Securities and Futures Commission v. Fan Di and Others
Read the full judgment text of HCMP 1761/2009 on BabelCite. This High Court CFI judgment was delivered on 24 January 2018.
1. This is the hearing of the petition for an order for disqualification as a director against the 1 st respondent by way of the Carecraft procedure. The 1 st respondent is in the Mainland and has not attended this hearing, of which he is aware. The petition has already been disposed of as against the 2 nd to 4 th respondents, in May 2011. It has taken considerably longer to come on as against the 1 st respondent because, initially, he could not be located and, subsequently, protracted negotiati
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HCMP 1761/2009 [2018] HKCFI 346 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 1761 OF 2009 ____________________
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______________ D E C I S I O N ______________ 1.This is the hearing of the petition for an order for disqualification as a director against the 1st respondent by way of the Carecraft procedure. The 1st respondent is in the Mainland and has not attended this hearing, of which he is aware. The petition has already been disposed of as against the 2nd to 4th respondents, in May 2011. It has taken considerably longer to come on as against the 1st respondent because, initially, he could not be located and, subsequently, protracted negotiations failed to achieve an agreement on the facts until recently. 2.Eventually, on 26 June 2017, the Commission and the 1st respondent signed a statement of agreed facts for the purposes of the disposal of these proceedings under the Carecraft procedure. An English translation of this statement will be attached to my judgment when it is reduced to writing. It is therefore unnecessary for me to narrate the facts in any detail. 3.Suffice it to say that the 1st respondent was the Chairman, President and an Executive Director of the company in question, namely Pearl Oriental Innovation Limited (“the Company”), which was listed on the Main Board of the Stock Exchange of Hong Kong (stock code 0632). As set out in section B2 of the statement, in 2005 a subsidiary of the company, DC Warehouse, had paid out Rmb 60 million to an intermediary called Shenzhen International Trust and Investment Company Limited (“SZITIC”), which, as instructed by the 1st respondent, lent the sum to 2 Mainland companies, namely CM Information and CM Business, of which he was the Legal Representative, Chairman, and General Manager. In August 2005, the sum of Rmb 55.8 million was paid back by these two companies to SZITIC, and SZITIC paid back Rmb 64.84 million to DC Warehouse. But DC Warehouse then paid Rmb 64.5 million to another Mainland company, called Double Happiness, apparently for the acquisition of a logistics company called Wangda. To complete the circle, Double Happiness paid Rmb 57 million to CM information and CM Business. 4.As detailed in section B3 of the statement, the acquisition of Wangda was dubious, and never proceeded to completion. The sum of Rmb 64.5 million paid to Double Happiness was never repaid to DC Warehouse or the Company. The purpose of the so‑called acquisition was, in fact, to enable the round‑robin payments to be made to Double Happiness, and further on to CM Information and CM Business. While there is no evidence or admission that the 1st respondent misappropriated the money himself, as Mr Lui summarised he was responsible for a number of failures in his duties as a director of the Company as follows:
5.There is, in these circumstances, in my view, ample basis in the agreed facts for concluding that there had been defalcation, misfeasance, and other misconduct towards the Company in the conduct of its affairs and that the 1st respondent is a person to whom s 214(1)(b) and (c) of the Securities and Futures Ordinance (Cap 571) applied. There is no doubt the relevant jurisdiction of the court to make a disqualification order is engaged. 6.The parties have not reached agreement on the number of years of disqualification. I accept the submission of Mr Lui on behalf of the Commission that 6 years’ disqualification would be entirely justified. As set out in section B4 of the statement, and as summarised above, the 1st respondent, without prior board approval, entered into relevant agreements for the purported acquisition of Wangda and caused DC Warehouse to pay out Rmb 64.5 million to Double Happiness. He was clearly aware of certain reports and information concerning Wangda which he inexplicably did not disclose to the board. In my view the case is one beyond mere lack of competence and diligence. Moreover, the amounts paid out eventually constituted significant losses for the Company. In my judgment, this case falls into the second of the three brackets that conduct justifying disqualification has conventionally been divided into. There would therefore be a disqualification order for the period of 6 years. There will also be an order for costs as agreed.
