HCMP 3392/2013
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 3392 OF 2013
____________
IN THE MATTER OF Tack Fat Group International Limited (renamed Tack Fiori International Group Limited on 23 November 2011)
and
IN THE MATTER OF Section 214 of the Securities and Futures Ordinance, Cap 571
____________
BETWEEN
SECURITIES AND FUTURES COMMISSION
Petitioner
and
KWOK WING
1st Respondent
KWOK CHOI HA, MICHELLE
2nd Respondent
HO YIK KIN, NORMAN
3rd Respondent
LAM YICK SING
4th Respondent
TACK FAT GROUP INTERNATIONAL LIMITED
5th Respondent
KEY WINNER HOLDINGS LIMITD
6th Respondent
____________
Before: Hon G Lam J in Chambers
Date of Hearing: 9 October 2014
Date of Decision: 9 October 2014
_______________
D E C I S I O N
_______________
1. I have before me a petition presented against six respondents under section 214 of the Securities and Futures Ordinance (Cap 571) by the Securities and Futures Commission. This is the hearing of the petition insofar as it concerns the 3rd respondent. As against the 3rd respondent, the Commission seeks a disqualification order pursuant to section 214(2)(d) of the Ordinance.
2. The 3rd respondent has consented to the disposal of these proceedings by way of the summary Carecraft procedure, subject to the court’s approval. Under that procedure, the court is not entitled to make findings upon materials other than the agreed facts. However, it does not oblige the court to make a disqualification order, and does not bind the judge to any agreed period of disqualification to be imposed.
3. Having reviewed the petition and the agreed facts, as well as other materials in the court file, I consider that this is an appropriate procedure to adopt in the present case.
4. The facts that are not in dispute between the parties, and will form the basis of my decision pursuant to this summary procedure, are set out in a schedule placed before me which, by consent, will be annexed to my decision when it is reduced into writing. It is, therefore, unnecessary for me to rehearse the detailed agreed facts.
5. Suffice it to say the following. Between 2001 and September 2008, the 3rd respondent was a director of Tack Fat Group International Limited, renamed Tack Fiori International Group Limited on 23 November 2011, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited on 29 April 2002. Trading in the company’s shares was suspended on 30 July 2008. The company filed a petition for its own winding-up in September 2008 and provisional liquidators were appointed.
6. The group, consisting of the company and its subsidiaries, was successfully restructured, and the company’s shares had resumed trading in August 2011.
7. The first of the Commission’s complaints is that a month or two before the suspension of trading of its shares, while it already had substantial outstanding liabilities, the company borrowed six new loans from money lenders totalling approximately $98 million. Information about these loans was price-sensitive and was required to be, but was not, in fact, disclosed to the public to avoid a false market.
8. In addition, in July 2008, a subsidiary of the company acquired 40 per cent of the shareholding of Global Agricultural Development Limited, apparently from an individual called Li Zhong Ming. The company issued public announcements and statements to The Stock Exchange of Hong Kong Limited to the effect that Li was an independent third party when, in fact, he was acting as the nominee of the 1st respondent who was the Chairman of the Board of Directors and a substantial shareholder of the company. Accordingly, the company had made false and misleading announcements and representations to the public and the stock exchange.
9. Further, the company failed to maintain a financial management system at all such that when it went into provisional liquidation, very few accounting books and records could be found.
10. The gravamen of the complaint against the 3rd respondent, which he accepts, is that he was in breach of his duties to exercise reasonable care and diligence in his management of the company, and to act in good faith in the best interests of the company.
11. Such conduct falls within the scope of the word “misfeasance” in section 214(1)(b) which is defined as “the performance of an otherwise lawful act in a wrongful manner”: Schedule 1, Part 1, section 1 of the Ordinance, as well as the term “other misconduct” which covers a director’s failure to apply reasonable care and skill: Re Riverhill Holdings Limited [2007] 4 HKLRD 46 at paragraph 15.
