Securities and Futures Commission v. Vantage New Generation Securities Ltd (Formerly Known As Global Group Securities Limited)

HCMP 1175/2023

[2023] HKCFI 2471

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1175 OF 2023

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D E C I S I O N

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1.I have before me an originating summons issued by the Securities and Futures Commission against Vantage New Generation Securities Limited. By the originating summons the Commission seeks declarations of various breaches of the Securities and Futures Ordinance (“Ordinance”) and certain subsidiary legislation and also the appointment of administrators to take over the management of the Company which has ceased business and currently has no responsible officer.

2.The application has been unopposed. The originating summons sets out in some detail, not only the declaration and order of sought, but the particulars of the contraventions relied on. It is, therefore, convenient for me to set out the body of the originating summons in order to understand the application.

“1.	A declaration that the Defendant is a person within section 213(l)(a)(i)(A) of the Securities and Futures Ordinance (Cap. 571) (‘SFO’) (or alternatively, a person within section 213(l)(b) of the SFO) in that the Defendant has contravened (or alternatively, it appears to the Plaintiff that the Defendant has contravened and/or is contravening and/or may contravene) the following provisions of the SFO and/or its subsidiary legislation:
	a.	The Defendant failed to notify the Plaintiff (or has failed to do so as soon as reasonably practicable) of the Defendant’s awareness of its inability to maintain, or to ascertain whether it maintains, financial resources in accordance with the specified amount requirements that apply to it, and failed to keep its records in sufficient detail to establish readily whether all of the requirements under the financial resources rules are being complied with, in breach of sections 146(1) and 146(4) of the SFO respectively, in that:
		Particulars of Contravention
		i.	An amount of HK$1,179,000 (being the aggregate of certain commission receivables as at 31 October 2021) (‘Commission Receivable’) was wrongly included in the computation of the Defendant’s liquid capital, without which its liquid capital would have fallen below the requisite threshold of HK$3,000,000 (under Schedule 1 to the Securities and Futures (Financial Resources) Rules (Cap. 571N) (‘FRR’)), and its excess liquid capital would be rendered negative, since at least October 2021.
		ii.	As the sums comprising the Commission Receivable were booked and recognised in December 2019 to December 2020, they should not have been included in the Defendant’s computation of liquid capital since October 2021, under section 35 of the FRR.
		iii.	The Defendant failed to explain how it computed its liquid capital.
		iv.	Although the Plaintiff received a letter from Mr Xu Jinbao (‘Mr Xu’), the remaining director of the Defendant, on 23 June 2022, informing the Plaintiff for the first time that the Defendant’s liquid capital had fallen below 120% of its required liquid capital since 31 January 2023 and that its liquid capital position as of 31 May 2023 was HK$311,000, the said letter did not amount to notification as soon as reasonably practicable. Further, the letter did not address the issue of the Commission Receivable, and contained factual inaccuracies (e.g. the assertion that the Defendant does not hold any client assets at this stage).
		v.	Accordingly, the Defendant overstated its liquid capital and excess liquid capital, and failed to notify the Plaintiff of the Defendant’s failure to maintain its liquid capital requirements (or failed to do so as soon as reasonably practicable). Further, by reason of the above, the Defendant failed to keep proper records to establish readily whether all the requirements of the financial resources rules are being complied with.
	b.	The Defendant failed to pay client money into a segregated account within one business day of receipt of the money, and failed to retain client money in the segregated account, in breach of sections 4(4) and 5(1) of the Securities and Futures (Client Money) Rules (Cap. 571I), in that:
		Particulars of Contravention
		i.	Mr Jaitegh Singh (‘Mr Singh’) opened a securities trading cash account with the Defendant in October 2022, and made two deposits totaling around HK$2 million into the Defendant’s client bank account in October and December 2022. In May 2023, Mr Singh informed the Defendant that he wished to withdraw the funds from his account with the Defendant. However, the Defendant claimed that the funds were not client funds but were a deposit for a proposed acquisition of the Defendant by Mr Singh (among others) and refused to allow the withdrawal. The Defendant had used the funds to cover its own operating expenses.
		ii.	No daily client money reconciliation had been performed by the Defendant as between its house bank account and segregated client bank account since December 2022. Even disregarding the amount attributable to Mr Singh, the Plaintiff has identified a substantial discrepancy between the client bank account balance and client ledger balance of the Defendant, without any proper explanation. The actual discrepancy may be larger than that identified by the Plaintiff given the failure of the Defendant to perform bookkeeping (as referred to in sub-paragraph d. below).
	c.	The Defendant failed to provide a statement of account to a client (Mr Singh) no later than the end of the seventh business day after the end of the monthly accounting period; and failed to include in the statement of account the outstanding balance of and the net equity in that account as at the beginning and as at the end of that monthly accounting period and details of all movements in the balance of that account during that period, in breach of sections 11(2)(b) and 11(3)(b) of the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules (Cap. 571Q), in that:
		Particulars of Contravention
		i.	Mr Singh opened an account with the Defendant in October 2022, but the first monthly statement in respect of Mr Singh’s account was only issued by the Defendant to him for the month of December 2022.
		ii.	The Defendant used funds deposited by Mr Singh to cover its own operating expenses, and failed to include details of those transactions in the monthly account statements issued to Mr Singh.
	d.	The Defendant failed to keep sufficient accounting, trading and other records, in breach of section 3(1)(a) of the Securities and Futures (Keeping of Records) Rules (Cap. 571O), in that no bookkeeping had been performed by or for the Defendant since the last accounting staff member of the Defendant departed on 30 November 2022.
2.	An order pursuant to section 213(2)(d) of the SFO that joint and several administrators be appointed to administer the property of the Defendant in the terms of the draft Order annexed to this Originating Summons.”

3.Ms Tong who appeared before me with Mr Keith Chan took me through the evidence to demonstrate what in any event appears to be uncontroversial, namely, that the Ordinance and various regulations have been breached in the way, particularised in the originating summons. I am satisfied that the Commission has demonstrated that the alleged breaches occurred and, therefore, it is appropriate for me to make the declarations that are sought. I am also satisfied that in the circumstances clearly it is desirable that administrators are appointed to administer the property of the Defendant.

4.I will, therefore, make an order in the terms of [1] of the originating summons and in the form of a draft order which not only appoints administrators but sets out the powers the administrators are to have, which will be in the form of the draft provided to me in the hearing bundle.

5.I will make an order that the costs of and occasioned by the originating summons be paid by the Defendant, such costs to be taxed if not agreed with the certificate for two counsel.

Ms Sara Tong SC and Mr Keith Chan, instructed by Securities and Futures Commission, for the plaintiff

Attendance of CLM Lawyers, for the defendant, was excused