Mr Mike Lui, instructed by Securities and Futures Commission, the Petitioner The 1st Respondent was not represented and did not appear Annex _______________________________________________________________ STATEMENT OF FACTS NOT IN DISPUTE FOR THE PURPOSES _______________________________________________________________ A. Introduction 1. On 9 September 2009, the Securities and Futures Commission (“Petitioner”) issued these proceedings pursuant to section 214 of the Securities and Futures Ordinance (Cap. 571) seeking a disqualification order against Mr. Fan Di (“1st Respondent”) and others in respect of their conduct of the business or affairs of Pearl Oriental Innovation Limited (“POIL”). 2. On 1 December 2011, POIL announced (among others) that the name of the company would be changed from Pearl Oriental Innovation Limited to Pearl Oriental Oil Limited, effective from 7 November 2011; its stock code would remain unchanged, being 632. Despite the change of its name as aforesaid, the company is still referred to as POIL for the purposes of this Statement. 3. Subject to the approval of this Court, the Petitioner and the 1st Respondent consent to dispose of these proceedings against the 1st Respondent by way of the summary procedure sanctioned in Re Carecraft Construction Co Ltd [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 which was adopted by this Court in respect of the proceedings under section 214 of the Securities and Futures Ordinance mentioned below (apart from other similar cases), including Securities and Futures Commission v Yick Chong San [2007] 4 HKLRD 46, Securities and Futures Commission v Shum Ka Sang Charlie & Shen Yi (HCMP 1014/2008, unrep., 22 May 2009), Securities and Futures Commission v Fung Chiu & Others [2009] 2 HKC 19, Securities and Futures Commission v Yeung Kui Wong & Others (HCMP 1742,(sic)2009, unrep., 9 April 2010) and Re Styland Holdings Limited [2011] 1 HKLRD 96. 4. This Statement is produced in order to identify the material facts relied on by the Petitioner in these proceedings that are not disputed by the 1st Respondent, for the disposal of these proceedings on the basis that the case against the 1st Respondent will be dealt with by this Court by way of the Carecraft procedure. 5. Solely for the purposes of resolving these proceedings by way of the Carecraft procedure, the 1st Respondent accepts that, by reference to the facts set out in Section B (which the 1st Respondent admits and accepts), during the relevant period in 2003 to 2005 or any part thereof, the business and affairs of POIL (for which the 1st Respondent, as an Executive Director, the Chairman and the President of POIL at the material time and its only Director taking part in the negotiation for the proposed acquisition of Wangda, was responsible) have been conducted in a manner described in sections 214(1)(b) and 214(1)(c) of the Securities and Futures Ordinance, namely
6. On the basis of the facts set out in Section B below,
7. If the Court disposes of these proceedings against the 1st Respondent by way of the Carecraft procedure pursuant to this Statement, the 1st Respondent agrees that there should additionally be an order to be made by the Court that the 1st Respondent shall pay such portion of the costs of the Petitioner in these proceedings as the Court thinks appropriate, to be taxed if not agreed. 8. In the event of a disqualification order being made against the 1st Respondent by reference to this Statement, the Petitioner reserves the right to:-
9. In the event of a disqualification order being made against the 1st Respondent by reference to this Statement, the Petitioner and the 1st Respondent also agree that they will jointly apply to this Court for a direction that this Statement be annexed to the judgment of this Court. 10. The Petitioner and the 1st Respondent agree that in the event of this Court refusing for any reason to make a disqualification order against the 1st Respondent by reference to this Statement, and ordering a full hearing to be conducted, either of them will not make reference to this Statement (or to any admission or concession or any proposal for disqualification contained in this Statement) at any subsequent hearing in these proceedings without the prior written consent of the other party to this Statement. B. Facts not in dispute 11. The structure of this Section is as follows:-
B1. Background and management of POIL 12. POIL is and was at all material times:-
13. POIL’s shares were listed on the Main Board of the Hong Kong Stock Exchange (“Stock Exchange”) on 30 April 1993 and remain so listed as at the date of this Statement. Its stock code has always been 0632. 14. POIL changed its name to the current one, namely Pearl Oriental Oil Limited, on 7 November 2011. Before this change it was called:-
