SECURITIES AND FUTURES COMMISSION v. XU JINPEI AND OTHERS

HCMP 572/2022

[2026] HKCFI 2187

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 572 OF 2022

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REASONS FOR DECISION

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Introduction

1.  On 12 May 2022, the Securities and Futures Commission (“SFC”) presented a petition (“Petition”) pursuant to section 214 of the Securities and Futures Ordinance, Cap. 571 (“SFO”) seeking, inter alia, disqualification orders against the 1^st to 8^th Respondents in respect of the business or affairs of China Candy Holdings Limited (“Company”).

2.  The trial against the 1^st to 3^rd Respondents took place before this Court on 2 and 6 March 2026. The proceeding[1] in relation to the 6^th Respondent was disposed of by way of the Carecraft[2]procedure on 19 September 2023. Thus, the present proceedings concern only the 4^th, 5^th, 7^th and 8^th Respondents (collectively, “Respondents”) each of whom has agreed with the SFC to dispose of the proceedings by way of the Carecraft procedure based on four sets of Statements of Agreed Facts (individually, “R4 Statement”, “R5 Statement”, “R7 Statement” and “R8 Statement”; collectively, “Statements”). The Statements are appended to these Reasons.

3.  Based on the facts set out in the Statements, the Respondents accept that the business or affairs of the Company had been conducted in a manner within the meaning of sections 214(1)(b), (c) and (d) of the SFO between 1 June 2015 and 31 December 2017, and that they were responsible for the same. On this basis, the SFC and the Respondents agreed that it would be appropriate for disqualification orders of the following durations to be made against them under sections 214(2)(a) and (d) of the SFO[3]:

(1)  The 4^th Respondent: 24 months;

(2)  The 5^th Respondent: 33 months;

(3)  The 7^th Respondent: 12 months; and

(4)  The 8^th Respondent: 12 months.

4.  At the hearing, I made an order in terms of the draft orders submitted by the SFC subject to some minor amendments discussed with counsel. These are my reasons for doing so.

Background

5.  The relevant facts as admitted by the Respondents have been set out in full at [11] to [28] of the Statements. The following summary would suffice.

6.  The Company was incorporated in the Cayman Islands on 14 March 2014. It was listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Ltd (“SEHK”) (stock code: 8182) between 11 November 2015 and 31 December 2019 when its listing status was cancelled.

7.  The Company was an investment holding company. Its subsidiaries included Fujian Holeywood Food Industrial Co. Ltd (“HW Food”) and Jinjiang Holeywood Trading Co. Ltd (“HW Trading”) (collectively, “Group”), which were principally involved in the manufacturing of candy products in the People’s Republic of China (“PRC”). As of 31 December 2016, HW Food and HW Trading accounted for 89% of the Group’s assets. Their business and affairs were regarded as the business and affairs of the Company.

8.  At all material times, the 1^st to 8^th Respondents were senior management officers of the Company. Relevantly:

(1)  The 4^th Respondent became the Company’s executive director (“ED”) on 30 December 2016, and then its chairman (“Chairman”) on 31 July 2017. She resigned from these positions with effect from 30 November 2017;

(2)  The 5^th Respondent became the Company’s ED on 2 February 2017, and then its Chairman on 30 November 2017;

(3)  The 7^th Respondent had served as an independent non-executive director (“INED”) and a member of the audit committee of the Company (“Audit Committee”) since 26 October 2015. He resigned from these positions with effect from 24 July 2017; and

(4)  The 8^th Respondent had served as an INED and the chairperson of the Audit Committee since 29 February 2016. He resigned from these positions with effect from 14 September 2017.

9.  At all material times, HLB Hodgson Impey Cheng Ltd (“HLB”) was the Company’s auditor until its resignation on 14 February 2018.

10.  The Company published its 2016 Interim Report (“2016 IR”) on 11 August 2016 and its 2016 Annual Report (“2016 AR”) on 17 March 2017[4]. Subsequent investigations revealed that both the 2016 IR and the 2016 AR contained significant overstatements in the Company’s cash and bank balances as at 30 June 2016 and 31 December 2016, which were in turn caused by the overstatements in the bank balances of HW Food and HW Trading (“Overstatements”).

11.  The Overstatements can be illustrated by way of comparison between (1) the genuine bank statements (“Genuine Bank Statements”) and (2) the bank ledgers (“Bank Ledgers”) provided by the Company to the SFC as well as HLB’s Working Papers (“HLB WP”):

Account	Per Bank Ledgers & HLB WP (RMB)	Per Genuine Bank Statements (RMB)	Overstatements  (RMB)
As at 30 June 2016
HW Food’s account with China Construction Bank in the PRC (“CCB”) with account number 35001656247052500648 (“HW Food Account”)	41,201,641	3,601,641	37,600,000
HW Trading’s CCB account with account number 35001656247052506680 (“HW Trading Account”)	503,125	3,125	500,000
Total	41,704,766	3,604,766	38,100,000
As at 31 December 2016
HW Food Account	44,325,674	845,674	43,480,000

12.  The Overstatements were caused by the omission of non-recorded transactions and the booking of non-existent withdrawals in the Company’s Bank Ledgers. To inflate the cash and bank balances, non-existent deposits would generally be booked near month-end, and would be cancelled out or “rectified” later by omitting to book non-recorded transactions in the Genuine Bank Statements and/or booking non-existent withdrawals in the Bank Ledgers (“Offset”). In the case of the 2016 IR and the 2016 AR, the Offset only took place after the financial period cut-off point, i.e. after 30 June 2016 and 31 December 2016. This had the effect of inflating cash and bank balances, thereby making the financial position of the Company/Group appear healthier.

13.  Such scheme of overstating the Company’s bank balances (“Inflation Scheme”) was perpetrated and/or concealed by a scheme of fabricating records relating to the financial position of the Company/Group (“Falsification Scheme”).

14.  The Overstatements contained in the 2016 IR and the 2016 AR are substantial:

	As at 30 June 2016 (RMB)	As at 31 December 2016 (RMB)
Cash and Bank Balances	43,789,000	44,889,000
Net Assets	86,105,000	83,621,000
Total Assets	166,616,000	160,071,000
Percentage of Cash and Bank Balances to Net Assets	51%	54%
Percentage of Cash and Bank Balances to Total Assets	26%	28%
Overstatement of Bank Balances	38,100,000	43,480,000
Percentage of Overstatement	•  87% of the purported cash and bank balances •  44% of the purported net assets •  23% of the purported total assets	•  97% of the purported cash and bank balances •  52% of the purported net assets •  27% of the purported total assets

Breach of Directors’ Duties

15.  The Respondents accept that they, as directors, owed various duties to the Company, including[5]:

(1)  A duty to exercise reasonable care, skill and diligence that would be exercised by a reasonably diligent person with (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and (b) the general knowledge, skill and experience that the director has;

(2)  A continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable him/her to properly discharge his/her duties as a director of the company; and

(3)  Where he/she has delegated some of the managerial or financial responsibilities to his/her subordinates or other fellow officers, a duty to supervise the discharge of the delegated responsibilities.

16.  The Respondents further accept that they had breached their duties in the following manner[6]:

(1)  They had acted negligently and/or in breach of their duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements, thereby failing to disclose the true financial position of the Company to its shareholders; and

(2)  They had breached their duties by failing to exercise reasonable care, skill and diligence in the performance of their functions and management of the Company’s affairs.

17.  By reason of the above breaches, the Respondents accept that the business or affairs of the Company had been conducted in a manner within the meaning of sections 214(1)(b), (c) and (d) of the SFO[7].

Applicable Principles to Section 214 of the SFO

18.  Before remedies under section 214(2) of the SFO can be granted, the following three conditions must be satisfied, namely, (1) the corporation in question is or was a listed corporation, (2) the business or affairs complained of is that of the corporation, and (3) the conduct complained of falls within one or more heads of misconduct specified in sections 214(1)(a) to (d) of the SFO[8].

19.  I have recently summarised the scopes of sections 214(1)(a) to (d) of the SFO in SFC v Li Hui & Ors[9]:

“19. Regarding the first condition, ‘listed’ means ‘listed on a recognised stock market’.

20. Regarding the second condition, the conduct complained of can be that of the listed company and/or the subsidiaries directed by or under the control of such listed company. The Court will take a realistic approach in determining whether the affairs of the subsidiary are the affairs of the holding company.

21. In respect of the third condition:

(1) ‘Oppressive’ under section 214(1)(a) of the SFO has been described as tyrannical conduct, abuse of power or a visible departure from the standards of fair dealing. It typically involves an abuse of one’s rights or powers as a majority to procure the occurrence or non-occurrence of events unfair or prejudicial to the complainants who, by reason of their minority status, can only submit;

(2) As regards section 214(1)(b) of the SFO:

(a) ‘Defalcation’ is defined as ‘misapplication, including misappropriation, of any property’. Misapplication means the disposition of the company’s property which the company or the board is forbidden, incompetent or unauthorised to make, or which is carried out by the directors in breach of their duties in good faith to promote the success of the company and for proper purposes;

(b) ‘Misfeasance’ is defined as ‘the performance of an otherwise lawful act in a wrongful manner’. The notion of misfeasance overlaps with that of breach of fiduciary duty and seemingly covers a wide range of conduct. In particular, it covers a director’s 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;

(c) The words ‘other misconduct’ connote improper or wrong behaviour of mismanagement, or culpable neglect of duties. This term is something of a ‘belt and braces exercise’, and is intended to cover the ‘widest range of possible misconduct’ including a director’s breach of the duty to exercise reasonable skill, care and diligence in the management of a company;

(3) Regarding section 214(1)(c) of the SFO, it can be complementary to the other subsections and covers situations such as (a) the making of misleading or false announcements and (b) situations requiring publication of periodic financial statements and announcements, as members are entitled to expect the listed company to provide complete and accurate information in respect of such matters; and

(4) As regards section 214(1)(d) of the SFO, the conduct in question does not have to be wrong per se. ‘Unfairly prejudicial’ conduct covers a range of conduct, from fraud at the one end to neglect or inaction on the part of those to whom the affairs of a company are entrusted on the other end. The question to be asked in such circumstances is whether the conduct concerned is that which can be expected from the managers of the company to whom those affairs have been entrusted. It covers the case where the listed company has (a) failed to comply with the disclosure requirements, (b) made misleading or false announcements and (c) failed to publish periodic financial statements and announcements, as members are entitled to expect the listed company to provide complete and accurate information in respect of such matters.”

Application of Section 214 of the SFO

20.  In this case, I am satisfied that the conditions for granting relief under section 214(2) of the SFO have been met.

21.  The first condition is satisfied, given that the Company was listed on GEM of the SEHK between 11 November 2015 and 31 December 2019.

22.  The second condition is also satisfied. This is because the matters complained of by the SFC concern the affairs of the Company and its subsidiaries, i.e. HW Food and HW Trading, which were directed by or under the control of the Company as their accounts were incorporated into the Company’s consolidated accounts at all material times.

23.  As to the third condition, I am satisfied on the basis of the Statements that:

(1)  The Overstatements of key financial information of the Company concern “the business or affairs” of the Company, thereby triggering section 214(1) of the SFO;

(2)  The Overstatements perpetrated through the Inflation Scheme and the Falsification Scheme were not done for a proper purpose or in the best interests of the Company. To the contrary, the whole arrangement was to defraud shareholders of the Company. In this regard, the Respondents had acted negligently and/or in breach of their duty of care, skill and diligence by failing to uncover the Overstatements. Their failure to disclose the true financial position of the Company to its shareholders constitutes “fraud, misfeasance or other misconduct” under section 214(1)(b) of the SFO;

(3)  As a result of the Overstatements, shareholders of the Company were not given all the information with respect to its business or affairs that they might reasonably expect, namely, the true position of its cash and bank balances, thereby triggering section 214(1)(c) of the SFO; and

(4)  Such Overstatements as well as the Respondents’ negligence and/or breach of duties in failing to uncover the Overstatements would plainly be unfairly prejudicial to the shareholders of the Company. In particular, the shareholders were provided with false financial information and were denied access to the true financial position of their Company, thereby triggering section 214(1)(d) of the SFO.

24.  As such, I am satisfied that “the business or affairs of a corporation have been conducted in a manner described in subsection 1(a), (b), (c) or (d), whether through conduct consisting of an isolated act or a series of acts or any failure to act”, and the jurisdiction of this Court to grant remedies under section 214(2) of the SFO is, therefore, engaged.

Applicable Principles to Disqualification Orders

25.  In granting a disqualification order, the Court will be guided by the following principles[10]:

“(1) The power to determine the appropriate period of disqualification is a discretionary power. It will be necessary for the Court to be satisfied that the director’s involvement in the relevant matter involves a sufficiently serious failure to satisfy his duties that some period of disqualification is justified and fair;

(2) The objectives of a disqualification order are twofold: (a) to protect the public and (b) as a general deterrence. The former is recognised to be the primary purpose.[11] It is of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realise that these are personal responsibilities;

(3) In deciding whether to make a disqualification order, the Court adopts a broad-brush approach. Earlier decided cases are of limited assistance to the exercise of the Court’s discretion;

(4) The Court must be independently satisfied, based on the agreed facts, that the business or affairs of the Company have been conducted in a manner described in section 214(1)(a), (b), (c) or (d) of the SFO and, if so satisfied, determine the scope and duration of the disqualification order;

(5) The Court is not bound by the agreement reached between the parties. However, in practice, the Court is likely to be guided by the agreement that the SFC, as a responsible regulator, has reached;

(6) The period of disqualification must reflect the gravity of the offence. The period of disqualification may be fixed by starting with an assessment of the correct period to fit the gravity of the conduct, and a discount is then given for mitigating factors;

(7) Generally speaking, the Court has divided the maximum period of disqualification of 15 years into three brackets, though these are only guides and not straitjackets:

(a) The top bracket, of disqualification for over 10 years, for particularly serious cases;

(b) The middle bracket, of disqualification for between 6 to 10 years, for cases which, although serious, are not so serious so as to merit a period of disqualification in the top bracket;

(c) The minimum bracket, of disqualification for up to 5 years, for relatively less serious cases; and

(8) The Court will have regard to a wide range of considerations, including the age, state of health and character of the offender, the nature of the breaches, the honesty and competence of the offender, the length of time he has been in jeopardy, whether he appreciates and/or admits the breaches, his general conduct before and after the offence, the periods of disqualification of his co-directors that may have been ordered by other courts, and the interest of shareholders, creditors and employees.”

26.  Whilst the Court is not bound by the agreement reached between the parties, it will not interfere as long as the disqualification periods are within the range that the Court thinks is reasonable, even if the Court might have imposed a slightly different period of disqualification absent an agreement[12].

Disqualification Orders

4^th Respondent

27.  The 4^th Respondent was an ED of the Company between 30 December 2016 and 30 November 2017, and the Chairman of the Company between 31 July 2017 and 30 November 2017.

28.  Various admissions were made by the 4^th Respondent.

(1)  She admits that she should have discovered the Overstatements (which she accepts to be material) had she exercised reasonable care, skill and diligence, having regard to (a) the very substantial scale of the Overstatements which were not a one-off incident, (b) her position in the Company, her understanding of its overall finances and her being in a position to verify the cash and bank balances as represented in the 2016 IR and the 2016 AR, (c) her being in a position to have a rough estimate of the Company/Group’s cash and bank balances, and (d) her duty to ensure that the Company had proper and adequate internal controls[13].

(2)  She admits that any delegation of her managerial and/or financial responsibilities to the rest of the Company’s board of directors (“Board”) and/or subordinates did not absolve her from her duty to supervise the discharge of the delegated responsibilities[14].

(3)  Since she was at one point an ED and the Chairman of the Company, the 4^th Respondent admits that she ought to have had an independent understanding as to the overall business and performance of the Group as a whole, as well as its mode of operation. But she acted negligently and was in breach of her duties as an ED and/or the Chairman of the Company[15].

(4)  Although CT Partners Consultants Ltd (“CT Partners”) had prepared internal control review reports (“Reports”) and identified potential issues (“Potential Red Flags”), the 4^th Respondent admits that she failed to pay attention to the Potential Red Flags and acted negligently by failing to monitor and exercise proper internal control. In particular, she failed to ensure that the Board would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ Reports, and failed to ensure that the measures stated in CT Partners’ Reports were implemented and enforced[16].

(5)  She admits that she had failed to act reasonably to ensure that the Audit Committee and the compliance committee of the Company (“Compliance Committee”) performed their duties by implementing and enforcing the measures stated in CT Partners’ Reports[17].

(6)  She admits that she had relied on HLB and CT Partners to identify and report issues regarding audit or internal controls, thereby abdicating her duties to independently identify and assess such issues[18].

29.  In determining the appropriate period of disqualification, Mr Suen invited the Court to take into account the following factors.

(1)  The misconduct of the 4^th Respondent is one of negligence which, by reason of its relatively less serious nature, would fall within the minimum bracket of disqualification of up to 5 years.

(2)  That said, the 4^th Respondent’s misconduct had caused substantial harm and prejudice to the Company’s shareholders by denying them access to information as to the true financial position of the Company.

(3)  In view of the 4^th Respondent’s senior position within the Company, i.e. as its ED and Chairman, and her supposed control and knowledge of the Company’s management and key financial information, a disqualification of 24 months is warranted in order to protect the public from her conduct in the future.

