SECURITIES AND FUTURES COMMISSION v. TONG SHEK LUN AND OTHERS

HCMP 2386/2014

[2020] HKCFI 435

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2386 OF 2014

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R E A S O N S   F O R   D E C I S I O N

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1.  On 25 September 2014, the petitioner (“SFC”) commenced proceedings under section 214 of the Securities and Futures Ordinance, Cap 571, (“SFO”) applying for disqualification and compensation orders against Tong Shek Lun (“Tong”), as the 1^st Respondent, Ko Lai King Kinny (“Ko”), as the 2^nd Respondent and Chung Wai Yu Regina (“Chung”), as the 3^rd Respondent (together “Respondents”).

2.  The SFC makes the following allegations in the Petition:

(1) Karce International Holdings Company Limited (“Karce”), the 4^th Respondent, provided false and misleading information regarding the sale of printed circuit boards (“PCB”) business in various announcements.

(2) Tong through his company Extract Group Limited misappropriated from Karce US$1,000,000 in lost consultancy fees.

(3) As directors, Tong, Ko and Chung have breached their fiduciary/common law duties to act in good faith and in the best interests of Karce and have caused and/or permitted Karce to breach the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (“Listing Rules”) in that they:

(a)  split the consideration of US$4,000,000 for the sale of the PCB business by Karce, into two sums of US$3,000,000 and US$1,000,000 so that the transaction would not constitute a major transaction triggering the reporting, announcements and independent shareholder approval requirements under the Listing Rules;

(b)  diverted to Tong, via Extract Group Limited, the mature business opportunity of Karce to provide consultancy services to KFE Hong Kong Co, Ltd (“KFE Hong Kong”);

(c)  caused, procured, assisted and/or permitted Extract Group Limited to enter into a consultancy agreement    on 26 September 2008 with KFE Hong Kong (“Consultancy Agreement”) against the best interests of Karce; and

(d)  caused, permitted or allowed the misappropriation by Tong, via Extract Group Limited, of US$1,000,000 paid by KFE Hong Kong under the Consultancy Agreement which money should have been Karce’s, but ended up in the bank accounts held by Tong.

3.  The SFC, therefore, seeks to disqualify Tong, Ko and Chung as directors to protect the interests of the public and to send a clear message to the business community that directors, particularly listed company directors, are expected to fully discharge their duties and not place their own interests above those of the company.

4.  The SFC is also seeking compensation orders to compensate Karce for the loss and damages suffered as a result of Tong’s misappropriation and Ko and Chung for their negligence and unacceptable passivity in light of Tong’s actions and their failure to act diligently to protect Karce in the interests of all its shareholders, and not merely Tong.

5.  The SFC and each of Tong, Ko and Chung have agreed to dispose of these proceedings against them summarily by way of the Carecraft procedure.  I granted leave for that purpose.

6.  On 10 August 2016, the parties appeared before this Court for the Carecraft hearing.  I expressed concern on the proposed carving out of certain private companies (some of which had names which bear resemblance to the subject listed company) as exempted companies (“Exempted Companies”) from the disqualification orders.  I said that in order to be persuaded to carve out those private companies, more information about what they do and how they are managed would be required and that Tong, Ko and Chung should consider this and compile the necessary evidence.  I accordingly adjourned the Petition sine die with liberty to restore or to apply for directions.

7.  Since the last hearing:

(1) Tong, Ko and Chung have withdrawn their request for the carving out of the Exempted Companies from the disqualification orders.

(2) Parties have also agreed on the rate and applicable period for the pre­judgment interest on the amount of compensation payable.

(3) The parties have accordingly signed revised Carecraft Schedules dated 18 August 2017 (“Schedules”) with references to the Exempted Companies removed and with the agreed calculations of pre‑judgment interest on the compensation sum stipulated.

8.  The three sets of Schedules follow the same format:

Part A — Introduction;

Part B — Facts not in dispute;

Part C — Proposal for disqualification and compensation; and

Appendix 1 — Definitions of subsidiaries and affiliates.

9.  The contents of the three Schedules are essentially the same.  The main differences between the three Schedules are:

(1) the positions/roles of Tong, Ko and Chung in Karce ([4] of the Schedules);

(2) Tong, Ko and Chung’s responsibilities for Karce’s breaches of the Listing Rules ([61] of the Schedules); and

(3) the proposed disqualification periods for Tong, Ko and Chung which the SFC seeks to make ([64] of the Schedules).

10.  The parties are in agreement on the orders to be made by this Court.

THE CARECRAFT PROCEDURE

11.  The procedure sanctioned in Re Carecraft Construction Ltd [1994] 1 WLR 172 and clarified by the English Court of Appeal in Secretary of State for Trade and Industry v Rogers [1] has since been adopted in Hong Kong in the context of applications under section 214 of the SFO: see a review of such authorities in Re Medical China Ltd, [2] [2]–[4] per Barma J (as he then was).

12.  The Court in deciding whether to make the orders is not bound by the agreement reached by the SFC and Tong, Ko and Chung: Re Warderly International Holdings Ltd [3] at [5] per Harris J; Re Medical China Ltd at [5].

13.  For present purposes, the Court must be satisfied, based on the agreed facts set out in the Schedules, that the business or affairs of Karce have been conducted in a manner described in sections 214(1)(a), (b), (c) or (d) of the SFO and, if so satisfied, to determine the scope and duration of the disqualification orders against Tong, Ko and Chung and the amount of compensation they must pay Karce.

14.  However, the court is in practice likely to be guided by the agreement that the SFC has reached on the sanctions to be imposed (Re Warderly at [5]; Re Medical China Ltd at [5]).

LIABILITY UNDER SECTION 214(1) OF THE SFO

15.  The SFC submits and Tong (founder, Chairman and Managing Director from 1991 to 2009), Ko (executive director from 1991 to 2008) and Chung (executive director from 1993 to 2008) accept that, the business or affairs of Karce for which they were responsible, have been conducted in a manner:

(1) oppressive to its members or any part of its members—section 214(1)(a);

(2) involving defalcation, misfeasance or other misconduct towards its members or a part thereof—section 214(1)(b);

(3) resulting in its members or any part thereof not having been given all the information with respect to its business or affairs as they might reasonably expect—section 214(1)(c); and/or

(4) unfairly prejudicial to its members or any part thereof—section 214(1)(d).

16.  “Oppressive conduct” has been described as tyrannical conduct or abuse of power or a visible departure from the standards of fair dealing (Re Taiwa Land Investment Co Ltd [4] at 304G-H per Fuad J; see also 303D-I).  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 (SFC v Yeung Chung Lung [5]at [71] per DHCJ Hunsworth).

17.  Section 214(1)(b) clearly covers a wide range of misconduct towards members of a listed company.

(1) “Misfeasance” is broadly defined as “the performance of an otherwise lawful act in a wrongful manner” (section 1, Part 1, Schedule 1 of the SFO).  This has been held to include a breach of duty by an officer resulting in an improper application of the company’s assets or property including property or money which should have come to the company but has been diverted (see SFC v Yeung Chung Lung at [81] per DJHC Hunsworth).

(2) “Defalcation” is defined as “misapplication, including misappropriation of any property” (section 1, Part 1, Schedule 1 of the SFO).

(3) The catch-all limb of “or other misconduct” is necessarily broad in scope and covers a director’s failure to apply reasonable skill and care (Re Riverhill Holdings Ltd [6] at [15] per Kwan J (as she then was); applied in SFC v Norman Ho [7] at [11] per G Lam J).

18.  Section 214(1)(c) is self-explanatory: “The failure to comply with disclosure requirements applicable to listed companies also meant that the company’s members were not provided with all the information concerning the company’s business or affairs that they could expect.” (SFC v Norman Ho at [12])

19.  Conduct which is “unfairly prejudicial” is conduct which results in harm to the members of the company or part of the membership in their capacity as members of the company; it covers a wide range of conduct covering fraud and mere neglect or inaction on the part of those to whom the affairs of a company are entrusted (SFC v Fung Chiu & Ors [8] at 429C-G per Chu J (as she then was)).

20.  The agreed facts in support of the conclusion that the business or affairs of Karce have been conducted in a manner described in sections 214(1)(a), (b), (c) and/or (d) are set out in Part B of the Schedules.  In summary:

(1) The group consisting of Karce and its subsidiaries (“Group”) principally engaged in the business of the manufacture and trading in electronic products and PCB.  Karce has been listed on the Stock Exchange of Hong Kong Limited since 1998 with Stock Code 1159.

(2) On 30 July 2008, Karce announced that it had entered into a non-binding term sheet (“Term Sheet”) as the seller with KFE Hong Kong as the purchaser, for Karce to dispose of the entire issued shares of some of the Group's subsidiaries at an intended consideration of US$4,000,000.

(3) On 12 September 2008 and 26 September 2008, China Ample Investments Limited (“China Ample”), a wholly owned subsidiary of Karce, entered into a sale and purchase agreement and a further sale and purchase agreement with KFE Hong Kong for the disposal of the PCB business of the Group at a consideration of US$3,000,000 (“SPA”).  Tong signed the SPA on behalf of China Ample.  Tong, Ko and Chung signed minutes of a board meeting to approve the signing of the SPA.

(4) On 26 September 2008, KFE Hong Kong and the Extract Group Limited signed the Consultancy Agreement to appoint Extract Group Limited as a consultant, to provide various consulting services to KFE Hong Kong’s manufacturing arm in the Mainland.  Tong signed the Consultancy Agreement on behalf of Extract Group Limited, a company he wholly owned and controlled.  Tong, via Extract Group Limited, and KFE Hong Kong agreed the consultancy fee to be US$1,000,000.  Under the Consultancy Agreement, if Extract Group Limited was not able to assist KFE Hong Kong to obtain the upgraded sewage license up to 800 tons a day by 30 September 2009, it would have to return the US$1,000,000 to KFE Hong Kong on or before 31 October 2009.

(5) The terms of the Consultancy Agreement and the US$1,000,000 paid to Extract Group Limited were not disclosed in Karce’s public announcement dated 26 September 2008 (“Second Announcement”), the circular to shareholders in relation to the SPA dated 17 October 2009 (“Circular”) and the Annual Report 2008.

(6) In 2010, KFE Hong Kong commenced proceedings in the High Court under HCA 457/2010 against Extract Group Limited, to recover the US$1,000,000 paid as a result of the Extract Group Limited’s failure to obtain an upgraded sewage licence pursuant to the Consultancy Agreement.  In 2012, Extract Group Limited paid US$505,000 to KFE Hong Kong in full and final settlement of KFE Hong Kong’s claim in HCA 457/2010.

21.  The complaints raised by the SFC in relation to sale of the PCB business by Karce, against Tong, Ko and Chung are:

(1) False representations and/or material non-disclosure regarding the sale of the PCB business by Karce in the Second Announcement, the Circular and the Annual Report 2008 ([56]–[57] of the Schedules).

(2) Failure to ensure compliance by Karce of the Listing Rules in relation to the sale of the PCB business ([59]‑[61] of the Schedules).

(3) Breaches of fiduciary/common law duties and the Listing Rules by the Respondents in that they ([62] of the Schedules):

(a)  caused Karce to reduce the consideration under the SPA from US$4,000,000 to US$3,000,000;

(b)  diverted to Tong, via Extract Group Limited, the mature business opportunity of Karce to provide consultancy services to KFE Hong Kong;

(c)  caused, procured, assisted and/or permitted Extract Group Limited to enter into the Consultancy Agreement with KFE Hong Kong against the best interests of Karce;

(d)  causing, permitting or allowing the misappropriation by Tong via Extract Group Limited of US$1,000,000 paid by KFE Hong Kong under the Consultancy Agreement which money should have been Karce’s; and

(e)  failed to provide to Karce and/or its members with full and complete information about the disposal of the PCB business.

22.  Tong accepts that he was responsible for the aforementioned matters because he was fully aware of the full terms of the sale of the PCB business (including the true amount of the consideration payable) and ought not to have signed the Consultancy Agreement on behalf of Extract Group Limited without making full and proper disclosure of his interests in Extract Group Limited.  As a result, Tong knew or ought to have known that Karce was making numerous false and/or misleading representations about the sale of the PCB business to the shareholders of Karce and the investing public and caused and permitted or allowed these things to happen ([61] of the Schedule of Tong).

23.  Ko and Chung both accept that they were responsible for the matters mentioned in [21] above, because they both knew or ought to have known of the full terms of the sale of the PCB business (including the true amount of the consideration payable) and knew or ought to have known, by making full and proper inquiries of Karce’s business and affairs, of Tong’s interests in Extract Group Limited.  As a result, Ko and Chung both knew or ought to have known that Karce was making numerous false and/or misleading representations about the sale of the PCB business to the shareholders of Karce and the investing public and caused and permitted or allowed these things to happen ([61] of the Schedules of Ko and Chung).

24.  The SFC submits and Tong, Ko and Chung accept that they were responsible for the business and affairs of Karce having been conducted in the manner described in sections 214(1)(a), (b), (c) and (d) of the SFO ([4] & [63] of the Schedules).

DISQUALIFICATION ORDERS

Legal Principles

25.  The purpose of imposing disqualification orders is two-fold: (i) protection of the public’s interest, and (ii) general deterrence (SFC v Fung Chiu & Ors [9] at 23A‑C per Kwan J (as she then was)).

26.  As to the length of the disqualification orders, the court will approach the question by determining which of the following three brackets the case falls under:

(i)  top bracket over 10 years for particularly serious cases;

(ii)  minimum bracket 0‑5 years for relatively not serious cases; or

(iii)  middle bracket 6‑10 years for cases that, though serious, do not merit the top bracket.

(See for example SFC v Cheung Keng Ching & Ors [10] at 466F‑I per Fok JA (as he then was); Re First China Financial Network Holdings Ltd [11] at [6] per A Chan J).

27.  However, as G Lam J pointed out in SFC v Wang Jian Hua & Ors [12]at [3], a broadbrush approach is to be adopted and that the brackets are more signposts than straitjackets.

28.  The period of disqualification is determined with reference to a wide spectrum of considerations, such as the gravity of the contravention, the character of the offenders and the interests of shareholders (see Re Warderly International Holdings Ltd at [7]‑[10] per Harris J; Re Styland Holdings Ltd [13] at [6]‑[8] per Au J).

29.  The fact that a respondent has consented to the Carecraft procedure and has agreed to pay the SFC’s costs are relevant mitigating factors (SFC v Cheung Keng Ching at 468H, [44]; SFC v Li Hejun & Ors [14] at [23]‑[24] per Chow J).

30.  Although no direct comparison can be made with the facts in previous cases, the circumstances in Re Medical China Ltd are worth mentioning by way of reference:

(1) The parties agreed to dispose of the proceedings by way of the Carecraft procedure ([2]).

(2) The relevant complaints against the 1^st respondent involved the misappropriation of company assets and personal benefit to the 1^st respondent of HK$2,000,000 the failure to provide proper information to members of the company and the failure to implement a proper system of financial control and management.  The court agreed that the misconduct and breaches of duty established against him fell in the middle of the middle bracket in terms of seriousness and that the proposed term of seven years’ disqualification was appropriate ([12] & [14]).

(3) The relevant complaints against the 2^nd Respondent involved the failure to provide adequate information to shareholders and to ensure that the company had a proper system of financial management and control which made misappropriation of assets possible.  Further, the 2^nd Respondent did not derive any personal benefits, and agreed to pay half the costs of the proceedings.  The court accepted that a disqualification period of four years, falling towards the top of the minimum bracket, should be imposed ([15] & [16]).

The present case

31.  In the present case, the following points are particularly relevant:

(1) Tong was the founder and Chairman of Karce.  Ko and Chung had also been working at the Group for a very long time (since November 1991 and August 1993 respectively).

(2) Tong, through Extract Group Limited, diverted and/or misappropriated to himself the business opportunity of US$1,000,000 away from Karce in September 2008.  Extract Group Limited paid US$505,000 to KFE Hong Kong in December 2012.

(3) Tong caused/permitted Karce to repeatedly issue misleading and/or false announcements in relation to the sale of the PCB business.  As a result, Tong concealed from Karce’s members and the general public of the terms of the Consultancy Agreement and the fact that he had personally benefited under the Consultancy Agreement.  Tong caused Karce to avoid the need for shareholders' approval prior to the execution of the Consultancy Agreement and the SPA as required under the Listing Rules.

(4) There was a high degree of incompetence or negligence on the part of Ko and Chung in discharging their duties as executive directors of a listed company and in failing to exercise reasonable skill, care and diligence and/or to act in the best interests of Karce in relation to the sale of the PCB business.  They have exhibited a marked indifference to, and/or disinterest in, their responsibilities as directors of Karce by allowing/permitting Karce to repeatedly issue misleading and/or false announcements in relation to the sale of the PCB business and in particular the proper application of Karce’s funds.

(5) There were repeated breaches of the Listing Rules.

32.  In particular, with regards to Tong:

(1) He was fully aware of the full terms of the sale of the PCB business.

(2) He was the one who proposed the Consultancy Agreement.

(3) He signed the Consultancy Agreement on behalf of Extract Group Limited, which he should not have done without making full and proper disclosure of his interests in Extract Group Limited.

(4) He (and not Ko and Chung) derived a personal benefit from the transaction through Extract Group Limited.