12. The failure to comply with disclosure requirements applicable to listed companies also meant that the company’s members were not provided with all the information concerning the company’s business or affairs that they could expect.
13. Accordingly, on the basis of the admitted facts, I am satisfied that within the meaning of section 214, the business or affairs of the company have been conducted in a manner involving misfeasance or other misconduct towards it or its members or a part of its members, and 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.
14. I am also satisfied that the 3rd respondent was partly responsible for the business or affairs of the company having been so conducted.
15. The jurisdiction of the court to make a disqualification order against the 3rd respondent under section 214(2)(d) is therefore engaged.
16. It seems to me that the admitted facts show that the 3rd respondent had acted irresponsibly, without the expected level of diligence and competence, and with a marked indifference to his position and duties as a director of the company. While I accept that the 3rd respondent was not among those centrally involved in the impugned transactions, I agree that his conduct should nevertheless place him in the middle bracket, ie 6 to 10 years, of the disqualification period referred to in Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 at 174.
17. I accept, however, that there are a number of mitigating factors in favour of the 3rd respondent, including that:
(1) he has been fully cooperative in the inquiries by the Commission;
(2) he has adopted a reasonable course of action by agreeing to dispose of the proceedings by way of summary procedure at an early stage and admitting the relevant facts for this purpose, thereby saving both time and costs; and
(3) he has agreed to pay part of the Commission’s costs.
18. In all the circumstances, I consider that the period of 6 years agreed by the parties is an appropriate period of disqualification. I shall, therefore, make an order that the 3rd respondent shall not, for a period of 6 years from the date hereof, without 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.
19. The terms “company”, “subsidiary” and “affiliate” have the meaning designated in Appendix 1 to the Schedule of Agreed Facts.
20. There will also be an order that the 3rd respondent pay the Commission’s costs in the sum agreed.
(G Lam)
Judge of the Court of First Instance
High Court
Mr Bernard Man, instructed by Securities and Futures Commission, for the petitioner
Mr Julian S F Chan, instructed by Ma Tang & Co, for the 3rd respondent
HCMP 3392 / 2013
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO. 3392 OF 2013
___________________
IN THE MATTER OF
Tack Fat Group International Limited
(renamed Tack Fiori International Group Limited on 23 November 2011 )
AND
IN THE MATTER OF Section 214 of the
Securities and Futures Ordinance, Cap.571
___________________
BETWEEN
SECURITIES AND FUTURES COMMISSION
Petitioner
and
KWOK WING
1st Respondent
KWOK CHOI HA, MICHELLE
2nd Respondent
HO YIK KIN, NORMAN
3rd Respondent
LAM YICK SING
4th Respondent
Tack Fat Group International Limited
5th Respondent
KEY WINNER HOLDINGS LIMITED
6th Respondent
_______________________________________________________
SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF
THE 3RD RESPONDENT (HO YIK KIN, NORMAN)
_______________________________________________________
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 Ho Yik Kin, Norman (the “3rd Respondent ”) in respect of his conduct of the business and affairs of Tack Fat Group International Limited (renamed Tack Fiori International Group Limited on 23 November 2011) (the“Company ”).
2. Subject to the approval of this Court, the Petitioner and the 3rd Respondent consent to the disposal of these proceedings against the 3rd 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 Secretary of State for Trade and Industry v Rogers Securities and Futures Commission v Yick Chong San Securities and Futures Commission v Fung Chiu and others nd Respondent), Securities and Futures Commission v Shum Ka Sang Charlie and Shen Yi Securities and Futures Commission v Cheung Chi Shing and others rd Respondent) and Securities and Futures Commission v. Cheung Keng Ching and others rd 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 3rd Respondent on the basis that the case against the 3rd 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 3rd 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 3rd Respondent admits and accepts), the 3rd Respondent accepts that during the relevant period, the business and affairs of the Company, for which the 3rd 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, the Petitioner and the 3rd Respondent agree, and the 3rd Respondent is prepared to accept, that it would be appropriate for a disqualification order to be made against the 3rd Respondent under section 214(2)(d) of theOrdinanceunder which he shall not, for a period of 6 years 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 3rd Respondent by reference to this Schedule, the Petitioner and the 3rd 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 3rd 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) disclose this Schedule to third parties where it appears proper to do so in the public interest, including, but not limited to, making use of the Schedule 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 26 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 27 to 60 (Parts B3 to B6)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 61 to 64 (Part B7)set out the facts relied upon by the Petitioner in support of its case that the 3rd 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 13th 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 the “Group ”) 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.