30.  As to the mitigating factors, Mr Suen submitted that:

(1)  Although the 4^th Respondent’s conduct fell short of the standards to be expected, it is not the SFC’s case that the 4^th Respondent had knowingly taken part in the Inflation Scheme or the Falsification Scheme;

(2)  The 4^th Respondent accepts liability and has been cooperative in the present proceedings;

(3)  The 4^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft procedure, thereby saving time and costs of the Court and the SFC; and

(4)  The 4^th Respondent agrees to pay her share of the SFC’s costs in the present proceedings.

31.  Mr Alan Au, acting for the 4^th Respondent, relied on the abovementioned mitigating factors, although he submitted that regard should also be had to the following factors.

(1)  The 4^th Respondent’s appointment as an ED of the Company occurred only one day before the end of the 2016 financial year and approximately 2.5 months before the approval of the 2016 financial records. Given the timing, Mr Au submitted that, in reality, the relevant financial records of the impugned transactions would have already been prepared and maintained within the existing management structure by the time of her appointment. Moreover, as a matter of fact, only a small proportion of the impugned transactions had taken place after her appointment. Thus, Mr Au submitted that the period of disqualification to be imposed on the 4^th Respondent should reflect her limited involvement in the Inflation Scheme and/or the Falsification Scheme.

(2)  The Inflation Scheme and the Falsification Scheme were designed to evade ordinary oversight. Indeed, the irregularities involved in the Schemes were not identified by either the Company’s external auditor (who had even issued unqualified audit opinions) or the Company’s INED (with auditing and accounting expertise) serving on the Audit Committee. Mr Au argued that this demonstrates the inherent difficulty of detecting the irregularities at the material time, especially for a newly appointed ED with no operational control over the relevant financial functions, i.e. the 4^th Respondent.

(3)  The financial information which was found to have been misstated concerned cash and bank balances maintained within the Company’s subsidiaries in the PRC. The relevant records were under the control of the most senior management of the Group. The 4^th Respondent did not have direct oversight in relation to those accounting or financial functions at the material time. Rather, her responsibilities were confined to corporate finance, capital investment and investor relations.

(4)  The 4^th Respondent was appointed as an ED and the Chairman of the Company at the age of 29. Prior to these appointments, she had never held any directorship at any listed company, and did not have a professional background in auditing or accounting. Thus, Mr Au submitted that the period of disqualification to be imposed on the 4^th Respondent should reflect the fact that her seniority and functional responsibilities were materially more limited than those of the controlling officers who were directly involved in the Overstatements.

(5)  Not only has the 4^th Respondent been cooperative during the present proceedings by entering into the Carecraft procedure, but that she was also cooperative during the independent investigation which was instituted immediately after concerns regarding the Company’s true financial position had emerged.

(6)  It is not alleged that the 4^th Respondent acted dishonestly, or that she had personally benefited from the Overstatements. Instead, her liability arises solely from a failure to discharge the duties of a director with sufficient care, skill and diligence.

(7)  The 4^th Respondent has no prior disciplinary record.

(8)  Mr Au submitted that a disqualification order, even for a period of 24 months, would have significant and long-lasting consequences on the 4^th Respondent’s professional development within the industry, especially because her current employment is closely associated with listed companies. Mr Au further submitted that any disqualification period longer than 24 months would be disproportionate in light of the 4^th Respondent’s personal circumstances and the abovementioned mitigating factors.

32.  I am satisfied that the proposed duration of 24 months[19] is commensurate with the gravity of the 4^th Respondent’s conduct, gives appropriate regard to the mitigating factors, and meets the principles set out above.

5^th Respondent

33.  The 5^th Respondent has been an ED and the Chairman of the Company since 2 February 2017 and 30 November 2017 respectively.

34.  Various admissions were made by the 5^th Respondent.

(1)  She admits that she should have discovered the Overstatements (which she accepts to be material) had she exercised reasonable care, skill and diligence[20].

(2)  She admits that any delegation of her managerial and/or financial responsibilities to the rest of the Board and/or subordinates did not absolve her from her duty to supervise the discharge of the delegated responsibilities[21].

(3)  Since she was at one point an ED and the Chairman of the Company, the 5^th Respondent admits that she ought to have had an independent understanding as to the overall business and performance of the Group as a whole, as well as its mode of operation. But she acted negligently and was in breach of her duties as an ED and/or the Chairman of the Company[22].

(4)  Although CT Partners had prepared the Reports and identified Potential Red Flags, the 5^th Respondent admits that she failed to pay attention to the Potential Red Flags and acted negligently by failing to monitor and exercise proper internal control. In particular, she failed to ensure that the Board would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ Reports, and failed to ensure that the measures stated in CT Partners’ Reports were implemented and enforced[23].

(5)  She admits that she had failed to act reasonably to ensure that the Audit Committee and the Compliance Committee performed their duties by implementing and enforcing the measures stated in CT Partners’ Reports[24].

(6)  She admits that she had relied on HLB and CT Partners to identify and report issues regarding audit or internal controls, thereby abdicating her duties to independently identify and assess such issues[25].

35.  In determining the appropriate period of disqualification, Mr Suen invited the Court to take into account the factors stated at [29] above. Further, Mr Suen submitted that the Court should take into account the fact that the 5^th Respondent had remained as an ED and the Chairman of the Company for a much longer period than the 4^th Respondent, viz. almost 9 years (as of the date of these Reasons) for the 5^th Respondent versus 4 to 11 months for the 4^th Respondent.

36.  As to the mitigating factors, Mr Suen submitted that:

(1)  Although the 5^th Respondent’s conduct fell short of the standards to be expected, it is not the SFC’s case that the 5^th Respondent had knowingly taken part in the Inflation Scheme or the Falsification Scheme;

(2)  The 5^th Respondent accepts liability and has been cooperative in the present proceedings;

(3)  The 5^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft procedure, thereby saving time and costs of the Court and the SFC; and

(4)  The 5^th Respondent agrees to pay her share of the SFC’s costs in the present proceedings.

37.  The 5^th Respondent, appearing in person, accepted the abovementioned mitigating factors. She did not make any further submission.

38.  I am satisfied that the proposed duration of 33 months[26] is commensurate with the gravity of the 5^th Respondent’s conduct, gives appropriate regard to the mitigating factors, and meets the principles set out above.

7^th Respondent

39.  The 7^th Respondent was an INED and a member of the Audit Committee between 26 October 2015 and 24 July 2017.

40.  Various admissions were made by the 7^th Respondent.

(1)  He admits that he should have discovered the Overstatements (which he accepts to be material) had he exercised reasonable care, skill and diligence[27]. He further admits that, as a member of the Audit Committee, he ought to have reviewed the Company’s financial information and monitored the Company’s internal controls and financial reporting system.

(2)  He admits that any delegation of his managerial and/or financial responsibilities to the rest of the Board and/or subordinates did not absolve him from his duty to supervise the discharge of the delegated responsibilities[28].

(3)  He admits that although he was not, as an INED, involved in running the day-to-day business of the Company, he should have nevertheless acquainted himself with adequate knowledge of such business so as to perform his duties as a member of the Audit Committee. At the very least, he was responsible for monitoring and scrutinising the Company’s corporate governance, particularly its financial position, as well as reviewing the Company’s internal controls[29].

(4)  Although CT Partners had prepared the Reports and identified Potential Red Flags, the 7^th Respondent admits that he failed to pay attention to the Potential Red Flags and acted negligently by failing to monitor and exercise proper internal control. In particular, he failed to ensure that the Board would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ Reports, and failed to ensure that the measures stated in CT Partners’ Reports were implemented and enforced[30].

(5)  He admits that he had failed to act reasonably to ensure that the Audit Committee and the Compliance Committee performed their duties by implementing and enforcing the measures stated in CT Partners’ Reports[31].

(6)  He admits that he had relied completely on HLB and CT Partners to identify and report issues regarding audit or internal controls, thereby abdicating his duties to independently identify and assess such issues[32].

41.  In determining the appropriate period of disqualification, Mr Suen invited the Court to take into account the factors stated at [29] above. Further, Mr Suen submitted that although the 7^th Respondent was an INED, as opposed to an ED or the Chairman, of the Company, the fact remains that the 7^th Respondent occupied a relatively senior position and was a member of the Audit Committee. His latter position would have carried heightened responsibility for the oversight of the Company’s financial reporting, internal controls and risk management.

42.  As to the mitigating factors, Mr Suen submitted that:

(1)  Although the 7^th Respondent’s conduct fell short of the standards to be expected, it is not the SFC’s case that the 7^th Respondent had knowingly taken part in the Inflation Scheme or the Falsification Scheme;

(2)  The 7^th Respondent accepts liability and has been cooperative in the present proceedings;

(3)  The 7^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft procedure, thereby saving time and costs of the Court and the SFC; and

(4)  The 7^th Respondent agrees to pay his share of the SFC’s costs in the present proceedings.

43.  Mr Vincent Chan, acting for the 7^th and 8^th Respondents, accepted the abovementioned mitigating factors. Further, he submitted that the following factors are also relevant to the Court’s determination of the appropriate period of disqualification to be imposed on the 7^th Respondent.

(1)  Whilst there is no doubt that the 7^th Respondent should have performed his duties more diligently, there is no suggestion of fraud, dishonesty, defalcation or lack of commercial probity on the part of the 7^th Respondent. There is no evidence of any personal gain, or that the 7^th Respondent was motivated by any such gain. Neither is there any evidence that the 7^th Respondent knew of (or consciously turned a blind eye to) the Overstatements, the Inflation Scheme or the Falsification Scheme. There is also no suggestion by the SFC that the 7^th Respondent was involved in the Inflation Scheme or the Falsification Scheme[33]. The SFC’s case against the 7^th Respondent is based on negligence and breach of duties.

(2)  The 7^th Respondent’s breach of duties was partly due to a false sense of security created by the unqualified audit opinions issued by the Company’s external auditor upon receiving independent bank confirmation of the relevant bank balance.

(3)  The 7^th Respondent has no prior disciplinary record. He also confirms that there is no pending investigation by any authorities against him.

(4)  Prior to joining the Company, the 7^th Respondent had held INED and/or committee positions at other listed companies, including Century Sunshine Group Holdings Ltd (stock code: 509) and Hao Tian International Construction Investment Group Ltd (stock code: 1341). Since December 2021, however, the 7^th Respondent has not held any directorship and/or committee position at any listed company. There is also no suggestion of the 7^th Respondent re-offending, or having been involved in any questionable conduct that poses a risk to public interest.

(5)  The 7^th Respondent is 58 years old. Given the practical effect of being subject to a disqualification order (even a relatively short one) on any potential appointment as an INED in the future, this case essentially marks the end of the 7^th Respondent’s professional life as an INED of any listed company.

(6)  The 7^th Respondent’s admission as well as cooperation with the SFC in the present proceedings demonstrate his remorse and appreciation of the seriousness of his misconduct.

44.  The SFC and the 7^th Respondent had agreed to carve out a private company, Excellent Management Ltd (“XML”), from the disqualification order to be made against the 7^th Respondent. XML, Mr Chan explained, is an integrated solutions and software company offering technology and consulting services for travel companies in Hong Kong and the Asia-Pacific region. The 7^th Respondent has been working for XML since 1997 and is responsible for its finance and accounting services. Mr Chan submitted that should the 7^th Respondent be disallowed to continue working as XML’s Head of Finance and Accounting Services, this would have a detrimental impact on XML as well as the 7^th Respondent as XML is currently his main source of income.

45.  In light of the business nature of XML and the fact that XML has no plan for public listing, the SFC submitted that the 7^th Respondent’s involvement in XML poses relatively minimal risk to the investing public and that the important purpose of protecting the public would still be achieved by the disqualification order despite the carving out. I agree.

46.  As such, I am satisfied that the proposed duration of 12 months[34] is commensurate with the gravity of the 7^th Respondent’s conduct, gives appropriate regard to the mitigating factors, and meets the principles set out above. I am also satisfied that the carving out of XML would not be against public interest. I would allow the carving out of XML as agreed between the SFC and the 7^th Respondent accordingly.

8^th Respondent

47.  The 8^th Respondent was an INED and the chairperson of the Audit Committee between 29 February 2016 and 14 September 2017.

48.  Various admissions were made by the 8^th Respondent.

(1)  He admits that he should have discovered the Overstatements (which he accepts to be material) had he exercised reasonable care, skill and diligence[35]. He further admits that, as a chairperson of the Audit Committee, he ought to have reviewed the Company’s financial information and monitored the Company’s internal controls and financial reporting system.

(2)  He admits that any delegation of his managerial and/or financial responsibilities to the rest of the Board and/or subordinates did not absolve him from his duty to supervise the discharge of the delegated responsibilities[36].

(3)  He admits that although he was not, as an INED, involved in running the day-to-day business of the Company, he should have nevertheless acquainted himself with adequate knowledge of such business so as to perform his duties as the chairperson of the Audit Committee. At the very least, he was responsible for monitoring and scrutinising the Company’s corporate governance, particularly its financial position, as well as reviewing the Company’s internal controls[37].

(4)  Although CT Partners had prepared the Reports and identified Potential Red Flags, the 8^th Respondent admits that he failed to pay attention to the Potential Red Flags and acted negligently by failing to monitor and exercise proper internal control. In particular, he failed to ensure that the Board would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ Reports, and failed to ensure that the measures stated in CT Partners’ Reports were implemented and enforced[38].

(5)  He admits that he had failed to act reasonably to ensure that the Audit Committee and the Compliance Committee performed their duties by implementing and enforcing the measures stated in CT Partners’ Reports[39].

(6)  He admits that he had relied completely on HLB and CT Partners to identify and report issues regarding audit or internal controls, thereby abdicating his duties to independently identify and assess such issues[40].

49.  In determining the appropriate period of disqualification, Mr Suen, again, invited the Court to take into account the factors stated at [29] above. Further, Mr Suen submitted that although the 8^th Respondent was an INED, as opposed to an ED or the Chairman, of the Company, the fact remains that the 8^th Respondent occupied a relatively senior position and was a chairperson of the Audit Committee. His latter position would have carried heightened responsibility for the oversight of the Company’s financial reporting, internal controls and risk management.

50.  As to the mitigating factors, Mr Suen submitted that:

(1)  Although the 8^th Respondent’s conduct fell short of the standards to be expected, it is not the SFC’s case that the 8^th Respondent had knowingly taken part in the Inflation Scheme or the Falsification Scheme;

(2)  The 8^th Respondent accepts liability and has been cooperative in the present proceedings;

(3)  The 8^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft procedure, thereby saving time and costs of the Court and the SFC; and

(4)  The 8^th Respondent agrees to pay his share of the SFC’s costs in the present proceedings.

51.  Mr Chan accepted the abovementioned mitigating factors. Further, he submitted that the following factors are also relevant to the Court’s determination of the appropriate period of disqualification to be imposed on the 8^th Respondent.

(1)  Whilst there is no doubt that the 8^th Respondent should have performed his duties more diligently, there is no suggestion of fraud, dishonesty, defalcation or lack of commercial probity on the part of the 8^th Respondent. There is no evidence of any personal gain, or that the 8^th Respondent was motivated by any such gain. Neither is there any evidence that the 8^th Respondent knew of (or consciously turned a blind eye to) the Overstatements, the Inflation Scheme or the Falsification Scheme. There is also no suggestion by the SFC that the 8^th Respondent was involved in the Inflation Scheme or the Falsification Scheme[41]. The SFC’s case against the 8^th Respondent is based on negligence and breach of duties.

(2)  The 8^th Respondent’s breach of duties was partly due to a false sense of security created by the unqualified audit opinions issued by the Company’s external auditor upon receiving independent bank confirmation of the relevant bank balance.

(3)  The 8^th Respondent has no prior disciplinary record. He also confirms that there is no pending investigation by any authorities against him.

(4)  Prior to joining the Company, the 8^th Respondent had held INED and/or committee positions at other listed companies, including China Water Affairs Group Ltd (stock code: 855), Smart City Development Holdings Ltd (stock code: 8268) and China Environmental Energy Investment Ltd (stock code: 986). Since August 2025, however, the 8^th Respondent has not held any directorship and/or committee position at any listed company. There is also no suggestion of the 8^th Respondent re-offending, or having been involved in any questionable conduct that poses a risk to public interest.

(5)  The 8^th Respondent is 50 years old. Whilst he is not yet approaching retirement age, given the practical effect of being subject to a disqualification order (even a relatively short one) on any potential appointment as an INED in the future, this case may mark the end of the 8^th Respondent’s professional life as an INED of any listed company.

(6)  The 8^th Respondent’s admission as well as cooperation with the SFC in the present proceedings demonstrate his remorse and appreciation of the seriousness of his misconduct.

52.  I am satisfied that the proposed duration of 12 months[42] is commensurate with the gravity of the 8^th Respondent’s conduct, gives appropriate regard to the mitigating factors, and meets the principles set out above.

Disposition

53.  Accordingly, I made an order that the 4^th, 5^th, 7^th and 8^th Respondents be disqualified from acting as a director of a company for, respectively, 24 months, 33 months, 12 months and 12 months, and that the Respondents do pay the costs of the SFC in these proceedings[43], to be taxed if not agreed.

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF THE 4^TH RESPONDENT

PART I – INTRODUCTION

1.  On 12 May 2022, the Securities and Futures Commission (“Petitioner”) presented a petition pursuant to section 214(1)(b), (c) and (d) of the Securities and Futures Ordinance (Cap. 571) (“SFO”) seeking, among other things:

(1)  an order pursuant to section 214(2)(a) or (d) of the SFO that without leave of the Court, the 1^st to 8^th Respondents shall not, for such period as the Court considers appropriate:

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted corporation in Hong Kong including China Candy Holdings Limited (“Company”) or any of its subsidiaries and affiliates; and

(b)  in any way directly or indirectly be concerned, or take part, in the management of any listed or unlisted corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

(2)  that the 1^st to 8^th Respondents be ordered to pay the costs of the Petitioner.