15. As at 31 May 2009, POIL had an authorised share capital of HK$20,000,000,000, divided into 200,000,000,000 shares of HK$0.1 each, of which 581,403,960 shares had been issued. 16. DiChain Holdings Limited (“DC Holdings”) is a limited company incorporated in Hong Kong. It was at all material times the ultimate holding company of POIL with a majority shareholding in POIL. 17. DiChain Warehouse Services (Shenzhen) Co., Ltd (“DC Warehouse”) is a wholly foreign owned enterprise in the People’s Republic of China (“PRC”). It was at all material times a wholly owned subsidiary of POIL. 18. The 1st Respondent was an Executive Director, the Chairman and the President of POIL during the period from 25 March 2002 to 24 May 2006. According to the company’s annual reports for 2003, 2004 and 2005, he had substantial working experience in financial and business management, and was responsible for overseeing the strategic development of the company. In addition, according to the company’s annual reports for 2003 and 2004, as of 31 March 2003 and 31 March 2004, he nominally held the deemed interests in 2,682,515,000 shares in POIL (representing 59.13% of the issued share capital), and according to the annual report for 2005, as of 31 March 2005, he nominally held the deemed interests in 3,096,553,083 shares in POIL (representing 56.94% of the issued share capital), all the shares were nominally held through two companies, namely Farsight Holdings Limited and DiChain Holdings Limited. At all material times, he was a director of DC Holdings, and was also responsible for leading the overall financial management of DC Warehouse. 19. Mr. Li Xinggui (“2nd Respondent”), Mr Zheng Yingsheng (“3rd Respondent”) and Mr. Zhou Li Yang (“4th Respondent”) at all material times also occupied positions of significant responsibility for the conduct of the business and affairs of POIL and took part in the management of DC Holdings and DC Warehouse. 20. The 2nd Respondent was an Executive Director of POIL in the period from 26 August 2002 to 31 December 2005. He had substantial experience in logistics operation and business management, and was responsible for overseeing the company’s logistics business. He was also a director of DC Holdings. 21. The 3rd Respondent was an Executive Director of POIL in the period from 27 March 2003 to 31 August 2010, responsible for overseeing its logistics business. He had over 20 years of experience in logistics management and transportation operations. 22. The 4th Respondent was an Executive Director and the Managing Director of POIL in the period from 17 September 2004 to 24 May 2011 and has been holding the same positions since 10 April 2013, responsible for its strategic development and daily operations. 23. By reason of his position and responsibilities in POIL, the 1st Respondent owed to POIL the duty to exercise reasonable care, skill and diligence which would be exercised by a reasonably diligent person with the general knowledge, skill and experience which might reasonably be expected of a person carrying out the same functions as were carried out by the 1st Respondent in relation to POIL, and the knowledge, skill and experience possessed by the 1st Respondent. 24. Further, under Rule 3.08 of the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”), the directors of POIL, both collectively and individually, at all material times had to fulfill fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law. In performing their duties, the directors of POIL were answerable to POIL for the application or misapplication of POIL’s assets, and had to apply such degree of skill, care and diligence as might reasonably be expected of individuals of their knowledge and experience and holding their offices within POIL. 25. Further, in order to act as a director of POIL, the 1st Respondent was required to and did sign a formal declaration and undertaking in the form as set out in Form B in Appendix 5 to the Listing Rules whereby the 1st Respondent undertook with the Stock Exchange that he, in the exercise of his powers and duties as a director of POIL, would comply with and use his best endeavours to procure that POIL would comply with (among others) the Listing Rules from time to time in force. B2. RMB60,000,000 investment through Shenzhen International Trust and Investment Co., Ltd. (“SZITIC”) 26. Between 21 April 2003 and 20 June 2005, DC Warehouse and SZITIC entered into 12 trust fund agreements (“Trust Fund Agreements”). 27. Pursuant to the Trust Fund Agreements, DC Warehouse paid a total of RMB60,000,000 to SZITIC as a trustee, and SZITIC was obliged to lend the said sum invested by DC Warehouse to third parties to earn interest. 