9.  In essence, the SFC’s complaints against Michelle Kwok came under 4 categories, which happened in June to July 2008, shortly before suspension of trading in the Company’s shares.

(1)     When the Company already had outstanding liabilities, the Company took out 6 loans from various money lenders in the total sum of approximately HK$98 million.  Michelle Kwok signed various documents regarding those loans on the instructions of Kwok Wing without independent enquiries as to the purpose of the loans, the ability of the company to repay and the financial information of the Company.  There was indication that the Company’s financial position had drastically deteriorated. In failing to disclose information of the loans, which was price-sensitive information, Michelle Kwok had permitted the Company to act in breach of rule 13.09 of the Listing Rules.

(2)     Michelle Kwok took part in approval of the grant of share options to 2 employees (Guo and Pan) and signed the board minutes despite knowing that each of the 2 employees did not have the financial ability to pay the subscription price of HK$13 million.  She had not made independent enquiries or judgment before giving the approval.  In fact, the allotment of shares to Guo and Pan was not supported by any payment to the Company.  Guo and Pan sold those shares and received approximately HK$20 million upon the instructions of Kwok Wing.

(3)     A subsidiary of the Company, Forever Fit, entered into an Acquisition Agreement to acquire shares and shareholders’ loan in another company.  It transpired that the acquisition was a connected transaction under rule 14A.13(1)(a) of the Listing Rules in that the purported acquisition was from an individual Li Zhong Ming who did not have the financial resources to acquire the shares and in fact had been acting as nominee for Kwok Wing.  The public announcement falsely claimed Li to be an independent third party.  Moreover, the consideration for the acquisition (in the form of account receivables purportedly due to another subsidiary of the Company) was fictitious.  Michelle Kwok signed attendance sheets indicating her presence at board meetings approving the Acquisition Agreement, when she knew nothing about the acquisition, never heard of Li, nor the 2 subsidiaries of the Company.

(4)     The Company failed to maintain a financial management system at all.  Kwok Wing was the sole person in control of the financial records of the Company and had moved the books and records overseas.

10.  I am satisfied on the agreed facts that the business or affairs of the Company for which Michelle Kwok was partly responsible, were conducted in a manner described under limbs (b) and (c) of s.214(1), ie

(1)     involving misfeasance or other misconduct towards it or its members or a part of its members;and

(2)     resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs that they might reasonably expect.

Disqualification

11.  In deciding on the appropriate penalty, I have regard to the dual objectives of protecting the public against the future conduct of the respondent; and as a general deterrence, recently stated in SFC v Li Hejun [2017] 4 HKLRD 785,Chow J, §15.

12.  The general approach is to divide the maximum possible period of disqualification into 3 brackets:

(1)     Top bracket, of disqualification for over 10 years, for particularly serious cases;

(2)     Minimum bracket, of below 5 years’ disqualification, for cases which are relatively less serious; and

(3)    Middle bracket, of 6 to 10 years’ disqualification, for cases which, although serious, are not so serious as to merit a period of disqualification in the top bracket.

13.  The court adopts a reasonably broad-brush approach, having regard to these brackets more as signposts than straitjackets: SFC v Wang Jian Hua, HCMP 745/2013, 30 May 2016, G Lam J, §§3, 16-17.

14.  In the present case, the parties’ suggestion of 6 years’ disqualification is the same as ordered against the 3^rd and 4^th respondents.

15.  Whilst Michelle Kwok did not personally benefit from the misfeasance or misconduct, this is a case of high degree of incompetence and irresponsible attitude.  She displayed marked indifference to her responsibilities as an executive director of a listed company.  She showed up at board meetings and signed attendance records or minutes without ascertaining the purpose of a transaction or exercising independent judgment as to whether the transaction was in the interest of the Company.  She paid no regard to the disclosure requirements under the Listing Rules, even in transactions involving substantial sums.  She had no knowledge of the financial status of the Company, had never read its financial statements or accounts and did not even know the subsidiaries of the Company. She failed in her duties in exercising reasonable care and diligence in the management of the Company.

16.  I have taken into account the mitigating factors advanced on her behalf.  She was partly responsible, there being other directors and the main culprit was not her.  Michelle Kwok only had education up to level 3 in secondary school in the Mainland where she was born.  She migrated to Hong Kong in around the early 1990s.  She joined the Group in 1987.  Her working experience was mainly in merchandising, product development and design.  She had little expertise in the financial aspect of the Company and had to entrust it to other executive directors.

17.  Michelle Kwok’s appointment as executive director was upon the request of Kwok Wing, her uncle.  Kwok Wing had successfully founded the Company and developed it from a family business to a listed public company.  He was responsible for all important financial and operational decisions of the Company.  Michelle Kwok had the impression that he treated the Company as his own child and raised it with his heart.  She reposed trust in him.  She claimed that there were no circumstances which had aroused her doubt that Kwok Wing’s conduct was not in the interest of the Company.