(5) With full knowledge of the terms of the Consultancy Agreement:

(a)  Tong failed to disclose at the Board meeting to approve the sale of the PCB business the fact that Extract Group Limited had entered into the Consultancy Agreement with KFE Hong Kong and that a consultancy fee of US$1,000,000 was paid to Extract Group Limited; and

(b)  As a result, Tong caused or permitted Karce to issue announcements which did not disclose the existence of the Consultancy Agreement, its connection with the SPA and his ownership and/or control of Extract Group Limited.

33.  That said, Tong, Ko and Chung have adopted a reasonable course in agreeing to conclude these proceedings by way of the Carecraft procedure and to compensate the SFC for the costs incurred.

34.  The SFC submits, and Tong, Ko and Chung accept, that the following disqualification periods are appropriate:

(i)  Tong: seven years (ie middle of the middle bracket);

(ii)  Ko: five years (ie top end of the minimum bracket).

(iii)  Chung: five years (ie top end of the minimum bracket). 

COMPENSATION ORDERS

35.  It is well established that the court has the power to make an order for the payment of compensation under section 214(2)(e) of the SFO (see Re Styland Holdings Ltd (No 2) [15] at [141] per Barma J (as he then was)).

36.  In this case, the primary basis of the SFC's compensation claim is one for diversion of a mature business opportunity.  The remedy available to Karce is for the fiduciaries to account for the profits made as though they were trust property which belonged to the company (see for eg explanation of the principle by Ma J (as he then was) in Kao Lee & Yip v Koo Hoi Yan Donald [16] at [138]).

37.  In light of the repayment ofUS$505,000 to KFE Hong Kong, subject to this court's approval, the parties have agreed the amount of compensation (ie the profits retained) to be US$495,000.

38.  It should be added that although it was only Tong and not Ko or Chung who derived the financial benefit from the wrongful diversion of the consultancy fee to Tong via Extract Group Limited, the SFC contends, and Tong, Ko and Chung accept, that they should be held jointly and severally liable to pay US$495,000 to Karce since the loss would not have been suffered if Ko and Chung had carried out their duties as directors properly and in particular, had not assisted and/or permitted Extract Group Limited to enter into the Consultancy Agreement with KFE Hong Kong and for Extract Group Limited to receive the consultancy fee of US$1,000,000, against the best interests of Karce.  A Chan J in Re First China Financial Network Holdings Ltd [17] at [3] adopted a similar approach to joint and several liability amongst the respondents.

INTEREST

39.  Section 48 of the High Court Ordinance, Cap 4, provides that the court may award interest for all or any part of the period between the date when the cause of action arose and the date of any sum of payment before judgment or the date of judgment.

40.  The overriding principle is that interest should be awarded to the plaintiff not as compensation for the damage done but for being kept out of money which ought to have been paid to him: Union Base Ltd v Tsang Shek Tong [18] at 352D‑E per Godfrey JA.

41.  Recently, the Court of Appeal has re-affirmed the conventional practice of awarding pre-judgment interest at the usual rate of 1% over prime rate unless there is evidence to suggest that this interest rate is inappropriate: see Waddington Ltd v Chan Chun Hoo Thomas & Ors,[19] [171]‑[186]; Tadjudin Sunny v Bank of America, National Association,[20] [170]‑[183].

42.  Subject to the approval of this court, the parties have agreed that the sum of US$242,021.92 is to be ordered as pre-judgment interest up to 27 December 2012 and a further sum of pre-judgment interest on the amount of US$495,000 from 28 December 2012 to the date of the order at the rate of 1% above the prime rate published by the HSBC (see [6] of the Schedules).

HOUSEKEEPING MATTER

43.  It is noted that [9] of the Petition mistakenly states Karce to have an authorised share capital of HK$2,000,000 divided into 20,000,000 shares of HK$0.1 each and 842,824 issued shares when the correct figures should be as follows:

“As stated in its latest Interim Report 2014 for the six months ended 30 June 2014 dated 22 August 2014, the Company has an authorised share capital of HK$2,000,000,000 divided into 20,000,000,000 shares of HK$0.1 each and 842,824,000 issued shares.”

The correct figures have been used in [19] of the Schedules.

44.  For the sake of good order, the SFC sought leave (which I granted) to amend [9] of the Petition in accordance with the revised wording as italicised in [43] above so that it accurately reflects the share capital of Karce at the relevant time.

CONCLUSION

45.  I have for the above reasons made the following order:

(1) The 1^st Respondent shall not, without leave of the Court, for a period of seven years:

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property of business, of any listed or unlisted company including the 4^th Respondent or any of its subsidiaries and affiliates (as defined in Appendix 1 to this Order);

(b)  in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company including the 4^th Respondent or any of its subsidiaries or affiliates (as defined in Appendix 1 to this Order).

(2)  The 2^nd Respondent shall not, without leave of the Court, for a period of five years:

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted company including the 4^th Respondent or any of its subsidiaries and affiliates (as defined in Appendix 1 to this Order);

(b)  in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company including the 4^th Respondent or any of its subsidiaries or affiliates (as defined in Appendix 1 to this Order).

(3)  The 3^rd Respondent shall not, without leave of the Court, for a period of five years:

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted company including the 4^th Respondent or any of its subsidiaries and affiliates (as defined in Appendix 1 to this Order);

(b)  in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company including the 4^th Respondent or any of its subsidiaries or affiliates (as defined in Appendix 1 to this Order).

(4)  The period of disqualification in each instance shall be as follows:

(a)  For the 1^st Respondent, the period of disqualification shall be from 16 March 2018 (ie 21 days from 23 February 2018) to 9 August 2023 (seven years from 10 August 2016, and five years, four months and 25 days from 16 March 2018); and

(b)  For the 2^nd and 3^rd Respondents, the periods of disqualification shall be from 16 March 2018 to 9 August 2021 (five years from 10 August 2016, and three years, four months and 25 days from 16 March 2018).

(5)  Pursuant to section 214(2)(e) of the SFO, the 1^st, 2^nd and 3^rd Respondents do jointly and severally pay to the 4^th Respondent:

(a)  the sum of US$495,000 within 30 days from the date hereof; and

(b)  the sum of US$395,241.37 being pre-judgment interest up to the date hereof.

(6)  The 4^th Respondent do notify the Petitioner of receipt of the sums referred to in paragraph 5 above and to provide supporting documents to prove the same within seven days of receipt of the said sums.

(7)  The 1^st, 2^nd and 3^rd Respondents shall jointly and severally pay the costs of the Petitioner in these proceedings, to be taxed if not agreed, with certificate for two counsel.

(8)  The 1^st, 2^nd and 3^rd Respondents shall jointly and severally pay the 4^th Respondent the sum of HK$100,000 in respect of their costs and disbursements in these proceedings within 30 days from the date hereof.

(9)  As between the Petitioner and the 4^th Respondent there shall be no order as to costs.

(10)  Paragraph 9 of the Petition be amended as per the underlined wordings below:

“As stated in its latest Interim Report 2014 for the six months ended 30 June 2014 dated 22 August 2014, the Company has an authorised share capital of HK$2,000,000,000 divided into 20,000,000,000 shares of HK$0.1 each and 842,824,000 issued shares.”

Appendix 1

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

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

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

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

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

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

Schedule 1

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF  

THE 1^ST RESPONDENT (TONG SHEK LUN)

A. INTRODUCTION

1. On 25 September 2014, the Securities and Futures Commission (“Petitioner”) issued proceedings under section 214 of the Securities and Futures Ordinance (Cap 571) (“Ordinance”) seeking disqualification and compensation orders against Mr Tong Shek Lun (“1^st Respondent”), Ms Ko Lai King Kinny (“2^nd Respondent”) and Ms Chung Wai Yu Regina (“3^rd Respondent”) in respect of their conduct of the business and affairs of the 4^th Respondent, Sinogreen Energy International Group Limited (formerly known as Karce International Holdings Company Limited) (“Company”).

2. Subject to the approval of this Court, the Petitioner and the 1^st Respondent consent to the disposal of these proceedings against the 1^st Respondent by way of the summary procedure (“Carecraft procedure”) sanctioned in Re Carecraft Construction Co Limited [1994] 1 WLR 172, as clarified by the English Court of Appeal in Secretary of State for Trade and Industry v Rogers [1996] 1 WLR 1569 and as adopted by this Court in Securities and Futures Commission v Yick Chong San [2007] 4 HKLRD 46, Securities and Futures Commission v Fung Chiu and Others [2009] 2 HKC 19 and Securities and Futures Commission v Shum Ka Sang Charlie and Shen Yi (HCMP1014/2008, unrep, 22.05.2009) in respect of proceedings under section 214 of the Ordinance.

3. This Schedule is produced, for the purpose of disposing of the proceedings by way of Carecraftprocedure, in order to identify the material facts relied on by the Petitioner in these proceedings as set out in Section B below, that are not disputed by the 1^st Respondent.

4. Solely for the purposes of resolving these proceedings by way of the Carecraft procedure but not others, the 1^st Respondent accepts that, by reference to the facts set out in Section B (which the 1^st Respondent admits and accepts), that during the relevant period in 2008 to 2009 or any part thereof, the business and affairs of the Company, for which the 1^st Respondent as its Chairman and Managing Director was responsible, have been conducted in a manner described in section 214(1)(a), (b), (c) and (d) of the Ordinance, namely:

4.1. oppressive to its members or any part of its members;

4.2. involving defalcation misfeasance or other misconduct towards the Company or its members or any part of its members;

4.3. resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs as they might reasonably expect; and

4.4. unfairly prejudicial to its members or any part of its members.

5. On the basis of the facts set out in Section B below, the Petitioner and the 1^st Respondent agree, and the 1^st Respondent does not object to, a disqualification order to be made against the 1^st Respondent under section 214(2)(d) of the Ordinance that, he shall not, for a period of 7 years and without the leave of the Court:

5.1. be, or continue to be, a director, liquidator, or receiver or manager of the property or business of any listed or unlisted company including the Company or any of its subsidiaries and affiliates; and

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

6. On the basis of the facts set out in Section B below, the Petitioner and the 1^st Respondent agree, and the 1^st Respondent does not object to a compensation order to be made against the 1^st Respondent under section 214(2)(e) of the Ordinance that the 1^st Respondent, together with the 2^nd and 3^rd Respondents, do jointly and severally pay within 30 days from the date of the order:-

6.1. The agreed sum of US$495,000 as compensation for the loss suffered by the Company in consequence of his breach of fiduciary duty.

6.2. The sum of US$242,021.92 being pre-judgment interest up to 27 December 2012 and a further sum of pre-judgment interest on the amount of US$495,000 from 28 December 2012 to the date of the order at the rate of 1% above the prime rate published by the HSBC.

7. The definitions of “subsidiaries”, and “affiliates” as used in paragraph 5 above and paragraphs 17, 20 and 64 below are set out in Appendix 1 to this Schedule.

8. If, pursuant to this Schedule, the Court disposes of these proceedings against the 1^st Respondent by way of the Carecraft procedure, the 1^st Respondent agrees that there should additionally be an order that the 1^st Respondent shall pay the costs of the Petitioner in these proceedings, or such portion thereof as the court thinks appropriate, to be taxed if not agreed with certificate for two counsel.

9. In the event of a disqualification and/or compensation order being made against the 1^st Respondentby reference to this Schedule, the Petitioner reserves the right to:

9.1. disclose this Schedule to any third party where it appears to the Petitioner proper to do so in the interests of the public including, but not limited to, making use of this Schedule for the purposes of any press release issued in respect of these proceedings; and

9.2. refer to this Schedule for all purposes connected with or ancillary to these proceedings including, but not limited to, the continuation of these proceedings against other respondents.

10. In the event of a disqualification and/or compensation order being made against the 1^st Respondent by reference to this Schedule, the Petitioner and the 1^st Respondent also agree that they will jointly apply to this Court for a direction that this Schedule be annexed to the judgment of this Court.

11. The Petitioner and the 1^st Respondent agree that in the event of this Court refusing for any reason to make a disqualification or compensation order against the 1^st Respondent by reference to this Schedule, and ordering a full hearing to be conducted, neither of them will make reference to this Schedule (or to any admission or concession contained herein or any proposal for disqualification) at any subsequent hearing in these proceedings without the prior written consent of the other party to this Schedule.

12. The 1^st 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.  The 1^st Respondent has also agreed to assist the Petitioner by agreeing to give evidence in these proceedings against the 2^nd and/or the 3^rd Respondents, if so required.

B. FACTS NOT IN DISPUTE

13. The structure of Section B of this Schedule is as follows:

13.1. Section B1 sets out the background information relating to the Company and its management.

13.2. Sections B2 and B3 set out the facts relied on by the Petitioner in support of its case that the business and affairs of the Company have been conducted in such manner described in section 214(1)(a), (b), (c) and (d) of the Ordinance.

13.3. Sections B4 and B5 set out the facts relied upon by the Petitioner in support of its case that the 1^st Respondent was responsible in part for the aforesaid business and affairs of the Company.

B1.     Background and Management of the Company

14. The Company was incorporated as an exempted company with limited liability in Bermuda on 8 July 1997 with its registered office situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

15. The Company was registered as an oversea company under Part XI of the Companies Ordinance (Cap 32) on 24 February 1998.  Its head office and principal place of business at the material time was at Room 703-704, 7th Floor, Shanghai Industrial Investment Building, 48-62 Hennessy Road, Wan Chai, Hong Kong.

16. The Company’s shares were listed on the Main Board of the Stock Exchange of Hong Kong Limited (“SEHK”) on 13 March 1998 by way of share placement and it remains so listed.  The Company’s stock code is and was at all material times 1159.

17. The group consisting of the Company and its subsidiaries (the “Group”) was principally engaged in the business of the manufacture of and trading in electronic products, conductive silicon rubber keypads, printed circuit boards, and telecommunication products and investment holding.

18. On 16 January 2014, the Company announced, inter alia, that with effect from 18 December 2013, the Company’s name changed from Karce International Holdings Company Limited to Sinogreen Energy International Group Limited.  On 16 January 2015, the Company announced, inter alia, that with effect from 23 December 2014, the Company’s name further changed from Sinogreen Energy International Group Limited to Jimei International Entertainment Group Limited.  The stock code of the Company remains unchanged at 1159.

19. As stated in its Interim Report 2014 for the six months ended 30 June 2014 dated 22 August 2014, the Company had an authorised share capital of HK$2,000,000,000 divided into 20,000,000,000 shares of HK$0.1 each and 842,824,000 issued shares.

20. At all material times:-

 20.1. The Group comprised of a number of wholly-owned subsidiaries.

 20.2. One of the Group’s wholly-owned subsidiaries was Dongguan Tai Shan Electronics Co., Limited (“Tai Shan”), which was a company incorporated in The People’s Republic of China (“PRC”) and whose principal activity was the manufacture and sale of printed circuit boards (“PCB”).

 20.3. Tai Shan was wholly and beneficially owned by Jet Master Limited (“Jet Master”) which was an investment holding company incorporated in the British Virgin Islands on 2 January 1997 and was at all material times a wholly owned subsidiary of China Ample Investments Limited (“China Ample”).  The 1^st and 2^nd Respondents were the directors of Jet Master at the material time.

 20.4. China Ample was a company incorporated in the British Virgin Islands on 6 November 2003.  It was wholly and beneficially owned by the Company.  The 1^st and 2^nd Respondents were the directors of China Ample at the material time.  For the period from 3 May 2005 to 30 December 2009, the 1 issued share in China Ample with a par value of US$1.00 was held by Redditch Enterprises Limited, a company incorporated in the British Virgin Islands.

21. The 1^st, 2^nd and 3^rd Respondents, together with Chim Kim Lun, Ricky (“Ricky Chim”) and Cheng Kwok Hing, Andy (“Andy Cheng”), were at the material times the executive directors of the Company.

22. The 1^st Respondent was the founder of the Company and the Chairman and Managing Director.  He was responsible for formulating the overall business strategy, strategic planning and business development of the Group.  He had been involved in the trading of watches and clocks from 1980 to 1991 before he established the Group.  It was stated in the 2008 Annual Report of the Company that the 1^st Respondent had more than 19 years’ experience in the electronic industry.

23. The 2^nd Respondent was an Executive Director of the Company.  She was responsible for the overall administration and human resources management of the Group.  She joined the Group in November 1991 and had over 19 years’ experience in the electronic industry.

24. The 3^rd Respondent was an Executive Director of the Company.  She was responsible for the overall sales and marketing of the products manufactured by the Group.  The 3^rd Respondent holds a Bachelor of Arts degree in religious studies from the Hong Kong Baptist College, a diploma in business management from the Hong Kong Management Association and a master degree in strategic marketing from the University of Hull in the United Kingdom.  It was stated in the 2008 Annual Report of the Company that the 3^rd Respondent joined the Group in August 1993 and had over 16 years’ experience in sales and marketing of products manufactured by the Group.

25. The 1^st, 2^nd and 3^rd Respondents, Ricky Chim and Andy Cheng resigned from their position as executive directors of the Company on 2 March 2009, 8 October 2008, 8 October 2008, 16 April 2009 and 22 April 2009 respectively.