28. The 1st Respondent eventually approved the investment of RMB60,000,000 through SZITIC. Before doing so, he had not obtained the official written approval from the board of directors or shareholders of DC Warehouse. 29. The 1st Respondent, the 3rd Respondent and Mr. Wu Shiyue (“Mr. Wu”) (an Executive Director of POIL in the period from 2002 to 30 August 2005) signed the Trust Fund Agreements on behalf of DC Warehouse. 30. On 25 July 2005, the Audit Committee of POIL held a meeting to discuss the audit exercise for that financial year (“Audit Committee Meeting”). The attendees were the 4th Respondent, Mr. Yu Wai Kit Eddie (“Mr. Yu”) (the company secretary and financial controller), accountants from Deloitte Touche Tohmatsu (“Deloitte”) (the company auditors) and two independent non-executive directors, Mr. Barry J. Buttifant and Mr. Victor Yang. 31. At the Audit Committee Meeting, the independent non-executive directors complained that the Audit Committee had not been given any prior notice of the investment made by DC Warehouse through SZITIC. Furthermore, the accountants from Deloitte expressed concerns over the recoverability of the invested sum of RMB60,000,000 and demanded the management of POIL to either call back the investment or obtain a list of the entities to which SZITIC had lent the invested sum so as to enable Deloitte to review and assess the relevant entities’ credibility. 32. After the Audit Committee Meeting, Mr. Yu tried but failed to obtain from SZITIC a list of the entities to which it had lent the sum invested by DC Warehouse. As a result, the management of DC Warehouse decided to terminate the Trust Fund Agreements with SZITIC. 33. Between 3 August 2005 and 9 August 2005, SZITIC paid DC Warehouse its invested sum with interest amounting to RMB64,840,849.99 in total. 34. On 10 August 2005, SZITIC issued a certificate confirming the termination of the Trust Fund Agreements and that the sums invested by DC Warehouse had been refunded with interest. The said certificate did not reveal the identity of the entities to which SZITIC had lent the invested sum of DC Warehouse, and was the only written confirmation from SZITIC that was provided to Mr. Yu, the auditors and the Audit Committee at that time. 35. The Petitioner has discovered in the course of its inquiries that SZITIC had in fact prepared six official repayment reports dated 16 August 2005 and 17 August 2005 and sent the same to DC Warehouse. According to SZITIC, this was part of its normal procedures. Prior to the inquiries conducted by the Petitioner, Mr. Yu and the Audit Committee had never received the said official repayment reports, and had never been informed of their existence. 36. The official repayment reports showed that SZITIC had lent the invested sum of DC Warehouse to two companies in the PRC, namely, China Merchants GTong Information (Shenzhen) Company Ltd. (transliteration) (“CM Information”) and Shenzhen China Merchants DiChain Business Systems Company Ltd. (transliteration) (“CM Business Systems”). 37. The 1st Respondent was at all material times the Legal Representative, the Chairman and the General Manager of CM Information and CM Business Systems. 38. In the course of the Petitioner’s inquiries, SZITIC also revealed that there was an arrangement of the trust fund investment of DC Warehouse under which DC Warehouse would designate the entities to which its invested sum would be lent and that SZITIC was bound to follow such instructions from DC Warehouse. 39. The Petitioner’s investigations revealed that the 1st Respondent was responsible for the trust fund investment by DC Warehouse through SZITIC including designating the entities to which SZITIC should lend the invested sum of DC Warehouse:-
40. The Petitioner further discovered that:-
41. Contemporaneous with the refund from SZITIC, between 3 August 2005 and 9 August 2005, CM Information and CM Business Systems paid a total of RMB55,840,849.99 to SZITIC. 42. In the same period, between 3 August 2005 and 10 August 2005, DC Warehouse transferred a total sum of RMB64,500,000 to a company in the PRC called Dalian Double Happiness Trading Development Company Ltd. (transliteration) (“Double Happiness”). The circumstances under which DC Warehouse made this payment are set out in Section B3 below. 43. At the time of such payment by DC Warehouse, Mr. Zang Hongwei was the Legal Representative of Double Happiness. He was a director of and owned 90% of the shares in Double Happiness, and a former brother-in-law of the 1st Respondent. 44. Between 3 August 2005 and 19 October 2005, Double Happiness paid RMB57,005,000 to CM Information and CM Business Systems. B3. Purported acquisition of Yixing Wangda Logistics Co., Ltd. (“Wangda”) 45. Wangda operated logistics business in Yixing in the PRC. Mr. Kong Baisong (“Mr. Kong”) was at all material times the Legal Representative and the General Manager of Wangda. 