18.  The period for which Michelle Kwok was an executive director was relatively short – about 1½ years until she resigned on 20 March 2009.  To her credit, she is cooperative in the present proceedings and is willing to bear costs of SFC.

19.  The mitigation explained Michelle Kwok’s conduct but cannot undermine its seriousness.  Having considered all the circumstances, I find her incompetence and irresponsible conduct to fall within the middle bracket.  The 6 years’ disqualification is appropriate.  I therefore make an order in terms of paragraphs 79-80 of the Schedule.

20.  I thank Mr Man and Mr But for their assistance.

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SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF
THE 2^ND RESPONDENT (KWOK CHOI HA, MICHELLE)

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A.   Introduction

1.  On 19 December 2013, the Securities and Futures Commission (the “Petitioner”) issued proceedings under Section 214 of the Securities and Futures Ordinance (the “Ordinance”) seeking, among other things, a disqualification order against Kwok Choi Ha, Michelle (the ^“2^nd Respondent”) in respect of her conduct of the business and affairs of Tack Fat Group International Limited (renamed “Tack Fiori International Group Limited on 23 November 2011”, and further renamed “Life Healthcare Group Limited” on 2 May 2017) (the“Company”).

2.  Subject to the approval of this Court, the Petitioner and the 2^nd Respondent consent to the disposal of these proceedings against the 2^nd Respondent by way of the summary procedure (“Summary Procedure”) sanctioned by the High Court in England and Wales in the case of Re Carecraft Construction Co. Limited [1994] 1 W.L.R. 172, as clarified by the English Court of Appeal in Secretary of State for Trade and Industry v Rogers [1996] 1 W.L.R. 1569 and as adopted by this Court in a number of cases including but not limited to Securities and Futures Commission v Yick Chong San [2007] 4 HKLRD 46, Securities and Futures Commission v Fung Chiu and others [2009] 2 HKC 19 (2^nd Respondent), Securities and Futures Commission v Shum Ka Sang Charlie and Shen Yi,unrep., HCMP 1014/2008 (22 May 2009), Securities and Futures Commission v Cheung Chi Shing and others [2011] 1 HKLRD 96 (3^rd Respondent), Securities and Futures Commission v Cheung Keng Ching and others,unrep., HCMP 1869/2008 (18 March 2010) (3^rd Respondent), Securities and Futures Commission v Kwok Wing and others, unrep., HCMP 3392/2013 (9 October 2014) (3^rd Respondent), (27 March 2015) (4^th Respondent),  Securities and Futures Commission v Li Hejun and others [2017] 4 HKLRD 785, and Securities and Futures Commission v Fan Di and others, unrep., HCMP 1761/2009 (24 January 2018) (1^st Respondent) in respect of proceedings under Section 214 of the Ordinance.

3.  This Schedule is produced in order to provide the Court, for the purpose of disposing of the proceedings by way of the Summary Procedure, with the core facts that are not disputed in relation to allegations relied upon by the Petitioner.

4.  The facts set out in this Schedule are not disputed between the Petitioner and the 2^nd Respondent on the basis that the case against the 2^nd Respondent will be dealt with by the Court by way of the Summary Procedure.  If the Court for whatever reason is of the view that these proceedings shall not be dealt with by the Summary Procedure or that a full hearing is appropriate, no admission or concession by either the Petitioner or the 2^nd Respondent nor any proposal for disqualification or the period of disqualification referred to below or liability to pay costs shall be referred to or relied upon by either party at any subsequent hearing without the prior written consent of both parties.

5.  Subject to paragraphs 2 to 4 above and solely for the purpose of resolving these proceedings by way of the Summary Procedure, and by reference to the facts not in dispute set out in Part B of this Schedule (which the 2^nd Respondent admits and accepts), the 2^nd Respondent accepts that during the relevant period, the business and affairs of the Company, for which the 2^nd Respondent, as one of the executive directors, was partly responsible, have been conducted in a manner described in Section 214(1)(b) and (c) of the Ordinance, namely:-

(1)  involving misfeasance or other misconduct towards it or its members or a part of its members; and

(2)  resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs that they might reasonably expect.

6.  On the basis of the facts set out in Part B of this Schedule and the agreed mitigating factor set out in Part C of this Schedule, the Petitioner and the 2^nd Respondent agree, and the 2^nd Respondent is prepared to accept, that it would be appropriate for a disqualification order to be made against the 2^nd Respondent under section 214(2)(d) of the Ordinance under which she shall not, for a period of 6 years from the date of the order to be made and without the leave of the Court,

(1)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted company in Hong Kong including the Company or any of its subsidiaries and affiliates; and

(2)  in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company in Hong Kong including the Company or any of its subsidiaries and affiliates.

The definitions of company, subsidiaries and affiliates are set out in Appendix 1 to this Schedule.