26. By reason of their positions and responsibilities in the Company, each of the 1^st, 2^nd and 3^rd Respondents owed, inter alia, the following fiduciary duties to the Company:-

 26.1. a duty to act in good faith and in the best interest of the Company;

 26.2. a duty not to place himself/herself in a position where his/her interests (including of those companies or entities associated with and/or controlled by him/her), or the interests of any third party, would or might conflict with those of the Company without making full and frank disclosure to, and obtaining informed consent from, the Company;

 26.3. a duty not to make secret profits arising from his/her holding of the office at the Company; and

 26.4. a duty not to divert mature business opportunities actively pursued by the Company.

 (collectively, the “Fiduciary Duties”)

27. Further, each of the 1^st, 2^nd and 3^rd Respondents also owed to the Company a duty of care at common law to exercise due and reasonable skill, care and diligence in the course of acting as the executive directors of the Company.

28. In order to act as directors of the Company, each of the 1^st, 2^nd and 3^rd Respondents were required to and did sign a formal declaration, undertaking and acknowledgement as per Form B of Appendix 5 to the Rules Governing the Listing of Securities on the SEHK (the “Listing Rules”), whereby each of them undertook to the SEHK that he/she would, in the exercise of his/her powers and duties as director of the Company, comply and procure the Company to comply with, inter alia, the Listing Rules from time to time in force.

29. Extract Group Limited was a company incorporated in the British Virgin Islands on 3 July 2007.  Extract Group was an investment holding company wholly owned and controlled by the 1^st Respondent.

B2.      The Sale of the PCB Business

30. On 30 July 2008, the Company announced that it had entered into a non-binding term sheet (the “Term Sheet”) with, amongst others, a company listed on the Centrex Market of Nagoya Stock Exchange in Japan, setting out the parties’ intention in relation to a possible disposal of the entire issued shares of Jet Master, together with Tai Shan (together the “Disposal Target”) at an intended consideration of US$4 million (“First Announcement”).

31. The Seller under the Term Sheet was the Company, and the Purchaser was KFE Hong Kong Co., Ltd (“KFE Hong Kong”) which was a company incorporated in Hong Kong and was a subsidiary of KFE Japan Co., Ltd (“KFE Japan”), a company listed on the Centrex Market of Nagoya Stock Exchange in Japan (Stock Code 3061).  The Term Sheet was signed by the 1^st Respondent on behalf of the Seller and signed by Takaro Harada, the Chief Executive Officer on behalf of the Purchaser.

32. Under the Term Sheet, the consideration for the proposed disposal was stated to be US$4 million, which was broken down as follows:-

 32.1.  Approximately US$1.9 million for the Disposal Target’s factory land, production set up and property.

 32.2.  Approximately US$1.1 million for the Disposal Target’s machinery.

 32.3.  Approximately US$1 million for the Disposal Target’s sewage facilities together with the licences.  The Term Sheet stipulated that the Company would undertake to assist KFE Hong Kong and Tai Shan to upgrade the Disposal Target sewage’s facilities together with the licence from the current sewage rate of 300 tons per day to 800 tons per day.

33. On 12 September 2008, China Ample entered into a sale and purchase agreement with KFE Hong Kong for the disposal of the Group’s PCB business at a consideration of US$3 million (the “SPA”).  The SPA was signed by the 1^st Respondent on behalf of China Ample, the Vendor and signed by Takaro Harada on behalf of KFE Hong Kong, the Purchaser.

34. The 1^st, 2^nd and 3^rd Respondents signed minutes of board meeting (the “Board Minutes”) dated the same day as the SPA, unanimously resolving, inter alia, that:-

 34.1. The proposal to enter into the SPA and an agreement supplemental to it was in the commercial interest of the Company.

 34.2. The form and substance of the supplemental agreement be approved and that any one director be authorised to sign it on behalf of Company.

 34.3. The form and substance of the announcement tabled be approved and arranged for publication.

35. On 26 September 2008, China Ample signed a further sale and purchase agreement in exactly the same form as the SPA, and two supplemental sale and purchase agreements, with KFE Hong Kong.  The aforementioned agreements were all signed by the 1^st Respondent on behalf of China Ample as the Vendor and signed by Takaro Harada on behalf of KFE Hong Kong as the Purchaser.  Their effect was to dispose of the Group’s PCB business.  There was no apparent reason to sign the further SPA on 26 September 2008, and the SPA and the further SPA will together be referred to as the “SPA” in this Schedule.  The total purchase price was stated to be US$3 million, and under clause 3.2 of the SPA was to be paid by the Purchaser in the following manner:-

 “(a) as to US$300,000 (as deposit) in cash to be paid in a bank account held by the Vendor (or such other subsidiary of Karce as may be nominated by the Vendor) with a licensed bank in Hong Kong or in such other manner as may be agreed between the Vendor and the Purchaser, within seven Business Days after the Purchaser’s receipt from Karce of the sewage upgrade construction plan and construction agreement pursuant to Clause 4.3.  As at the date of this Agreement, the said deposit of US$300,000 has already been paid by the Purchaser, which the Vendor hereby acknowledges;

 (b) as to US$2,700,000 in cash to be paid on the Completion Date in a bank account held by the Vendor (or other subsidiary of Karce as may be nominated by the Vendor) with a licensed bank in Hong Kong or in such other manner as may be agreed between the Vendor and the Purchaser; and

 (c) on the next Business Day following the Completion Date (or such later date as the parties may agree), US$1,000,000 or equivalent amount in Japanese yens (subject to such adjustment as provided in Clause 3.4) in cash shall be paid on behalf of the Vendor to a bank account held by the Purchaser and/or KFE Japan with a licensed bank in Hong Kong (or in such other manner as may be agreed between the Vendor and Purchaser) for the subscription by the Vendor (or such other party(ies) as may be nominated by the Vendor) of the KFE Japan Subscription Shares (equivalent to the value of US$1,000,000) (or such smaller amount as mentioned above) as computed based on Clause 3.4 of the Agreement), and the Purchaser shall procure KFE Japan to (which KFE Japan undertakes to and in favour of the Vendor to) allot and issue such KFE Japan Subscription Shares to the Vendor (or such other party(ies) as may be nominated by the Vendor), which shall be delivered to the Vendor (or its nominee) in the manner provided under Clause 3.6.”

36. The SPA was concerned only with the sale of the PCB business to KFE Hong Kong (including a sewage licence for 300 tons of sewage per day) and did not include an upgraded licence for sewage facilities as contemplated in the Term Sheet. However it did contain an undertaking that China Ample would use all its reasonable endeavours to assist KFE Hong Kong to upgrade the sewage facilities of the PCB business and obtain a licence for those upgraded facilities.

37. Further, the SPA provided under Clause 7.2 that if the upgraded sewage licence was not obtained within 1 year from the completion date (i.e. by 30 September 2009), then the cash portion of the purchase price shall be returned to KFE Japan and the entire issued shares in Jet Master transferred back to China Ample.

38. On the same day, KFE Hong Kong signed a consultancy agreement appointing Extract Group Limited as a consultant, which consultancy agreement was signed by the 1^st Respondent on behalf of Extract Group Limited and signed by Takaro Harada on behalf of KFE Hong Kong (the “Consultancy Agreement”).  Extract Group Limited was described as carrying on business of consultancy and provided various licencing for manufacturing businesses in the PRC.

39. Under the Consultancy Agreement, Extract Group Limited agreed to provide and carry out the following services in the PRC as set out in Schedule 1 to the Consultancy Agreement:-

 39.1. Carrying out research on KFE Hong Kong’s manufacturing arm in the PRC existing sewage condition, namely Dongguan Tai Shan Electronics Co., Ltd, a company incorporated under the laws of the PRC with a business license number of 44190040006085.

 39.2. Planning and designing sewage upgrade plans including, but not limited to, constructing sewage facilities up to 800 tons per day, for the manufacturing arm of KFE Hong Kong in the PRC.

 39.3. Liaising with any professionals and government officials in the PRC for sewage upgrade and related licencing of the manufacturing arm of KFE Hong Kong.

 39.4. Reporting to KFE Hong Kong as KFE Hong Kong may request in writing as to performance of the Services.

 39.5. Any other related services to be carried out in the PRC as the parties may agree from time to time.

40. The consultancy fee was agreed at US$1 million to be paid to Extract Group Limited in the following manner as set out in Schedule 2 of the Consultancy Agreement:-

 40.1. the first instalment of US$500,000 to be paid on or before 31 October 2008; and

 40.2. the second instalment of US$500,000 to be paid on or before 30 November 2008.

41. Under the Consultancy Agreement, if Extract Group Limited was not able to assist KFE Hong Kong to obtain the upgraded sewage licence up to 800 tons per day by 30 September 2009, it would have to return the whole of the consultancy fee of US$1 million to KFE Hong Kong on or before 31 October 2009.

B3.     The Company’s Second Announcement and the Annual Report 2008

42. On 26 September 2008, the Company issued a public announcement informing its shareholders and the investing public, inter alia, that:-

 42.1. On 12 September 2008, China Ample had entered into the SPA to dispose of the Group’s PCB business to KFE Hong Kong at a total consideration of US$3 million.

 42.2. Given that the relevant percentage ratios under Rule 14.07 of the Listing Rules for the Disposal under the SPA were less than 25% but greater than 5%, the Disposal constituted a discloseable transaction of the Company under the Listing Rules which was subject to the reporting, publication of announcement and circular requirements but was exempt from the shareholders’ approval requirement under Chapter l4 of the Listing Rules (the “Second Announcement”).

43. On 17 October 2008, the Company issued a circular to its shareholders, providing them with information in relation to the SPA (the “Circular”). The Circular stated inter alia, that:-

 43.1. The consideration for the sale of the PCB business under the SPA was US$3 million.

 43.2. Given that the relevant percentage ratios under Rule 14.07 of the Listing Rules for the Disposal under the S&P Agreement were less than 25% but greater than 5%, the Disposal constituted a discloseable transaction of the Company under the Listing Rules which was subject to the reporting, publication of announcement and circular requirements but was exempt from the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

44. The Company published its Annual Report 2008 (for the year ended 31 December 2008) on 29 April 2009 which stated (at page 124 thereof), inter alia, that:-

 44.1. On 12 September 2008, the Group had entered into a conditional sale and purchase agreement to sell (i) the entire issued share capital of Jet Master and the entire registered capital of Tai Shan which was wholly owned by Jet Master and (ii) the factory land, production set up, properties with relevant licenses and the lease, machinery and sewage facilities. Subsequently on 26 September 2008, the Group had entered into a supplementary agreement to sell the entire inventory of Tai Shan as at 30 September 2008 at market value. The disposal was completed on 30 September 2008.

 44.2. The total consideration for the disposal was HK$30,209,000, representing cash payment of HK$22,784,000 and the subscription of shares worth HK$7,425,000, with a net cash inflow arising on the disposal of HK$22,784,000.

45. The terms of the Consultancy Agreement and the US$1 million paid to Extract Group Limited were not disclosed in the Second Announcement, the Circular or the Annual Report 2008 of the Company.

46. KFE Hong Kong discharged its obligations referred to in paragraph 35 above by making the following payments (totaling US$3 million):-

 46.1. KFE Hong Kong issued a cheque dated 2 August 2008 for the sum of US$300,000 to the 4^th Respondent.

 46.2. KFE Hong Kong issued a cheque dated 30 September 2008 for the sum of US$2,700,000 to the 4^th Respondent.

47. On 14 October 2008, the Company remitted the sum of US$1 million to an account held by KFE Japan at The Bank of Tokyo-Mitsubishi UFJ, Limited in respect of China Ample’s subscription of 2,676 shares of KFE Japan. On 17 October 2008, 2,676 shares of KFE Japan were issued to China Ample.

48. KFE Hong Kong discharged its obligations referred to in paragraph 40 above by making the following payments (totaling US$1 million):-

 48.1. KFE Hong Kong issued a cheque dated 31 October 2008 for the sum of US$500,000 to Extract Group Limited.

 48.2. On or about 28 November 2008, KFE Hong Kong remitted the sum of US$500,000 to a bank account held by Extract Group Limited.

49. On 3 November 2008, the cheque for the sum of US$500,000 issued by KFE Hong Kong and referred to in paragraph 48.1 above, was deposited into Extract Group Limited’s account at DBS Bank (Hong Kong) Limited (“DBS Bank”).

 49.1. On 18 November 2008, the sum of US$200,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at Chong Hing Bank Limited.

 49.2. On 25 November 2008, the sum of US$290,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at Chong Hing Bank Limited.

50. On 28 November 2008, the sum of US$500,000 referred to in paragraph 48.2 above, was deposited into Extract Group Limited’s account at DBS Bank.

 50.1. On 3 December 2008, the sum of US$500,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at The Bank of China (Hong Kong) Limited.

51. The total sum of US$1 million paid by KFE Hong Kong on 31 October 2008 and 28 November 2008 to Extract Group Limited ended up in bank accounts belonging to the 1^st Respondent.

52. In a High Court action in Hong Kong brought by KFE Hong Kong against Extract Group Limited, (HCA 457/2010) (“High Court Action”), KFE Hong Kong claimed that the total consideration payable by it for the purchase of the PCB business was US$4 million, which was divided into 2 parts: (1) acquisition of the Disposal Target for a consideration of US$3 million by way of the SPA and (2) consultancy services for procurement of an upgraded sewage licence for a fee of US$1 million pursuant to the Consultancy Agreement.  It claimed that the Company had nominated Extract Group Limited as the consultant to enter into the Consultancy Agreement with it.  As a result of the failure by Extract Group Limited to obtain the licence, KFE Hong Kong instituted the High Court Action to recover the US$1 million paid.

53. Extract Group Limited alleged that performance was frustrated by an unforeseen change of government policy in the PRC beyond its control.  It also alleged that the Consultancy Agreement was ancillary to and was to be construed in accordance with the SPA.

54. In or around 2012, Extract Group Limited paid a total of US$505,000 to KFE Hong Kong in full and final settlement of the High Court Action. This total sum was made up of the following payments:

 54.1. US$105,000 paid on 30 August 2012;

 54.2. US$100,000 paid on 6 September 2012;

 54.3. US$100,000 paid on 30 October 2012;

 54.4. US$100,000 paid on 29 November 2012; and

 54.5. US$100,000 paid on 28 December 2012.

B4.     False representations and/or material non-disclosures in the Second Announcement, the Circular and the Annual Report 2008

55. By reason of the matters aforesaid, the Company has made numerous false and/or misleading representations to the shareholders of the Company and to the public, and/or failed to make full and proper disclosure of material facts or matters to them.

56. The Second Announcement and the Circular contained the following false representations and/or material non-disclosures, namely:

56.1. The representation that the Group disposed of the PCB business for a total consideration of US$3 million is false, in that the total consideration paid by KFE Hong Kong in relation to the sale of the PCB business was in truth US$4 million.

56.2. The representation that the sale of the PCB business was considered a discloseable transaction is false, in that the payment of a total consideration of US$4 million made it a major transaction by reference to the applicable percentage ratios under Chapter 14 of the Listing Rules thereby requiring, inter alia, shareholders’ prior approval.

56.3. The failure to disclose the existence of the Consultancy Agreement, its connection with the SPA and the ownership or control of Extract Group Limited.

56.4. The failure to disclose that the Disposal was a connected transaction as defined in Chapter 14A of the Listing Rules.

57. The Annual Report 2008 of the Company published on 29 April 2009 contained the following material non-disclosures, namely:

57.1. The failure to disclose the existence of the Consultancy Agreement, its connection with the SPA and the ownership or control of Extract Group Limited.

57.2. The failure to disclose that the Disposal was a connected transaction as defined in Chapter 14A of the Listing Rules.

B5.     Failure to exercise reasonable skill, care and diligence and/or to act in the best interests of the Company

58. The following Listing Rules (applicable at the material time) are relevant:-

Rule 2.13

Without prejudice to any specific requirements of the Exchange Listing Rules as to content or responsibility for the document in question, any announcement or corporate communication required pursuant to the Exchange Listing Rules must be prepared having regard to the following general principles:

(1)      the information contained in the document must be clearly presented and in the plain language format specified or recommended by the Exchange and/or the Commission from time to time; and

(2)      the information contained in the document must be accurate and complete in all material respects and not be misleading or deceptive. In complying with this requirement, the issuer must not, among other things:-

 (a) omit material facts of an unfavourable nature or fail to accord them with appropriate significance;

 (b) present favourable possibilities as certain or as more probable than is likely to be the case;

…

Rules 3.08

The board of directors of a listed issuer is collectively responsible for the management and operations of the listed issuer. The Exchange expects the directors, both collectively and individually, to fulfil fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law.  This means that every director must, in the performance of his duties as a director:-

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

(b) act for proper purpose;

(c) be answerable to the listed issuer for the application or misappropriation of its assets;

(d) avoid actual and potential conflicts of interest and duty;

(e) disclose fully and fairly his interests in contracts with the listed issuer; and

(f) apply such degree of skill, care and diligence as may reasonably be expected of a person of his knowledge and experience and holding his office within the listed issuer.

Rules 13.04

The directors of an issuer are collectively and individually responsible for ensuring the issuer’s full compliance with the Exchange Listing Rules.

Rule 13.09(1)

Generally and apart from compliance with all the specific requirements in this Chapter, an issuer shall keep the Exchange, members of the issuer and other holders of its listed securities informed as soon as reasonably practicable of any information relating to the group (including information on any major new developments in the group’s sphere of activity which is not public knowledge) which:-

(a) is necessary to enable them and the public to appraise the position of the group; or

…

Rule 13.44

Subject to the exceptions set out in Note 1 to Appendix 3, a director of the issuer shall not vote on any board resolution approving any contract or arrangement or any other proposal in which he or any of his associates has a material interest nor shall he be counted in the quorum present at the meeting.