B2. The board of directors of the Company
21. At all material times, Kwok Wing (the 1st 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 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 left Hong Kong in around August 2008 and retired from the board of directors of the Company on 6 October 2009. He was arrested by the police on arrival in Hong Kong on 30 July 2013 and is currently remanded in the custody of the Correctional Services Department.
24. Kwok Choi Ha, Michelle (the 2nd Respondent) is Kwok Wing’s niece. She received up to year 3 secondary school education in China. She started off as a clerk of the Company and then became a merchandiser. She became an executive director of the Company from 1 September 2007. She resigned from this position on 20 March 2009.
25. Lam Yick Sing (“Tommy Lam ”)(the 4th Respondent) was an executive director of the Company from 24 June 2008. He resigned from this position on 9 September 2008.
26. The 3rd 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 Reports as having over 30 years of experience in the clothing industry and was responsible for overseeing the sales and merchandising department of the Group.
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. 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 ”).
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. 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).
(2) On 12 June 2008, the Company entered into a loan agreement with Forefront to borrow the sum of HK$27,500,000, 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.
(3) 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. 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.
(4) 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 secured by a legal charge on the Office Premises.
(5) 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) Failure to disclose price sensitive information regarding the Loans
30. 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.
31. In failing to disclose such price-sensitive information, the 3rd 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 ”).
32. 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.
33. 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); and
(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.
34. 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 (“Merrier ”) on 15 August 2008.
(b) The 3rd Respondent’s involvement in relation to the Loans
35. In or around late May or June 2008, the 3rd Respondent participated in discussions in board meetings by way of telephone conference where the proposed Loans in the order of several ten million Hong Kong dollars to be borrowed from the Chung Nam Group or its associated companies for the purpose of covering the Company’s outstanding liability owed to CITIC Ka Wa Bank were discussed. The 3rd Respondent, however, did not understand the full details of those discussions and was content to leave the matter to the other directors. No minutes of the discussions were sent to the 3rd Respondent afterwards.
36. Further, in relation to the loan from Willie:
(1) The 3rd Respondent signed an attendance sheet annexed to the minutes of a board meeting of the Company purportedly held on 9 July 2008 at 11 a.m. approving the loan from Willie, thereby indicating that he was present at such a meeting.
(2) Yet, this meeting never took place.
(3) The 3rd Respondent was only asked by Kwok Wing to sign the attendance sheet retrospectively, after 9 July 2008.
(4) The 3rd Respondent signed the attendance sheet notwithstanding that:
(i) he did not attend any board meeting to approve the loan from Willie;
(ii) he knew that the board meeting purportedly held on 9 July 2008 in fact never took place;
(iii) he had not seen nor was he given a copy of the loan agreement between the Company and Willie;
(iv) he had no knowledge about Willie;
(v) he did not know what the loan proceeds were for; and
(vi) he had initially refused to sign.
(5) The 3rd Respondent ultimately signed the attendance sheet because:
(i) Kwok Wing had instructed him to do so;
(ii) Kwok Wing and Tommy Lam had already signed the same; and
(iii) the loan had already been borrowed.
37. Save and except the facts stated in paragraph [36] above, the Petitioner’s investigations revealed that the 3rd Respondent had not signed or executed any other minutes of board meeting of the Company approving any of the Loans or any agreements or documents in connection with the Loans.
38. In the course of inquiries by the Petitioner, the 3rd Respondent informed the Petitioner that he had no knowledge of the identity of any of the moneylenders which provided the Loans.