7.  In the event of a disqualification order being made against the 2^nd Respondent by reference to this Schedule, the Petitioner and the 2^nd Respondent agree that this Schedule be annexed to the Court’s judgment and will jointly seek a direction to that effect.  In the event of a disqualification order being made against the 2^nd Respondent by reference to this Schedule, without prejudice to all the Petitioner’s rights under the general law, the Petitioner specifically reserves the right to (a) make use of this Schedule where it appears proper to do so in the public interest, including, but not limited to, for the purpose of any press release issued in respect of these proceedings; and (b) refer to this Schedule for purposes connected with or ancillary to these proceedings.

B.  Facts not in dispute

8.  The structure of Part B of this Schedule is as follows:-

(1)  Paragraphs 9 to 27 set out the background information relating to:-

(a)  the Company (Part B1); and

(b)  the board of directors of the Company (Part B2).

(2)  Paragraphs 28 to 73 (Parts B3 to B7)set out the facts relied upon by the Petitioner in support of its case that the business and affairs of the Company have been conducted in such manner described in section 214(1)(b) and (c) of the Ordinance.

(3)  Paragraphs 74 to 77 (Part B8)set out the facts relied upon by the Petitioner in support of its case that the 2^nd Respondent was responsible in part for the aforesaid business and affairs of the Company.

B1.  The Company

9.  The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 12 March 2001.

10.  The Company is and was at all material times registered in Hong Kong as an overseas company under Part XI of the then Companies Ordinance (Cap.32) (now Part 16 of the Companies Ordinance (Cap.622)).

11.  At all material times, the Company established its principal place of business in Hong Kong at 13^th Floor, Roxy Industrial Centre, 58-66 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong (“Office Premises”).

12.  The Company was an investment holding company.  The Company through its operating subsidiaries (collectively with the Company, the “Group”) was principally engaged in the manufacture and sale of garment products, with manufacturing base in the Mainland of the People’s Republic of China (“PRC”)and the Kingdom of Cambodia.

13.  Ever Century Holdings Limited (“Ever Century”) was a wholly owned subsidiary of the Company.  Ever Century held directly or indirectly the entire issued share capital of all the remaining subsidiaries of the Group.

14.  The shares of the Company were listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKSE”) on 29 April 2002 (Stock Code No. 928).

15.  On 30 July 2008, the shares of the Company were suspended from trading.

16.  On 10 September 2008, the Company filed a petition for winding up.

17.  On 11 September 2008, Roderick John Sutton and Fok Hei Yu of Ferrier Hodgson Limited were appointed as provisional liquidators of the Company (“Provisional Liquidators”).

18.  On 5 August 2011, the Provisional Liquidators were discharged upon the successful completion of the restructuring of the Group.

19.  On 9 August 2011, trading in the shares of the Company resumed on the HKSE.

20.  With effect from 23 November 2011, the name of the Company was changed to “Tack Fiori International Group Limited”. On 2 May 2017, the name of the Company was changed again to “Life Healthcare Group Limited”.

B2.  The board of directors of the Company

21.  At all material times, Kwok Wing (the 1^st Respondent) was the chairman of the board of directors and a substantial shareholder of the Company, through his interest in Efulfilment Enterprises Limited and Sharp Asset Holdings Limited which together held 762,424,000 shares in the Company (38.12% of total issued shares). 

22.  Kwok Wing was represented in the Annual Reports of the Company for the year ended 31 March 2007 and 31 March 2008 as having over 36 years of experience in the clothing industry, that he was responsible for the formulation of overall corporate policy and business development strategy of the Group, and that he was also responsible for supervising the operation of the Group’s business and maintaining relationships with the major customers of the Group. 

23.  Kwok Wing retired from the board of directors of the Company on 6 October 2009. 

24.  The 2^nd Respondent is the daughter of Kwok Wing’s cousin, Kwok Kam Chuen.  She received up to year 3 secondary school education in China.  She migrated to Hong Kong in around early 90s and joined the Group in 1987.  She started off as a clerk of Tack Fat Manufacturing Factory Limited and then became a merchandiser and responsible for product development and design.  She became an executive director of the Company from 1 September 2007.  She resigned from this position on 20 March 2009.  By the time she resigned from the Company, the 2^nd Respondent had more than 20 years of experience in garment manufacturing.

25.  Ho Yik Kin Norman (“Norman Ho”) (the 3^rd Respondent) was an executive director of the Company from 26 March 2001 until his resignation on 9 September 2008.  He was represented in the Company’s Annual Report for the year ended 31 March 2007 as having over 30 years of experience in the clothing industry and was responsible for overseeing the sales and merchandising department of the Group.

26.  Lam Yick Sing (the 4^th Respondent) was an executive director of the Company from 24 June 2008.  He resigned from this position on 9 September 2008. 