A.  PURPOSE

2.  Subject to the approval of this Court, the Petitioner and the 4^th Respondent have agreed to dispose of these proceedings against the 8^th Respondent by way of the summary procedure sanctioned in the case of Re Carecraft Construction Co. Ltd. [1994] 1 WLR 172 and as adopted by this Court in a number of cases in respect of proceedings under section 214 of the SFO (“Carecraft Procedure”).

3.  This Schedule is produced in order to provide this Court, for the purpose of disposing of these proceedings against the 4^th Respondent by way of the Carecraft Procedure, with the facts that are agreed as between the Petitioner and the 4^th Respondent.

4.  The facts set out in this Schedule are agreed as between the Petitioner and the 4^th Respondent on the premise that the case against her is to be dealt with by the Court by way of the Carecraft Procedure. If the Court for any reason is of the view that these proceedings shall not be dealt with by the Carecraft Procedure or that a full hearing is appropriate, no admission or concession by either the Petitioner or the 4^th Respondent and none of the proposed orders referred to below or liability to pay costs shall be referred to or relied on by any of the parties at any subsequent hearing without the prior written consent of the Petitioner and the 4^th Respondent.

5.  For the purpose of resolving these proceedings against the 4^th Respondent by way of the Carecraft Procedure, and by reference to the agreed facts set out in Part II of this Schedule, the Petitioner contends and the 4^th Respondent accepts that, during the relevant period, the business and affairs of the Company have been conducted in a manner within the scope of section 214(1)(b) to (d) of the SFO, namely:

(1)  involving defalcation, misfeasance or misconduct towards the Company, its subsidiaries and its members;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

(3)  unfairly prejudicial to its members or part of its members.

B.  UNOPPOSED ORDERS

6.  On the basis of the agreed facts set out in Part II of this Schedule, the Petitioner and the 4^th Respondent agree, and the 4^th Respondent accepts, that it would be appropriate for the orders set out in paragraph 41 below (in Part III of this Schedule) to be made against her.

7.  If pursuant to this Schedule, this Court disposes of these proceedings summarily against the 4^th Respondent, the 4^th Respondent agrees that there should additionally be an order that she shall pay the costs of the Petitioner in these proceedings, to be taxed if not agreed (as set out in paragraph 42 below in Part III of this Schedule).

8.  In the event that this Court makes any order sought against the 4^th Respondent by reference to this Schedule, the Petitioner and the 4^th Respondent agree that this Schedule be annexed to this Court’s judgement and will jointly seek a direction to that effect.

9.  Furthermore, without prejudice to all of the Petitioner’s rights, 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 ancillary to, connected with and/or arising out of these proceedings.

10.  The 4^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft Procedure which saves the time and costs of the Petitioner and the Court.

PART II – STATEMENT OF AGREED FACTS

A.  THE COMPANY AND ITS MANAGEMENT

11.  The Company was incorporated in Cayman Islands on 14 March 2014. It had been listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (“HK Exchange”) (stock code: 8182) since 11 November 2015 until 31 December 2019 when its listing status was cancelled.

12.  The Company was an investment holding company and carried on business through its subsidiaries (together the “Group”). The Company/ Group were principally engaged in the manufacturing of candies products in the People’s Republic of China (“PRC” or “Mainland”).

13.  At all material times, both Jinjiang Holeywood Trading Co., Ltd (晉江好來屋商貿有限公司) (“HW Trading”, formerly known as Jinjiang Holeywood Enterprise Consulting Co., Ltd), a PRC company principally engaged in the trading of raw materials for candy production, and Fujian Holeywood Food Industrial Co., Ltd (福建好來屋食品工業有限公司) (“HW Food”), another PRC company principally engaged in the production of candy products, were the Company’s subsidiaries.

14.  As the Company was (and still is) an investment holding company, the business and affairs of the Company’s subsidiaries were regarded as the business and affairs of the Company.

15.  As of 31 December 2016, HW Trading and HW Food collectively accounted for 89% of the Group’s total assets.

16.  Mr Xu Jinpei (許金培) (“Xu”) and his (then) spouse Ms Hong Yinzhi (洪蔭治) (“Hong”) were the founders and the former controlling shareholders of the Company.

17.  At all material times, the senior management of the Company comprised (amongst others):

(1)  Xu, the Company’s executive director (“ED”) since 8 January 2015 and the Company’s chairman since 26 October 2015. He resigned from those positions with effect from 31 July 2017.

(2)  Hong, an ED of the Company since 8 January 2015. Hong was also the compliance officer cum chairperson of the Company’s Compliance Committee (since 3 July 2015) and the Company’s chief executive officer (“CEO”) (since 26 October 2015). Hong resigned from all those positions with effect from 19 September 2019.

(3)  Mr Wang Zhihong (王志洪) (“Wang”), the compliance officer of the Company’s Compliance Committee since 3 July 2015 and the Company’s chief financial controller (“CFO”) since 26 October 2015. Wang’s work responsibilities and powers as the CFO were suspended from 18 December 2017. He eventually resigned as the CFO with effect from 19 September 2019.

(4)  The 4^th Respondent herself, an ED of the Company since 30 December 2016. She became the Company’s chairman from 31 July 2017. The 4^th Respondent resigned from those positions with effect from 30 November 2017.

(5)  Ms Hung Yvonne (洪綺婉), an ED of the Company since 2 February 2017 and the chairman of the Company since 30 November 2017.

(6)  Mr Chiu Sai Chuen Nicholas (趙世存), an independent non-executive director (“INED”) and a member of the Audit Committee of the Company since 26 October 2015. He was also the chairperson of the Company’s independent investigation committee (“IIC”) since 14 December 2017.

(7)  Mr Chu Wai Wa Fangus (朱偉華), an INED and a member of the Audit Committee of the Company since 26 October 2015. Chu resigned from those positions with effect from 24 July 2017.

(8)  Mr Ong King Keung (王競強), an INED and the chairperson of the Audit Committee of the Company since 29 February 2016. He resigned from those positions with effect from 14 September 2017.

B.  OVERSTATEMENT OF THE COMPANY’S ASSETS AND FINANCIAL POSITION

18.  The Company published its 2016 Interim Report on 11 August 2016 (“2016 IR”) and its 2016 Annual Report on 17 March 2017 (“2016 AR”). In both the 2016 IR and the 2016 AR, there were significant overstatements in the cash and bank balances as at 30 June 2016 and 31 December 2016 respectively. Such overstatements were caused by the overstatement of the bank balances of HW Food and HW Trading.

19.  At all material times, HLB Hodgson Impey Cheng Limited (“HLB”) was the Company’s auditors until HLB’s resignation on 14 February 2018.

20.  In around October 2017, the Petitioner suspected that the Company might have falsified its accounts, including the sales figures as disclosed in its Prospectus and the financial statements published for the 2016 financial year. A series of investigations then ensued:-

(1)  On 10 October 2017, the Petitioner issued a notice pursuant to section 183 of the SFO to the Company requesting information relating to its top 5 customers, the trial balances and ledgers of the Company’s subsidiaries.

(2)  On 24 November 2017, the Company informed the Petitioner via its solicitors that “… our client has already gathered the relevant information. However, according to our instruction, as of the date hereof, our client has not received from its PRC staff the necessary confirmations”.

(3)  On 8 December 2017, the Company further informed the Petitioner that “… in spite of our numerous requests made to accounting personnel of the Company in the PRC to confirm the authenticity of the information, we are yet to receive any reply from them”.

(4)  On 12 December 2017, at the request of the Company, the trading of its shares on the HK Exchange was suspended.

(5)  On 14 December 2017, the Company announced that pursuant to a regulatory enquiry, it was required to provide information relating to the bank accounts, trial balances and bank ledgers of the Group. The accounting personnel of the Company in the Mainland were however unable to confirm the authenticity of the requested information.

(6)  Pursuant to the same announcement, the IIC comprising the Company’s INEDs (Mr Chiu Sai Chuen Nicholas, Mr Law Yiu Sing and Ms Tsui Suk Man) was established for the purpose of conducting an independent investigation on the authenticity of the requested information. According to the Company, it was Wang who refused to confirm the authenticity of the requested information.

(7)  On 1 February 2018, the IIC engaged Mazars Corporate Recovery & Forensic Services Limited (“Mazars”) to perform an independent investigation, in particular regarding the authenticity of the information of the Group’s bank accounts, trial balances and bank ledgers.

21.  Mazars had in the course of their investigation obtained bank statements of the Group’s subsidiaries from the relevant banks in the PRC (“Mazars Bank Statements”), including China Construction Bank in the PRC (“CCB”). At around 13 August 2018, Mazars issued a draft preliminary investigation report setting out their interim findings, which revealed a number of issues during the period from 1 June 2015 to 31 December 2017 (the “Relevant Period”).

22.  On 31 January 2019, Mazars issued an investigation report concluding that, without being exhaustive, there were:

(1)  Unverifiable outflow of the Company’s fund to directors/staff of the Group:

(a)  There were withdrawals of funds from the bank accounts of HW Trading and HW Food (totalling RMB 178 million) to a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong).

(b)  There were deposits of funds (totalling approximately RMB 135.5 million) from a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong) into the bank accounts of HW Trading and HW Food.

(c)  As to the shortfall of about RMB 42.5 million, the Company explained that the funds were used for operational expenses, such as payment of salaries to the Company’s staff. As there were insufficient information and/or supporting documents, Mazars was unable to verify the explanation given.

(d)  When being interviewed by Mazars, senior officers of the Company claimed that the funds flowing into and out of the bank accounts of HW Trading and HW Food were for loans made to third parties. Mazars noted that such assertion did not tally and could not be reconciled with the Group’s purported loan drawdowns and/or loan repayments by third parties.

(2)  Abnormal accounting records: there were transactions in the bank accounts of HW Food which did not exist but were booked in the Group’s ledger. The corresponding bank slips of those transactions could not be verified against record on CCB’s official website. For instance, the position of the chops, QR code and words on those bank slips were different from the other normal bank slips which were verifiable.

23.  The Petitioner has also in the course of its investigation obtained the bank statements of the Company’s PRC subsidiaries from two sources, i.e. the Mazars Bank Statements and those obtained by the Company from the respective banks pursuant to a notice dated 23 August 2018 and issued by the Petitioner pursuant to section 183 of the SFO (“SFC Notice”). These two sets of bank statements were obtained separately by Mazars and the Company. They are identical in content and are considered to be genuine (collectively referred to as “Genuine Bank Statements”).

24.  In response to the SFC Notice, the Company also provided the Petitioner with the Group’s ledgers covering the period from 1 January 2013 to 31 December 2017, including the cash and bank ledgers (“Bank Ledgers”). The cash and bank balances of each subsidiary as at 30 June 2016 and 31 December 2016 and as recorded in the Bank Ledgers tallied with those shown in HLB’s working papers for the Company’s annual audit and/or interim review (“HLB WP”). This suggested that at the material time, the Company had provided the Bank Ledgers to HLB for interim review and annual audit.

25.  By comparing the Genuine Bank Statements against the Bank Ledgers and HLB WP, there were significant overstatements in the bank balances of HW Food’s CCB account (with account number 35001656247052500648) (“HW Food Account”) and HW Trading’s CCB account (with account number 35001656247052506680) (“HW Trading Account”) as particularised below:

26.  The 4^th Respondent admits, accepts and agrees that:

(a)  The Overstatements were caused by:

(i)  omission of non-recorded transactions, i.e. transactions which were recorded in the Genuine Bank Statements but not shown in the Bank Ledgers (“Non-recorded Transactions”); and

(ii)  booking of non-existent transactions, i.e. transactions which were recorded in the Bank Ledgers but were not shown in the Genuine Bank Statements (“Non-existent Transactions”).

(b)  The Non-recorded Transactions and Non-existent Transactions together (i.e. the recurring pattern of omitting Non-recorded Transactions from and booking Non-existent Transactions in the Bank Ledgers) had the effect of inflating the cash and bank balances in the HW Food Account and HW Trading Account (hence the Company’s consolidated account). The assets and financial position of the Company/ Group appeared healthier than they were in fact and/or were otherwise misstated.

(c)  To inflate the cash and bank balances, non-existent deposits would generally be booked near month-end (“Inflating Entries”). The Inflating Entries would then be cancelled out or “rectified” in the following month (for HW Food) or a few months later (for HW Trading) by omitting to book Non-recorded Transactions and/or booking Non-existent withdrawals in the Bank Ledgers (“Offset”).

(d)  In the case of the 2016 IR and the 2016 AR, the Overstatements were uncovered as the Offset only took place after the financial period cut-off point (i.e. after 30 June 2016 and 31 December 2016), thus inflating the cash and bank balances in the HW Food Account and the HW Trading Account (hence the Group’s published consolidated cash and bank balances) as of 30 June 2016 and 31 December 2016.

(e)  To conceal the Overstatements, the Company had provided falsified documents (such as bank statements, vouchers, and bank slips) to HLB when the auditors conducted interim review for the half year ended 30 June 2016 and annual audit for the years ended 31 December 2015 and 2016. In particular:

(i)  According to Mr Woo Lik Hang (“Woo”), HLB’s manager-in-charge for the Company’s interim reviews and annual audits between 2015 and 2017, during the audits, HLB had selected bank transactions from the Company’s bank ledgers and/or cash book, and matched them against the bank statements and supporting documents (e.g. voucher and bank slips) provided by the Company to see if the transactions in the bank statements were properly recorded and vice versa.

(ii)  Out of the 57 Non-existent Transactions identified by the Petitioner, 36 Non-existent Transactions had been selected by HLB as sample test and at the material time, HLB did not detect irregularity in relation to these 36 transactions. This suggested that the 36 Non-existent Transactions could be found in the bank statements and/or bank slips provided by the Company to HLB. Those bank statements and/or bank slips were falsified documents as they could not be matched with the entries in the Genuine Bank Statements.

(iii)  By comparing the vouchers provided by the Company to Mazars against the Genuine Bank Statements, there were discrepancies in 21 bank slips (relating to Non-existent Transactions) contained in 11 sets of vouchers. Since the Non-existent Transactions were not recorded in the Genuine Bank Statements, those vouchers and bank slips could not be genuine and they were thus falsified documents. The falsified bank slips/ vouchers were recorded and prepared by Wang and/or finance staff of the Company, namely 陳梅雙 or 陳玲玲.

27.  In the circumstances, the scheme for the overstatement and inflation of the Company’s assets and financial positions by overstating the bank balances in the bank accounts of HW Food and HW Trading for the half year ended 30 June 2016 and the financial year ended 31 December 2016 (the “Inflation Scheme”) was perpetrated and/or concealed by way of a scheme for fabricating records relating to the financial position of the Company/ Group which commenced as early as the financial year ended 31 December 2015 (the “Falsification Scheme”).

28.  The 4^th Respondent admits, accepts and agrees that the discrepancies in the false financial positions of the Company/ Group portrayed in the 2016 IR and the 2016 AR are substantial. The material misstatement of key financial information relating to the Company/ Group is not an one-off incident. The substantial misstatements occurred on at least 2 occasions in the 2016 IR and the 2016 AR. The purported cash and bank balances, net assets and total assets of the Group as disclosed in the 2016 IR and the 2016 AR, and the corresponding percentage attributable to the Overstatements, were as follows:

C.  ROLE OF THE 4^TH RESPONDENT AND LIABILITY

C1.  Duties of the 4^th Respondent

29.  The 4^th Respondent admits, accepts and agrees that as a director of the Company, she owed, inter alia, the following duties to the Company:

(1)  To act honestly and in good faith and to act in the best interests of the Company, including but not limited to:

(a)  Not directing, approving, allowing or acquiescing the Company to make:

(i)  statements or announcements to its public shareholders or the public generally which she knows to be (or turns a blind eye to the fact that they are) misleading or false;

(ii)  statements or declarations to the Company’s auditors and regulatory authorities including the HK Exchange that she knows to be (or turns a blind eye to the fact that they are) misleading or false.

(b)  Not acting for any improper purpose in the exercise of her powers and the discharge of her duties.

(2)  Not to act in conflict or to make secret profits.

(3)  To comply with the Company’s bye-laws and the relevant laws and regulations concerning the management of the Company.

(4)  Pursuant to section 465 of the Companies Ordinance (Cap. 622), a duty to exercise reasonable care, skill and diligence that would be exercised by a person with:

(a)  the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and

(b)  the general knowledge, skill and experience that the director has.

(5)  As the Company was listed on the GEM of the HK Exchange, and as a director of the Company, the 4^th Respondent had given an undertaking to comply with and be bound by the Rules Governing the Listing of Securities on GEM of the HK Exchange (“GEM Listing Rules”), including Rule 5.01, which provides that every director must, in the performance of her duties as a director, inter alia:

(a)  Act honestly and in good faith in the interests of the company as a whole;

(b)  Act for proper purpose;

(c)  Avoid actual and potential conflicts of interest and duty; and

(d)  Follow up anything untoward that comes to her attention.

(6)  A duty to act with care, skill and diligence reasonably expected of a person of her knowledge and experience in the performance of their functions and her management of the Company’s affairs.