Rule 14A.01

The connected transactions rules are intended to ensure that the interests of shareholders as a whole are taken into account by a listed issuer when the listed issuer enters into connected transactions. The rules set out in this Chapter also provide certain safeguards against listed issuers’ directors, chief executives or substantial shareholders (or their associates) taking advantage of their positions.

Rule 14A.02

This is achieved through the general requirement for connected transactions to be disclosed and subject to independent shareholders’ approval. Accordingly, where any connected transaction is proposed, the transaction must be announced publicly by means of an announcement published in accordance with rule 2.07C and a circular must be sent to shareholders giving information about the transaction.  Prior approval of the shareholders in general meeting will be required before the transaction can proceed.  A connected person with a material interest in the transaction will not be permitted to vote at the meeting on the resolution approving the transaction.

Rule 14A.05

If a listed issuer proposes to enter into a transaction which could be a connected transaction, it is essential that the listed issuer consult the Exchange at an early stage so that, in cases of doubt, the listed issuer can ascertain whether and to what extent the provisions of this Chapter apply.  The relevant contract(s) or, if applicable, draft contract(s) must be supplied to the Exchange, if requested.

Rule 14A.06

The Exchange has the specific power to deem a person to be connected (see rule 14A.11(4)) and to specify that certain exemptions will not apply to particular transactions (see rule 14A.30).

Rule 14A.11

Rule 1.01 contains a general definition of “connected person”.  In this Chapter, the definition of “connected person” includes:

(1) a director, chief executive or substantial shareholder of the listed issuer;

…

(4) any associate of a person referred to in rules 14A.11(l), (2) or (3). The definitions of “associate” (in the context of non-PRC issuers and PRC issuers) are contained in rules 1.01 and 19A.04, respectively. In this Chapter, an “associate” of a person referred to in rules 14A.11(1), (2) or (3) includes the following additional persons:

(a) any person or entity with whom a person referred to in rules 14A.11(l), (2) or (3) has entered, or proposes to enter, into any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, with respect to the transaction which is such that, in the opinion of the Exchange, that person or entity should be considered a connected person;

…

Rule 14A.13

A connected transaction is:

(1) (a) any transaction between a listed issuer and a connected person; or

…

Rule 14A.21

In relation to a connected transaction that is subject to independent shareholders’ approval under this Chapter, the listed issuer must comply with the requirements set out in rules 13.39(6) and 13.39(7).

Rule 14A.45

The following details of the connected transaction must be included in the listed issuer’s next published annual report and accounts:

(1) the transaction date;

(2) the parties to the transaction and a description of their connected relationship;

(3) a brief description of the transaction and its purpose;

(4) the total consideration and terms (including, where relevant, interest rates, length of repayment and security); and

(5) the nature and extent of the connected person’s interest in the transaction.

Rule 14A.47

Issuers proposing to enter into a connected transaction or a continuing connected transaction which is subject to announcement requirements must:-

(1) notify the Exchange as soon as possible after the terms of the transaction have been agreed;

Note: Under rule 13.09, a listed issuer’s notification obligations in respect of information expected to be price-sensitive arise as soon as that information is the subject of a decision.

(2) send to the Exchange a draft announcement. Once the announcement has been amended to take account of the Exchange’s comments, the listed issuer must cause such announcement to be published in accordance with rule 2.07C as soon as possible; and

Note: Where the connected transaction is also a share transaction, major transaction, very substantial disposal, very substantial acquisition or reverse takeover, rule 14.37 (requirement for short suspension of dealings) also applies.

(3) comply with rules 14A.45 or 14A.46 (the reporting requirements).

Rule 14A.48

Listed issuers proposing to enter into a connected transaction or a continuing connected transaction which is subject to independent shareholders’ approval must:

(1) comply with rules 14A.45 or 14A.46 (the reporting requirements) and 14A.47 (the announcement requirements); and

(2) comply with the requirements set out in rules 14A.49 to 14A.54 (the circular and independent shareholders’ approval requirements).

…

Rules 14A.56, 14A.58 and 14A.59 of the Listing Rules contain the requirements relating to the contents of announcements for connected transactions and the contents of circulars issued by listed issuers.

Appendix 16

15. A listed issuer shall include particulars of any contract of significance subsisting during or at the end of the financial year in which a director of the listed issuer is or was materially interested, either directly or indirectly, or, if there has been no such contract, a statement of that fact.

15.1 ……

15.2 A “contract of significance” is one where any of the percentage ratios (as defined under rule 14.04(9)) of the transaction is 1% or more.

15.3 Notwithstanding the percentage specified in Note 15.2, a contract is regarded as a “contract of significance” to a listed issuer if the omission of information relating to that contract could have changed or influenced the judgment or decision of a person relying on the relevant information.

59. In connection with the sale of the PCB business, the Company has committed numerous breaches of the Listing Rules, in particular:-

59.1. The failure to notify the SEHK of the proposed sale of the PCB business and to demonstrate to the SEHK as to whether or not Extract Group Limited and KFE Hong Kong should be regarded as connected persons, in breach of Rules 14A.05 and Rule 14A.11 of the Listing Rules.

59.2. The failure to disclose in the Second Announcement and the Circular the true extent of the total consideration for the sale of the PCB business, in breach of Rules 14A.56, 14.58 and 14A.59 of the Listing Rules.

59.3. The failure to observe the reporting, announcement and independent shareholders’ approval requirements, in breach of Rule 14A.45, 14A.47 and 14A.48 of the Listing Rules.

59.4. Publishing the Annual Report 2008 which did not describe the connected relationship between the 1^st Respondent and Extract Group Limited and did not disclose the nature and extent of the connected person’s interest in the transaction, in breach of Rule 14A.45 of the Listing Rules.

59.5. Publishing the Annual Report 2008 which contained information which was not accurate or complete in all material respects and/or was misleading or deceptive, in breach of Rule 2.13(2) of the Listing Rules.

59.6. The 1^st Respondent being a director of the Company who had a material interest in Extract Group Limited and/or the Consultancy Agreement, should not have voted on any board resolution approving the SPA, in breach of Rule 13.44 of the Listing Rules.

60. Further, the 1^st – 3^rd Respondents were collectively and individually responsible for ensuring the Company’s full compliance with the Listing Rules, but failed to do so.

61. The 1^st Respondent, being the Chairman and executive director of the Company at the material times, was responsible for the breaches of the Listing Rules by the Company because he:

61.1.    was fully aware of the full terms of the sale of the PCB business (including the true amount of the consideration payable);

61.2.    ought not to have signed the Consultancy Agreement on behalf of Extract Group Limited without making full and proper disclosure of his interests in Extract Group Limited and the matters mentioned in paragraph 61.1 above to the Company, his fellow directors, the SEHK and the Company’s shareholders;

61.3.    knew or ought to have known that the Company made numerous false and/or misleading representations to the shareholders of the Company and the public, and failed to make full and proper disclosure of material facts or matters and breached the Listing Rules in numerous ways as particularised above; and

61.4.    caused and permitted or allowed these things to happen.

62. By reason of the matters aforesaid, the 1^st Respondent has acted in breach of his Fiduciary Duties and or the common law duty of care and/or the Listing Rules in that he:

62.1.    caused and/or procured the Company to reduce the consideration under the SPA from US$4 million as stated under the Term Sheet to US$3 million without proper justification and/or against the best interest of the Company;

62.2.    diverted to Extract Group Limited, which was owned and controlled by the 1^st Respondent, the business opportunity of the Company to provide consultancy services to KFE Hong Kong in relation to the upgrade to the sewage facilities, including to obtain a licence for those upgraded facilities, which was a mature business opportunity actively pursued by the Company;

62.3.    caused, procured, assisted and/or otherwise knowingly permitted Extract Group Limited to enter into the Consultancy Agreement with KFE Hong Kong against the best interest of the Company;

62.4.    caused and permitted or otherwise allowed the happening of the misappropriation of the 1^st Respondent and/or Extract Group Limited of the sum of US$1 million paid by KFE Hong Kong under the Consultancy Agreement; and

62.5.    failed to provide to the Company and/or its members full and complete information concerning the disposal of the PCB business, as set out above.

63. By reason of these breaches of duties by the 1^st Respondent, the business or affairs of the Company have been conducted in a manner:

63.1.    oppressive to its members or any part of its members within the meaning of section 214(l)(a) of the SFO;

63.2.    involving defalcation, misfeasance or other misconduct towards its members (or a part thereof) within the meaning of section 214(l)(b) of the SFO;

63.3.    resulting in its members or any part thereof not having been given all the information with respect to its business or affairs that they might reasonably expect within the meaning of section 214(1)(c) of the SFO;

63.4.    unfairly prejudicial to the members of the Company (or any part thereof) within the meaning of section 214(1)(d) of the SFO.

C. PROPOSAL FOR DISQUALIFICATION AND COMPENSATION

64. On the basis of the facts not in dispute as set out in Section B above, the parties agree and the 1^st Respondent does not object to a disqualification order to be made against the 1^st Respondent under section 214(2)(d) of the Ordinance that, for a period of 7 years, he shall not:

64.1.    be, or continue to be, a director, liquidator, or receiver or manager of the property or business of any listed or unlisted company including the Company or any of its subsidiaries and affiliates; and

64.2.    in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company including the Company or any of its subsidiaries or affiliates.

65. On the basis of the facts not in dispute as set out in Section B above, the parties also agree and the 1^st Respondent does not object to a compensation order to be made against the 1^st Respondent under section 214(2)(e) of the Ordinance that he, together with the 2^nd and 3^rd Respondents, do jointly and severally pay within 30 days from the date of the order:-

65.1.    The agreed sum of US$495,000 as compensation for the loss suffered by the Company in consequence of his breach of fiduciary duty.

65.2.    The sum of US$242,021.92 being pre-judgment interest up to 27 December 2012 and a further sum of pre-judgment interest on the amount of US$495,000 from 28 December 2012 to the date of the order at the rate of 1% above the prime rate published by the HSBC.

66. If the Court disposes of these proceedings against the 1^stRespondent by way of the Carecraft procedure pursuant to this Schedule, the 1^st Respondent agrees that there should additionally be an order that the 1^st Respondent shall pay the costs of the Petitioner in these proceedings, or such portion thereof as the court thinks appropriate, to be taxed if not agreed with certificate for two counsel.

Dated the     day of     2017.

 APPENDIX 1

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

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

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

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

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

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

 

Schedule 2

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF  

THE 2^ND RESPONDENT (KO LAI KING KINNY)

A. INTRODUCTION

1. On 25 September 2014, the Securities and Futures Commission (“Petitioner”) issued proceedings under section 214 of the Securities and Futures Ordinance (Cap 571) (“Ordinance”) seeking disqualification and compensation orders against Mr Tong Shek Lun (“1^st Respondent”), Ms Ko Lai King Kinny (“2^nd Respondent”) and Ms Chung Wai Yu Regina (“3^rd Respondent”) in respect of their conduct of the business and affairs of the 4^th Respondent, Sinogreen Energy International Group Limited (formerly known as Karce International Holdings Company Limited) (“Company”).

2. Subject to the approval of this Court, the Petitioner and the 2^nd Respondent consent to the disposal of these proceedings against the 2^nd Respondent by way of the summary procedure (“Carecraft procedure”) sanctioned in Re Carecraft Construction Co Limited [1994] 1 WLR 172, as clarified by the English Court of Appeal in Secretary of State for Trade and Industry v Rogers [1996] 1 WLR 1569 and as adopted by this Court in Securities and Futures Commission v Yick Chong San [2007] 4 HKLRD 46, Securities and Futures Commission v Fung Chiu and Others [2009] 2 HKC 19 and Securities and Futures Commission v Shum Ka Sang Charlie and Shen Yi (HCMP1014/2008, unrep, 22.05.2009) in respect of proceedings under section 214 of the Ordinance.

3. This Schedule is produced, for the purpose of disposing of the proceedings by way of Carecraftprocedure, in order to identify the material facts relied on by the Petitioner in these proceedings as set out in Section B below, that are not disputed by the 2^nd Respondent.

4. Solely for the purposes of resolving these proceedings by way of the Carecraft procedure but not others, the 2^nd Respondent accepts that, by reference to the facts set out in Section B (which the 2^nd Respondent admits and accepts), that during the relevant period in 2008 to 2009 or any part thereof, the business and affairs of the Company, for which the 2^nd Respondent as its Executive Director was responsible, have been conducted in a manner described in section 214(1)(a), (b), (c) and (d) of the Ordinance, namely:

4.1. oppressive to its members or any part of its members;

4.2. involving defalcation misfeasance or other misconduct towards the Company or its members or any part of its members;

4.3. resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs as they might reasonably expect; and

4.4. unfairly prejudicial to its members or any part of its members.

5. On the basis of the facts set out in Section B below, the Petitioner and the 2^nd Respondent agree, and the 2^nd Respondent does not object to, a disqualification order to be made against the 2^nd Respondent under section 214(2)(d) of the Ordinance that, she shall not, for a period of 5 years and without the leave of the Court:

5.1. be, or continue to be, a director, liquidator, or receiver or manager of the property or business of any listed or unlisted company including the Company or any of its subsidiaries and affiliates; and

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

6. On the basis of the facts set out in Section B below, the Petitioner and the 2^nd Respondent agree, and the 2^nd Respondent does not object to a compensation order to be made against the 2^nd Respondent under section 214(2)(e) of the Ordinance that the 2^nd Respondent, together with the 1^st and 3^rd Respondents, do jointly and severally pay within 30 days from the date of the order:-

6.1. The agreed sum of US$495,000 as compensation for the loss suffered by the Company in consequence of her breach of fiduciary duty.

6.2. The sum of US$242,021.92 being pre-judgment interest up to 27 December 2012 and a further sum of pre-judgment interest on the amount of US$495,000 from 28 December 2012 to the date of the order at the rate of 1% above the prime rate published by the HSBC.

7. The definitions of “subsidiaries”, and “affiliates” as used in paragraph 5 above and paragraphs 17, 20 and 64 below are set out in Appendix 1 to this Schedule.

8. If, pursuant to this Schedule, the Court disposes of these proceedings against the 2^nd Respondent by way of the Carecraft procedure, the 2^nd Respondent agrees that there should additionally be an order that the 2^nd Respondent shall pay the costs of the Petitioner in these proceedings, or such portion thereof as the court thinks appropriate, to be taxed if not agreed with certificate for two counsel.

9. In the event of a disqualification and/or compensation order being made against the 2^nd Respondentby reference to this Schedule, the Petitioner reserves the right to:

9.1. disclose this Schedule to any third party where it appears to the Petitioner proper to do so in the interests of the public including, but not limited to, making use of this Schedule for the purposes of any press release issued in respect of these proceedings; and

9.2. refer to this Schedule for all purposes connected with or ancillary to these proceedings including, but not limited to, the continuation of these proceedings against other respondents.

10. In the event of a disqualification and/or compensation order being made against the 2^nd Respondent by reference to this Schedule, the Petitioner and the 2^nd Respondent also agree that they will jointly apply to this Court for a direction that this Schedule be annexed to the judgment of this Court.

11. The Petitioner and the 2^nd Respondent agree that in the event of this Court refusing for any reason to make a disqualification or compensation order against the 2^nd Respondent by reference to this Schedule, and ordering a full hearing to be conducted, neither of them will make reference to this Schedule (or to any admission or concession contained herein or any proposal for disqualification) at any subsequent hearing in these proceedings without the prior written consent of the other party to this Schedule.

12. The 2^nd 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.  The 2^nd Respondent has also agreed to assist the Petitioner by agreeing to give evidence in these proceedings against the 1^st and/or the 3^rd Respondents, if so required.

B. FACTS NOT IN DISPUTE

13. The structure of Section B of this Schedule is as follows:

13.1. Section B1 sets out the background information relating to the Company and its management.

13.2. Sections B2 and B3 set out the facts relied on by the Petitioner in support of its case that the business and affairs of the Company have been conducted in such manner described in section 214(1)(a), (b), (c) and (d) of the Ordinance.

13.3. Sections B4 and B5 set out the facts relied upon by the Petitioner in support of its case that the 2^nd Respondent was responsible in part for the aforesaid business and affairs of the Company.

B1.     Background and Management of the Company

14. The Company was incorporated as an exempted company with limited liability in Bermuda on 8 July 1997 with its registered office situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

15. The Company was registered as an oversea company under Part XI of the Companies Ordinance (Cap 32) on 24 February 1998.  Its head office and principal place of business at the material time was at Room 703-704, 7th Floor, Shanghai Industrial Investment Building, 48-62 Hennessy Road, Wan Chai, Hong Kong.

16. The Company’s shares were listed on the Main Board of the Stock Exchange of Hong Kong Limited (“SEHK”) on 13 March 1998 by way of share placement and it remains so listed.  The Company’s stock code is and was at all material times 1159.

17. The group consisting of the Company and its subsidiaries (the “Group”) was principally engaged in the business of the manufacture of and trading in electronic products, conductive silicon rubber keypads, printed circuit boards, and telecommunication products and investment holding.