27.  Between June and October 2008, the Company had two other executive directors:-

(1)  Gary Drew Douglas, who was appointed on 24 June 2008 and resigned on 12 September 2008; and

(2)  Chan Chak Kai, Kenneth, who was appointed on 24 June 2008 and retired on 6 October 2009.

B3.  Loans entered into by the Company in June and July 2008

28.  In around mid-2008, the Group had various outstanding liabilities, including loans under banking facilities provided by Bank of America, Banco Commercial de Macau S.A., CITIC Ka Wa Bank, and Taipei Fubon Bank.

29.  Between June and July 2008, the Company entered into six loan agreements with various moneylenders (“Loans”) which resulted in total additional borrowings of approximately HK$98 million.

(1)  On 6 June 2008, the Company entered into a loan agreement with Union Glory Finance Inc. (“Union Glory”) to borrow the sum of HK$30,000,000 (“Union Glory Loan”).  The loan proceeds were, however, paid to Chung Nam Securities Limited.  Union Glory, subsequently, on 7 July 2008, assigned the loan to Forefront Finance Co. Limited (“Forefront”).

(2)  On 12 June 2008, the Company entered into a loan agreement with Double Smart Finance Limited (“Double Smart”) to borrow the sum of HK$15,000,000 (“Double Smart Loan”).  Kwok Wing, his brother, Kwok Chiu, and Ever Century executed a share charge in favour of Double Smart to charge all their shares in Tack Fat International Holdings Limited (which Kwok Wing and Kwok Chiu held on trust for the Company). 

(3)  On 12 June 2008, the Company entered into a loan agreement with Forefront to borrow the sum of HK$27,500,000 (“Forefront Loan”), in which another entity, Capital Union Inc., participated.  As security for the loan, Chiu Wing Enterprise Company Limited (“Chiu Wing”), a wholly owned subsidiary of the Company, granted Forefront a legal charge to the Office Premises, and the Company executed a share charge over all its shares in Ever Century. 

(4)  On 12 June 2008, the Company entered into a loan agreement with Hansom Finance Limited (“Hansom”) to borrow the sum of HK$7,500,000 (“Hansom Loan”). The loan is secured by a legal charge in favour of Hansom on a property located at Unit 19D, Roxy Industrial Centre, 58-66 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong (“19D Property”), held by Chiu Wing.

(5)  On 9 July 2008, the Company entered into a loan agreement with Willie Financing Limited (“Willie”) to borrow the sum of HK$8,000,000 (“Willie Loan”)secured by a legal charge on the Office Premises. 

(6)  On 23 July 2008, the Company entered into a further loan agreement with Hansom to borrow the sum of HK$10,000,000, secured by a legal charge on the 19D Property owned by Chiu Wing and a share charge over the Company’s shares in Ever Century.

(a)  The 2^nd Respondent’s involvement in relation to the Loans

30.  In early June 2008, before the Company entered into the Loans, the 2^nd Respondent was asked by Kwok Wing to sign certain loan agreements to be entered into by the Company.  The 2^nd Respondent was told by Kwok Wing that the Company was in urgent need of funds and that the loan agreements needed to be signed immediately for the Company to borrow money.  When asked by the 2^nd Respondent why the Company did not have sufficient fund, Kwok Wing told the 2^nd Respondent that it was merely a cashflow problem and the Company could repay the loan in 3 months.  The 2^nd Respondent was further told by Kwok Wing that the other executive director, Norman Ho, had already approved the documents.

31.  Thereafter, at Kwok Wing’s request, the 2^nd Respondent on two occasions signed a series of documents in relation to loans extended to the Company.  On the first occasion, Kwok Wing informed the 2^nd Respondent that the amount of the loans was in the sum of around HK$60 million. 

32.  In relation to the Union Glory Loan, the 2nd Respondent signed the loan agreement dated 6 June 2008 on behalf of the Company. 

33.  In relation to the Double Smart Loan, the 2^nd Respondent signed the minutes of a board meeting of the Company dated 12 June 2008 approving the Double Smart Loan.

34.  In relation to the Forefront Loan:-

(1)  The 2^nd Respondent executed, on behalf of the Company, the share charge over the Company’s shares in Ever Century dated 12 June 2008.

(2)  The 2^nd Respondent further executed, on behalf of the Company, the legal charge over the Office Premises dated 12 June 2008 in favour of Forefront as security for the Forefront Loan.

35.  In relation to the Hansom Loan, the 2^nd Respondent signed, on behalf of the Company, the legal charge over the 19D Property dated 12 June 2008 in favour of Hansom as security for the Hansom Loan.

36.  In relation to the Willie Loan, the 2^nd Respondent signed an attendance sheet annexed to the minutes of a board meeting of the Company dated 9 July 2008 approving the Willie Loan.