(7)  A continuing duty to acquire and maintain a sufficient knowledge and understanding of the Company’s business to enable them properly to discharge her duties as a director of the Company.

(8)  Where she has delegated some of the managerial or financial responsibilities to her subordinates or other fellow officers, a duty to supervise the discharge of the delegated functions.

(9)  A duty of care to the Company, which was (and still is) an investment holding company, to manage and/or supervise the affairs of the Company’s subsidiaries properly.

C2.  The 4^th Respondent’s breach and failure to discharge her duties

30.  The 4^th Respondent admits, accepts and agrees that she acted negligently and in breach of her duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements thereby failing to disclose the true financial position of the Company to its shareholders. She also admits, accepts and agrees that she breached her duties as director of the Company in failing to exercise reasonable care, skill and diligence in the performance of her functions and management of the Company’s affairs.

31.  The 4^th Respondent admits, accepts and agrees that she should have discovered the Overstatements (which, as the 4^th Respondent accepts, are material) had she exercised reasonable care, skill and diligence, having regard in particular to the following:

(a)  The Overstatements were of very substantial scale and the material misstatement of key financial information (i.e. the Company’s and the Group’s cash and bank balances) was not a one-off incident.

(b)  The false or fictitious entries of cash and bank balances could (and should) have been revealed upon proper review of the accounts, ledgers, bank statements and supporting documents of the Company and the Group and the making of reasonable inquiries arising from the same.

(c)  Given her position, the 4^th Respondent had or ought to have an understanding as to the overall finances, business and financial performance of the Company/ Group as a whole. Further, she should have been in a position to verify (or cause or procure others to verify) whether the cash and bank balances as represented in the 2016 IR and the 2016 AR were genuine and accurate.

(d)  Had the 4^th Respondent exercised due care and diligence in overseeing the operations and finances of the Company and the Group, she should have been in a position to have a rough estimate of the Company’s and the Group’s cash and bank balances, and therefore be able to ascertain whether the amount or level of cash and bank balances reported in the 2016 IR and the 2016 AR were (at least) within the expected or reasonable range (or otherwise out of range thus warranting verification or investigation).

(e)  Further, the 4^th Respondent ought to have (but had not) ensured that the Company had proper and adequate internal control measures in place to ensure the accuracy of the Company’s and the Group’s key financial data relating to cash and bank balances.

32.  The 4^th Respondent admits, accepts and agrees that insofar as she had delegated some of her managerial and financial responsibilities to the rest of the Company’s board of directors (“Board”) and/or subordinates, this did not absolve her from her duty to supervise the discharge of the delegated functions. She ought to have kept herself abreast of the financial position and cash and bank balances of the Company and the Group instead of entrusting and relying on the rest of the Board and/or their subordinates without carrying out any independent check, supervision and/or assessment of the financial position and cash and bank balances of the Company and the Group.

33.  In the circumstances, the 4^th Respondent admits, accepts and agrees that (i) she failed to properly, adequately and competently assess and present a fair picture of the financial position of the Company to its shareholders; (ii) she failed to supervise and exercise proper control over her fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company; (iii) she acted negligently and in breach of her duties to the Company in failing to do so; and (iv) she also acted negligently and was in breach of her duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements, thereby failing to disclose the true financial position of the Company to its shareholders.

34.  The 4^th Respondent was at one point the chairman (and ED) of the Company during the Relevant Period. The 4^th Respondent admits, accepts and agrees that she ought to have had an independent understanding as to the overall business and performance of the Group as a whole, as well as its mode of operation. She however acted negligently and in breach of her duties as the Chairman. Without being exhaustive, even if some of the managerial or financial responsibilities might have been delegated to the 1^st to 3^rd Respondents, this did not absolve the 4^th Respondent from the duty to supervise the discharge of the delegated functions. Given her position as ED cum Chairmen, the 4^th Respondent cannot reasonably delegate all of the Company’s PRC operations to the 1^st to 3^rd Respondents without supervising the same.

35.  At the material time, CT Partners Consultants Limited (“CT Partners”) had prepared internal control review reports and identified issues in the Company’s treasury / cash management / financial reporting functions (“Potential Red Flags”). In relation to those internal control review reports, the 4^th Respondent failed to pay attention to the Potential Red Flags identified by CT Partners. For the following reasons, the 4^th Respondent admits, accepts and agrees that she acted negligently by failing to monitor and exercise proper control over her fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company, and also failing to exercise reasonable skill and care to implement the internal controls of the Company, thereby failing to uncover the Overstatements.

36.  The material Overstatements and fabrication of supporting documents showed that the 4^th Respondent had failed to monitor the senior officers of the Company and left them to run the business without monitoring them properly:

(1)  The 4^th Respondent has failed to ensure that the Board would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ internal control review report. In fact, no monthly management accounts were ever sent to the Board.

(2)  Had the 4^th Respondent exercised due care, skill and diligence in overseeing the operations and finance of the Company and the Group, and understanding the nature of major cash inflows and outflows of the Company and the Group, including by reviewing the monthly management accounts of the Company, she ought to be in a position to monitor, inquire into and/or verify the financial position (particularly as regards bank balances) of the Company and the Group.

37.  The 4^th Respondent has also failed to ensure that the measures stated in the CT Partners’ internal control review reports were implemented and enforced as she:

(1)  was unfamiliar with the contents of the internal review control reports;

(2)  was unaware that the enforcement of the measures stated in the internal control review reports should have been the duties of the Audit Committee and the Compliance Committee; and

(3)  was unfamiliar with the function of the Compliance Committee.

38.  Had the 4^th Respondent acted reasonably to ensure that the Audit Committee and the Compliance Committee performed their duties, the following measures stated in CT Partners’ internal control review reports would have been enforced and the perpetration of the Inflation Scheme and/or the Falsification Scheme would likely have been discovered:

(1)  the Company’s accountant would have prepared and circulated monthly management accounts to the Board for consideration and review;

(2)  bank book balances would have been cross-checked against bank statements on a daily basis to identify any discrepancy due to unrecorded items. Cash balances and cash in hand would have been reconciled on a daily basis and deposited into the Company’s designated bank account when the cash balance was over RMB 30,000. This stands in contrast to the Non-existent Transactions of over millions of RMB marked as “存現” (cash deposits) in the falsified Bank Ledgers.

39.  The 4^th Respondent had relied on HLB and CT Partners to identify and report issues regarding audit or internal controls, and she has abdicated her duties to independently identify and assess such issues.

40.  By reason of the above breaches of duties by the 4^th Respondent, the business or affairs of the Company have been conducted in a manner:

(1)  involving defalcation, misfeasance or other misconduct towards the Company, its members or any part of its members by the misrepresentation of the Company’s key financial information;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect, such as the true position of the Company’s cash and bank balances and assets position; and

(3)  unfairly prejudicial to its members or part of its members.

PART III – AGREED PROPOSED ORDERS

41.  On the basis of the agreed facts set out in Part II above, the Petitioner and the 4^th Respondent agree and jointly submit that it would be appropriate for an order to be made against the 4^th Respondent under section 214(2)(a) and (d) of the SFO, under which the 4^th Respondent shall not, for a period of 2 years, 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 corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

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

42.  If, pursuant to this Schedule, this Court disposes of these proceedings summarily, the 4^th Respondent agrees that there should additionally be an order that the 4^th Respondent do pay the costs of the Petitioner in these proceedings, to be taxed if not agreed.

Dated this 19^th day of January 2026

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF THE 5^TH RESPONDENT

PART I – INTRODUCTION

1.  On 12 May 2022, the Securities and Futures Commission (“Petitioner”) presented a petition pursuant to section 214(1)(b), (c) and (d) of the Securities and Futures Ordinance (Cap. 571) (“SFO”) seeking, among other things:

(1)  an order pursuant to section 214(2)(a) or (d) of the SFO that without leave of the Court, the 1^st to 8^th Respondents shall not, for such period as the Court considers appropriate:

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted corporation in Hong Kong including China Candy Holdings Limited (“Company”) or any of its subsidiaries and affiliates; and

(b)  in any way directly or indirectly be concerned, or take part, in the management of any listed or unlisted corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

(2)  that the 1^st to 8^th Respondents be ordered to pay the costs of the Petitioner.

A.  PURPOSE

2.  Subject to the approval of this Court, the Petitioner and the 5^th Respondent have agreed to dispose of these proceedings against the 8^th Respondent by way of the summary procedure sanctioned in the case of Re Carecraft Construction Co. Ltd. [1994] 1 WLR 172 and as adopted by this Court in a number of cases in respect of proceedings under section 214 of the SFO (“Carecraft Procedure”).

3.  This Schedule is produced in order to provide this Court, for the purpose of disposing of these proceedings against the 5^th Respondent by way of the Carecraft Procedure, with the facts that are agreed as between the Petitioner and the 5^th Respondent.

4.  The facts set out in this Schedule are agreed as between the Petitioner and the 5^th Respondent on the premise that the case against her is to be dealt with by the Court by way of the Carecraft Procedure. If the Court for any reason is of the view that these proceedings shall not be dealt with by the Carecraft Procedure or that a full hearing is appropriate, no admission or concession by either the Petitioner or the 5^th Respondent and none of the proposed orders referred to below or liability to pay costs shall be referred to or relied on by any of the parties at any subsequent hearing without the prior written consent of the Petitioner and the 5^th Respondent.

5.  For the purpose of resolving these proceedings against the 5^th Respondent by way of the Carecraft Procedure, and by reference to the agreed facts set out in Part II of this Schedule, the Petitioner contends and the 5^th Respondent accepts that, during the relevant period, the business and affairs of the Company have been conducted in a manner within the scope of section 214(1)(b) to (d) of the SFO, namely:

(1)  involving defalcation, misfeasance or misconduct towards the Company, its subsidiaries and its members;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

(3)  unfairly prejudicial to its members or part of its members.

B.  UNOPPOSED ORDERS

6.  On the basis of the agreed facts set out in Part II of this Schedule, the Petitioner and the 5^th Respondent agree, and the 5^th Respondent accepts, that it would be appropriate for the orders set out in paragraph 41 below (in Part III of this Schedule) to be made against her.

7.  If pursuant to this Schedule, this Court disposes of these proceedings summarily against the 5^th Respondent, the 5^th Respondent agrees that there should additionally be an order that she shall pay the costs of the Petitioner in these proceedings, to be taxed if not agreed (as set out in paragraph 42 below in Part III of this Schedule).

8.  In the event that this Court makes any order sought against the 5^th Respondent by reference to this Schedule, the Petitioner and the 5^th Respondent agree that this Schedule be annexed to this Court’s judgement and will jointly seek a direction to that effect.

9.  Furthermore, without prejudice to all of the Petitioner’s rights, 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 ancillary to, connected with and/or arising out of these proceedings.

10.  The 5^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft Procedure which saves the time and costs of the Petitioner and the Court.

PART II – STATEMENT OF AGREED FACTS

A.  THE COMPANY AND ITS MANAGEMENT

11.  The Company was incorporated in Cayman Islands on 14 March 2014. It had been listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (“HK Exchange”) (stock code: 8182) since 11 November 2015 until 31 December 2019 when its listing status was cancelled.

12.  The Company was an investment holding company and carried on business through its subsidiaries (together the “Group”). The Company/ Group were principally engaged in the manufacturing of candies products in the People’s Republic of China (“PRC” or “Mainland”).

13.  At all material times, both Jinjiang Holeywood Trading Co., Ltd (晉江好來屋商貿有限公司) (“HW Trading”, formerly known as Jinjiang Holeywood Enterprise Consulting Co., Ltd), a PRC company principally engaged in the trading of raw materials for candy production, and Fujian Holeywood Food Industrial Co., Ltd (福建好來屋食品工業有限公司) (“HW Food”), another PRC company principally engaged in the production of candy products, were the Company’s subsidiaries.

14.  As the Company was (and still is) an investment holding company, the business and affairs of the Company’s subsidiaries were regarded as the business and affairs of the Company.

15.  As of 31 December 2016, HW Trading and HW Food collectively accounted for 89% of the Group’s total assets.

16.  Mr Xu Jinpei (許金培) (“Xu”) and his (then) spouse Ms Hong Yinzhi (洪蔭治) (“Hong”) were the founders and the former controlling shareholders of the Company.

17.  At all material times, the senior management of the Company comprised (amongst others):

(1)  Xu, the Company’s executive director (“ED”) since 8 January 2015 and the Company’s chairman since 26 October 2015. He resigned from those positions with effect from 31 July 2017.

(2)  Hong, an ED of the Company since 8 January 2015. Hong was also the compliance officer cum chairperson of the Company’s Compliance Committee (since 3 July 2015) and the Company’s chief executive officer (“CEO”) (since 26 October 2015). Hong resigned from all those positions with effect from 19 September 2019.

(3)  Mr Wang Zhihong (王志洪) (“Wang”), the compliance officer of the Company’s Compliance Committee since 3 July 2015 and the Company’s chief financial controller (“CFO”) since 26 October 2015. Wang’s work responsibilities and powers as the CFO were suspended from 18 December 2017. He eventually resigned as the CFO with effect from 19 September 2019.

(4)  Ms Li Yuna (李宇娜) (“Li”), also known as Joyce Li, an ED of the Company since 30 December 2016. She became the Company’s chairman from 31 July 2017. Li resigned from those positions with effect from 30 November 2017.

(5)  The 5^th Respondent herself, an ED of the Company since 2 February 2017 and the chairman of the Company since 30 November 2017.

(6)  Mr Chiu Sai Chuen Nicholas (趙世存), an independent non-executive director (“INED”) and a member of the Audit Committee of the Company since 26 October 2015. He was also the chairperson of the Company’s independent investigation committee (“IIC”) since 14 December 2017.

(7)  Mr Chu Wai Wa Fangus (朱偉華), an INED and a member of the Audit Committee of the Company since 26 October 2015. Chu resigned from those positions with effect from 24 July 2017.

(8)  Mr Ong King Keung (王競強), an INED and the chairperson of the Audit Committee of the Company since 29 February 2016. He resigned from those positions with effect from 14 September 2017.

B.  OVERSTATEMENT OF THE COMPANY’S ASSETS AND FINANCIAL POSITION

18.  The Company published its 2016 Interim Report on 11 August 2016 (“2016 IR”) and its 2016 Annual Report on 17 March 2017 (“2016 AR”). In both the 2016 IR and the 2016 AR, there were significant overstatements in the cash and bank balances as at 30 June 2016 and 31 December 2016 respectively. Such overstatements were caused by the overstatement of the bank balances of HW Food and HW Trading.

19.  At all material times, HLB Hodgson Impey Cheng Limited (“HLB”) was the Company’s auditors until HLB’s resignation on 14 February 2018.

20.  In around October 2017, the Petitioner suspected that the Company might have falsified its accounts, including the sales figures as disclosed in its Prospectus and the financial statements published for the 2016 financial year. A series of investigations then ensued:-

(1)  On 10 October 2017, the Petitioner issued a notice pursuant to section 183 of the SFO to the Company requesting information relating to its top 5 customers, the trial balances and ledgers of the Company’s subsidiaries.

(2)  On 24 November 2017, the Company informed the Petitioner via its solicitors that “… our client has already gathered the relevant information. However, according to our instruction, as of the date hereof, our client has not received from its PRC staff the necessary confirmations”.

(3)  On 8 December 2017, the Company further informed the Petitioner that “… in spite of our numerous requests made to accounting personnel of the Company in the PRC to confirm the authenticity of the information, we are yet to receive any reply from them”.

(4)  On 12 December 2017, at the request of the Company, the trading of its shares on the HK Exchange was suspended.

(5)  On 14 December 2017, the Company announced that pursuant to a regulatory enquiry, it was required to provide information relating to the bank accounts, trial balances and bank ledgers of the Group. The accounting personnel of the Company in the Mainland were however unable to confirm the authenticity of the requested information.

(6)  Pursuant to the same announcement, the IIC comprising the Company’s INEDs (Mr Chiu Sai Chuen Nicholas, Mr Law Yiu Sing and Ms Tsui Suk Man) was established for the purpose of conducting an independent investigation on the authenticity of the requested information. According to the Company, it was Wang who refused to confirm the authenticity of the requested information.

(7)  On 1 February 2018, the IIC engaged Mazars Corporate Recovery & Forensic Services Limited (“Mazars”) to perform an independent investigation, in particular regarding the authenticity of the information of the Group’s bank accounts, trial balances and bank ledgers.

21.  Mazars had in the course of their investigation obtained bank statements of the Group’s subsidiaries from the relevant banks in the PRC (“Mazars Bank Statements”), including China Construction Bank in the PRC (“CCB”). At around 13 August 2018, Mazars issued a draft preliminary investigation report setting out their interim findings, which revealed a number of issues during the period from 1 June 2015 to 31 December 2017 (the “Relevant Period”).

22.  On 31 January 2019, Mazars issued an investigation report concluding that, without being exhaustive, there were:

(1)  Unverifiable outflow of the Company’s fund to directors/staff of the Group:

(a)  There were withdrawals of funds from the bank accounts of HW Trading and HW Food (totalling RMB 178 million) to a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong).

(b)  There were deposits of funds (totalling approximately RMB 135.5 million) from a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong) into the bank accounts of HW Trading and HW Food.

(c)  As to the shortfall of about RMB 42.5 million, the Company explained that the funds were used for operational expenses, such as payment of salaries to the Company’s staff. As there were insufficient information and/or supporting documents, Mazars was unable to verify the explanation given.