18. On 16 January 2014, the Company announced, inter alia, that with effect from 18 December 2013, the Company’s name changed from Karce International Holdings Company Limited to Sinogreen Energy International Group Limited.  On 16 January 2015, the Company announced, inter alia, that with effect from 23 December 2014, the Company’s name further changed from Sinogreen Energy International Group Limited to Jimei International Entertainment Group Limited.  The stock code of the Company remains unchanged at 1159.

19. As stated in its Interim Report 2014 for the six months ended 30 June 2014 dated 22 August 2014, the Company had an authorised share capital of HK$2,000,000,000 divided into 20,000,000,000 shares of HK$0.1 each and 842,824,000 issued shares.

20. At all material times:-

 20.1. The Group comprised of a number of wholly-owned subsidiaries.

 20.2. One of the Group’s wholly-owned subsidiaries was Dongguan Tai Shan Electronics Co., Limited (“Tai Shan”), which was a company incorporated in The People’s Republic of China (“PRC”) and whose principal activity was the manufacture and sale of printed circuit boards (“PCB”).

 20.3. Tai Shan was wholly and beneficially owned by Jet Master Limited (“Jet Master”) which was an investment holding company incorporated in the British Virgin Islands on 2 January 1997 and was at all material times a wholly owned subsidiary of China Ample Investments Limited (“China Ample”).  The 1^st and 2^nd Respondents were the directors of Jet Master at the material time.

 20.4. China Ample was a company incorporated in the British Virgin Islands on 6 November 2003.  It was wholly and beneficially owned by the Company.  The 1^st and 2^nd Respondents were the directors of China Ample at the material time.  For the period from 3 May 2005 to 30 December 2009, the 1 issued share in China Ample with a par value of US$1.00 was held by Redditch Enterprises Limited, a company incorporated in the British Virgin Islands.

21. The 1^st, 2^nd and 3^rd Respondents, together with Chim Kim Lun, Ricky (“Ricky Chim”) and Cheng Kwok Hing, Andy (“Andy Cheng”), were at the material times the executive directors of the Company.

22. The 1^st Respondent was the founder of the Company and the Chairman and Managing Director.  He was responsible for formulating the overall business strategy, strategic planning and business development of the Group.  He had been involved in the trading of watches and clocks from 1980 to 1991 before he established the Group.  It was stated in the 2008 Annual Report of the Company that the 1^st Respondent had more than 19 years’ experience in the electronic industry.

23. The 2^nd Respondent was an Executive Director of the Company.  She was responsible for the overall administration and human resources management of the Group.  She joined the Group in November 1991 and had over 19 years’ experience in the electronic industry.

24. The 3^rd Respondent was an Executive Director of the Company.  She was responsible for the overall sales and marketing of the products manufactured by the Group.  The 3^rd Respondent holds a Bachelor of Arts degree in religious studies from the Hong Kong Baptist College, a diploma in business management from the Hong Kong Management Association and a master degree in strategic marketing from the University of Hull in the United Kingdom.  It was stated in the 2008 Annual Report of the Company that the 3^rd Respondent joined the Group in August 1993 and had over 16 years’ experience in sales and marketing of products manufactured by the Group.

25. The 1^st, 2^nd and 3^rd Respondents, Ricky Chim and Andy Cheng resigned from their position as executive directors of the Company on 2 March 2009, 8 October 2008, 8 October 2008, 16 April 2009 and 22 April 2009 respectively.

26. By reason of their positions and responsibilities in the Company, each of the 1^st, 2^nd and 3^rd Respondents owed, inter alia, the following fiduciary duties to the Company:-

 26.1. a duty to act in good faith and in the best interest of the Company;

 26.2. a duty not to place himself/herself in a position where his/her interests (including of those companies or entities associated with and/or controlled by him/her), or the interests of any third party, would or might conflict with those of the Company without making full and frank disclosure to, and obtaining informed consent from, the Company;

 26.3. a duty not to make secret profits arising from his/her holding of the office at the Company; and

 26.4. a duty not to divert mature business opportunities actively pursued by the Company.

 (collectively, the “Fiduciary Duties”)

27. Further, each of the 1^st, 2^nd and 3^rd Respondents also owed to the Company a duty of care at common law to exercise due and reasonable skill, care and diligence in the course of acting as the executive directors of the Company.

28. In order to act as directors of the Company, each of the 1^st, 2^nd and 3^rd Respondents were required to and did sign a formal declaration, undertaking and acknowledgement as per Form B of Appendix 5 to the Rules Governing the Listing of Securities on the SEHK (the “Listing Rules”), whereby each of them undertook to the SEHK that he/she would, in the exercise of his/her powers and duties as director of the Company, comply and procure the Company to comply with, inter alia, the Listing Rules from time to time in force.

29. Extract Group Limited was a company incorporated in the British Virgin Islands on 3 July 2007.  Extract Group was an investment holding company wholly owned and controlled by the 1^st Respondent.

B2.      The Sale of the PCB Business

30. On 30 July 2008, the Company announced that it had entered into a non-binding term sheet (the “Term Sheet”) with, amongst others, a company listed on the Centrex Market of Nagoya Stock Exchange in Japan, setting out the parties’ intention in relation to a possible disposal of the entire issued shares of Jet Master, together with Tai Shan (together the “Disposal Target”) at an intended consideration of US$4 million (“First Announcement”).

31. The Seller under the Term Sheet was the Company, and the Purchaser was KFE Hong Kong Co., Ltd (“KFE Hong Kong”) which was a company incorporated in Hong Kong and was a subsidiary of KFE Japan Co., Ltd (“KFE Japan”), a company listed on the Centrex Market of Nagoya Stock Exchange in Japan (Stock Code 3061).  The Term Sheet was signed by the 1^st Respondent on behalf of the Seller and signed by Takaro Harada, the Chief Executive Officer on behalf of the Purchaser.

32. Under the Term Sheet, the consideration for the proposed disposal was stated to be US$4 million, which was broken down as follows:-

 32.1.  Approximately US$1.9 million for the Disposal Target’s factory land, production set up and property.

 32.2.  Approximately US$1.1 million for the Disposal Target’s machinery.

 32.3.  Approximately US$1 million for the Disposal Target’s sewage facilities together with the licences.  The Term Sheet stipulated that the Company would undertake to assist KFE Hong Kong and Tai Shan to upgrade the Disposal Target sewage’s facilities together with the licence from the current sewage rate of 300 tons per day to 800 tons per day.

33. On 12 September 2008, China Ample entered into a sale and purchase agreement with KFE Hong Kong for the disposal of the Group’s PCB business at a consideration of US$3 million (the “SPA”).  The SPA was signed by the 1^st Respondent on behalf of China Ample, the Vendor and signed by Takaro Harada on behalf of KFE Hong Kong, the Purchaser.

34. The 1^st, 2^nd and 3^rd Respondents signed minutes of board meeting (the “Board Minutes”) dated the same day as the SPA, unanimously resolving, inter alia, that:-

 34.1. The proposal to enter into the SPA and an agreement supplemental to it was in the commercial interest of the Company.

 34.2. The form and substance of the supplemental agreement be approved and that any one director be authorised to sign it on behalf of Company.

 34.3. The form and substance of the announcement tabled be approved and arranged for publication.

35. On 26 September 2008, China Ample signed a further sale and purchase agreement in exactly the same form as the SPA, and two supplemental sale and purchase agreements, with KFE Hong Kong.  The aforementioned agreements were all signed by the 1^st Respondent on behalf of China Ample as the Vendor and signed by Takaro Harada on behalf of KFE Hong Kong as the Purchaser.  Their effect was to dispose of the Group’s PCB business.  There was no apparent reason to sign the further SPA on 26 September 2008, and the SPA and the further SPA will together be referred to as the “SPA” in this Schedule.  The total purchase price was stated to be US$3 million, and under clause 3.2 of the SPA was to be paid by the Purchaser in the following manner:-

 “(a) as to US$300,000 (as deposit) in cash to be paid in a bank account held by the Vendor (or such other subsidiary of Karce as may be nominated by the Vendor) with a licensed bank in Hong Kong or in such other manner as may be agreed between the Vendor and the Purchaser, within seven Business Days after the Purchaser’s receipt from Karce of the sewage upgrade construction plan and construction agreement pursuant to Clause 4.3.  As at the date of this Agreement, the said deposit of US$300,000 has already been paid by the Purchaser, which the Vendor hereby acknowledges;

 (b) as to US$2,700,000 in cash to be paid on the Completion Date in a bank account held by the Vendor (or other subsidiary of Karce as may be nominated by the Vendor) with a licensed bank in Hong Kong or in such other manner as may be agreed between the Vendor and the Purchaser; and

 (c) on the next Business Day following the Completion Date (or such later date as the parties may agree), US$1,000,000 or equivalent amount in Japanese yens (subject to such adjustment as provided in Clause 3.4) in cash shall be paid on behalf of the Vendor to a bank account held by the Purchaser and/or KFE Japan with a licensed bank in Hong Kong (or in such other manner as may be agreed between the Vendor and Purchaser) for the subscription by the Vendor (or such other party(ies) as may be nominated by the Vendor) of the KFE Japan Subscription Shares (equivalent to the value of US$1,000,000) (or such smaller amount as mentioned above) as computed based on Clause 3.4 of the Agreement), and the Purchaser shall procure KFE Japan to (which KFE Japan undertakes to and in favour of the Vendor to) allot and issue such KFE Japan Subscription Shares to the Vendor (or such other party(ies) as may be nominated by the Vendor), which shall be delivered to the Vendor (or its nominee) in the manner provided under Clause 3.6.”

36. The SPA was concerned only with the sale of the PCB business to KFE Hong Kong (including a sewage licence for 300 tons of sewage per day) and did not include an upgraded licence for sewage facilities as contemplated in the Term Sheet. However it did contain an undertaking that China Ample would use all its reasonable endeavours to assist KFE Hong Kong to upgrade the sewage facilities of the PCB business and obtain a licence for those upgraded facilities.

37. Further, the SPA provided under Clause 7.2 that if the upgraded sewage licence was not obtained within 1 year from the completion date (i.e. by 30 September 2009), then the cash portion of the purchase price shall be returned to KFE Japan and the entire issued shares in Jet Master transferred back to China Ample.

38. On the same day, KFE Hong Kong signed a consultancy agreement appointing Extract Group Limited as a consultant, which consultancy agreement was signed by the 1^st Respondent on behalf of Extract Group Limited and signed by Takaro Harada on behalf of KFE Hong Kong (the “Consultancy Agreement”).  Extract Group Limited was described as carrying on business of consultancy and provided various licencing for manufacturing businesses in the PRC.

39. Under the Consultancy Agreement, Extract Group Limited agreed to provide and carry out the following services in the PRC as set out in Schedule 1 to the Consultancy Agreement:-

 39.1. Carrying out research on KFE Hong Kong’s manufacturing arm in the PRC existing sewage condition, namely Dongguan Tai Shan Electronics Co., Ltd, a company incorporated under the laws of the PRC with a business license number of 44190040006085.

 39.2. Planning and designing sewage upgrade plans including, but not limited to, constructing sewage facilities up to 800 tons per day, for the manufacturing arm of KFE Hong Kong in the PRC.

 39.3. Liaising with any professionals and government officials in the PRC for sewage upgrade and related licencing of the manufacturing arm of KFE Hong Kong.

 39.4. Reporting to KFE Hong Kong as KFE Hong Kong may request in writing as to performance of the Services.

 39.5. Any other related services to be carried out in the PRC as the parties may agree from time to time.

40. The consultancy fee was agreed at US$1 million to be paid to Extract Group Limited in the following manner as set out in Schedule 2 of the Consultancy Agreement:-

 40.1. the first instalment of US$500,000 to be paid on or before 31 October 2008; and

 40.2. the second instalment of US$500,000 to be paid on or before 30 November 2008.

41. Under the Consultancy Agreement, if Extract Group Limited was not able to assist KFE Hong Kong to obtain the upgraded sewage licence up to 800 tons per day by 30 September 2009, it would have to return the whole of the consultancy fee of US$1 million to KFE Hong Kong on or before 31 October 2009.

B3.     The Company’s Second Announcement and the Annual Report 2008

42. On 26 September 2008, the Company issued a public announcement informing its shareholders and the investing public, inter alia, that:-

 42.1. On 12 September 2008, China Ample had entered into the SPA to dispose of the Group’s PCB business to KFE Hong Kong at a total consideration of US$3 million.

 42.2. Given that the relevant percentage ratios under Rule 14.07 of the Listing Rules for the Disposal under the SPA were less than 25% but greater than 5%, the Disposal constituted a discloseable transaction of the Company under the Listing Rules which was subject to the reporting, publication of announcement and circular requirements but was exempt from the shareholders’ approval requirement under Chapter l4 of the Listing Rules (the “Second Announcement”).

43. On 17 October 2008, the Company issued a circular to its shareholders, providing them with information in relation to the SPA (the “Circular”). The Circular stated inter alia, that:-

 43.1. The consideration for the sale of the PCB business under the SPA was US$3 million.

 43.2. Given that the relevant percentage ratios under Rule 14.07 of the Listing Rules for the Disposal under the S&P Agreement were less than 25% but greater than 5%, the Disposal constituted a discloseable transaction of the Company under the Listing Rules which was subject to the reporting, publication of announcement and circular requirements but was exempt from the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

44. The Company published its Annual Report 2008 (for the year ended 31 December 2008) on 29 April 2009 which stated (at page 124 thereof), inter alia, that:-

 44.1. On 12 September 2008, the Group had entered into a conditional sale and purchase agreement to sell (i) the entire issued share capital of Jet Master and the entire registered capital of Tai Shan which was wholly owned by Jet Master and (ii) the factory land, production set up, properties with relevant licenses and the lease, machinery and sewage facilities. Subsequently on 26 September 2008, the Group had entered into a supplementary agreement to sell the entire inventory of Tai Shan as at 30 September 2008 at market value. The disposal was completed on 30 September 2008.

 44.2. The total consideration for the disposal was HK$30,209,000, representing cash payment of HK$22,784,000 and the subscription of shares worth HK$7,425,000, with a net cash inflow arising on the disposal of HK$22,784,000.

45. The terms of the Consultancy Agreement and the US$1 million paid to Extract Group Limited were not disclosed in the Second Announcement, the Circular or the Annual Report 2008 of the Company.

46. KFE Hong Kong discharged its obligations referred to in paragraph 35 above by making the following payments (totaling US$3 million):-

 46.1. KFE Hong Kong issued a cheque dated 2 August 2008 for the sum of US$300,000 to the 4^th Respondent.

 46.2. KFE Hong Kong issued a cheque dated 30 September 2008 for the sum of US$2,700,000 to the 4^th Respondent.

47. On 14 October 2008, the Company remitted the sum of US$1 million to an account held by KFE Japan at The Bank of Tokyo-Mitsubishi UFJ, Limited in respect of China Ample’s subscription of 2,676 shares of KFE Japan. On 17 October 2008, 2,676 shares of KFE Japan were issued to China Ample.

48. KFE Hong Kong discharged its obligations referred to in paragraph 40 above by making the following payments (totaling US$1 million):-

 48.1. KFE Hong Kong issued a cheque dated 31 October 2008 for the sum of US$500,000 to Extract Group Limited.

 48.2. On or about 28 November 2008, KFE Hong Kong remitted the sum of US$500,000 to a bank account held by Extract Group Limited.

49. On 3 November 2008, the cheque for the sum of US$500,000 issued by KFE Hong Kong and referred to in paragraph 48.1 above, was deposited into Extract Group Limited’s account at DBS Bank (Hong Kong) Limited (“DBS Bank”).

 49.1. On 18 November 2008, the sum of US$200,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at Chong Hing Bank Limited.

 49.2. On 25 November 2008, the sum of US$290,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at Chong Hing Bank Limited.

50. On 28 November 2008, the sum of US$500,000 referred to in paragraph 48.2 above, was deposited into Extract Group Limited’s account at DBS Bank.

 50.1. On 3 December 2008, the sum of US$500,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at The Bank of China (Hong Kong) Limited.

51. The total sum of US$1 million paid by KFE Hong Kong on 31 October 2008 and 28 November 2008 to Extract Group Limited ended up in bank accounts belonging to the 1^st Respondent.

52. In a High Court action in Hong Kong brought by KFE Hong Kong against Extract Group Limited, (HCA 457/2010) (“High Court Action”), KFE Hong Kong claimed that the total consideration payable by it for the purchase of the PCB business was US$4 million, which was divided into 2 parts: (1) acquisition of the Disposal Target for a consideration of US$3 million by way of the SPA and (2) consultancy services for procurement of an upgraded sewage licence for a fee of US$1 million pursuant to the Consultancy Agreement.  It claimed that the Company had nominated Extract Group Limited as the consultant to enter into the Consultancy Agreement with it.  As a result of the failure by Extract Group Limited to obtain the licence, KFE Hong Kong instituted the High Court Action to recover the US$1 million paid.

53. Extract Group Limited alleged that performance was frustrated by an unforeseen change of government policy in the PRC beyond its control.  It also alleged that the Consultancy Agreement was ancillary to and was to be construed in accordance with the SPA.

54. In or around 2012, Extract Group Limited paid a total of US$505,000 to KFE Hong Kong in full and final settlement of the High Court Action. This total sum was made up of the following payments:

 54.1. US$105,000 paid on 30 August 2012;

 54.2. US$100,000 paid on 6 September 2012;

 54.3. US$100,000 paid on 30 October 2012;

 54.4. US$100,000 paid on 29 November 2012; and

 54.5. US$100,000 paid on 28 December 2012.

B4.     False representations and/or material non-disclosures in the Second Announcement, the Circular and the Annual Report 2008

55. By reason of the matters aforesaid, the Company has made numerous false and/or misleading representations to the shareholders of the Company and to the public, and/or failed to make full and proper disclosure of material facts or matters to them.