37. The 2nd Respondent signed the loan documents and said minutes referred to in paragraphs 32 to 36 above upon Kwok Wing’s instructions and representations in circumstances where:-

(1)  she did not know whether the Company would be able to repay the Loans;

(2)  she did not know why the Company had to borrow money or enter into loans with moneylenders instead of banks; and

(3)  she trusted Kwok Wing’s decisions to enter into the loan agreements without making any independent inquiries of her own or reviewing the financial information of the Company.

(b)  Failure to disclose price sensitive information regarding the Loans

38.  According to the expert evidence of the Petitioner, information on the Loans was price-sensitive and constituted information required to be disclosed to avoid a false market:-

(1)  The Company resorted to borrowing from moneylenders on top of its general banking facilities.

(2)  In order to secure the loans from Forefront and Hansom, the Company’s most substantial asset, being shares in Ever Century (which, as stated above, held, directly or indirectly, the entire share capital of all other subsidiaries in the Group), was charged.  Further, shares in Tack Fat International Holdings Limited were charged to secure the loan from Double Smart and real properties in which the Company was interested (through Chiu Wing) were also charged to secure the loans from Forefront, Hansom and Willie.

(3)  The Loans and the terms on which they were secured indicated that the Company’s financial position had drastically deteriorated.

(4)  The foregoing was specific information about the Company which was not generally known before trading of the shares of the Company was suspended on 30 July 2008 to the persons who were accustomed or would be likely to deal in the listed securities of the Company, but would, if it were generally known to them, be likely to materially affect (i.e. to cause a substantial decline in) the price of the listed securities.

39.  The 2^nd Respondent, as executive director of the Company, had knowledge of the Loans. She executed various loan and security documents on behalf of the Company on the instruction of Kwok Wing as detailed in paragraphs 32 to 37 above.

40.  In failing to disclose such price-sensitive information, the 2^nd Respondent, amongst others on the board of directors of the Company, permitted or caused the Company to be in breach of Rule 13.09 of the Rules Governing the Listing of Securities on the HKSE (“Listing Rules”).

41.  On 30 July 2008, the shares of the Company were suspended from trading pending the release of the results for the year ended 31 March 2008.

42.  On 12 August 2008, Gary Drew Douglas on behalf of the Company made an announcement:-

(1)  giving a profit warning on the financial results of the Company for the financial year ended 31 March 2008;

(2)  that the outstanding indebtedness of the Company as at 31 March 2008 amounted to approximately HK$992 million;

(3)  that the Company made further borrowings of approximately HK$99 million since 1 April 2008 (with no further particulars or details);

(4)  that the Company had defaulted in repayment of bank loans including HK$145 million due to Taipei Fubon Bank, HK$133 million due to CITIC Ka Wah Bank and HK$164,300 due to BCM (Banco Comercial de Macau) S.A.; and

(5)  that the Company was unable to repay the amounts due to its creditors.

43.  It was not until after the Provisional Liquidators investigated into the records and affairs of the Company that a further announcement was made on 24 October 2008, to disclose additional information about the Loans and to reveal that the entire issued share capital of Ever Century had already been transferred to a company called Merrier Limited on 15 August 2008. 

44.  By failing to take any steps in procuring the Company to disclose information regarding the Loans to the members of the Company, the 2^nd Respondent had conducted the business or affairs of the Company in a manner resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect.

B4.  Allotment and trading of 40,000,000 shares in the Company

45.  On 6 June 2008, one Guo Jin Sheng (“Guo”) and one Pan Duan Fang (“Pan”) each issued a share option exercise notice to exercise share options purportedly granted by the Company on 4 June 2008.  Guo and Pan each applied for 20,000,000 shares at the exercise price of HK$0.65 per share, totaling HK$13,000,000.

46.  Kwok Wing, on behalf of the Company, accepted the share applications of Guo and Pan, and approved the allotment of 40,000,000 shares in total.

47.  On 12 June 2008 and 13 June 2008, Guo and Pan each deposited 20,000,000 shares of the Company into their respective stock trading accounts at BOCI Securities Limited (“BOCI Accounts”).

48.  From 16 June 2008, Guo conducted a series of sale transactions for the shares of the Company through his BOCI Account. By 29 July 2008, all 20,000,000 shares of the Company held by Guo were sold.  The proceeds of sale in the total amount of HK$9,562,498.88 were paid into Guo’s account at Chong Hing Bank.

49.  From 18 June 2008, Pan conducted a series of sale transactions for the shares of the Company through her BOCI Account. By 22 July 2008, all 20,000,000 shares of the Company held by Pan were sold. The proceeds of sale in the total amount of HK$10,873,496.17 were paid into Pan’s account at Chong Hing Bank.

(a)  Nominee arrangement between Kwok Wing, Guo and Pan

50.  Upon investigation of the Petitioner, the Petitioner came to the view that Guo and Pan were in fact nominees of Kwok Wing and acted upon his instructions. According to the investigation of the Petitioner:-

(1)  Guo was a manual worker at the Company’s factory in Mainland China for 15 years. His monthly salary was around RMB1,000.