(d)  When being interviewed by Mazars, senior officers of the Company claimed that the funds flowing into and out of the bank accounts of HW Trading and HW Food were for loans made to third parties. Mazars noted that such assertion did not tally and could not be reconciled with the Group’s purported loan drawdowns and/or loan repayments by third parties.

(2)  Abnormal accounting records: there were transactions in the bank accounts of HW Food which did not exist but were booked in the Group’s ledger. The corresponding bank slips of those transactions could not be verified against record on CCB’s official website. For instance, the position of the chops, QR code and words on those bank slips were different from the other normal bank slips which were verifiable.

23.  The Petitioner has also in the course of its investigation obtained the bank statements of the Company’s PRC subsidiaries from two sources, i.e. the Mazars Bank Statements and those obtained by the Company from the respective banks pursuant to a notice dated 23 August 2018 and issued by the Petitioner pursuant to section 183 of the SFO (“SFC Notice”). These two sets of bank statements were obtained separately by Mazars and the Company. They are identical in content and are considered to be genuine (collectively referred to as “Genuine Bank Statements”).

24.  In response to the SFC Notice, the Company also provided the Petitioner with the Group’s ledgers covering the period from 1 January 2013 to 31 December 2017, including the cash and bank ledgers (“Bank Ledgers”). The cash and bank balances of each subsidiary as at 30 June 2016 and 31 December 2016 and as recorded in the Bank Ledgers tallied with those shown in HLB’s working papers for the Company’s annual audit and/or interim review (“HLB WP”). This suggested that at the material time, the Company had provided the Bank Ledgers to HLB for interim review and annual audit.

25.  By comparing the Genuine Bank Statements against the Bank Ledgers and HLB WP, there were significant overstatements in the bank balances of HW Food’s CCB account (with account number 35001656247052500648) (“HW Food Account”) and HW Trading’s CCB account (with account number 35001656247052506680) (“HW Trading Account”) as particularised below:

Account	Per Bank Ledgers & HLB WP (RMB)	Per Genuine Bank Statements (RMB)	Discrepancies, (collectively “Overstatements”)  (RMB)
As at 30 June 2016
HW Food Account	41,201,641	3,601,641	37,600,000
HW Trading Account	503,125	3,125	500,000
Total	41,704,766	3,604,766	38,100,000
As at 31 December 2016
HW Food Account	44,325,674	845,674	43,480,000

26.  The 5^th Respondent admits, accepts and agrees that:

(a)  The Overstatements were caused by:

(i)  omission of non-recorded transactions, i.e. transactions which were recorded in the Genuine Bank Statements but not shown in the Bank Ledgers (“Non-recorded Transactions”); and

(ii)  booking of non-existent transactions, i.e. transactions which were recorded in the Bank Ledgers but were not shown in the Genuine Bank Statements (“Non-existent Transactions”).

(b)  The Non-recorded Transactions and Non-existent Transactions together (i.e. the recurring pattern of omitting Non-recorded Transactions from and booking Non-existent Transactions in the Bank Ledgers) had the effect of inflating the cash and bank balances in the HW Food Account and HW Trading Account (hence the Company’s consolidated account). The assets and financial position of the Company/ Group appeared healthier than they were in fact and/or were otherwise misstated.

(c)  To inflate the cash and bank balances, non-existent deposits would generally be booked near month-end (“Inflating Entries”). The Inflating Entries would then be cancelled out or “rectified” in the following month (for HW Food) or a few months later (for HW Trading) by omitting to book Non-recorded Transactions and/or booking Non-existent withdrawals in the Bank Ledgers (“Offset”).

(d)  In the case of the 2016 IR and the 2016 AR, the Overstatements were uncovered as the Offset only took place after the financial period cut-off point (i.e. after 30 June 2016 and 31 December 2016), thus inflating the cash and bank balances in the HW Food Account and the HW Trading Account (hence the Group’s published consolidated cash and bank balances) as of 30 June 2016 and 31 December 2016.

(e)  To conceal the Overstatements, the Company had provided falsified documents (such as bank statements, vouchers, and bank slips) to HLB when the auditors conducted interim review for the half year ended 30 June 2016 and annual audit for the years ended 31 December 2015 and 2016. In particular:

(i)  According to Mr Woo Lik Hang (“Woo”), HLB’s manager-in-charge for the Company’s interim reviews and annual audits between 2015 and 2017, during the audits, HLB had selected bank transactions from the Company’s bank ledgers and/or cash book, and matched them against the bank statements and supporting documents (e.g. voucher and bank slips) provided by the Company to see if the transactions in the bank statements were properly recorded and vice versa.

(ii)  Out of the 57 Non-existent Transactions identified by the Petitioner, 36 Non-existent Transactions had been selected by HLB as sample test and at the material time, HLB did not detect irregularity in relation to these 36 transactions. This suggested that the 36 Non-existent Transactions could be found in the bank statements and/or bank slips provided by the Company to HLB. Those bank statements and/or bank slips were falsified documents as they could not be matched with the entries in the Genuine Bank Statements.

(iii)  By comparing the vouchers provided by the Company to Mazars against the Genuine Bank Statements, there were discrepancies in 21 bank slips (relating to Non-existent Transactions) contained in 11 sets of vouchers. Since the Non-existent Transactions were not recorded in the Genuine Bank Statements, those vouchers and bank slips could not be genuine and they were thus falsified documents. The falsified bank slips/ vouchers were recorded and prepared by Wang and/or finance staff of the Company, namely 陳梅雙 or 陳玲玲.

27.  In the circumstances, the scheme for the overstatement and inflation of the Company’s assets and financial positions by overstating the bank balances in the bank accounts of HW Food and HW Trading for the half year ended 30 June 2016 and the financial year ended 31 December 2016 (the “Inflation Scheme”) was perpetrated and/or concealed by way of a scheme for fabricating records relating to the financial position of the Company/ Group which commenced as early as the financial year ended 31 December 2015 (the “Falsification Scheme”).

28.  The 5^th Respondent admits, accepts and agrees that the discrepancies in the false financial positions of the Company/ Group portrayed in the 2016 IR and the 2016 AR are substantial. The material misstatement of key financial information relating to the Company/ Group is not an one-off incident. The substantial misstatements occurred on at least 2 occasions in the 2016 IR and the 2016 AR. The purported cash and bank balances, net assets and total assets of the Group as disclosed in the 2016 IR and the 2016 AR, and the corresponding percentage attributable to the Overstatements, were as follows:

C.  ROLE OF THE 5^TH RESPONDENT AND LIABILITY

C1.  Duties of the 5^th Respondent

29.  The 5^th Respondent admits, accepts and agrees that as a director of the Company, she owed, inter alia, the following duties to the Company:

(1)  To act honestly and in good faith and to act in the best interests of the Company, including but not limited to:

(a)  Not directing, approving, allowing or acquiescing the Company to make:

(i)  statements or announcements to its public shareholders or the public generally which she knows to be (or turns a blind eye to the fact that they are) misleading or false;

(ii)  statements or declarations to the Company’s auditors and regulatory authorities including the HK Exchange that she knows to be (or turns a blind eye to the fact that they are) misleading or false.

(b)  Not acting for any improper purpose in the exercise of her powers and the discharge of her duties.

(2)  Not to act in conflict or to make secret profits.

(3)  To comply with the Company’s bye-laws and the relevant laws and regulations concerning the management of the Company.

(4)  Pursuant to section 465 of the Companies Ordinance (Cap. 622), a duty to exercise reasonable care, skill and diligence that would be exercised by a person with:

(a)  the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and

(b)  the general knowledge, skill and experience that the director has.

(5)  As the Company was listed on the GEM of the HK Exchange, and as a director of the Company, the 5^th Respondent had given an undertaking to comply with and be bound by the Rules Governing the Listing of Securities on GEM of the HK Exchange (“GEM Listing Rules”), including Rule 5.01, which provides that every director must, in the performance of her duties as a director, inter alia:

(a)  Act honestly and in good faith in the interests of the company as a whole;

(b)  Act for proper purpose;

(c)  Avoid actual and potential conflicts of interest and duty; and

(d)  Follow up anything untoward that comes to her attention.

(6)  A duty to act with care, skill and diligence reasonably expected of a person of her knowledge and experience in the performance of their functions and her management of the Company’s affairs.

(7)  A continuing duty to acquire and maintain a sufficient knowledge and understanding of the Company’s business to enable them properly to discharge her duties as a director of the Company.

(8)  Where she has delegated some of the managerial or financial responsibilities to her subordinates or other fellow officers, a duty to supervise the discharge of the delegated functions.

(9)  A duty of care to the Company, which was (and still is) an investment holding company, to manage and/or supervise the affairs of the Company’s subsidiaries properly.

C2.  The 5^th Respondent’s breach and failure to discharge her duties

30.  The 5^th Respondent admits, accepts and agrees that she acted negligently and in breach of her duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements thereby failing to disclose the true financial position of the Company to its shareholders. She also admits, accepts and agrees that she breached her duties as director of the Company in failing to exercise reasonable care, skill and diligence in the performance of her functions and management of the Company’s affairs.

31.  The 5^th Respondent admits, accepts and agrees that she should have discovered the Overstatements (which, as the 5^th Respondent accepts, are material) had she exercised reasonable care, skill and diligence, having regard in particular to the following:

(a)  The Overstatements were of very substantial scale and the material misstatement of key financial information (i.e. the Company’s and the Group’s cash and bank balances) was not a one-off incident.

(b)  The false or fictitious entries of cash and bank balances could (and should) have been revealed upon proper review of the accounts, ledgers, bank statements and supporting documents of the Company and the Group and the making of reasonable inquiries arising from the same.

(c)  Given her position, the 5^th Respondent had or ought to have an understanding as to the overall finances, business and financial performance of the Company/ Group as a whole. Further, she should have been in a position to verify (or cause or procure others to verify) whether the cash and bank balances as represented in the 2016 IR and the 2016 AR were genuine and accurate.

(d)  Had the 5^th Respondent exercised due care and diligence in overseeing the operations and finances of the Company and the Group, she should have been in a position to have a rough estimate of the Company’s and the Group’s cash and bank balances, and therefore be able to ascertain whether the amount or level of cash and bank balances reported in the 2016 IR and the 2016 AR were (at least) within the expected or reasonable range (or otherwise out of range thus warranting verification or investigation).

(e)  Further, the 5^th Respondent ought to have (but had not) ensured that the Company had proper and adequate internal control measures in place to ensure the accuracy of the Company’s and the Group’s key financial data relating to cash and bank balances.

32.  The 5^th Respondent admits, accepts and agrees that insofar as she had delegated some of her managerial and financial responsibilities to the rest of the Company’s board of directors (“Board”) and/or subordinates, this did not absolve her from her duty to supervise the discharge of the delegated functions. She ought to have kept herself abreast of the financial position and cash and bank balances of the Company and the Group instead of entrusting and relying on the rest of the Board and/or their subordinates without carrying out any independent check, supervision and/or assessment of the financial position and cash and bank balances of the Company and the Group.

33.  In the circumstances, the 5^th Respondent admits, accepts and agrees that (i) she failed to properly, adequately and competently assess and present a fair picture of the financial position of the Company to its shareholders; (ii) she failed to supervise and exercise proper control over her fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company; (iii) she acted negligently and in breach of her duties to the Company in failing to do so; and (iv) she also acted negligently and was in breach of her duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements, thereby failing to disclose the true financial position of the Company to its shareholders.

34.  The 5^th Respondent was at one point the chairman (and ED) of the Company during the Relevant Period. The 5^th Respondent admits, accepts and agrees that she ought to have had an independent understanding as to the overall business and performance of the Group as a whole, as well as its mode of operation. She however acted negligently and in breach of her duties as the Chairman. Without being exhaustive, even if some of the managerial or financial responsibilities might have been delegated to the 1^st to 3^rd Respondents, this did not absolve the 5^th Respondent from the duty to supervise the discharge of the delegated functions. Given her position as ED cum Chairmen, the 5^th Respondent cannot reasonably delegate all of the Company’s PRC operations to the 1^st to 3^rd Respondents without supervising the same. The 5^th Respondent also admits, accepts and agrees that she never took initiative to obtain business updates from Hong even after the suspension of trading of the Company’s shares. According to the 5^th Respondent, so long as Hong did not call her and no physical meeting was convened by the Board, she would assume that the business operation of the Company was normal and ongoing.

35.  At the material time, CT Partners Consultants Limited (“CT Partners”) had prepared internal control review reports and identified issues in the Company’s treasury / cash management / financial reporting functions (“Potential Red Flags”). In relation to those internal control review reports, the 5^th Respondent failed to pay attention to the Potential Red Flags identified by CT Partners. For the following reasons, the 5^th Respondent admits, accepts and agrees that she acted negligently by failing to monitor and exercise proper control over her fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company, and also failing to exercise reasonable skill and care to implement the internal controls of the Company, thereby failing to uncover the Overstatements.

36.  The material Overstatements and fabrication of supporting documents showed that the 5^th Respondent had failed to monitor the senior officers of the Company and left them to run the business without monitoring them properly:

(1)  The 5^th Respondent has failed to ensure that the Board would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ internal control review report. In fact, no monthly management accounts were ever sent to the Board.

(2)  Had the 5^th Respondent exercised due care, skill and diligence in overseeing the operations and finance of the Company and the Group, and understanding the nature of major cash inflows and outflows of the Company and the Group, including by reviewing the monthly management accounts of the Company, she ought to be in a position to monitor, inquire into and/or verify the financial position (particularly as regards bank balances) of the Company and the Group.

37.  The 5^th Respondent has also failed to ensure that the measures stated in the CT Partners’ internal control review reports were implemented and enforced as she:

(1)  was unfamiliar with the contents of the internal review control reports;

(2)  was unaware that the enforcement of the measures stated in the internal control review reports should have been the duties of the Audit Committee and the Compliance Committee; and

(3)  was unfamiliar with the function of the Compliance Committee.

38.  Had the 5^th Respondent acted reasonably to ensure that the Audit Committee and the Compliance Committee performed their duties, the following measures stated in CT Partners’ internal control review reports would have been enforced and the perpetration of the Inflation Scheme and/or the Falsification Scheme would likely have been discovered:

(1)  the Company’s accountant would have prepared and circulated monthly management accounts to the Board for consideration and review;

(2)  bank book balances would have been cross-checked against bank statements on a daily basis to identify any discrepancy due to unrecorded items. Cash balances and cash in hand would have been reconciled on a daily basis and deposited into the Company’s designated bank account when the cash balance was over RMB 30,000. This stands in contrast to the Non-existent Transactions of over millions of RMB marked as “存現” (cash deposits) in the falsified Bank Ledgers.

39.  bank book balances would have been cross-checked against bank statements on a daily basis to identify any discrepancy due to unrecorded items. Cash balances and cash in hand would have been reconciled on a daily basis and deposited into the Company’s designated bank account when the cash balance was over RMB 30,000. This stands in contrast to the Non-existent Transactions of over millions of RMB marked as “存現” (cash deposits) in the falsified Bank Ledgers.

40.  By reason of the above breaches of duties by the 5^th Respondent, the business or affairs of the Company have been conducted in a manner:

(1)  involving defalcation, misfeasance or other misconduct towards the Company, its members or any part of its members by the misrepresentation of the Company’s key financial information;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect, such as the true position of the Company’s cash and bank balances and assets position; and

(3)  unfairly prejudicial to its members or part of its members.

PART III – AGREED PROPOSED ORDERS

41.  On the basis of the agreed facts set out in Part II above, the Petitioner and the 5^th Respondent agree and jointly submit that it would be appropriate for an order to be made against the 5^th Respondent under section 214(2)(a) and (d) of the SFO, under which the 5^th Respondent shall not, for a period of 33 months, 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 corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

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

42.  If, pursuant to this Schedule, this Court disposes of these proceedings summarily, the 5^th Respondent agrees that there should additionally be an order that the 5^th Respondent do pay the costs of the Petitioner in these proceedings, to be taxed if not agreed.

Dated this 9^th day of February 2026

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF THE 7^TH RESPONDENT

PART I – INTRODUCTION

1.  On 12 May 2022, the Securities and Futures Commission (“Petitioner”) presented a petition pursuant to section 214(1)(b), (c) and (d) of the Securities and Futures Ordinance (Cap. 571) (“SFO”) seeking, among other things:

(1)  an order pursuant to section 214(2)(a) or (d) of the SFO that without leave of the Court, the 1^st to 8^th Respondents shall not, for such period as the Court considers appropriate:

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted corporation in Hong Kong including China Candy Holdings Limited (“Company”) or any of its subsidiaries and affiliates; and

(b)  in any way directly or indirectly be concerned, or take part, in the management of any listed or unlisted corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

(2)  that the 1^st to 8^th Respondents be ordered to pay the costs of the Petitioner.

A.  PURPOSE

2.  Subject to the approval of this Court, the Petitioner and the 7^th Respondent have agreed to dispose of these proceedings against the 7^th Respondent by way of the summary procedure sanctioned in the case of Re Carecraft Construction Co. Ltd. [1994] 1 WLR 172 and as adopted by this Court in a number of cases in respect of proceedings under section 214 of the SFO (“Carecraft Procedure”).

3.  This Schedule is produced in order to provide this Court, for the purpose of disposing of these proceedings against the 7^th Respondent by way of the Carecraft Procedure, with the facts that are agreed as between the Petitioner and the 7^th Respondent.