56. The Second Announcement and the Circular contained the following false representations and/or material non-disclosures, namely:

56.1. The representation that the Group disposed of the PCB business for a total consideration of US$3 million is false, in that the total consideration paid by KFE Hong Kong in relation to the sale of the PCB business was in truth US$4 million.

56.2. The representation that the sale of the PCB business was considered a discloseable transaction is false, in that the payment of a total consideration of US$4 million made it a major transaction by reference to the applicable percentage ratios under Chapter 14 of the Listing Rules thereby requiring, inter alia, shareholders’ prior approval.

56.3. The failure to disclose the existence of the Consultancy Agreement, its connection with the SPA and the ownership or control of Extract Group Limited.

56.4. The failure to disclose that the Disposal was a connected transaction as defined in Chapter 14A of the Listing Rules.

57. The Annual Report 2008 of the Company published on 29 April 2009 contained the following material non-disclosures, namely:

57.1. The failure to disclose the existence of the Consultancy Agreement, its connection with the SPA and the ownership or control of Extract Group Limited.

57.2. The failure to disclose that the Disposal was a connected transaction as defined in Chapter 14A of the Listing Rules.

B5.     Failure to exercise reasonable skill, care and diligence and/or to act in the best interests of the Company

58. The following Listing Rules (applicable at the material time) are relevant:-

Rule 2.13

Without prejudice to any specific requirements of the Exchange Listing Rules as to content or responsibility for the document in question, any announcement or corporate communication required pursuant to the Exchange Listing Rules must be prepared having regard to the following general principles:

(1)      the information contained in the document must be clearly presented and in the plain language format specified or recommended by the Exchange and/or the Commission from time to time; and

(2)      the information contained in the document must be accurate and complete in all material respects and not be misleading or deceptive. In complying with this requirement, the issuer must not, among other things:-

 (a) omit material facts of an unfavourable nature or fail to accord them with appropriate significance;

 (b) present favourable possibilities as certain or as more probable than is likely to be the case;

…

Rules 3.08

The board of directors of a listed issuer is collectively responsible for the management and operations of the listed issuer. The Exchange expects the directors, both collectively and individually, to fulfil fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law.  This means that every director must, in the performance of his duties as a director:-

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

(b) act for proper purpose;

(c) be answerable to the listed issuer for the application or misappropriation of its assets;

(d) avoid actual and potential conflicts of interest and duty;

(e) disclose fully and fairly his interests in contracts with the listed issuer; and

(f) apply such degree of skill, care and diligence as may reasonably be expected of a person of his knowledge and experience and holding his office within the listed issuer.

Rules 13.04

The directors of an issuer are collectively and individually responsible for ensuring the issuer’s full compliance with the Exchange Listing Rules.

Rule 13.09(1)

Generally and apart from compliance with all the specific requirements in this Chapter, an issuer shall keep the Exchange, members of the issuer and other holders of its listed securities informed as soon as reasonably practicable of any information relating to the group (including information on any major new developments in the group’s sphere of activity which is not public knowledge) which:-

(a) is necessary to enable them and the public to appraise the position of the    group; or

…

Rule 13.44

Subject to the exceptions set out in Note 1 to Appendix 3, a director of the issuer shall not vote on any board resolution approving any contract or arrangement or any other proposal in which he or any of his associates has a material interest nor shall he be counted in the quorum present at the meeting.

Rule 14A.01

The connected transactions rules are intended to ensure that the interests of shareholders as a whole are taken into account by a listed issuer when the listed issuer enters into connected transactions. The rules set out in this Chapter also provide certain safeguards against listed issuers’ directors, chief executives or substantial shareholders (or their associates) taking advantage of their positions.

Rule 14A.02

This is achieved through the general requirement for connected transactions to be disclosed and subject to independent shareholders’ approval. Accordingly, where any connected transaction is proposed, the transaction must be announced publicly by means of an announcement published in accordance with rule 2.07C and a circular must be sent to shareholders giving information about the transaction.  Prior approval of the shareholders in general meeting will be required before the transaction can proceed.  A connected person with a material interest in the transaction will not be permitted to vote at the meeting on the resolution approving the transaction.

Rule 14A.05

If a listed issuer proposes to enter into a transaction which could be a connected transaction, it is essential that the listed issuer consult the Exchange at an early stage so that, in cases of doubt, the listed issuer can ascertain whether and to what extent the provisions of this Chapter apply.  The relevant contract(s) or, if applicable, draft contract(s) must be supplied to the Exchange, if requested.

Rule 14A.06

The Exchange has the specific power to deem a person to be connected (see rule 14A.11(4)) and to specify that certain exemptions will not apply to particular transactions (see rule 14A.30).

Rule 14A.11

Rule 1.01 contains a general definition of “connected person”.  In this Chapter, the definition of “connected person” includes:

(1) a director, chief executive or substantial shareholder of the listed issuer;

…

(4) any associate of a person referred to in rules 14A.11(l), (2) or (3). The definitions of “associate” (in the context of non-PRC issuers and PRC issuers) are contained in rules 1.01 and 19A.04, respectively. In this Chapter, an “associate” of a person referred to in rules 14A.11(1), (2) or (3) includes the following additional persons:

(a) any person or entity with whom a person referred to in rules 14A.11(l), (2) or (3) has entered, or proposes to enter, into any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, with respect to the transaction which is such that, in the opinion of the Exchange, that person or entity should be considered a connected person;

…

Rule 14A.13

A connected transaction is:

(1) (a) any transaction between a listed issuer and a connected person; or

…

Rule 14A.21

In relation to a connected transaction that is subject to independent shareholders’ approval under this Chapter, the listed issuer must comply with the requirements set out in rules 13.39(6) and 13.39(7).

Rule 14A.45

The following details of the connected transaction must be included in the listed issuer’s next published annual report and accounts:

(1) the transaction date;

(2) the parties to the transaction and a description of their connected relationship;

(3) a brief description of the transaction and its purpose;

(4) the total consideration and terms (including, where relevant, interest rates, length of repayment and security); and

(5) the nature and extent of the connected person’s interest in the transaction.

Rule 14A.47

Issuers proposing to enter into a connected transaction or a continuing connected transaction which is subject to announcement requirements must:-

(1) notify the Exchange as soon as possible after the terms of the transaction have been agreed;

Note: Under rule 13.09, a listed issuer’s notification obligations in respect of information expected to be price-sensitive arise as soon as that information is the subject of a decision.

(2) send to the Exchange a draft announcement. Once the announcement has been amended to take account of the Exchange’s comments, the listed issuer must cause such announcement to be published in accordance with rule 2.07C as soon as possible; and

Note: Where the connected transaction is also a share transaction, major transaction, very substantial disposal, very substantial acquisition or reverse takeover, rule 14.37 (requirement for short suspension of dealings) also applies.

(3) comply with rules 14A.45 or 14A.46 (the reporting requirements).

Rule 14A.48

Listed issuers proposing to enter into a connected transaction or a continuing connected transaction which is subject to independent shareholders’ approval must:

(1) comply with rules 14A.45 or 14A.46 (the reporting requirements) and 14A.47 (the announcement requirements); and

(2) comply with the requirements set out in rules 14A.49 to 14A.54 (the circular and independent shareholders’ approval requirements).

…

Rules 14A.56, 14A.58 and 14A.59 of the Listing Rules contain the requirements relating to the contents of announcements for connected transactions and the contents of circulars issued by listed issuers.

Appendix 16

15. A listed issuer shall include particulars of any contract of significance subsisting during or at the end of the financial year in which a director of the listed issuer is or was materially interested, either directly or indirectly, or, if there has been no such contract, a statement of that fact.

15.1 ……

15.2 A “contract of significance” is one where any of the percentage ratios (as defined under rule 14.04(9)) of the transaction is 1% or more.

15.3 Notwithstanding the percentage specified in Note 15.2, a contract is regarded as a “contract of significance” to a listed issuer if the omission of information relating to that contract could have changed or influenced the judgment or decision of a person relying on the relevant information.

59. In connection with the sale of the PCB business, the Company has committed numerous breaches of the Listing Rules, in particular:-

59.1. The failure to notify the SEHK of the proposed sale of the PCB business and to demonstrate to the SEHK as to whether or not Extract Group Limited and KFE Hong Kong should be regarded as connected persons, in breach of Rules 14A.05 and Rule 14A.11 of the Listing Rules.

59.2. The failure to disclose in the Second Announcement and the Circular the true extent of the total consideration for the sale of the PCB business, in breach of Rules 14A.56, 14.58 and 14A.59 of the Listing Rules.

59.3. The failure to observe the reporting, announcement and independent shareholders’ approval requirements, in breach of Rule 14A.45, 14A.47 and 14A.48 of the Listing Rules.

59.4. Publishing the Annual Report 2008 which did not describe the connected relationship between the 1^st Respondent and Extract Group Limited and did not disclose the nature and extent of the connected person’s interest in the transaction, in breach of Rule 14A.45 of the Listing Rules.

59.5. Publishing the Annual Report 2008 which contained information which was not accurate or complete in all material respects and/or was misleading or deceptive, in breach of Rule 2.13(2) of the Listing Rules.

59.6. The 1^st Respondent being a director of the Company who had a material interest in Extract Group Limited and/or the Consultancy Agreement, should not have voted on any board resolution approving the SPA, in breach of Rule 13.44 of the Listing Rules.

60. Further, the 1^st – 3^rd Respondents were collectively and individually responsible for ensuring the Company’s full compliance with the Listing Rules, but failed to do so.

61. The 2^nd Respondent, being an Executive Director of the Company at the material times, was responsible for the breaches of the Listing Rules by the Company because she:

61.1.    knew or ought to have known of the full terms of the sale of the PCB business (including the true amount of the consideration payable);

61.2.    knew or ought to have known, by making full and proper inquiries of the Company’s business and affairs, of the 1^st Respondent’s interests in Extract Group Limited;

61.3.    knew or ought to have known that the Company made numerous false and/or misleading representations to the shareholders of the Company and the public, and failed to make full and proper disclosure of material facts or matters and breached the Listing Rules in numerous ways as particularised above; and

61.4.    caused and permitted or allowed these things to happen.

62. By reason of the matters aforesaid, the 2^ndRespondent has acted in breach of her Fiduciary Duties and or the common law duty of care and/or the Listing Rules in that she:

62.1.    caused and/or procured the Company to reduce the consideration under the SPA from US$4 million as stated under the Term Sheet to US$3 million without proper justification and/or against the best interest of the Company;

62.2.    diverted to Extract Group Limited, which was owned and controlled by the 1^st Respondent, the business opportunity of the Company to provide consultancy services to KFE Hong Kong in relation to the upgrade to the sewage facilities, including to obtain a licence for those upgraded facilities, which was a mature business opportunity actively pursued by the Company;

62.3.    caused, procured, assisted and/or otherwise knowingly permitted Extract Group Limited to enter into the Consultancy Agreement with KFE Hong Kong against the best interest of the Company;

62.4.    caused and permitted or otherwise allowed the happening of the misappropriation of the 1^st Respondent and/or Extract Group Limited of the sum of US$1 million paid by KFE Hong Kong under the Consultancy Agreement; and

62.5.    failed to provide to the Company and/or its members full and complete information concerning the disposal of the PCB business, as set out above.

63. By reason of these breaches of duties by the 2^nd Respondent, the business or affairs of the Company have been conducted in a manner:

63.1.    oppressive to its members or any part of its members within the meaning of section 214(l)(a) of the SFO;

63.2.    involving defalcation, misfeasance or other misconduct towards its members (or a part thereof) within the meaning of section 214(l)(b) of the SFO;

63.3.    resulting in its members or any part thereof not having been given all the information with respect to its business or affairs that they might reasonably expect within the meaning of section 214(1)(c) of the SFO;

63.4.    unfairly prejudicial to the members of the Company (or any part thereof) within the meaning of section 214(1)(d) of the SFO.

C. PROPOSAL FOR DISQUALIFICATION AND COMPENSATION

64. On the basis of the facts not in dispute as set out in Section B above, the parties agree and the 2^ndRespondent does not object to a disqualification order to be made against the 2^ndRespondent under section 214(2)(d) of the Ordinance that, for a period of 5 years, she shall not:

64.1.    be, or continue to be, a director, liquidator, or receiver or manager of the property or business of any listed or unlisted company including the Company or any of its subsidiaries and affiliates; and

64.2.    in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company including the Company or any of its subsidiaries or affiliates.

65. On the basis of the facts not in dispute as set out in Section B above, the parties also agree and the 2^ndRespondent does not object to a compensation order to be made against the 2^ndRespondent under section 214(2)(e) of the Ordinance that she, together with the 1^st and 3^rd Respondents, do jointly and severally pay within 30 days from the date of the order:-

65.1.    The agreed sum of US$495,000 as compensation for the loss suffered by the Company in consequence of her breach of fiduciary duty.

65.2.    The sum of US$242,021.92 being pre-judgment interest up to 27 December 2012 and a further sum of pre-judgment interest on the amount of US$495,000 from 28 December 2012 to the date of the order at the rate of 1% above the prime rate published by the HSBC.

66. If the Court disposes of these proceedings against the 2^nd Respondent by way of the Carecraft procedure pursuant to this Schedule, the 2^nd Respondent agrees that there should additionally be an order that the 2^nd Respondent shall pay the costs of the Petitioner in these proceedings, or such portion thereof as the court thinks appropriate, to be taxed if not agreed with certificate for two counsel.

Dated the     day of     2017.

 APPENDIX 1

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

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

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

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

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

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

 

 

Schedule 3

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF

THE 3^RD RESPONDENT (CHUNG WAI YU REGINA)

A. INTRODUCTION

1. On 25 September 2014, the Securities and Futures Commission (“Petitioner”) issued proceedings under section 214 of the Securities and Futures Ordinance (Cap 571) (“Ordinance”) seeking disqualification and compensation orders against Mr Tong Shek Lun (“1^st Respondent”), Ms Ko Lai King Kinny (“2^nd Respondent”) and Ms Chung Wai Yu Regina (“3^rd Respondent”) in respect of their conduct of the business and affairs of the 4^th Respondent, Sinogreen Energy International Group Limited (formerly known as Karce International Holdings Company Limited) (“Company”).

2. Subject to the approval of this Court, the Petitioner and the 3^rd Respondent consent to the disposal of these proceedings against the 3^rd Respondent by way of the summary procedure (“Carecraft procedure”) sanctioned in Re Carecraft Construction Co Limited [1994] 1 WLR 172, as clarified by the English Court of Appeal in Secretary of State for Trade and Industry v Rogers [1996] 1 WLR 1569 and as adopted by this Court in Securities and Futures Commission v Yick Chong San [2007] 4 HKLRD 46, Securities and Futures Commission v Fung Chiu and Others [2009] 2 HKC 19 and Securities and Futures Commission v Shum Ka Sang Charlie and Shen Yi (HCMP1014/2008, unrep, 22.05.2009) in respect of proceedings under section 214 of the Ordinance.

3. This Schedule is produced, for the purpose of disposing of the proceedings by way of Carecraftprocedure, in order to identify the material facts relied on by the Petitioner in these proceedings as set out in Section B below, that are not disputed by the 3^rd Respondent.

4. Solely for the purposes of resolving these proceedings by way of the Carecraft procedure but not others, the 3^rd Respondent accepts that, by reference to the facts set out in Section B (which the 3^rd Respondent admits and accepts), that during the relevant period in 2008 to 2009 or any part thereof, the business and affairs of the Company, for which the 3^rd Respondent as its Executive Director was responsible, have been conducted in a manner described in section 214(1)(a), (b), (c) and (d) of the Ordinance, namely:

4.1. oppressive to its members or any part of its members;

4.2. involving defalcation misfeasance or other misconduct towards the Company or its members or any part of its members;

4.3. resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs as they might reasonably expect; and

4.4. unfairly prejudicial to its members or any part of its members.

5. On the basis of the facts set out in Section B below, the Petitioner and the 3^rd Respondent agree, and the 3^rd Respondent does not object to, a disqualification order to be made against the 3^rd Respondent under section 214(2)(d) of the Ordinance that, she shall not, for a period of 5 years and without the leave of the Court:

5.1. be, or continue to be, a director, liquidator, or receiver or manager of the property or business of any listed or unlisted company including the Company or any of its subsidiaries and affiliates; and

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

6. On the basis of the facts set out in Section B below, the Petitioner and the 3^rd Respondent agree, and the 3^rd Respondent does not object to a compensation order to be made against the 3^rd Respondent under section 214(2)(e) of the Ordinance that the 3^rd Respondent, together with the 1^st and 2^nd Respondents, do jointly and severally pay within 30 days from the date of the order:-

6.1. The agreed sum of US$495,000 as compensation for the loss suffered by the Company in consequence of her breach of fiduciary duty.

6.2. The sum of US$242,021.92 being pre-judgment interest up to 27 December 2012 and a further sum of pre-judgment interest on the amount of US$495,000 from 28 December 2012 to the date of the order at the rate of 1% above the prime rate published by the HSBC.