B4. The Company’s acquisition of 40% interest in Global Agricultural Development Limited (“GAD”)
39. 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 GAD at a total consideration of HK$300 million (the “Acquisition Agreement ”).
40. The Company had always been the sole shareholder of Forever Fit, which was incorporated on 28 April 2008.
41. 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.
42. However, the account receivables due from MUDD to Global Far East were fictitious. They did not exist.
(a) Disclosure of false and misleading information regarding the Acquisition Agreement
43. 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 GAD. 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.
44. On 21 July 2008, an article appearing in the Hong Kong Economic Times alleging that Kwok Wing was one of the substantial shareholders of GAD prompted the HKSE to make an enquiry to the Company pursuant to Rule 13.10 of the Listing Rules.
45. In response of the aforesaid enquiry, the Company made a further announcement clarifying the ownership of GAD. In the announcement, it was stated, inter alia , that:
(1) Kwok Wing was not the registered and beneficial owner of any share in GAD 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 GAD 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 GAD to Kwok Wing whereupon he became the sole shareholder of GAD.
(4) On 15 October 2007, Kwok Wing disposed of his entire interest, being one ordinary share, in GAD to Li.
(5) Li was a third party independent of and not connected with the Group.
46. On 22 July 2008, HKSE made a further enquiry to the Company seeking clarification on the circumstances surrounding each disposition of shares in GAD by the respective parties.
47. By a fax dated 22 July 2008 from the Company’s legal advisers to HKSE, it was stated that:
(1) the disposal of interest in GAD from Ms Wan to Kwok Wing on 9 February 2007 was a family arrangement and the consideration was based on the nominal value of the share transferred; and
(2) the disposal of interest in GAD from Kwok Wing to Li on 15 October 2007 was due to commercial reasons, but the consideration could not be disclosed due to the sensitive nature of the transaction under the political environment in Cambodia.
48. By a fax dated 24 July 2008, HKSE queried whether the information contained in the Company’s announcements dated 15 and 21 July 2008 was accurate and complete in all material respects and whether the series of transactions in 2007 represented an arrangement whereby HKSE would deem Li to be a connected person under Rule 14A.06 or Rule 14A.11(4) of the Listing Rules. HKSE, pursuant to Rule 3A.20 of the Listing Rules, further directed the Company to appoint a compliance adviser to review the aforesaid matters.
49. On 31 July 2008, the Company through its legal adviser sought to have HKSE’s direction reviewed by the Listing Committee pursuant to Rule 2B.06 of the Listing Rules.
50. Subsequently, no follow up action has been taken by the Company to review or comply with the direction.
51. 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 GAD on 15 October 2007.
52. Li did not have the financial resources to acquire the entire interest in GAD. Kwok Wing was in fact the beneficial owner of GAD and Li was acting as Kwok Wing’s nominee.
53. The Company’s acquisition of 40% interest in GAD (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 GAD.
(b) The 3rd Respondent’s involvement in the approval of the Acquisition Agreement and the relevant announcements
54. At the time of the Acquisition Agreement, the 3rd Respondent had never heard that the Group had had any interest in involving itself in the natural resources or forestry business. The matter was never discussed at any board meetings or between any directors, and was only Kwok Wing’s decision. The 3rd Respondent did not understand what the transaction pursuant to the Acquisition Agreement was about, yet because it did not concern the Group’s garment manufacturing business for which he was responsible, he took no interest in it and did not endeavour to find out more.
55. The 3rd Respondent knew Li to be a former colleague who worked as a cutting-machine operator in the Company’s factory in Cambodia until 4 to 5 years before his acquisition of GAD on 15 October 2007. He believed Li would not have sufficient financial strength to acquire GAD which held forest land.
56. In particular, at the time when the acquisition was approved and announced, the 3rd Respondent did not know:
(1) Forever Fit, the purchaser, was a wholly owned subsidiary of the Company;
(2) any information about GAD;
(3) why Global Far East would have account receivables sufficient for the acquisition, given that to the 3rd Respondent’s knowledge Global Far East was not an operating company and had no substantial business; and
(4) that he had an obligation to understand the transaction as he thought that he was only obliged to focus on the Group’s garment manufacturing business.