46. DC Holdings had in the past operated a beer factory in Yixing. Later when the Yixing municipal government resumed the land on which the said factory was built, it granted a separate piece of land in Yixing to DC Holdings. 47. Instead of continuing with its beer production business, DC Holdings proposed to operate logistics business on that new piece of land. However, the Yixing municipal government rejected that proposal. 48. On or about 13 December 2004, Mr. Zhu Runlin (“Mr. Zhu”), who was the development advisor of DC Holdings according to the 1st Respondent’s evidence, submitted a report on the logistics business of Wangda to the 1st Respondent, Mr. Wu and Mr. Li Haozhang (the then Vice President of DC Holdings). The 1st Respondent at the time employed Mr. Zhu to explore investment opportunity in the PRC on behalf of POIL and DC Holdings. 49. Mr. Zhu stated in his report as follows:-
50. On 7 July 2005, a joint board meeting of POIL and DC Holdings was held. As shown in the minutes of that meeting, the attendees were the 1st Respondent, the 2nd Respondent, Mr. Wu, Mr. Li Haozhang, Mr. Zhu and others. The 3rd Respondent did not attend. 51. At this meeting, Mr. Li Haozhang and Mr. Zhu reported as follows:-
52. It was unanimously resolved at the said meeting on 7 July 2005 that:-
53. Despite passing the aforementioned resolutions, in the course of its inquiries the Petitioner had tried but failed to obtain any of the following evidence:-
54. On or about 21 July 2005, Hero Vantage issued a payment notice to both POIL and DC Holdings, requesting them to make payments to Double Happiness on or before 19 September 2005 in the amounts stated in the Asset Transfer Deposit Agreement (transliteration) (“July 2005 HV Deposit Agreement”) and the Loan Agreement (transliteration) (“July 2005 HV Loan Agreement”), both of which were allegedly entered into on 19 July 2005. 55. In the course of its inquiries, the Petitioner had tried but failed to locate the July 2005 HV Deposit Agreement and the July 2005 HV Loan Agreement. However, the Petitioner obtained two other agreements entered into by Hero Vantage and POIL (with the 1st Respondent signing on its behalf) dated 27 September 2005, these two agreements were also entitled Asset Transfer Deposit Agreement (transliteration) and Loan Agreement (transliteration). These two agreements are referred to below as “September 2005 HV Deposit Agreement” and “September 2005 HV Loan Agreement” respectively. 56. Under the September 2005 HV Deposit Agreement, POIL agreed to pay Hero Vantage a deposit of HK$42,000,000 for the purpose of the acquisition of certain logistics business assets in Yixing. 57. Under the September 2005 HV Loan Agreement, POIL agreed to lend HK$18,000,000 to Hero Vantage for a period of 2 years with interest at 4% per annum. 58. Between 3 August 2005 and 10 August 2005, DC Warehouse, presumably in accordance with the payment notice from Hero Vantage referred to in paragraph 54 above, transferred RMB64,500,000 (equivalent to HK$60,000,000) in total to Double Happiness. The said payment is referred to as “Double Happiness Payment” below. 59. As already described in Section B2 above, the round-robin cash flow was as follows:-
60. The Petitioner’s case in these proceedings is that there was no reason or no legitimate commercial reason at the material time for POIL and/or DC Warehouse to procure the above round-robin cash flow. The 1st Respondent does not dispute this for the purposes of the Carecraft procedure. 61. In or around August 2005, the 1st Respondent instructed Mr. Chong Siu Po Bryan (“Mr. Chong”), who was an Assistant Vice President of POIL, and Mr. Liu Jun (“Mr. Liu”), who was the Chief Accountant of DC Holdings, to conduct due diligence on Wangda. 62. Mr. Chong and Mr. Liu conducted due diligence on Wangda in Yixing from 18 August 2005 to 20 August 2005. They submitted a due diligence report to the 1st Respondent and Mr. Li Haozhang thereafter. 63. In the report, Mr. Chong and Mr. Liu identified various problems with the business of Wangda, and their assessment of the merit of the proposed acquisition of Wangda was unequivocally not favourable. 64. Shortly after 20 August 2005, Mr. Chong and Mr. Liu had a meeting with the 1st Respondent in which they explained to him the negative findings of their due diligence exercise on Wangda. 65. On 5 September 2005, Yixing municipal government officials had a meeting with Mr. Kong and Mr. Li Haozhang and Mr. Liu. Mr. Li Haozhang and Mr. Liu attended the said meeting on behalf of DC Holdings. The following matters were discussed at this meeting:-