(2)  Pan was the chief of the Company’s factory in Mainland China.

(3)  Guo’s and Pan’s BOCI Accounts were opened by Guo and Pan at the request of Kwok Wing, who had initiated contact with a member of staff at BOCI to carry out account opening procedures for them.

(4)  Each transaction carried by Guo and Pan in trading the shares of the Company was made upon the instructions of Kwok Wing.

51.  Further, according to the investigation of the Petitioner, the allotment of 40,000,000 shares to Guo and Pan was not supported by any payment to the Company:-

(1)  Guo and Pan did not personally make any payment in respect of the allotted shares.

(2)  The applications for allotment of shares by Guo and Pan were supported by 2 cheques dated 6 June 2008, each in the sum of HK$13,000,000, issued by the 2^nd Respondent’s sister, Guo Caichan.

(3)  Guo Caichan’s bank account from which the cheques were issued (account no. 012-802-00058970) maintained with the Bank of China (Hong Kong) Limited), had a balance of HK$1 at the time of issuance of the cheques. Accordingly, there were never any funds to meet the cheques in purported payment for the allotment of shares.

(4)  Guo Caichan, who was a plant manager in a factory, would not have had the financial ability to pay the aforesaid sums.

52.  In any event, the cheques were never presented for payment by the Company. There is no evidence of any other purported or actual payment for the allotment of shares.

53.  By reason of the foregoing, it is to be inferred that Kwok Wing through Guo and Pan as nominees received 40,000,000 shares of the Company without making any payment and traded in such shares between 16 June 2008 and 29 July 2008.

(b)   The 2^nd Respondent’s involvement in approving the allotment of shares to Guo and Pan

54.  The 2^nd Respondent signed on the first page of the minutes of a board meeting held in the morning of 4 June 2008, which was convened for the purpose of considering the proposed grant of share options to several employees under the Company’s share option scheme adopted on 11 April 2002:-

(1)  Annexed to the minutes of the board meeting (“4 June 2008 Minutes”) was a list (“List”) of the names of persons and the numbers of share options proposed to be granted to each of them.

(2)  The List included the names of Guo and Pan, to each of whom the board proposed to grant 20,000,000 share options.

(3)  The 4 June 2008 Minutes stated inter alia that the directors present at the meeting carefully considered the terms and conditions of the shares proposed to be granted as listed in the List, and would be satisfied that the proposed grant of such share options would be in the interest of the Company.

(4)  The 2^nd Respondent signed (i) on the first page of the 4 June 2008 Minutes, next to the list of directors present; and (ii) at the bottom of the List.  The 2^nd Respondent therefore took part in the approval of the grant of share options to Guo and Pan.

55.  Later that day, at the request of Kwok Wing, the 2^nd Respondent attended a dinner in Shenzhen with some colleagues of the factories in the PRC, which included Guo and Pan:- 

(1)  According to the investigation of the Petitioner, two staff members of BOCI from Hong Kong contacted the 2^nd Respondent for the address of the restaurant. They arrived at the restaurant and arranged for Guo and Pan to sign account opening documents for the BOCI Accounts during that dinner.

(2)  The 2^nd Respondent was present when Guo and Pan signed account opening documents for their stock trading accounts.

(3)  Immediately after the dinner the 2^nd Respondent knew that Guo and Pan had each opened an account.

56.  Notwithstanding that the 2^nd Respondent knew that Guo and Pan worked at the Company’s factory in Mainland China earning a low salary, and that they did not have the financial ability to pay the subscription price of HK$13,000,000 each for the allotted shares, the 2^nd Respondent approved the grant of share options of 40,000,000 shares in the Company to Guo and Pan without making any enquiries or exercising any independent judgment.

B5.  The Company’s acquisition of 40% interest in Global Agricultural Development Limited (“Global Agricultural”)

57.  On 8 July 2008, Forever Fit Holdings Limited (“Forever Fit”) entered into an acquisition agreement with one Li Zhong Ming (“Li”) whereby Forever Fit agreed to purchase and Li agreed to sell 40% of both the entire issued share capital of and the shareholder’s loan due by Global Agricultural at a total consideration of HK$300 million (the “Acquisition Agreement”). 

58.  The Company had always been the sole shareholder of Forever Fit, which was incorporated on 28 April 2008.   

59.  Under the Acquisition Agreement, Forever Fit would provide the consideration by procuring Global Far East (Macao Commercial Offshore) Limited (“Global Far East”), another wholly owned subsidiary of the Company, to assign as beneficial owner all the rights, title, benefits and interests in its account receivables in the aggregate book value of around HK$328 million purportedly due from a debtor known as MUDD (USA) LLC (“MUDD”).  The invoices dated between 1 August 2007 and 31 March 2008 purportedly representing the account receivables were listed in a schedule annexed to the Acquisition Agreement.