4.  The facts set out in this Schedule are agreed as between the Petitioner and the 7^th Respondent on the premise that the case against him is to be dealt with by the Court by way of the Carecraft Procedure. If the Court for any reason is of the view that these proceedings shall not be dealt with by the Carecraft Procedure or that a full hearing is appropriate, no admission or concession by either the Petitioner or the 7^th Respondent and none of the proposed orders referred to below or liability to pay costs shall be referred to or relied on by any of the parties at any subsequent hearing without the prior written consent of the Petitioner and the 7^th Respondent.

5.  For the purpose of resolving these proceedings against the 7^th Respondent by way of the Carecraft Procedure, and by reference to the agreed facts set out in Part II of this Schedule, the Petitioner contends and the 7^th Respondent accepts that, during the relevant period, the business and affairs of the Company have been conducted in a manner within the scope of section 214(1)(b) to (d) of the SFO, namely:

(1)  involving defalcation, misfeasance or misconduct towards the Company, its subsidiaries and its members;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

(3)  unfairly prejudicial to its members or part of its members.

B.  UNOPPOSED ORDERS

6.  On the basis of the agreed facts set out in Part II of this Schedule, the Petitioner and the 7^th Respondent agree, and the 7^th Respondent accepts, that it would be appropriate for the orders set out in paragraph 41 below (in Part III of this Schedule) to be made against him.

7.  If pursuant to this Schedule, this Court disposes of these proceedings summarily against the 7^th Respondent, the 7^th Respondent agrees that there should additionally be an order that he shall pay the costs of the Petitioner in these proceedings, to be taxed if not agreed (as set out in paragraph 42 below in Part III of this Schedule).

8.  In the event that this Court makes any order sought against the 7^th Respondent by reference to this Schedule, the Petitioner and the 7^th Respondent agree that this Schedule be annexed to this Court’s judgement and will jointly seek a direction to that effect.

9.  Furthermore, without prejudice to all of the Petitioner’s rights, 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 ancillary to, connected with and/or arising out of these proceedings.

10.  The 7^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft Procedure which saves the time and costs of the Petitioner and the Court. There is no suggestion that the 7^th Respondent was involved in the Inflation Scheme or the Falsification Scheme or his conduct involved dishonesty or lack of integrity. The 7^th Respondent did not approve the publishing of statements or announcements which he knew to be (or turn a blind eye to the fact that they are) misleading or false.

PART II – STATEMENT OF AGREED FACTS

A.  THE COMPANY AND ITS MANAGEMENT

11.  The Company was incorporated in Cayman Islands on 14 March 2014. It had been listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (“HK Exchange”) (stock code: 8182) since 11 November 2015 until 31 December 2019 when its listing status was cancelled.

12.  The Company was an investment holding company and carried on business through its subsidiaries (together the “Group”). The Company/ Group were principally engaged in the manufacturing of candies products in the People’s Republic of China (“PRC” or “Mainland”).

13.  At all material times, both Jinjiang Holeywood Trading Co., Ltd (晉江好來屋商貿有限公司) (“HW Trading”, formerly known as Jinjiang Holeywood Enterprise Consulting Co., Ltd), a PRC company principally engaged in the trading of raw materials for candy production, and Fujian Holeywood Food Industrial Co., Ltd (福建好來屋食品工業有限公司) (“HW Food”), another PRC company principally engaged in the production of candy products, were the Company’s subsidiaries.

14.  As the Company was (and still is) an investment holding company, the business and affairs of the Company’s subsidiaries were regarded as the business and affairs of the Company.

15.  As of 31 December 2016, HW Trading and HW Food collectively accounted for 89% of the Group’s total assets.

16.  Mr Xu Jinpei (許金培) (“Xu”) and his (then) spouse Ms Hong Yinzhi (洪蔭治) (“Hong”) were the founders and the former controlling shareholders of the Company.

17.  At all material times, the senior management of the Company comprised (amongst others):

(1)  Xu, the Company’s executive director (“ED”) since 8 January 2015 and the Company’s chairman since 26 October 2015. He resigned from those positions with effect from 31 July 2017.

(2)  Hong, an ED of the Company since 8 January 2015. Hong was also the compliance officer cum chairperson of the Company’s Compliance Committee (since 3 July 2015) and the Company’s chief executive officer (“CEO”) (since 26 October 2015). Hong resigned from all those positions with effect from 19 September 2019.

(3)  Mr Wang Zhihong (王志洪) (“Wang”), the compliance officer of the Company’s Compliance Committee since 3 July 2015 and the Company’s chief financial controller (“CFO”) since 26 October 2015. Wang’s work responsibilities and powers as the CFO were suspended from 18 December 2017. He eventually resigned as the CFO with effect from 19 September 2019.

(4)  Ms Li Yuna (李宇娜) (also known as Joyce Li), an ED of the Company since 30 December 2016. She became the Company’s chairman from 31 July 2017. Li resigned from those positions with effect from 30 November 2017.

(5)  Ms Hung Yvonne (洪綺婉), an ED of the Company since 2 February 2017 and the chairman of the Company since 30 November 2017.

(6)  Mr Chiu Sai Chuen Nicholas (趙世存), an independent non-executive director (“INED”) and a member of the Audit Committee of the Company since 26 October 2015. He was also the chairperson of the Company’s independent investigation committee (“IIC”) since 14 December 2017.

(7)  The 7^th Respondent himself, an INED and a member of the Audit Committee of the Company since 26 October 2015. The 7^th Respondent resigned from those positions with effect from 24 July 2017.

(8)  Mr Ong King Keung (王競強), an INED and the chairperson of the Audit Committee of the Company since 29 February 2016. He resigned from those positions with effect from 14 September 2017.

B.  OVERSTATEMENT OF THE COMPANY’S ASSETS AND FINANCIAL POSITION

18.  The Company published its 2016 Interim Report on 11 August 2016 (“2016 IR”) and its 2016 Annual Report on 17 March 2017 (“2016 AR”). In both the 2016 IR and the 2016 AR, there were significant overstatements in the cash and bank balances as at 30 June 2016 and 31 December 2016 respectively. Such overstatements were caused by the overstatement of the bank balances of HW Food and HW Trading.

19.  At all material times, HLB Hodgson Impey Cheng Limited (“HLB”) was the Company’s auditors until HLB’s resignation on 14 February 2018.

20.  In around October 2017, the Petitioner suspected that the Company might have falsified its accounts, including the sales figures as disclosed in its Prospectus and the financial statements published for the 2016 financial year. A series of investigations then ensued:-

(1)  On 10 October 2017, the Petitioner issued a notice pursuant to section 183 of the SFO to the Company requesting information relating to its top 5 customers, the trial balances and ledgers of the Company’s subsidiaries.

(2)  On 24 November 2017, the Company informed the Petitioner via its solicitors that “… our client has already gathered the relevant information. However, according to our instruction, as of the date hereof, our client has not received from its PRC staff the necessary confirmations”.

(3)  On 8 December 2017, the Company further informed the Petitioner that “… in spite of our numerous requests made to accounting personnel of the Company in the PRC to confirm the authenticity of the information, we are yet to receive any reply from them”.

(4)  On 12 December 2017, at the request of the Company, the trading of its shares on the HK Exchange was suspended.

(5)  On 14 December 2017, the Company announced that pursuant to a regulatory enquiry, it was required to provide information relating to the bank accounts, trial balances and bank ledgers of the Group. The accounting personnel of the Company in the Mainland were however unable to confirm the authenticity of the requested information.

(6)  Pursuant to the same announcement, the IIC comprising the Company’s INEDs (Mr Chiu Sai Chuen Nicholas, Mr Law Yiu Sing and Ms Tsui Suk Man) was established for the purpose of conducting an independent investigation on the authenticity of the requested information. According to the Company, it was Wang who refused to confirm the authenticity of the requested information.

(7)  On 1 February 2018, the IIC engaged Mazars Corporate Recovery & Forensic Services Limited (“Mazars”) to perform an independent investigation, in particular regarding the authenticity of the information of the Group’s bank accounts, trial balances and bank ledgers.

21.  Mazars had in the course of their investigation obtained bank statements of the Group’s subsidiaries from the relevant banks in the PRC (“Mazars Bank Statements”), including China Construction Bank in the PRC (“CCB”). At around 13 August 2018, Mazars issued a draft preliminary investigation report setting out their interim findings, which revealed a number of issues during the period from 1 June 2015 to 31 December 2017 (the “Relevant Period”).

22.  On 31 January 2019, Mazars issued an investigation report concluding that, without being exhaustive, there were:

(1)  Unverifiable outflow of the Company’s fund to directors/staff of the Group:

(a)  There were withdrawals of funds from the bank accounts of HW Trading and HW Food (totalling RMB 178 million) to a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong).

(b)  There were deposits of funds (totalling approximately RMB 135.5 million) from a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong) into the bank accounts of HW Trading and HW Food.

(c)  As to the shortfall of about RMB 42.5 million, the Company explained that the funds were used for operational expenses, such as payment of salaries to the Company’s staff. As there were insufficient information and/or supporting documents, Mazars was unable to verify the explanation given.

(d)  When being interviewed by Mazars, senior officers of the Company claimed that the funds flowing into and out of the bank accounts of HW Trading and HW Food were for loans made to third parties. Mazars noted that such assertion did not tally and could not be reconciled with the Group’s purported loan drawdowns and/or loan repayments by third parties.

(2)  Abnormal accounting records: there were transactions in the bank accounts of HW Food which did not exist but were booked in the Group’s ledger. The corresponding bank slips of those transactions could not be verified against record on CCB’s official website. For instance, the position of the chops, QR code and words on those bank slips were different from the other normal bank slips which were verifiable.

23.  The Petitioner has also in the course of its investigation obtained the bank statements of the Company’s PRC subsidiaries from two sources, i.e. the Mazars Bank Statements and those obtained by the Company from the respective banks pursuant to a notice dated 23 August 2018 and issued by the Petitioner pursuant to section 183 of the SFO (“SFC Notice”). These two sets of bank statements were obtained separately by Mazars and the Company. They are identical in content and are considered to be genuine (collectively referred to as “Genuine Bank Statements”).

24.  In response to the SFC Notice, the Company also provided the Petitioner with the Group’s ledgers covering the period from 1 January 2013 to 31 December 2017, including the cash and bank ledgers (“Bank Ledgers”). The cash and bank balances of each subsidiary as at 30 June 2016 and 31 December 2016 and as recorded in the Bank Ledgers tallied with those shown in HLB’s working papers for the Company’s annual audit and/or interim review (“HLB WP”). This suggested that at the material time, the Company had provided the Bank Ledgers to HLB for interim review and annual audit.

25.  By comparing the Genuine Bank Statements against the Bank Ledgers and HLB WP, there were significant overstatements in the bank balances of HW Food’s CCB account (with account number 35001656247052500648) (“HW Food Account”) and HW Trading’s CCB account (with account number 35001656247052506680) (“HW Trading Account”) as particularised below:

Account	Per Bank Ledgers & HLB WP (RMB)	Per Genuine Bank Statements (RMB)	Discrepancies, (collectively “Overstatements”)  (RMB)
As at 30 June 2016
HW Food Account	41,201,641	3,601,641	37,600,000
HW Trading Account	503,125	3,125	500,000
Total	41,704,766	3,604,766	38,100,000
As at 31 December 2016
HW Food Account	44,325,674	845,674	43,480,000

26.  The 7^th Respondent admits, accepts and agrees that:

(a)  The Overstatements were caused by:

(i)  omission of non-recorded transactions, i.e. transactions which were recorded in the Genuine Bank Statements but not shown in the Bank Ledgers (“Non-recorded Transactions”); and

(ii)  booking of non-existent transactions, i.e. transactions which were recorded in the Bank Ledgers but were not shown in the Genuine Bank Statements (“Non-existent Transactions”).

(b)  The Non-recorded Transactions and Non-existent Transactions together (i.e. the recurring pattern of omitting Non-recorded Transactions from and booking Non-existent Transactions in the Bank Ledgers) had the effect of inflating the cash and bank balances in the HW Food Account and HW Trading Account (hence the Company’s consolidated account). The assets and financial position of the Company/ Group appeared healthier than they were in fact and/or were otherwise misstated.

(c)  To inflate the cash and bank balances, non-existent deposits would generally be booked near month-end (“Inflating Entries”). The Inflating Entries would then be cancelled out or “rectified” in the following month (for HW Food) or a few months later (for HW Trading) by omitting to book Non-recorded Transactions and/or booking Non-existent withdrawals in the Bank Ledgers (“Offset”).

(d)  In the case of the 2016 IR and the 2016 AR, the Overstatements were uncovered as the Offset only took place after the financial period cut-off point (i.e. after 30 June 2016 and 31 December 2016), thus inflating the cash and bank balances in the HW Food Account and the HW Trading Account (hence the Group’s published consolidated cash and bank balances) as of 30 June 2016 and 31 December 2016.

(e)  To conceal the Overstatements, the Company had provided falsified documents (such as bank statements, vouchers, and bank slips) to HLB when the auditors conducted interim review for the half year ended 30 June 2016 and annual audit for the years ended 31 December 2015 and 2016. In particular:

(i)  According to Mr Woo Lik Hang (“Woo”), HLB’s manager-in-charge for the Company’s interim reviews and annual audits between 2015 and 2017, during the audits, HLB had selected bank transactions from the Company’s bank ledgers and/or cash book, and matched them against the bank statements and supporting documents (e.g. voucher and bank slips) provided by the Company to see if the transactions in the bank statements were properly recorded and vice versa.

(ii)  Out of the 57 Non-existent Transactions identified by the Petitioner, 36 Non-existent Transactions had been selected by HLB as sample test and at the material time, HLB did not detect irregularity in relation to these 36 transactions. This suggested that the 36 Non-existent Transactions could be found in the bank statements and/or bank slips provided by the Company to HLB. Those bank statements and/or bank slips were falsified documents as they could not be matched with the entries in the Genuine Bank Statements.

(iii)  By comparing the vouchers provided by the Company to Mazars against the Genuine Bank Statements, there were discrepancies in 21 bank slips (relating to Non-existent Transactions) contained in 11 sets of vouchers. Since the Non-existent Transactions were not recorded in the Genuine Bank Statements, those vouchers and bank slips could not be genuine and they were thus falsified documents. The falsified bank slips/ vouchers were recorded and prepared by Wang and/or finance staff of the Company, namely 陳梅雙 or 陳玲玲.

27.  In the circumstances, the scheme for the overstatement and inflation of the Company’s assets and financial positions by overstating the bank balances in the bank accounts of HW Food and HW Trading for the half year ended 30 June 2016 and the financial year ended 31 December 2016 (the “Inflation Scheme”) was perpetrated and/or concealed by way of a scheme for fabricating records relating to the financial position of the Company/ Group which commenced as early as the financial year ended 31 December 2015 (the “Falsification Scheme”).

28.  The 7^th Respondent admits, accepts and agrees that the discrepancies in the false financial positions of the Company/ Group portrayed in the 2016 IR and the 2016 AR are substantial. The material misstatement of key financial information relating to the Company/ Group is not an one-off incident. The substantial misstatements occurred on at least 2 occasions in the 2016 IR and the 2016 AR. The purported cash and bank balances, net assets and total assets of the Group as disclosed in the 2016 IR and the 2016 AR, and the corresponding percentage attributable to the Overstatements, were as follows:

	As at 30 June 2016	As at 31 December 2016
Cash and bank balances	RMB 43,789,000	RMB 44,889,000
Net assets	RMB 86,105,000	RMB 83,621,000
Total assets	RMB 166,616,000	RMB 160,071,000
Percentage of cash and bank balances to net assets	51%	54%
Percentage of cash and bank balances to total assets	26%	28%
Overstatement of bank balances	RMB 37,600,000 + RMB 500,000 i.e. RMB 38,100,000 in total	RMB 43,480,000
Percentage of overstatement	•  87% of the purported cash & bank balances •  44% of the purported net assets •  23% of the purported total assets	•  97% of the purported cash & bank balances •  52% of the purported net assets •  27% of the purported total assets

C.  ROLE OF THE 7^TH RESPONDENT AND LIABILITY

C1.  Duties of the 7^th Respondent

29.  The 7^th Respondent admits, accepts and agrees that as a director of the Company, he owed, inter alia, the following duties to the Company:

(1)  To act honestly and in good faith and to act in the best interests of the Company, including but not limited to:

(a)  Not directing, approving, allowing or acquiescing the Company to make:

(i)  statements or announcements to its public shareholders or the public generally which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(ii)  statements or declarations to the Company’s auditors and regulatory authorities including the HK Exchange that he knows to be (or turns a blind eye to the fact that they are) misleading or false.

(b)  Not acting for any improper purpose in the exercise of his powers and the discharge of his duties.

(2)  Not to act in conflict or to make secret profits.

(3)  To comply with the Company’s bye-laws and the relevant laws and regulations concerning the management of the Company.

(4)  Pursuant to section 465 of the Companies Ordinance (Cap. 622), a duty to exercise reasonable care, skill and diligence that would be exercised by a person with:

(a)  the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and

(b)  the general knowledge, skill and experience that the director has.

(5)  As the Company was listed on the GEM of the HK Exchange, and as a director of the Company, the 7^th Respondent had given an undertaking to comply with and be bound by the Rules Governing the Listing of Securities on GEM of the HK Exchange (“GEM Listing Rules”), including Rule 5.01, which provides that every director must, in the performance of his duties as a director, inter alia:

(a)  Act honestly and in good faith in the interests of the company as a whole;

(b)  Act for proper purpose;

(c)  Avoid actual and potential conflicts of interest and duty; and

(d)  Follow up anything untoward that comes to his attention.