7. The definitions of “subsidiaries”, and “affiliates” as used in paragraph 5 above and paragraphs 17, 20 and 64 below are set out in Appendix 1 to this Schedule.

8. If, pursuant to this Schedule, the Court disposes of these proceedings against the 3^rd Respondent by way of the Carecraft procedure, the 3^rd Respondent agrees that there should additionally be an order that the 3^rd Respondent shall pay the costs of the Petitioner in these proceedings, or such portion thereof as the court thinks appropriate, to be taxed if not agreed with certificate for two counsel.

9. In the event of a disqualification and/or compensation order being made against the 3^rd Respondentby reference to this Schedule, the Petitioner reserves the right to:

9.1. disclose this Schedule to any third party where it appears to the Petitioner proper to do so in the interests of the public including, but not limited to, making use of this Schedule for the purposes of any press release issued in respect of these proceedings; and

9.2. refer to this Schedule for all purposes connected with or ancillary to these proceedings including, but not limited to, the continuation of these proceedings against other respondents.

10. In the event of a disqualification and/or compensation order being made against the 3^rd Respondent by reference to this Schedule, the Petitioner and the3^rd Respondent also agree that they will jointly apply to this Court for a direction that this Schedule be annexed to the judgment of this Court.

11. The Petitioner and the 3^rd Respondent agree that in the event of this Court refusing for any reason to make a disqualification or compensation order against the3^rd  Respondent by reference to this Schedule, and ordering a full hearing to be conducted, neither of them will make reference to this Schedule (or to any admission or concession contained herein or any proposal for disqualification) at any subsequent hearing in these proceedings without the prior written consent of the other party to this Schedule.

12. The 3^rd 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.  The 3^rd Respondent has also agreed to assist the Petitioner by agreeing to give evidence in these proceedings against the1^st and/or the 2^nd Respondents, if so required.

B. FACTS NOT IN DISPUTE

13. The structure of Section B of this Schedule is as follows:

13.1. Section B1 sets out the background information relating to the Company and its management.

  13.2. Sections B2 and B3 set out the facts relied on by the Petitioner in support of its case that the business and affairs of the Company have been conducted in such manner described in section 214(1)(a), (b), (c) and (d) of the Ordinance.

13.3. Sections B4 and B5 set out the facts relied upon by the Petitioner in support of its case that the 3^rd Respondent was responsible in part for the aforesaid business and affairs of the Company.

B1.     Background and Management of the Company

14. The Company was incorporated as an exempted company with limited liability in Bermuda on 8 July 1997 with its registered office situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

15. The Company was registered as an oversea company under Part XI of the Companies Ordinance (Cap 32) on 24 February 1998.  Its head office and principal place of business at the material time was at Room 703-704, 7^th Floor, Shanghai Industrial Investment Building, 48-62 Hennessy Road, Wan Chai, Hong Kong.

16. The Company’s shares were listed on the Main Board of the Stock Exchange of Hong Kong Limited (“SEHK”) on 13 March 1998 by way of share placement and it remains so listed.  The Company’s stock code is and was at all material times 1159.

17. The group consisting of the Company and its subsidiaries (the “Group”) was principally engaged in the business of the manufacture of and trading in electronic products, conductive silicon rubber keypads, printed circuit boards, and telecommunication products and investment holding.

18. On 16 January 2014, the Company announced, inter alia, that with effect from 18 December 2013, the Company’s name changed from Karce International Holdings Company Limited to Sinogreen Energy International Group Limited.  On 16 January 2015, the Company announced, inter alia, that with effect from 23 December 2014, the Company’s name further changed from Sinogreen Energy International Group Limited to Jimei International Entertainment Group Limited.  The stock code of the Company remains unchanged at 1159.

19. As stated in its Interim Report 2014 for the six months ended 30 June 2014 dated 22 August 2014, the Company had an authorised share capital of HK$2,000,000,000 divided into 20,000,000,000 shares of HK$0.1 each and 842,824,000 issued shares.

20. At all material times:-

 20.1. The Group comprised of a number of wholly-owned subsidiaries.

 20.2. One of the Group’s wholly-owned subsidiaries was Dongguan Tai Shan Electronics Co., Limited (“Tai Shan”), which was a company incorporated in The People’s Republic of China (“PRC”) and whose principal activity was the manufacture and sale of printed circuit boards (“PCB”).

 20.3. Tai Shan was wholly and beneficially owned by Jet Master Limited (“Jet Master”) which was an investment holding company incorporated in the British Virgin Islands on 2 January 1997 and was at all material times a wholly owned subsidiary of China Ample Investments Limited (“China Ample”).  The 1^st and 2^nd Respondents were the directors of Jet Master at the material time.

 20.4. China Ample was a company incorporated in the British Virgin Islands on 6 November 2003.  It was wholly and beneficially owned by the Company.  The 1^st and 2^nd Respondents were the directors of China Ample at the material time.  For the period from 3 May 2005 to 30 December 2009, the 1 issued share in China Ample with a par value of US$1.00 was held by Redditch Enterprises Limited, a company incorporated in the British Virgin Islands.

21. The 1^st, 2^nd and 3^rd Respondents, together with Chim Kim Lun, Ricky (“Ricky Chim”) and Cheng Kwok Hing, Andy (“Andy Cheng”), were at the material times the executive directors of the Company.

22. The 1^st Respondent was the founder of the Company and the Chairman and Managing Director.  He was responsible for formulating the overall business strategy, strategic planning and business development of the Group.  He had been involved in the trading of watches and clocks from 1980 to 1991 before he established the Group.  It was stated in the 2008 Annual Report of the Company that the 1^st Respondent had more than 19 years’ experience in the electronic industry.

23. The 2^nd Respondent was an Executive Director of the Company.  She was responsible for the overall administration and human resources management of the Group.  She joined the Group in November 1991 and had over 19 years’ experience in the electronic industry.

24. The 3^rd Respondent was an Executive Director of the Company.  She was responsible for the overall sales and marketing of the products manufactured by the Group.  The 3^rd Respondent holds a Bachelor of Arts degree in religious studies from the Hong Kong Baptist College, a diploma in business management from the Hong Kong Management Association and a master degree in strategic marketing from the University of Hull in the United Kingdom.  It was stated in the 2008 Annual Report of the Company that the 3^rd Respondent joined the Group in August 1993 and had over 16 years’ experience in sales and marketing of products manufactured by the Group.

25. The 1^st, 2^nd and 3^rd Respondents, Ricky Chim and Andy Cheng resigned from their position as executive directors of the Company on 2 March 2009, 8 October 2008, 8 October 2008, 16 April 2009 and 22 April 2009 respectively.

26. By reason of their positions and responsibilities in the Company, each of the 1^st, 2^nd and 3^rd Respondents owed, inter alia, the following fiduciary duties to the Company:-

 26.1. a duty to act in good faith and in the best interest of the Company;

 26.2. a duty not to place himself/herself in a position where his/her interests (including of those companies or entities associated with and/or controlled by him/her), or the interests of any third party, would or might conflict with those of the Company without making full and frank disclosure to, and obtaining informed consent from, the Company;

 26.3. a duty not to make secret profits arising from his/her holding of the office at the Company; and

 26.4. a duty not to divert mature business opportunities actively pursued by the Company.

 (collectively, the “Fiduciary Duties”)

27. Further, each of the 1^st, 2^nd and 3^rd Respondents also owed to the Company a duty of care at common law to exercise due and reasonable skill, care and diligence in the course of acting as the executive directors of the Company.

28. In order to act as directors of the Company, each of the 1^st, 2^nd and 3^rd Respondents were required to and did sign a formal declaration, undertaking and acknowledgement as per Form B of Appendix 5 to the Rules Governing the Listing of Securities on the SEHK (the “Listing Rules”), whereby each of them undertook to the SEHK that he/she would, in the exercise of his/her powers and duties as director of the Company, comply and procure the Company to comply with, inter alia, the Listing Rules from time to time in force.

29. Extract Group Limited was a company incorporated in the British Virgin Islands on 3 July 2007.  Extract Group was an investment holding company wholly owned and controlled by the 1^st Respondent.

B2.      The Sale of the PCB Business

30. On 30 July 2008, the Company announced that it had entered into a non-binding term sheet (the “Term Sheet”) with, amongst others, a company listed on the Centrex Market of Nagoya Stock Exchange in Japan, setting out the parties’ intention in relation to a possible disposal of the entire issued shares of Jet Master, together with Tai Shan (together the “Disposal Target”) at an intended consideration of US$4 million (“First Announcement”).

31. The Seller under the Term Sheet was the Company, and the Purchaser was KFE Hong Kong Co., Ltd (“KFE Hong Kong”) which was a company incorporated in Hong Kong and was a subsidiary of KFE Japan Co., Ltd (“KFE Japan”), a company listed on the Centrex Market of Nagoya Stock Exchange in Japan (Stock Code 3061).  The Term Sheet was signed by the 1^st Respondent on behalf of the Seller and signed by Takaro Harada, the Chief Executive Officer on behalf of the Purchaser.

32. Under the Term Sheet, the consideration for the proposed disposal was stated to be US$4 million, which was broken down as follows:-

 32.1.    Approximately US$1.9 million for the Disposal Target’s factory land, production set up and property.

 32.2.    Approximately US$1.1 million for the Disposal Target’s machinery.

 32.3.    Approximately US$1 million for the Disposal Target’s sewage facilities together with the licences.  The Term Sheet stipulated that the Company would undertake to assist KFE Hong Kong and Tai Shan to upgrade the Disposal Target sewage’s facilities together with the licence from the current sewage rate of 300 tons per day to 800 tons per day.

33. On 12 September 2008, China Ample entered into a sale and purchase agreement with KFE Hong Kong for the disposal of the Group’s PCB business at a consideration of US$3 million (the “SPA”).  The SPA was signed by the 1^st Respondent on behalf of China Ample, the Vendor and signed by Takaro Harada on behalf of KFE Hong Kong, the Purchaser.

34. The 1^st, 2^nd and 3^rd Respondents signed minutes of board meeting (the “Board Minutes”) dated the same day as the SPA, unanimously resolving, inter alia, that:-

 34.1. The proposal to enter into the SPA and an agreement supplemental to it was in the commercial interest of the Company.

 34.2. The form and substance of the supplemental agreement be approved and that any one director be authorised to sign it on behalf of Company.

 34.3. The form and substance of the announcement tabled be approved and arranged for publication.

35. On 26 September 2008, China Ample signed a further sale and purchase agreement in exactly the same form as the SPA, and two supplemental sale and purchase agreements, with KFE Hong Kong.  The aforementioned agreements were all signed by the 1^st Respondent on behalf of China Ample as the Vendor and signed by Takaro Harada on behalf of KFE Hong Kong as the Purchaser.  Their effect was to dispose of the Group’s PCB business.  There was no apparent reason to sign the further SPA on 26 September 2008, and the SPA and the further SPA will together be referred to as the “SPA” in this Schedule.  The total purchase price was stated to be US$3 million, and under clause 3.2 of the SPA was to be paid by the Purchaser in the following manner:-

 “(a) as to US$300,000 (as deposit) in cash to be paid in a bank account held by the Vendor (or such other subsidiary of Karce as may be nominated by the Vendor) with a licensed bank in Hong Kong or in such other manner as may be agreed between the Vendor and the Purchaser, within seven Business Days after the Purchaser’s receipt from Karce of the sewage upgrade construction plan and construction agreement pursuant to Clause 4.3.  As at the date of this Agreement, the said deposit of US$300,000 has already been paid by the Purchaser, which the Vendor hereby acknowledges;

 (b) as to US$2,700,000 in cash to be paid on the Completion Date in a bank account held by the Vendor (or other subsidiary of Karce as may be nominated by the Vendor) with a licensed bank in Hong Kong or in such other manner as may be agreed between the Vendor and the Purchaser; and

 (c) on the next Business Day following the Completion Date (or such later date as the parties may agree), US$1,000,000 or equivalent amount in Japanese yens (subject to such adjustment as provided in Clause 3.4) in cash shall be paid on behalf of the Vendor to a bank account held by the Purchaser and/or KFE Japan with a licensed bank in Hong Kong (or in such other manner as may be agreed between the Vendor and Purchaser) for the subscription by the Vendor (or such other party(ies) as may be nominated by the Vendor) of the KFE Japan Subscription Shares (equivalent to the value of US$1,000,000) (or such smaller amount as mentioned above) as computed based on Clause 3.4 of the Agreement), and the Purchaser shall procure KFE Japan to (which KFE Japan undertakes to and in favour of the Vendor to) allot and issue such KFE Japan Subscription Shares to the Vendor (or such other party(ies) as may be nominated by the Vendor), which shall be delivered to the Vendor (or its nominee) in the manner provided under Clause 3.6.”

36. The SPA was concerned only with the sale of the PCB business to KFE Hong Kong (including a sewage licence for 300 tons of sewage per day) and did not include an upgraded licence for sewage facilities as contemplated in the Term Sheet.  However it did contain an undertaking that China Ample would use all its reasonable endeavours to assist KFE Hong Kong to upgrade the sewage facilities of the PCB business and obtain a licence for those upgraded facilities.

37. Further, the SPA provided under Clause 7.2 that if the upgraded sewage licence was not obtained within 1 year from the completion date (i.e. by 30 September 2009), then the cash portion of the purchase price shall be returned to KFE Japan and the entire issued shares in Jet Master transferred back to China Ample.

38. On the same day, KFE Hong Kong signed a consultancy agreement appointing Extract Group Limited as a consultant, which consultancy agreement was signed by the 1^st Respondent on behalf of Extract Group Limited and signed by Takaro Harada on behalf of KFE Hong Kong (the “Consultancy Agreement”).  Extract Group Limited was described as carrying on business of consultancy and provided various licencing for manufacturing businesses in the PRC.

39. Under the Consultancy Agreement, Extract Group Limited agreed to provide and carry out the following services in the PRC as set out in Schedule 1 to the Consultancy Agreement:-

 39.1. Carrying out research on KFE Hong Kong’s manufacturing arm in the PRC existing sewage condition, namely Dongguan Tai Shan Electronics Co., Ltd, a company incorporated under the laws of the PRC with a business license number of 44190040006085.

 39.2. Planning and designing sewage upgrade plans including, but not limited to, constructing sewage facilities up to 800 tons per day, for the manufacturing arm of KFE Hong Kong in the PRC.

 39.3. Liaising with any professionals and government officials in the PRC for sewage upgrade and related licencing of the manufacturing arm of KFE Hong Kong.

 39.4. Reporting to KFE Hong Kong as KFE Hong Kong may request in writing as to performance of the Service.

 39.5. Any other related services to be carried out in the PRC as the parties may agree from time to time.

40. The consultancy fee was agreed at US$1 million to be paid to Extract Group Limited in the following manner as set out in Schedule 2 of the Consultancy Agreement:-

 40.1. the first instalment of US$500,000 to be paid on or before 31 October 2008; and

 40.2. the second instalment of US$500,000 to be paid on or before 30 November 2008.

41. Under the Consultancy Agreement, if Extract Group Limited was not able to assist KFE Hong Kong to obtain the upgraded sewage licence up to 800 tons per day by 30 September 2009, it would have to return the whole of the consultancy fee of US$1 million to KFE Hong Kong on or before 31 October 2009.

B3.     The Company’s Second Announcement and the Annual Report 2008

42. On 26 September 2008, the Company issued a public announcement informing its shareholders and the investing public, inter alia, that:-

 42.1. On 12 September 2008, China Ample had entered into the SPA to dispose of the Group’s PCB business to KFE Hong Kong at a total consideration of US$3 million.

 42.2. Given that the relevant percentage ratios under Rule 14.07 of the Listing Rules for the Disposal under the SPA were less than 25% but greater than 5%, the Disposal constituted a discloseable transaction of the Company under the Listing Rules which was subject to the reporting, publication of announcement and circular requirements but was exempt from the shareholders’ approval requirement under Chapter l4 of the Listing Rules (the “Second Announcement”).

43. On 17 October 2008, the Company issued a circular to its shareholders, providing them with information in relation to the SPA (the “Circular”). The Circular stated inter alia, that:-

 43.1. The consideration for the sale of the PCB business under the SPA was US$3 million.

 43.2. Given that the relevant percentage ratios under Rule 14.07 of the Listing Rules for the Disposal under the S&P Agreement were less than 25% but greater than 5%, the Disposal constituted a discloseable transaction of the Company under the Listing Rules which was subject to the reporting, publication of announcement and circular requirements but was exempt from the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

44. The Company published its Annual Report 2008 (for the year ended 31 December 2008) on 29 April 2009 which stated (at page 124 thereof), inter alia, that:-

 44.1. On 12 September 2008, the Group had entered into a conditional sale and purchase agreement to sell (i) the entire issued share capital of Jet Master and the entire registered capital of Tai Shan which was wholly owned by Jet Master and (ii) the factory land, production set up, properties with relevant licenses and the lease, machinery and sewage facilities. Subsequently on 26 September 2008, the Group had entered into a supplementary agreement to sell the entire inventory of Tai Shan as at 30 September 2008 at market value. The disposal was completed on 30 September 2008.

 44.2. The total consideration for the disposal was HK$30,209,000, representing cash payment of HK$22,784,000 and the subscription of shares worth HK$7,425,000, with a net cash inflow arising on the disposal of HK$22,784,000.