60.  However, upon the investigation of the Petitioner, the Petitioner came to the view that the account receivables purportedly due from MUDD to Global Far East were fictitious and did not exist.

(a)  Disclosure of false and misleading information regarding the Acquisition Agreement

61.  On 15 July 2008, the Company announced the proposed acquisition under the Acquisition Agreement.  In the announcement, Li was described as an independent third party who was the sole beneficial owner of the entire issued share capital of Global Agricultural.  It was further stated that the consideration agreed under the Acquisition Agreement was arrived at after arm’s length negotiations between Li and Forever Fit.

62.  On 21 July 2008, an article appearing in the Hong Kong Economic Times alleging that Kwok Wing was one of the substantial shareholders of Global Agricultural prompted the HKSE to make an enquiry to the Company pursuant to Rule 13.10 of the Listing Rules.

63.  In response of the aforesaid enquiry, the Company made a further announcement clarifying the ownership of Global Agricultural.  In the announcement, it was stated, inter alia, that:-

(1)  Kwok Wing was not the registered and beneficial owner of any share in Global Agricultural immediately prior to the date of the Acquisition Agreement.

(2)  Wan Lai Ngan (“Ms Wan”), the wife of Kwok Wing, was the sole registered and beneficial owner of Global Agricultural from 15 November 2005, being the date of its incorporation.

(3)  On 9 February 2007, Ms Wan transferred her entire interest, being one ordinary share, in Global Agricultural to Kwok Wing whereupon he became the sole shareholder of Global Agricultural. 

(4)  On 15 October 2007, Kwok Wing disposed of his entire interest, being one ordinary share, in Global Agricultural to Li.

(5)  Li was a third party independent of and not connected with the Group.

64.  According to the investigation of the Petitioner:-

(i)  Li was a worker from the PRC who worked as a cutting-machine operator in the Company’s factory in Cambodia until 4 to 5 years before his acquisition of Global Agricultural on 15 October 2007.

(ii)  Li would not have the financial resources to acquire the entire interest in Global Agricultural.  Kwok Wing was in fact the beneficial owner of Global Agricultural and Li was acting as Kwok Wing’s nominee.

(iii)  The Company’s acquisition of 40% interest in Global Agricultural (through Forever Fit) was accordingly a connected transaction under Rule 14A.13(1)(a) of the Listing Rules.  The Company had therefore made false and misleading announcements and representations to the public and HKSE regarding the status of Li and the ownership of Global Agricultural.

(b)  The 2^nd Respondent’s involvement in the approval of the Acquisition Agreement and the relevant announcements

65.  In respect of the minutes of a board meeting of the Company purportedly held on 7 July 2008 at 4 p.m. approving the Acquisition Agreement and the related announcement, the 2^nd Respondent signed an attendance sheet indicating that she was present at such a meeting.

66.  In respect of the minutes of the board meeting of the Company purportedly held on 8 July 2008 at 4:05 p.m. approving certain amendments to the Acquisition Agreement and the related announcement, the 2^nd Respondent signed an attendance sheet indicating that she was present at such a meeting.

67.  The 2^nd Respondent signed on the said attendance sheets, even though:-

(1)  she knew nothing about, and had never paid any attention to, the proposed acquisition;

(2)  she had never discussed the proposed acquisition with Kwok Wing or other directors;

(3)  she had never heard of Li, Global Agricultural, Forever Fit or Global Far East;

(4)  she had never seen the Acquisition Agreement; and

(5)  she did not understand, and no one had explained to her, the purpose of the proposed acquisition.

B6.  Failure to maintain a proper financial management system

68.  The Company, under the management of its board of directors, which included the 2^nd Respondent, failed to maintain a financial management system at all such that by the time the Provisional Liquidators were appointed, most of the books and records of the Company and its subsidiaries could not be found.

69.  The auditors of the Company gave a qualified opinion in the Independent Auditor’s Report dated 1 August 2007 for the year ended 31 March 2007, which was incorporated in the 2007 Annual Report of the Company, citing insufficient information and a failure to provide all necessary books and records.

70.  The Independent Auditor’s Report of the Company dated 22 July 2009 for the year ended 31 March 2008, which was incorporated in the 2008 Annual Report, gave an adverse opinion due to the loss of books and accounts.

71.  Kwok Wing was the sole person in control of the financial records of the Company and had moved the books and records of the Company overseas.  It was therefore impossible to accurately and reliably ascertain the financial status of the Company without Kwok Wing’s assistance.  Thus, no satisfactory system of financial management had been put in place by the Company’s board of directors (which included the 2^nd Respondent) at all material times.

B7.  Serious dereliction of duties by the 2^nd Respondent

72.  In conducting the affairs of the Company in relation to the transactions by the Company, the 2^nd Respondent had acted on the instructions of Kwok Wing without exercising proper independent judgment in fulfilling her duties as an executive director of the Company.