(6)  A duty to act with care, skill and diligence reasonably expected of a person of his knowledge and experience in the performance of their functions and his management of the Company’s affairs.

(7)  A continuing duty to acquire and maintain a sufficient knowledge and understanding of the Company’s business to enable them properly to discharge his duties as a director of the Company.

(8)  Where he has delegated some of the managerial or financial responsibilities to his subordinates or other fellow officers, a duty to supervise the discharge of the delegated functions.

(9)  A duty of care to the Company, which was (and still is) an investment holding company, to manage and/or supervise the affairs of the Company’s subsidiaries properly.

C2.  The 7^th Respondent’s breach and failure to discharge his duties

30.  The 7^th Respondent admits, accepts and agrees that he acted negligently and in breach of his duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements thereby failing to disclose the true financial position of the Company to its shareholders. He also admits, accepts and agrees that he breached his duties as director of the Company in failing to exercise reasonable care, skill and diligence in the performance of his functions and management of the Company’s affairs.

31.  The 7^th Respondent admits, accepts and agrees that he should have discovered the Overstatements (which, as the 7^th Respondent accepts, are material) had he exercised reasonable care, skill and diligence, having regard in particular to the following:

(a)  The Overstatements were of very substantial scale and the material misstatement of key financial information (i.e. the Company’s and the Group’s cash and bank balances) was not a one-off incident.

(b)  The false or fictitious entries of cash and bank balances could (and should) have been revealed upon proper review of the accounts, ledgers, bank statements and supporting documents of the Company and the Group and the making of reasonable inquiries arising from the same.

(c)  The 7^th Respondent himself was a member of the Company’s Audit Committee. The terms of reference of the Audit Committee provides that the primary duties of the Audit Committee include reviewing the Company’s financial information and monitoring the Company’s financial reporting system and internal control procedures. In such position, the 7^th Respondent ought to review and monitor the assets and financial position of the Company and the Group.

(d)  Given his position, the 7^th Respondent had or ought to have an understanding as to the overall finances, business and financial performance of the Company/ Group as a whole. Further, he should have been in a position to verify (or cause or procure others to verify) whether the cash and bank balances as represented in the 2016 IR and the 2016 AR were genuine and accurate.

(e)  Had the 7^th Respondent exercised due care and diligence in overseeing the operations and finances of the Company and the Group, he should have been in a position to have a rough estimate of the Company’s and the Group’s cash and bank balances, and therefore be able to ascertain whether the amount or level of cash and bank balances reported in the 2016 IR and the 2016 AR were (at least) within the expected or reasonable range (or otherwise out of range thus warranting verification or investigation).

(f)  Further, the 7^th Respondent ought to have (but had not) ensured that the Company had proper and adequate internal control measures in place to ensure the accuracy of the Company’s and the Group’s key financial data relating to cash and bank balances.

32.  The 7^th Respondent admits, accepts and agrees that insofar as he had delegated some of his managerial and financial responsibilities to the rest of the Company’s board of directors (“Board”) and/or subordinates, this did not absolve him from his duty to supervise the discharge of the delegated functions. He ought to have kept himself abreast of the financial position and cash and bank balances of the Company and the Group instead of simply entrusting and relying on the rest of the Board and/or their subordinates without carrying out any independent check, supervision and/or assessment of the financial position and cash and bank balances of the Company and the Group.

33.  In the circumstances, the 7^th Respondent admits, accepts and agrees that (i) he failed to properly, adequately and competently assess and present a fair picture of the financial position of the Company to its shareholders; (ii) he failed to supervise and exercise proper control over his fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company; (iii) he acted negligently and in breach of his duties to the Company in failing to do so; and (iv) he also acted negligently and was in breach of his duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements, thereby failing to disclose the true financial position of the Company to its shareholders.

34.  The 7^th Respondent admits, accepts and agrees that even though he was not, as an INED, involved in running the day-to-day business of the Company, he should nonetheless acquaint himself with adequate knowledge of such business so as to perform his duties as the Audit Committee of the Company. At the very least, he is responsible for monitoring and scrutinising the Company’s corporate governance, especially its financial position, as well as reviewing the Company’s internal controls.

35.  At the material time, CT Partners Consultants Limited (“CT Partners”) had prepared internal control review reports and identified issues in the Company’s treasury / cash management / financial reporting functions (“Potential Red Flags”). In relation to those internal control review reports, the 7^th Respondent failed to pay attention to the Potential Red Flags identified by CT Partners. For the following reasons, the 7^th Respondent admits, accepts and agrees that he acted negligently by failing to monitor and exercise proper control over his fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company, and also failing to exercise reasonable skill and care to implement the internal controls of the Company, thereby failing to uncover the Overstatements.

36.  The material Overstatements and fabrication of supporting documents showed that the 7^th Respondent had simply failed to monitor the senior officers of the Company and left them to run the business without monitoring them properly or at all:

(1)  The 7^th Respondent has failed to ensure that he would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ internal control review report. In fact, no monthly management accounts were ever sent to the Board.

(2)  Had the 7^th Respondent exercised due care, skill and diligence in overseeing the operations and finance of the Company and the Group, and understanding the nature of major cash inflows and outflows of the Company and the Group, including by reviewing the monthly management accounts of the Company, he ought to be in a position to monitor, inquire into and/or verify the financial position (particularly as regards bank balances) of the Company and the Group.

37.  The 7^th Respondent has also failed to ensure that the measures stated in the CT Partners’ internal control review reports were implemented and enforced as he:

(1)  was unfamiliar with the contents of the internal review control reports;

(2)  was unaware that the enforcement of the measures stated in the internal control review reports should have been the duties of the Audit Committee and the Compliance Committee; and

(3)  had no knowledge of the existence or the function of the Compliance Committee.

38.  Had the 7^th Respondent acted reasonably to ensure that the Audit Committee and the Compliance Committee performed their duties, the following measures stated in CT Partners’ internal control review reports would have been enforced and the perpetration of the Inflation Scheme and/or the Falsification Scheme would likely have been discovered:

(1)  the Company’s accountant would have prepared and circulated monthly management accounts to the Board for consideration and review;

(2)  bank book balances would have been cross-checked against bank statements on a daily basis to identify any discrepancy due to unrecorded items. Cash balances and cash in hand would have been reconciled on a daily basis and deposited into the Company’s designated bank account when the cash balance was over RMB 30,000. This stands in contrast to the Non-existent Transactions of over millions of RMB marked as “存現” (cash deposits) in the falsified Bank Ledgers.

39.  As the 7^th Respondent had relied completely on HLB and CT Partners to identify and report issues regarding audit or internal controls, he has abdicated his duties to independently identify and assess such issues.

40.  By reason of the above breaches of duties by the 7^th Respondent, the business or affairs of the Company have been conducted in a manner:

(1)  involving defalcation, misfeasance or other misconduct towards the Company, its members or any part of its members by the misrepresentation of the Company’s key financial information;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect, such as the true position of the Company’s cash and bank balances and assets position; and

(3)  unfairly prejudicial to its members or part of its members.

PART III – AGREED PROPOSED ORDERS

41.  On the basis of the agreed facts set out in Part II above, the Petitioner and the 7^th Respondent agree and jointly submit that it would be appropriate for an order to be made against the 7^th Respondent under section 214(2)(a) and (d) of the SFO, under which the 7^th Respondent shall not, for a period of 12 months, without leave of the Court:

(1)  with the exception of Excellent Management Limited, a private company incorporated in Hong Kong, be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

(2)  with the exception of Excellent Management Limited, in any way directly or indirectly be concerned, or take part, in the management of any listed or unlisted corporation in Hong Kong including the Company or any of its subsidiaries and affiliates.

42.  If, pursuant to this Schedule, this Court disposes of these proceedings summarily, the 7^th Respondent agrees that there should additionally be an order that the 7^th Respondent do pay the costs of the Petitioner in these proceedings, to be taxed if not agreed.

Dated this 26^th day of November 2025

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF THE 8^TH RESPONDENT

PART I – INTRODUCTION

1.  On 12 May 2022, the Securities and Futures Commission (“Petitioner”) presented a petition pursuant to section 214(1)(b), (c) and (d) of the Securities and Futures Ordinance (Cap. 571) (“SFO”) seeking, among other things:

(1)  an order pursuant to section 214(2)(a) or (d) of the SFO that without leave of the Court, the 1^st to 8^th Respondents shall not, for such period as the Court considers appropriate:

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted corporation in Hong Kong including China Candy Holdings Limited (“Company”) or any of its subsidiaries and affiliates; and

(b)  in any way directly or indirectly be concerned, or take part, in the management of any listed or unlisted corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

(2)  that the 1^st to 8^th Respondents be ordered to pay the costs of the Petitioner.

A.  PURPOSE

2.  Subject to the approval of this Court, the Petitioner and the 8^th Respondent have agreed to dispose of these proceedings against the 8^th Respondent by way of the summary procedure sanctioned in the case of Re Carecraft Construction Co. Ltd. [1994] 1 WLR 172 and as adopted by this Court in a number of cases in respect of proceedings under section 214 of the SFO (“Carecraft Procedure”).

3.  This Schedule is produced in order to provide this Court, for the purpose of disposing of these proceedings against the 8^th Respondent by way of the Carecraft Procedure, with the facts that are agreed as between the Petitioner and the 8^th Respondent.

4.  The facts set out in this Schedule are agreed as between the Petitioner and the 8^th Respondent on the premise that the case against him is to be dealt with by the Court by way of the Carecraft Procedure. If the Court for any reason is of the view that these proceedings shall not be dealt with by the Carecraft Procedure or that a full hearing is appropriate, no admission or concession by either the Petitioner or the 8^th Respondent and none of the proposed orders referred to below or liability to pay costs shall be referred to or relied on by any of the parties at any subsequent hearing without the prior written consent of the Petitioner and the 8^th Respondent.

5.  For the purpose of resolving these proceedings against the 8^th Respondent by way of the Carecraft Procedure, and by reference to the agreed facts set out in Part II of this Schedule, the Petitioner contends and the 8^th Respondent accepts that, during the relevant period, the business and affairs of the Company have been conducted in a manner within the scope of section 214(1)(b) to (d) of the SFO, namely:

(1)  involving defalcation, misfeasance or misconduct towards the Company, its subsidiaries and its members;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

(3)  unfairly prejudicial to its members or part of its members.

B.  UNOPPOSED ORDERS

6.  On the basis of the agreed facts set out in Part II of this Schedule, the Petitioner and the 8^th Respondent agree, and the 8^th Respondent accepts, that it would be appropriate for the orders set out in paragraph 41 below (in Part III of this Schedule) to be made against him.

7.  If pursuant to this Schedule, this Court disposes of these proceedings summarily against the 8^th Respondent, the 8^th Respondent agrees that there should additionally be an order that he shall pay the costs of the Petitioner in these proceedings, to be taxed if not agreed (as set out in paragraph 42 below in Part III of this Schedule).

8.  In the event that this Court makes any order sought against the 8^th Respondent by reference to this Schedule, the Petitioner and the 8^th Respondent agree that this Schedule be annexed to this Court’s judgement and will jointly seek a direction to that effect.

9.  Furthermore, without prejudice to all of the Petitioner’s rights, 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 ancillary to, connected with and/or arising out of these proceedings.

10.  The 8^th Respondent has adopted a reasonable course of action to conclude these proceedings by way of the Carecraft Procedure which saves the time and costs of the Petitioner and the Court. There is no suggestion that the 8^th Respondent was involved in the Inflation Scheme or the Falsification Scheme or his conduct involved dishonesty or lack of integrity. The 8^th Respondent did not approve the publishing of statements or announcements which he knew to be (or turn a blind eye to the fact that they are) misleading or false.

PART II – STATEMENT OF AGREED FACTS

A.  THE COMPANY AND ITS MANAGEMENT

11.  The Company was incorporated in Cayman Islands on 14 March 2014. It had been listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (“HK Exchange”) (stock code: 8182) since 11 November 2015 until 31 December 2019 when its listing status was cancelled.

12.  The Company was an investment holding company and carried on business through its subsidiaries (together the “Group”). The Company/ Group were principally engaged in the manufacturing of candies products in the People’s Republic of China (“PRC” or “Mainland”).

13.  At all material times, both Jinjiang Holeywood Trading Co., Ltd (晉江好來屋商貿有限公司) (“HW Trading”, formerly known as Jinjiang Holeywood Enterprise Consulting Co., Ltd), a PRC company principally engaged in the trading of raw materials for candy production, and Fujian Holeywood Food Industrial Co., Ltd (福建好來屋食品工業有限公司) (“HW Food”), another PRC company principally engaged in the production of candy products, were the Company’s subsidiaries.

14.  As the Company was (and still is) an investment holding company, the business and affairs of the Company’s subsidiaries were regarded as the business and affairs of the Company.

15.  As of 31 December 2016, HW Trading and HW Food collectively accounted for 89% of the Group’s total assets.

16.  Mr Xu Jinpei (許金培) (“Xu”) and his (then) spouse Ms Hong Yinzhi (洪蔭治) (“Hong”) were the founders and the former controlling shareholders of the Company.

17.  At all material times, the senior management of the Company comprised (amongst others):

(1)  Xu, the Company’s executive director (“ED”) since 8 January 2015 and the Company’s chairman since 26 October 2015. He resigned from those positions with effect from 31 July 2017.

(2)  Hong, an ED of the Company since 8 January 2015. Hong was also the compliance officer cum chairperson of the Company’s Compliance Committee (since 3 July 2015) and the Company’s chief executive officer (“CEO”) (since 26 October 2015). Hong resigned from all those positions with effect from 19 September 2019.

(3)  Mr Wang Zhihong (王志洪) (“Wang”), the compliance officer of the Company’s Compliance Committee since 3 July 2015 and the Company’s chief financial controller (“CFO”) since 26 October 2015. Wang’s work responsibilities and powers as the CFO were suspended from 18 December 2017. He eventually resigned as the CFO with effect from 19 September 2019.

(4)  Ms Li Yuna (李宇娜) (also known as Joyce Li), an ED of the Company since 30 December 2016. She became the Company’s chairman from 31 July 2017. Li resigned from those positions with effect from 30 November 2017.

(5)  Ms Hung Yvonne (洪綺婉), an ED of the Company since 2 February 2017 and the chairman of the Company since 30 November 2017.

(6)  Mr Chiu Sai Chuen Nicholas (趙世存), an independent non-executive director (“INED”) and a member of the Audit Committee of the Company since 26 October 2015. He was also the chairperson of the Company’s independent investigation committee (“IIC”) since 14 December 2017.

(7)  Mr Chu Wai Wa Fangus (朱偉華), an INED and a member of the Audit Committee of the Company since 26 October 2015. Chu resigned from those positions with effect from 24 July 2017.

(8)  The 8^th Respondent himself, an INED and the chairperson of the Audit Committee of the Company since 29 February 2016. He resigned from those positions with effect from 14 September 2017.

B.  OVERSTATEMENT OF THE COMPANY’S ASSETS AND FINANCIAL POSITION

18.  The Company published its 2016 Interim Report on 11 August 2016 (“2016 IR”) and its 2016 Annual Report on 17 March 2017 (“2016 AR”). In both the 2016 IR and the 2016 AR, there were significant overstatements in the cash and bank balances as at 30 June 2016 and 31 December 2016 respectively. Such overstatements were caused by the overstatement of the bank balances of HW Food and HW Trading.

19.  At all material times, HLB Hodgson Impey Cheng Limited (“HLB”) was the Company’s auditors until HLB’s resignation on 14 February 2018.

20.  In around October 2017, the Petitioner suspected that the Company might have falsified its accounts, including the sales figures as disclosed in its Prospectus and the financial statements published for the 2016 financial year. A series of investigations then ensued:-

(1)  On 10 October 2017, the Petitioner issued a notice pursuant to section 183 of the SFO to the Company requesting information relating to its top 5 customers, the trial balances and ledgers of the Company’s subsidiaries.

(2)  On 24 November 2017, the Company informed the Petitioner via its solicitors that “… our client has already gathered the relevant information. However, according to our instruction, as of the date hereof, our client has not received from its PRC staff the necessary confirmations”.

(3)  On 8 December 2017, the Company further informed the Petitioner that “… in spite of our numerous requests made to accounting personnel of the Company in the PRC to confirm the authenticity of the information, we are yet to receive any reply from them”.

(4)  On 12 December 2017, at the request of the Company, the trading of its shares on the HK Exchange was suspended.

(5)  On 14 December 2017, the Company announced that pursuant to a regulatory enquiry, it was required to provide information relating to the bank accounts, trial balances and bank ledgers of the Group. The accounting personnel of the Company in the Mainland were however unable to confirm the authenticity of the requested information.

(6)  Pursuant to the same announcement, the IIC comprising the Company’s INEDs (Mr Chiu Sai Chuen Nicholas, Mr Law Yiu Sing and Ms Tsui Suk Man) was established for the purpose of conducting an independent investigation on the authenticity of the requested information. According to the Company, it was Wang who refused to confirm the authenticity of the requested information.

(7)  On 1 February 2018, the IIC engaged Mazars Corporate Recovery & Forensic Services Limited (“Mazars”) to perform an independent investigation, in particular regarding the authenticity of the information of the Group’s bank accounts, trial balances and bank ledgers.