57. Further:
(1) 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 3rd Respondent signed an attendance sheet indicating that he was present at such a meeting.
(2) 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 3rd Respondent signed an attendance sheet indicating that he was present at such a meeting.
(3) However, the 3rd Respondent did not attend board meetings on both 7 and 8 July 2008. So, at least one of such meetings did not take place.
(4) He signed those attendance sheets retrospectively.
(5) He signed the attendance sheets even though he did not fully understand the acquisition transaction because in his view the Company would proceed with the transaction in any event regardless of whether he signed.
(6) After he had signed these attendance sheets, the 3rd Respondent harboured a suspicion about whether Li was an independent third party, to the extent that he questioned Kwok Wing about it. However, the 3rd Respondent was satisfied by Kwok Wing merely promising that he was “handling it”, and he did not make any further inquiry on this issue thereafter.
B5. Failure to maintain a proper financial management system
58. The Company, under the management of its board of directors, which included the 3rd 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 recovered from the office of the Company and its subsidiaries were minimal.
59. 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.
60. 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.
61. 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.
B6. Serious dereliction of duties by the 3rd Respondent
62. In conducting the affairs of the Company in relation to the transactions by the Company, the 3rd Respondent had acted (or failed to act) in serious abdication and dereliction of duties by acting on the mere say-so and instructions of Kwok Wing without exercising proper independent judgment in fulfilling his duties as an executive director of the Company.
63. The 3rd Respondent has informed the Petitioner that, despite being an executive director of the Company since it had been listed:
(1) he regarded himself as a sales person only, in particular, he was primarily responsible for the jeans business of the Group;
(2) he did not understand the duties of a director and did not regard himself as having the right to veto decisions made by Kwok Wing;
(3) Kwok Wing would make the decisions for the Company, and the 3rd Respondent would, alongside other directors, simply be informed of the same;
(4) he signed documents on behalf of the Company on the instructions of Kwok Wing even when he was not certain of their contents; and
(5) he did as he was told by Kwok Wing.
B7. Misconduct by the 3rd Respondent
64. At all material times, as a director of the Company, the 3rd Respondent owed, among others, the following duties to the Company:-
(1) to exercise reasonable care and diligence in his 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.
65. Further, under Rule 3.08 of the Listing Rules, the 3rd Respondent was responsible for fulfilling his 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 his office within the Company. The 3rd Respondent was required to take an active interest in the Company’s affairs and obtain a general understanding of its business. He was required to follow up anything untoward that comes to his attention.
66. In relation to the facts and matters set out in Part B3 to B6 above, the 3rd Respondent had acted in breach of his 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.
67. By reason of his position and responsibilities in the Company, the 3rd Respondent acknowledges and accepts that he was partly responsible for the aforesaid conduct of the business and affairs of the Company.
C. Proposal for Disqualification
68. On the basis of the undisputed facts set out in Part B above, the parties agree that:
(1) it would be appropriate for a disqualification order to be made against the 3rd Respondent under section 214(2)(d) of the Ordinance that, for a period of 6 years, he shall not:-
(a) 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
(b) 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.
D. Agreed mitigating factors
69. In the course of inquiries by the Petitioner, the 3rd Respondent was fully cooperative with the Petitioner.
70. The 3rd Respondent adopted a reasonable course of action in agreeing to conclude these proceedings by way of the Summary Procedure at an early stage which would save both the time and costs of the Petitioner and the Court.
E. Costs
71. If, pursuant to this Schedule, the Court disposes of these proceedings summarily, the 3rd Respondent agrees that there should additionally be an order that the 3rd Respondent do pay the Petitioner’s costs in the sum agreed with the Petitioner.
Dated the day of 2014.
______________________________ _____________________________
Securities and Futures Commission
Ma Tang & Co.
Petitioner
Solicitors for the 3rd Respondent
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.