45. The terms of the Consultancy Agreement and the US$1 million paid to Extract Group Limited were not disclosed in the Second Announcement, the Circular or the Annual Report 2008 of the Company.

46. KFE Hong Kong discharged its obligations referred to in paragraph 35 above by making the following payments (totaling US$3 million):-

 46.1. KFE Hong Kong issued a cheque dated 2 August 2008 for the sum of US$300,000 to the 4^th Respondent.

 46.2. KFE Hong Kong issued a cheque dated 30 September 2008 for the sum of US$2,700,000 to the 4^th Respondent.

47. On 14 October 2008, the Company remitted the sum of US$1 million to an account held by KFE Japan at The Bank of Tokyo-Mitsubishi UFJ, Limited in respect of China Ample’s subscription of 2,676 shares of KFE Japan. On 17 October 2008, 2,676 shares of KFE Japan were issued to China Ample.

48. KFE Hong Kong discharged its obligations referred to in paragraph 40 above by making the following payments (totaling US$1 million):-

 48.1. KFE Hong Kong issued a cheque dated 31 October 2008 for the sum of US$500,000 to Extract Group Limited.

 48.2. On or about 28 November 2008, KFE Hong Kong remitted the sum of US$500,000 to a bank account held by Extract Group Limited.

49. On 3 November 2008, the cheque for the sum of US$500,000 issued by KFE Hong Kong and referred to in paragraph 48.1 above, was deposited into Extract Group Limited’s account at DBS Bank (Hong Kong) Limited (“DBS Bank”).

 49.1. On 18 November 2008, the sum of US$200,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at Chong Hing Bank Limited.

 49.2. On 25 November 2008, the sum of US$290,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at Chong Hing Bank Limited.

50. On 28 November 2008, the sum of US$500,000 referred to in paragraph 48.2 above, was deposited into Extract Group Limited’s account at DBS Bank.

 50.1. On 3 December 2008, the sum of US$500,000 was transferred from Extract Group Limited’s account at DBS Bank to an account held by the 1^st Respondent at The Bank of China (Hong Kong) Limited.

51. The total sum of US$1 million paid by KFE Hong Kong on 31 October 2008 and 28 November 2008 to Extract Group Limited ended up in bank accounts belonging to the 1^st Respondent.

52. In a High Court action in Hong Kong brought by KFE Hong Kong against Extract Group Limited, (HCA 457/2010) (“High Court Action”), KFE Hong Kong claimed that the total consideration payable by it for the purchase of the PCB business was US$4 million, which was divided into 2 parts: (1) acquisition of the Disposal Target for a consideration of US$3 million by way of the SPA and (2) consultancy services for procurement of an upgraded sewage licence for a fee of US$1 million pursuant to the Consultancy Agreement.  It claimed that the Company had nominated Extract Group Limited as the consultant to enter into the Consultancy Agreement with it.  As a result of the failure by Extract Group Limited to obtain the licence, KFE Hong Kong instituted the High Court Action to recover the US$1 million paid.

53. Extract Group Limited alleged that performance was frustrated by an unforeseen change of government policy in the PRC beyond its control.  It also alleged that the Consultancy Agreement was ancillary to and was to be construed in accordance with the SPA.

54. In or around 2012, Extract Group Limited paid a total of US$505,000 to KFE Hong Kong in full and final settlement of the High Court Action. This total sum was made up of the following payments:

 54.1. US$105,000 paid on 30 August 2012;

 54.2. US$100,000 paid on 6 September 2012;

 54.3. US$100,000 paid on 30 October 2012;

 54.4. US$100,000 paid on 29 November 2012; and

 54.5. US$100,000 paid on 28 December 2012.

B4.     False representations and/or material non-disclosures in the Second Announcement, the Circular and the Annual Report 2008

55. By reason of the matters aforesaid, the Company has made numerous false and/or misleading representations to the shareholders of the Company and to the public, and/or failed to make full and proper disclosure of material facts or matters to them.

56. The Second Announcement and the Circular contained the following false representations and/or material non-disclosures, namely:

56.1. The representation that the Group disposed of the PCB business for a total consideration of US$3 million is false, in that the total consideration paid by KFE Hong Kong in relation to the sale of the PCB business was in truth US$4 million.

56.2. The representation that the sale of the PCB business was considered a discloseable transaction is false, in that the payment of a total consideration of US$4 million made it a major transaction by reference to the applicable percentage ratios under Chapter 14 of the Listing Rules thereby requiring, inter alia, shareholders’ prior approval.

56.3. The failure to disclose the existence of the Consultancy Agreement, its connection with the SPA and the ownership or control of Extract Group Limited.

56.4. The failure to disclose that the Disposal was a connected transaction as defined in Chapter 14A of the Listing Rules.

57. The Annual Report 2008 of the Company published on 29 April 2009 contained the following material non-disclosures, namely:

57.1. The failure to disclose the existence of the Consultancy Agreement, its connection with the SPA and the ownership or control of Extract Group Limited.

57.2. The failure to disclose that the Disposal was a connected transaction as defined in Chapter 14A of the Listing Rules.

B5.     Failure to exercise reasonable skill, care and diligence and/or to act in the best interests of the Company

58. The following Listing Rules (applicable at the material time) are relevant:-

Rule 2.13

Without prejudice to any specific requirements of the Exchange Listing Rules as to content or responsibility for the document in question, any announcement or corporate communication required pursuant to the Exchange Listing Rules must be prepared having regard to the following general principles:

(1)      the information contained in the document must be clearly presented and in the plain language format specified or recommended by the Exchange and/or the Commission from time to time; and

(2)      the information contained in the document must be accurate and complete in all material respects and not be misleading or deceptive. In complying with this requirement, the issuer must not, among other things:-

 (a) omit material facts of an unfavourable nature or fail to accord them with appropriate significance;

 (b) present favourable possibilities as certain or as more probable than is likely to be the case;

…

Rules 3.08

The board of directors of a listed issuer is collectively responsible for the management and operations of the listed issuer. The Exchange expects the directors, both collectively and individually, to fulfil fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law.  This means that every director must, in the performance of his duties as a director:-

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

(b) act for proper purpose;

(c) be answerable to the listed issuer for the application or misappropriation of its assets;

(d) avoid actual and potential conflicts of interest and duty;

(e) disclose fully and fairly his interests in contracts with the listed issuer; and

(f) apply such degree of skill, care and diligence as may reasonably be expected of a person of his knowledge and experience and holding his office within the listed issuer.

Rules 13.04

The directors of an issuer are collectively and individually responsible for ensuring the issuer’s full compliance with the Exchange Listing Rules.

Rule 13.09(1)

Generally and apart from compliance with all the specific requirements in this Chapter, an issuer shall keep the Exchange, members of the issuer and other holders of its listed securities informed as soon as reasonably practicable of any information relating to the group (including information on any major new developments in the group’s sphere of activity which is not public knowledge) which:-

(a) is necessary to enable them and the public to appraise the position of the    group; or

…

Rule 13.44

Subject to the exceptions set out in Note 1 to Appendix 3, a director of the issuer shall not vote on any board resolution approving any contract or arrangement or any other proposal in which he or any of his associates has a material interest nor shall he be counted in the quorum present at the meeting.

Rule 14A.01

The connected transactions rules are intended to ensure that the interests of shareholders as a whole are taken into account by a listed issuer when the listed issuer enters into connected transactions. The rules set out in this Chapter also provide certain safeguards against listed issuers’ directors, chief executives or substantial shareholders (or their associates) taking advantage of their positions.

Rule 14A.02

This is achieved through the general requirement for connected transactions to be disclosed and subject to independent shareholders’ approval. Accordingly, where any connected transaction is proposed, the transaction must be announced publicly by means of an announcement published in accordance with rule 2.07C and a circular must be sent to shareholders giving information about the transaction.  Prior approval of the shareholders in general meeting will be required before the transaction can proceed.  A connected person with a material interest in the transaction will not be permitted to vote at the meeting on the resolution approving the transaction.

Rule 14A.05

If a listed issuer proposes to enter into a transaction which could be a connected transaction, it is essential that the listed issuer consult the Exchange at an early stage so that, in cases of doubt, the listed issuer can ascertain whether and to what extent the provisions of this Chapter apply.  The relevant contract(s) or, if applicable, draft contract(s) must be supplied to the Exchange, if requested.

Rule 14A.06

The Exchange has the specific power to deem a person to be connected (see rule 14A.11(4)) and to specify that certain exemptions will not apply to particular transactions (see rule 14A.30).

Rule 14A.11

Rule 1.01 contains a general definition of “connected person”.  In this Chapter, the definition of “connected person” includes:

(1) a director, chief executive or substantial shareholder of the listed issuer;

…

(4) any associate of a person referred to in rules 14A.11(l), (2) or (3). The definitions of “associate” (in the context of non-PRC issuers and PRC issuers) are contained in rules 1.01 and 19A.04, respectively. In this Chapter, an “associate” of a person referred to in rules 14A.11(1), (2) or (3) includes the following additional persons:

(a) any person or entity with whom a person referred to in rules 14A.11(l), (2) or (3) has entered, or proposes to enter, into any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, with respect to the transaction which is such that, in the opinion of the Exchange, that person or entity should be considered a connected person;

…

Rule 14A.13

A connected transaction is:

(1) (a)  any transaction between a listed issuer and a connected  person; or

…

Rule 14A.21

In relation to a connected transaction that is subject to independent shareholders’ approval under this Chapter, the listed issuer must comply with the requirements set out in rules 13.39(6) and 13.39(7).

Rule 14A.45

The following details of the connected transaction must be included in the listed issuer’s next published annual report and accounts:

(1) the transaction date;

(2) the parties to the transaction and a description of their connected relationship;

(3) a brief description of the transaction and its purpose;

(4) the total consideration and terms (including, where relevant, interest rates, length of repayment and security); and

(5) the nature and extent of the connected person’s interest in the transaction.

Rule 14A.47

Issuers proposing to enter into a connected transaction or a continuing connected transaction which is subject to announcement requirements must:-

(1) notify the Exchange as soon as possible after the terms of the transaction have been agreed;

Note: Under rule 13.09, a listed issuer’s notification obligations in respect of information expected to be price-sensitive arise as soon as that information is the subject of a decision.

(2) send to the Exchange a draft announcement. Once the announcement has been amended to take account of the Exchange’s comments, the listed issuer must cause such announcement to be published in accordance with rule 2.07C as soon as possible; and

Note: Where the connected transaction is also a share transaction, major transaction, very substantial disposal, very substantial acquisition or reverse takeover, rule 14.37 (requirement for short suspension of dealings) also applies.

(3) comply with rules 14A.45 or 14A.46 (the reporting requirements).

Rule 14A.48

Listed issuers proposing to enter into a connected transaction or a continuing connected transaction which is subject to independent shareholders’ approval must:

(1) comply with rules 14A.45 or 14A.46 (the reporting requirements) and 14A.47 (the announcement requirements); and

(2) comply with the requirements set out in rules 14A.49 to 14A.54 (the circular and independent shareholders’ approval requirements).

…

Rules 14A.56, 14A.58 and 14A.59 of the Listing Rules contain the requirements relating to the contents of announcements for connected transactions and the contents of circulars issued by listed issuers.

Appendix 16

15. A listed issuer shall include particulars of any contract of significance subsisting during or at the end of the financial year in which a director of the listed issuer is or was materially interested, either directly or indirectly, or, if there has been no such contract, a statement of that fact.

15.1 ……

15.2 A “contract of significance” is one where any of the percentage ratios (as defined under rule 14.04(9)) of the transaction is 1% or more.

15.3 Notwithstanding the percentage specified in Note 15.2, a contract is regarded as a “contract of significance” to a listed issuer if the omission of information relating to that contract could have changed or influenced the judgment or decision of a person relying on the relevant information.

59. In connection with the sale of the PCB business, the Company has committed numerous breaches of the Listing Rules, in particular:-

59.1. The failure to notify the SEHK of the proposed sale of the PCB business and to demonstrate to the SEHK as to whether or not Extract Group Limited and KFE Hong Kong should be regarded as connected persons, in breach of Rules 14A.05 and Rule 14A.11 of the Listing Rules.

59.2. The failure to disclose in the Second Announcement and the Circular the true extent of the total consideration for the sale of the PCB business, in breach of Rules 14A.56, 14.58 and 14A.59 of the Listing Rules.

59.3. The failure to observe the reporting, announcement and independent shareholders’ approval requirements, in breach of Rule 14A.45, 14A.47 and 14A.48 of the Listing Rules.

59.4. Publishing the Annual Report 2008 which did not describe the connected relationship between the 1^st Respondent and Extract Group Limited and did not disclose the nature and extent of the connected person’s interest in the transaction, in breach of Rule 14A.45 of the Listing Rules.

59.5. Publishing the Annual Report 2008 which contained information which was not accurate or complete in all material respects and/or was misleading or deceptive, in breach of Rule 2.13(2) of the Listing Rules.

59.6. The 1^st Respondent being a director of the Company who had a material interest in Extract Group Limited and/or the Consultancy Agreement, should not have voted on any board resolution approving the SPA, in breach of Rule 13.44 of the Listing Rules.

60. Further, the 1^st – 3^rd Respondents were collectively and individually responsible for ensuring the Company’s full compliance with the Listing Rules, but failed to do so.

61. The 3^rd Respondent, being an Executive Director of the Company at the material times, was responsible for the breaches of the Listing Rules by the Company because she:

61.1.    knew or ought to have known of the full terms of the sale of the PCB business (including the true amount of the consideration payable);

61.2.    knew or ought to have known, by making full and proper inquiries of the Company’s business and affairs, of the 1^st Respondent’s interests in Extract Group Limited;

61.3.    knew or ought to have known that the Company made numerous false and/or misleading representations to the shareholders of the Company and the public, and failed to make full and proper disclosure of material facts or matters and breached the Listing Rules in numerous ways as particularised above; and

61.4.    caused and permitted or allowed these things to happen.

62. By reason of the matters aforesaid, the 3^rd Respondent has acted in breach of her Fiduciary Duties and or the common law duty of care and/or the Listing Rules in that she:

62.1.    caused and/or procured the Company to reduce the consideration under the SPA from US$4 million as stated under the Term Sheet to US$3 million without proper justification and/or against the best interest of the Company;

62.2.    diverted to Extract Group Limited, which was owned and controlled by the 1^st Respondent, the business opportunity of the Company to provide consultancy services to KFE Hong Kong in relation to the upgrade to the sewage facilities, including to obtain a licence for those upgraded facilities, which was a mature business opportunity actively pursued by the Company;

62.3.    caused, procured, assisted and/or otherwise knowingly permitted Extract Group Limited to enter into the Consultancy Agreement with KFE Hong Kong against the best interest of the Company;

62.4.    caused and permitted or otherwise allowed the happening of the misappropriation of the 1^st Respondent and/or Extract Group Limited of  the sum of US$1 million paid by KFE Hong Kong under the Consultancy Agreement; and

62.5.    failed to provide to the Company and/or its members full and complete information concerning the disposal of the PCB business, as set out above.

63. By reason of these breaches of duties by the 3^rd Respondent, the business or affairs of the Company have been conducted in a manner:

63.1.    oppressive to its members or any part of its members within the meaning of section 214(l)(a) of the SFO;

63.2.    involving defalcation, misfeasance or other misconduct towards its members (or a part thereof) within the meaning of section 214(l)(b) of the SFO;

63.3.    resulting in its members or any part thereof not having been given all the information with respect to its business or affairs that they might reasonably expect within the meaning of section 214(1)(c) of the SFO;

63.4.    unfairly prejudicial to the members of the Company (or any part thereof) within the meaning of section 214(1)(d) of the SFO.

C. PROPOSAL FOR DISQUALIFICATION AND COMPENSATION

64. On the basis of the facts not in dispute as set out in Section B above, the parties agree and the 3^rd Respondent does not object to a disqualification order to be made against the 3^rd Respondent under section 214(2)(d) of the Ordinance that, for a period of 5 years, she shall not:

64.1.    be, or continue to be, a director, liquidator, or receiver or manager of the property or business of any listed or unlisted company including the Company or any of its subsidiaries and affiliates; and

64.2.    in any way, whether directly or indirectly, be concerned, or take part, in the management of any listed or unlisted company including the Company or any of its subsidiaries or affiliates.

65. On the basis of the facts not in dispute as set out in Section B above, the parties also agree and the 3^rd Respondent does not object to a compensation order to be made against the 3^rd Respondent under section 214(2)(e) of the Ordinance that she, together with the 1^st and 2^nd Respondents, do jointly and severally pay within 30 days from the date of the order:-

65.1.    The agreed sum of US$495,000 as compensation for the loss suffered by the Company in consequence of her breach of fiduciary duty.

65.2.    The sum of US$242,021.92 being pre-judgment interest up to 27 December 2012 and a further sum of pre-judgment interest on the amount of US$495,000 from 28 December 2012 to the date of the order at the rate of 1% above the prime rate published by the HSBC.

66. If the Court disposes of these proceedings against the 3^rd Respondent by way of the Carecraft procedure pursuant to this Schedule, the 3^rd Respondent agrees that there should additionally be an order that the 3^rd Respondent shall pay the costs of the Petitioner in these proceedings, or such portion thereof as the court thinks appropriate, to be taxed if not agreed with certificate for two counsel.

Dated the     day of     2017.

 APPENDIX 1

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

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

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

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

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

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