73.  The 2^nd Respondent has informed the Petitioner and accepted that, despite being an executive director of the Company:-

(1)  she did not fully understand the nature, responsibilities or requirements of being a director or an executive director;

(2)  she agreed that she was not a competent executive director of the Company;

(3)  she had little or no experience or expertise in managing financial matters of the Company and she relied on the other three executive directors at the time to do so;

(4)  she merely showed up at board meetings and that she could leave after signing the attendance records. She never discussed any matters, gave her opinions or raised any queries at such meetings;

(5)  when required to vote, she would simply follow Kwok Wing’s direction without raising any further inquiries. All decisions in respect of the Company were made by Kwok Wing alone, whom she trusted and whose instructions she followed without question;

(6)  she would sign documents and execute agreements on behalf of the Company, even if she did not understand their contents, without raising any queries. In reliance on Kwok Wing’s representations, she signed a series of documents in relation to the Loans as set out in paragraphs 32 to 36 above;

(7)  she did not care about discussions in board meetings unless they concerned her daily duties, such as receiving orders or making samples. Generally, she did not participate in and knew nothing about the management and decision-making in the Company;

(8)  she had no knowledge of the financial status of the Company, had never read any financial statements or accounts of the Company, and did not know the subsidiaries of the Company; and

(9)  she did not exercise any independent commercial judgment in considering whether any proposed transactions mentioned in Parts B3 to B6 above were in the commercial interest of the Company.

B8.  Misconduct by the 2^nd Respondent

74.  At all material times, as a director of the Company, the 2^nd Respondent owed, among others, the following duties to the Company:-

(1)  to exercise reasonable care and diligence in her management of the Company;

(2)  to act in good faith and in the best interests of the Company; and

(3)  to exercise reasonable care and diligence to implement a sound and prudent system of financial control so as to minimize the risk of misappropriation of corporate assets.

75.  Further, under Rule 3.08 of the Listing Rules, the 2^nd Respondent was responsible for fulfilling her fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law and was further required to, inter alia, (i) act honestly and in good faith in the interests of the Company as a whole, (ii) act for proper purpose, (iii) be answerable to the Company for the application or misapplication of its assets, and (iv) apply such degree of skill, care and diligence as may be reasonably expected of a person of his knowledge and experience and holding her office within the Company.  The 2^nd Respondent was required to take an active interest in the Company’s affairs and obtain a general understanding of its business.  She was required to follow up anything untoward that comes to her attention.

76.  In relation to the facts and matters set out in Parts B3 to B7 above, the 2^nd Respondent had acted in breach of her duties to the Company and had conducted the business or affairs of the Company in a manner described in Section 214(1)(b) and (c) of the Ordinance, namely:-

(1)  involving misfeasance or other misconduct towards it or its members or a part of its members; and

(2)  resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs that they might reasonably expect.

77.  By reason of her position and responsibilities in the Company, the 2^nd Respondent acknowledges and accepts that she was partly responsible for the aforesaid conduct of the business and affairs of the Company.

C.   Agreed mitigating factor

78.  The 2^nd Respondent adopted a reasonable course of action in agreeing to conclude these proceedings by way of the Summary Procedure which would save both the time and costs of the Petitioner and the Court.

D.  Proposal for Disqualification

79.  On the basis of the undisputed facts set out in Part B and the agreed mitigating factor set out in Part C above, the parties agree that it would be appropriate for a disqualification order to be made against the 2^nd Respondent under section 214(2)(d) of the Ordinance that, for a period of 6 years from the date of the order to be made, she shall not:-

(1)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted company in Hong Kong including the Company or any of its subsidiaries and affiliates; and

(2)  in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company in Hong Kong including the Company or any of its subsidiaries and affiliates.

E.   Costs

80.  If, pursuant to this Schedule, the Court disposes of these proceedings summarily, the 2^nd Respondent agrees that there should additionally be an order that the 2^nd Respondent do pay the Petitioner’s costs, to be taxed if not agreed.

Dated the 8^th day of August 2019.

Appendix 1
Definitions

In this Schedule:-

“corporation” means a company or other body corporate incorporated either in Hong Kong or elsewhere;

“company”means a company as defined in section 2(1) of the Companies Ordinance (Cap. 622).  The expression “company” in the definitions of subsidiary, holding company and affiliate below, shall be read as including a corporation;

“subsidiary” means, with respect to its holding company, a company:-

(i)  the composition of the board of directors of which is directly or indirectly controlled by the holding company; or

(ii)  more than half of the issued share capital of which is directly or indirectly controlled by the holding company; or

(iii)  which is a subsidiary of a company which is a subsidiary of the holding company; or

(iv)  which is accounted for and consolidated in the holding company’s consolidated financial statements;

“holding company” in relation to a company shall be read as a reference to a company of which that last-mentioned company is a subsidiary; and

“affiliate” in respect of a company, means any subsidiaries or holding companies of such company or any subsidiaries of any of the holding companies of such company.