21.  Mazars had in the course of their investigation obtained bank statements of the Group’s subsidiaries from the relevant banks in the PRC (“Mazars Bank Statements”), including China Construction Bank in the PRC (“CCB”). At around 13 August 2018, Mazars issued a draft preliminary investigation report setting out their interim findings, which revealed a number of issues during the period from 1 June 2015 to 31 December 2017 (the “Relevant Period”).

22.  On 31 January 2019, Mazars issued an investigation report concluding that, without being exhaustive, there were:

(1)  Unverifiable outflow of the Company’s fund to directors/staff of the Group:

(a)  There were withdrawals of funds from the bank accounts of HW Trading and HW Food (totalling RMB 178 million) to a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong).

(b)  There were deposits of funds (totalling approximately RMB 135.5 million) from a number of personal bank accounts belonging to the key personnel and/or staff of the Company (mainly Hong) into the bank accounts of HW Trading and HW Food.

(c)  As to the shortfall of about RMB 42.5 million, the Company explained that the funds were used for operational expenses, such as payment of salaries to the Company’s staff. As there were insufficient information and/or supporting documents, Mazars was unable to verify the explanation given.

(d)  When being interviewed by Mazars, senior officers of the Company claimed that the funds flowing into and out of the bank accounts of HW Trading and HW Food were for loans made to third parties. Mazars noted that such assertion did not tally and could not be reconciled with the Group’s purported loan drawdowns and/or loan repayments by third parties.

(2)  Abnormal accounting records: there were transactions in the bank accounts of HW Food which did not exist but were booked in the Group’s ledger. The corresponding bank slips of those transactions could not be verified against record on CCB’s official website. For instance, the position of the chops, QR code and words on those bank slips were different from the other normal bank slips which were verifiable.

23.  The Petitioner has also in the course of its investigation obtained the bank statements of the Company’s PRC subsidiaries from two sources, i.e. the Mazars Bank Statements and those obtained by the Company from the respective banks pursuant to a notice dated 23 August 2018 and issued by the Petitioner pursuant to section 183 of the SFO (“SFC Notice”). These two sets of bank statements were obtained separately by Mazars and the Company. They are identical in content and are considered to be genuine (collectively referred to as “Genuine Bank Statements”).

24.  In response to the SFC Notice, the Company also provided the Petitioner with the Group’s ledgers covering the period from 1 January 2013 to 31 December 2017, including the cash and bank ledgers (“Bank Ledgers”). The cash and bank balances of each subsidiary as at 30 June 2016 and 31 December 2016 and as recorded in the Bank Ledgers tallied with those shown in HLB’s working papers for the Company’s annual audit and/or interim review (“HLB WP”). This suggested that at the material time, the Company had provided the Bank Ledgers to HLB for interim review and annual audit.

25.  By comparing the Genuine Bank Statements against the Bank Ledgers and HLB WP, there were significant overstatements in the bank balances of HW Food’s CCB account (with account number 35001656247052500648) (“HW Food Account”) and HW Trading’s CCB account (with account number 35001656247052506680) (“HW Trading Account”) as particularised below:

Account	Per Bank Ledgers & HLB WP (RMB)	Per Genuine Bank Statements (RMB)	Discrepancies, (collectively “Overstatements”) (RMB)
As at 30 June 2016
HW Food Account	41,201,641	3,601,641	37,600,000
HW Trading Account	503,125	3,125	500,000
Total	41,704,766	3,604,766	38,100,000
As at 31 December 2016
HW Food Account	44,325,674	845,674	43,480,000

26.  The 8^th Respondent admits, accepts and agrees that:

(a)  The Overstatements were caused by:

(i)  omission of non-recorded transactions, i.e. transactions which were recorded in the Genuine Bank Statements but not shown in the Bank Ledgers (“Non-recorded Transactions”); and

(ii)  booking of non-existent transactions, i.e. transactions which were recorded in the Bank Ledgers but were not shown in the Genuine Bank Statements (“Non-existent Transactions”).

(b)  The Non-recorded Transactions and Non-existent Transactions together (i.e. the recurring pattern of omitting Non-recorded Transactions from and booking Non-existent Transactions in the Bank Ledgers) had the effect of inflating the cash and bank balances in the HW Food Account and HW Trading Account (hence the Company’s consolidated account). The assets and financial position of the Company/ Group appeared healthier than they were in fact and/or were otherwise misstated.

(c)  To inflate the cash and bank balances, non-existent deposits would generally be booked near month-end (“Inflating Entries”). The Inflating Entries would then be cancelled out or “rectified” in the following month (for HW Food) or a few months later (for HW Trading) by omitting to book Non-recorded Transactions and/or booking Non-existent withdrawals in the Bank Ledgers (“Offset”).

(d)  In the case of the 2016 IR and the 2016 AR, the Overstatements were uncovered as the Offset only took place after the financial period cut-off point (i.e. after 30 June 2016 and 31 December 2016), thus inflating the cash and bank balances in the HW Food Account and the HW Trading Account (hence the Group’s published consolidated cash and bank balances) as of 30 June 2016 and 31 December 2016.

(e)  To conceal the Overstatements, the Company had provided falsified documents (such as bank statements, vouchers, and bank slips) to HLB when the auditors conducted interim review for the half year ended 30 June 2016 and annual audit for the years ended 31 December 2015 and 2016. In particular:

(i)  According to Mr Woo Lik Hang (“Woo”), HLB’s manager-in-charge for the Company’s interim reviews and annual audits between 2015 and 2017, during the audits, HLB had selected bank transactions from the Company’s bank ledgers and/or cash book, and matched them against the bank statements and supporting documents (e.g. voucher and bank slips) provided by the Company to see if the transactions in the bank statements were properly recorded and vice versa.

(ii)  Out of the 57 Non-existent Transactions identified by the Petitioner, 36 Non-existent Transactions had been selected by HLB as sample test and at the material time, HLB did not detect irregularity in relation to these 36 transactions. This suggested that the 36 Non-existent Transactions could be found in the bank statements and/or bank slips provided by the Company to HLB. Those bank statements and/or bank slips were falsified documents as they could not be matched with the entries in the Genuine Bank Statements.

(iii)  By comparing the vouchers provided by the Company to Mazars against the Genuine Bank Statements, there were discrepancies in 21 bank slips (relating to Non-existent Transactions) contained in 11 sets of vouchers. Since the Non-existent Transactions were not recorded in the Genuine Bank Statements, those vouchers and bank slips could not be genuine and they were thus falsified documents. The falsified bank slips/ vouchers were recorded and prepared by Wang and/or finance staff of the Company, namely 陳梅雙 or 陳玲玲.

27.  In the circumstances, the scheme for the overstatement and inflation of the Company’s assets and financial positions by overstating the bank balances in the bank accounts of HW Food and HW Trading for the half year ended 30 June 2016 and the financial year ended 31 December 2016 (the “Inflation Scheme”) was perpetrated and/or concealed by way of a scheme for fabricating records relating to the financial position of the Company/ Group which commenced as early as the financial year ended 31 December 2015 (the “Falsification Scheme”).

28.  The 8^th Respondent admits, accepts and agrees that the discrepancies in the false financial positions of the Company/ Group portrayed in the 2016 IR and the 2016 AR are substantial. The material misstatement of key financial information relating to the Company/ Group is not an one-off incident. The substantial misstatements occurred on at least 2 occasions in the 2016 IR and the 2016 AR. The purported cash and bank balances, net assets and total assets of the Group as disclosed in the 2016 IR and the 2016 AR, and the corresponding percentage attributable to the Overstatements, were as follows:

	As at 30 June 2016	As at 31 December 2016
Cash and bank balances	RMB 43,789,000	RMB 44,889,000
Net assets	RMB 86,105,000	RMB 83,621,000
Total assets	RMB 166,616,000	RMB 160,071,000
Percentage of cash and bank balances to net assets	51%	54%
Percentage of cash and bank balances to total assets	26%	28%
Overstatement of bank balances	RMB 37,600,000 + RMB 500,000 i.e. RMB 38,100,000 in total	RMB 43,480,000
Percentage of overstatement	•  87% of the purported cash & bank balances •  44% of the purported net assets •  23% of the purported total assets	•  97% of the purported cash & bank balances •  52% of the purported net assets •  27% of the purported total assets

C.  ROLE OF THE 8^TH RESPONDENT AND LIABILITY

C1.  Duties of the 8^th Respondent

29.  The 8^th Respondent admits, accepts and agrees that as a director of the Company, he owed, inter alia, the following duties to the Company:

(1)  To act honestly and in good faith and to act in the best interests of the Company, including but not limited to:

(a)  Not directing, approving, allowing or acquiescing the Company to make:

(i)  statements or announcements to its public shareholders or the public generally which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(ii)  statements or declarations to the Company’s auditors and regulatory authorities including the HK Exchange that he knows to be (or turns a blind eye to the fact that they are) misleading or false.

(b)  Not acting for any improper purpose in the exercise of his powers and the discharge of his duties.

(2)  Not to act in conflict or to make secret profits.

(3)  To comply with the Company’s bye-laws and the relevant laws and regulations concerning the management of the Company.

(4)  Pursuant to section 465 of the Companies Ordinance (Cap. 622), a duty to exercise reasonable care, skill and diligence that would be exercised by a person with:

(a)  the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and

(b)  the general knowledge, skill and experience that the director has.

(5)  As the Company was listed on the GEM of the HK Exchange, and as a director of the Company, the 8^th Respondent had given an undertaking to comply with and be bound by the Rules Governing the Listing of Securities on GEM of the HK Exchange (“GEM Listing Rules”), including Rule 5.01, which provides that every director must, in the performance of his duties as a director, inter alia:

(a)  Act honestly and in good faith in the interests of the company as a whole;

(b)  Act for proper purpose;

(c)  Avoid actual and potential conflicts of interest and duty; and

(d)  Follow up anything untoward that comes to his attention.

(6)  A duty to act with care, skill and diligence reasonably expected of a person of his knowledge and experience in the performance of their functions and his management of the Company’s affairs.

(7)  A continuing duty to acquire and maintain a sufficient knowledge and understanding of the Company’s business to enable them properly to discharge his duties as a director of the Company.

(8)  Where he has delegated some of the managerial or financial responsibilities to his subordinates or other fellow officers, a duty to supervise the discharge of the delegated functions.

(9)  A duty of care to the Company, which was (and still is) an investment holding company, to manage and/or supervise the affairs of the Company’s subsidiaries properly.

C2.  The 8^th Respondent’s breach and failure to discharge his duties

30.  The 8^th Respondent admits, accepts and agrees that he acted negligently and in breach of his duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements thereby failing to disclose the true financial position of the Company to its shareholders. He also admits, accepts and agrees that he breached his duties as director of the Company in failing to exercise reasonable care, skill and diligence in the performance of his functions and management of the Company’s affairs.

31.  The 8^th Respondent admits, accepts and agrees that he should have discovered the Overstatements (which, as the 8^th Respondent accepts, are material) had he exercised reasonable care, skill and diligence, having regard in particular to the following:

(a)  The Overstatements were of very substantial scale and the material misstatement of key financial information (i.e. the Company’s and the Group’s cash and bank balances) was not a one-off incident.

(b)  The false or fictitious entries of cash and bank balances could (and should) have been revealed upon proper review of the accounts, ledgers, bank statements and supporting documents of the Company and the Group and the making of reasonable inquiries arising from the same.

(c)  The 8^th Respondent himself was a member of the Company’s Audit Committee. The terms of reference of the Audit Committee provides that the primary duties of the Audit Committee include reviewing the Company’s financial information and monitoring the Company’s financial reporting system and internal control procedures. In such position, the 8^th Respondent ought to review and monitor the assets and financial position of the Company and the Group.

(d)  Given his position, the 8^th Respondent had or ought to have an understanding as to the overall finances, business and financial performance of the Company/ Group as a whole. Further, he should have been in a position to verify (or cause or procure others to verify) whether the cash and bank balances as represented in the 2016 IR and the 2016 AR were genuine and accurate.

(e)  Had the 8^th Respondent exercised due care and diligence in overseeing the operations and finances of the Company and the Group, he should have been in a position to have a rough estimate of the Company’s and the Group’s cash and bank balances, and therefore be able to ascertain whether the amount or level of cash and bank balances reported in the 2016 IR and the 2016 AR were (at least) within the expected or reasonable range (or otherwise out of range thus warranting verification or investigation).

(f)  Further, the 8^th Respondent ought to have (but had not) ensured that the Company had proper and adequate internal control measures in place to ensure the accuracy of the Company’s and the Group’s key financial data relating to cash and bank balances.

32.  The 8^th Respondent admits, accepts and agrees that insofar as he had delegated some of his managerial and financial responsibilities to the rest of the Company’s board of directors (“Board”) and/or subordinates, this did not absolve him from his duty to supervise the discharge of the delegated functions. He ought to have kept himself abreast of the financial position and cash and bank balances of the Company and the Group instead of simply entrusting and relying on the rest of the Board and/or their subordinates without carrying out any independent check, supervision and/or assessment of the financial position and cash and bank balances of the Company and the Group.

33.  In the circumstances, the 8^th Respondent admits, accepts and agrees that (i) he failed to properly, adequately and competently assess and present a fair picture of the financial position of the Company to its shareholders; (ii) he failed to supervise and exercise proper control over his fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company; (iii) he acted negligently and in breach of his duties to the Company in failing to do so; and (iv) he also acted negligently and was in breach of his duty of care, skill and diligence owed to the Company by failing to uncover the Overstatements, thereby failing to disclose the true financial position of the Company to its shareholders.

34.  The 8^th Respondent admits, accepts and agrees that even though he was not, as an INED, involved in running the day-to-day business of the Company, he should nonetheless acquaint himself with adequate knowledge of such business so as to perform his duties as the Audit Committee of the Company. At the very least, he is responsible for monitoring and scrutinising the Company’s corporate governance, especially its financial position, as well as reviewing the Company’s internal controls.

35.  At the material time, CT Partners Consultants Limited (“CT Partners”) had prepared internal control review reports and identified issues in the Company’s treasury / cash management / financial reporting functions (“Potential Red Flags”). In relation to those internal control review reports, the 8^th Respondent failed to pay attention to the Potential Red Flags identified by CT Partners. For the following reasons, the 8^th Respondent admits, accepts and agrees that he acted negligently by failing to monitor and exercise proper control over his fellow directors of the Board and the other senior officers of the Company and/or their subordinates in charge of the operations and financial affairs of the Company, and also failing to exercise reasonable skill and care to implement the internal controls of the Company, thereby failing to uncover the Overstatements.

36.  The material Overstatements and fabrication of supporting documents showed that the 8^th Respondent had simply failed to monitor the senior officers of the Company and left them to run the business without monitoring them properly or at all:

(1)  The 8^th Respondent has failed to ensure that he would receive and approve the monthly management accounts of the Company in accordance with the procedure stipulated in CT Partners’ internal control review report. In fact, no monthly management accounts were ever sent to the Board.

(2)  Had the 8^th Respondent exercised due care, skill and diligence in overseeing the operations and finance of the Company and the Group, and understanding the nature of major cash inflows and outflows of the Company and the Group, including by reviewing the monthly management accounts of the Company, he ought to be in a position to monitor, inquire into and/or verify the financial position (particularly as regards bank balances) of the Company and the Group.

37.  The 8^th Respondent has also failed to ensure that the measures stated in the CT Partners’ internal control review reports were implemented and enforced as he:

(1)  was unfamiliar with the contents of the internal review control reports;

(2)  was unaware that the enforcement of the measures stated in the internal control review reports should have been the duties of the Audit Committee and the Compliance Committee; and

(3)  had no knowledge of the existence or the function of the Compliance Committee.

38.  Had the 8^th Respondent acted reasonably to ensure that the Audit Committee and the Compliance Committee performed their duties, the following measures stated in CT Partners’ internal control review reports would have been enforced and the perpetration of the Inflation Scheme and/or the Falsification Scheme would likely have been discovered:

(1)  the Company’s accountant would have prepared and circulated monthly management accounts to the Board for consideration and review;

(2)  bank book balances would have been cross-checked against bank statements on a daily basis to identify any discrepancy due to unrecorded items. Cash balances and cash in hand would have been reconciled on a daily basis and deposited into the Company’s designated bank account when the cash balance was over RMB 30,000. This stands in contrast to the Non-existent Transactions of over millions of RMB marked as “存現” (cash deposits) in the falsified Bank Ledgers.

39.  As the 8^th Respondent had relied completely on HLB and CT Partners to identify and report issues regarding audit or internal controls, he has abdicated his duties to independently identify and assess such issues.

40.  By reason of the above breaches of duties by the 8^th Respondent, the business or affairs of the Company have been conducted in a manner:

(1)  involving defalcation, misfeasance or other misconduct towards the Company, its members or any part of its members by the misrepresentation of the Company’s key financial information;

(2)  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect, such as the true position of the Company’s cash and bank balances and assets position; and

(3)  unfairly prejudicial to its members or part of its members.

PART III – AGREED PROPOSED ORDERS

41.  On the basis of the agreed facts set out in Part II above, the Petitioner and the 8^th Respondent agree and jointly submit that it would be appropriate for an order to be made against the 8^th Respondent under section 214(2)(a) and (d) of the SFO, under which the 8^th Respondent shall not, for a period of 12 months, 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 corporation in Hong Kong including the Company or any of its subsidiaries and affiliates; and

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

42.  If, pursuant to this Schedule, this Court disposes of these proceedings summarily, the 8^th Respondent agrees that there should additionally be an order that the 8^th Respondent do pay the costs of the Petitioner in these proceedings, to be taxed if not agreed.

  Dated this 26^th day of November 2025