66. As a result of its inquiries, the Petitioner discovered (and the 1st Respondent accepts that to be true for the purposes of the Carecraft procedure) that in fact up to 5 September 2005, all the discussions among the Yixing municipal government, Wangda and DC Holdings or POIL were only preliminary in nature and the parties had never agreed on anything concrete which was capable of being implemented. In particular, DC Holdings’ representative had represented to Wangda and the Yixing municipal government the following:-
67. In September 2005, Mr. Kong on behalf of Wangda and Mr. Liu on behalf of DC Holdings engaged an accountants’ firm in Wuxi called Wuxi Puxin Certified Public Accountants Co., Ltd (“Wuxi Accountants”) to conduct a valuation of the fixed assets of Wangda. 68. The Wuxi Accountants produced a preliminary draft report valuing the fixed assets of Wangda at RM56,447,433.40 as at 31 August 2005, but the valuation did not take into account the value of the land owned by Wangda in Yixing and its debts. This basis of valuation was consistent with the findings of the Petitioner. 69. Mr. Liu (on behalf of DC Holdings) considered the valuation by the Wuxi Accountants to be excessive and refused to accept the said report as the basis for further negotiations with Wangda and the Yixing municipal government. 70. On 26 September 2005, the 1st, 2nd, 3rd and 4th Respondents attended a board meeting of POIL. At the meeting, the 1st Respondent tabled a valuation report prepared by Shenzhen Guosong Assets Appraisal Co. Ltd. (“SGAA”) dated 22 September 2005 (“Guosong Report”) and an assets acquisition proposal for Wangda for discussion. 71. As stated in the Guosong Report:-
72. The basis for valuing Wangda’s fixed assets adopted in the Guosong Report was clearly inconsistent with the findings of the Petitioner. As discovered by the Petitioner in its investigation, a consensus had been reached by Wangda, the Yixing municipal government and DC Holdings that the acquisition of Wangda would not include its land in Yixing, andtherefore, Wangda’s land in Yixing should not be included in the valuation of the fixed assets of Wangda. The 1st Respondent’s evidence is that the Yixing municipal government stated at the time that it would separately provide a piece of logistics land with an area of 500 mu to DC Holdings as a part of the transaction if the Yixing municipal government and DC Holdings acquired Wangda. 73. The Petitioner’s case in these proceedings is that as of the date of the said meeting on 26 September 2005, the 1st Respondent had full knowledge of the details of the proposed acquisition of Wangda as described above. The basis of this conclusion as reached by the Petitioner is as follows:-
74. The 1st Respondent was the only director of POIL who took part in the negotiations with respect to the acquisition of Wangda. He reported the following matters at the said meeting on 26 September 2005:-
75. Despite his involvement in the negotiations on the acquisition of Wangda, at the board meeting of POIL on 26 September 2005, the 1st Respondent, as the Chairman of the board and the meeting, had the responsibility but failed to confirm with the other members of the board of POIL or remind the other members of the board of POIL of:-
76. Under such circumstances, the board of directors of POIL unanimously approved on 26 September 2005 all the previous prepayments made on behalf of POIL to Hero Vantage or pursuant to the direction of Hero Vantage, purportedly for the purposes of the acquisition of Wangda and the acquisition of a controlling interest in Hero Vantage. 77. The 1st Respondent never advised or took any steps to procure POIL to make an announcement of the payments made on behalf of POIL to Hero Vantage or pursuant to the direction of Hero Vantage, that were approved for the purposes of the acquisition of Wangda and the acquisition of a controlling interest in Hero Vantage. 78. The proposed acquisition of Wangda never proceeded to completion. The RMB64,500,000 paid by DC Warehouse to Double Happiness pursuant to the direction of Hero Vantage was never repaid to POIL or DC Warehouse; as alleged by the 1st Respondent, the said sum was paid for the purposes of the acquisition of Wangda. 79. In June 2006, the Stock Exchange received complaints alleging that the 1st Respondent, the 4th Respondent and Mr. Li Haozhang had misappropriated the funds of POIL. 80. As a result, the board of directors of POIL set up a special unit to investigate the relevant complaints. When being questioned by the special unit, the 1st Respondent explained that the proposed acquisition of Wangda fell through for the following reasons:-
81. In the course of its inquiries, the Petitioner came to the conclusion that the above explanations provided by the 1st Respondent were false and untrue.
The 1st Respondent does not dispute the matters stated in this paragraph for the purposes of the Carecraft procedure. 82. The Petitioner’s case is that the only purpose, or one of the purposes, of the purported acquisition of Wangda was to procure the round-robin cash flow as described in Paragraph 59 above. The 1st Respondent does not dispute this for the purposes of the Carecraft procedure. 83. The Double Happiness Payment and the circumstances under which it was made, including the entering into of the September 2005 HV Deposit Agreement and the September 2005 HV Loan Agreement by POIL, were only made known to the members of POIL or the public by way of an announcement on 23 March 2006 and a circular on 4 May 2006 which were only published upon the request by the Stock Exchange. B4. Grounds for invoking sections 214(1)(b) and 214(c) of the Securities and Futures Ordinance and the basis of the 1st Respondent’s responsibility 84. Among the directors of POIL, the 1st Respondent was at all material times the only director of POIL in relation to the negotiations for the proposed acquisition of Wangda. In the circumstances where he had not obtained prior approval from the board of directors of the company, he:-
85. At the company’s subsequent board meeting held on 26 September 2005, the 1st Respondent, as the Chairman of the board and the meeting, only provided or explained the information as described in Paragraphs 71 and 74 above to the board, which appeared to be favourable to the acquisition of Wangda, causing the board to approve of the aforementioned payment being made to Double Happiness. At the said meeting, the 1st Respondent, as the Chairman of the board and the meeting, had the responsibility but failed to confirm with the other directors or remind the other directors of:-
86. In addition, pursuant to the Listing Rules, the payment of RMB64,500,000 made by DC Warehouse to Double Happiness was a disclosable transaction. However, the 1st Respondent did not take any step to procure the company to issue the announcements and notices as required under Rules 13.13, 13.20, 14.34 and 14.38 of the Listing Rules. 87. The 1st Respondent had made a declaration and signed a letter of undertaking in accordance with the Listing Rules, undertaking that he would use his best endeavours to comply with the Listing Rules from time to time in force. 88. Since the 1st Respondent was also responsible under Rule 3.12 of the Listing Rules to accept full responsibility, collectively and individually and at all material times, for the company’s compliance with the Listing Rules, therefore he shall be held responsible for the non-compliance with the Listing Rules as set out above. 89. Moreover, the 1st Respondent caused the company to make the above payment but failed to procure it to duly comply with the Listing Rules, hence breaching his duties under Rules 3.08(c) and 3.08(f) of the Listing Rules. 90. The Stock Exchange publicly reprimanded POIL on 23 March 2009, stating that POIL was:
91. Since the 1st Respondent could not be located at the time for serving on him the documents in the disciplinary proceedings, the decision of the Listing Committee was not applicable to him, but the Stock Exchange reserves the right to consider the situation of the 1st Respondent when he is located and served with the documents. Nobody has appealed against the decision of the Listing Committee. 92. On the basis of the facts stated in Sections B2 and B3 above, the 1st Respondent acknowledges and accepts that the business and affairs of POIL (including such business and affairs carried out by POIL through DC Warehouse) have been conducted in a manner:
93. By reason of his position and duties in POIL, the 1st Respondent acknowledges and accepts that he shall be responsible for the conduct of the business and affairs of POIL (including such business and affairs carried out by POIL through DC Warehouse) in the manner as aforesaid. 94. On 24 May 2011, the Petitioner resolved these proceedings against the 2nd, 3rd and 4th Respondents by way of the Carecraft procedure, and the Court made an order that, for a period of one year, the 2nd, 3rd and 4th Respondents shall not:
C. Proposal for disqualification 95. On the basis of the facts not in dispute as set out in Section B above, the parties agree that it would be appropriate for a disqualification order to be made against the 1st Respondent under section 214(2)(d) of the Securities and Futures Ordinance that, for a period of [ ] year, he shall not:-
96. If the Court disposes of these proceedings against the 1st Respondent by way of the Carecraft procedure pursuant to this Statement, the 1st Respondent agrees that there should additionally be an order to be made by the Court that the 1st Respondent shall pay such portion of the costs of the Petitioner in these proceedings as the Court thinks appropriate, to be taxed if not agreed. D. Agreed mitigating factors 97. The 1st Respondent adopted a reasonable course of action in agreeing to conclude these proceedings by way of the Carecraft procedure which would save the time and costs of the Petitioner and the Court. Dated the 26th day of June 2017. ____________(Signed)______________ Securities and Futures Commission (Signed) Fan Di Fan Di APPENDIX 1 “Corporation” means a company or other body corporate incorporated either in Hong Kong or elsewhere. “Company” means a company as defined in section 2(1) of the Companies Ordinance, Cap. 32. The expression “company” in the definitions of subsidiary, holding company and affiliate below, shall be read as including a corporation. “Subsidiary” means, with respect to its holding company, a company:- (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. “Holding company” in relation to a company shall be read as a reference to a company of which that last-mentioned company is a subsidiary. “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. | ||||||||||||||||||||||||||||||||||
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