Securities and Futures Commission v. Chen Li-jun and Others

HCMP 36/2021

[2025] HKCFI 2048

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 36 OF 2021

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BETWEEN

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REASONS FOR DECISION

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Introduction

1.The Securities and Futures Commission (“Commission”)  commenced these proceedings by a petition dated 12 January 2021 under section 214 of the Securities and Futures Ordinance (Cap. 571)  (“SFO”) seeking, inter alia, disqualification orders against the 1^st to 12^th Respondents, who were all former directors or senior officers of National Agricultural Holdings Limited (“NAH”).

2.The present hearing concerns the 3^rd, 5^th, 6^th and 12^th Respondents (collectively “Relevant Respondents”), each of whom has consented to dispose of the proceedings by way of the Carecraft procedure[1]. The two sets of Carecraft schedules[2] (collectively “Carecraft Schedules”)  contain a summary of the undisputed facts, the Commission’s case against each of the Relevant Respondents, and the agreed proposed orders.  I have appended the Carecraft Schedules to these Reasons for Decision.

3.This is not the first time the Carecraft procedure has been used in these proceedings.  This Court previously disposed of these proceedings against the 8^th, 10^th and 11^th Respondents through the Carecraft procedure on 13 June 2023: see Securities and Futures Commission v Chen Li-Jun & Ors[3] (“2023 Decision”).

Factual Background

4.The detailed factual background of these proceedings is contained in the Carecraft Schedules[4] and summarised in [4] to [87] of the 2023 Decision, which I shall not repeat here.  Unless otherwise specified, I shall adopt the abbreviations used in the 2023 Decision.

5.For the present purpose, the following matters are pertinent.  The Relevant Respondents occupied the following positions at NAH[5]:

(1)  3^rd Respondent: Financial manager from 15 October 2013 to 31 December 2017;

(2)  5^th Respondent: ED from 15 October 2013 to 22 February 2018;

(3)  6^th Respondent: ED from 15 October 2013 to 26 July 2018;

(4)  12^th Respondent: INED and Member of the Audit Committee from 18 December 2013 to 15 December 2016.

6.The 6^th Respondent, together with the 1^st Respondent and one Zhang Yuiliang (“Zhang”)  (an ED), were also directors of Parko since 2014.  On 20 July 2016, the 5^th Respondent replaced Zhang as a director of Parko.  As of June 2019, the 1^st, 5^th and 6^th Respondents remained directors of Parko[6].

Breach of Duties by the Relevant Respondents

7.The role and misconduct of the 1^st Respondent and other senior officers of NAH (including the 3^rd Respondent)  are described and acknowledged in the Carecraft Schedules insofar as they pertain to the role and misconduct of the Relevant Respondents[7].

8.At the material times, the Relevant Respondents, being respectively the EDs (i.e. the 5^th and 6^th Respondents), INEDs (i.e. the 12^th Respondent)  and senior officer (i.e. the 3^rd Respondent)  of NAH, owed the following duties to NAH[8]:

(1)  Fiduciary duties, including:

(a)  To act honestly and in good faith in the interests of NAH;

(b)  To act for proper purpose(s);

(c)  To avoid situations where his or her interests may be in actual or potential conflict with that of NAH;

(2)  Not to obtain any undisclosed profit from his or her position;

(3)  A duty of care at common law to exercise due and reasonable care, skill, competence and independent judgment that would be exercised by a reasonably diligent person with:

(a)  The general knowledge, skill and experience that may be reasonably expected of a person carrying out the same functions as carried out by the director or senior office in relation to NAH;

(b)  The general knowledge, skill and experience that he or she has.

9.At all material times, the Relevant Respondents were also under a duty to ensure full compliance with the Listing Rules, including Rule 3.08 thereof[9].

10.Further, the 5^th, 6^th and 12^th Respondents owed a duty to NAH to properly supervise the affairs of NAH’s subsidiaries, including Guonong Taifeng[10].  By reason of the matters set out in the Carecraft Schedules and the 2023 Decision, the business or affairs of Guonong Taifeng were also the business or affairs of NAH.

11.The evidence demonstrates that at all material times[11]:

(1)  The 1^st Respondent and (to a lesser extent)  the 2^nd, 3^rd and/or 4^th Respondents were able to, and did, dominate and control the affairs of NAH and the Board for personal advantage or other ulterior purposes.

(2)  There was no or no effective system of internal control in NAH.

(3)  The EDs (including the 5^th and 6^th Respondents)  and INEDs (including the 12^th Respondent)  had allowed the affairs of NAH and/or the Board to be so dominated, and neglected or omitted to identify or rectify the misconduct, and/or the breach of duties by the 1^st, 2^nd, 3^rd and/or 4^th Respondents.

12.In particular[12]:

(1)  There are no Board minutes or resolutions regarding the establishment of the Fund, as the 1^st Respondent admitted that no board meeting was convened regarding the establishment of the Fund.  No prior approval was apparently sought from the Relevant Respondents at the time in relation to the potential establishment of the Fund.  There was a Board meeting where the letter of intent for the potential acquisition of the Target Company was confirmed and approved.

(2)  It is evident that the EDs (including the 5^th and 6^th Respondents)  and INEDs (including the 12^th Respondent)  did not have prior knowledge of, let alone participate in, any consideration or discussions regarding the Fund or the potential acquisition of the Target Company.  Nor were they shown the underlying agreements for these projects.

(3)  The EDs (including the 5^th and 6^th Respondents)  and INEDs (including the 12^th Respondent)  did not seek information or raise queries about the above projects even when they were announced in August 2015 in the name of the Board, notwithstanding the substantial amount involved (including the payment of the RMB850,000,000 Retainer Money).

(4)  The EDs (including the 5^th and 6^th Respondents)  and INEDs (including the 12^th Respondent)  did not seek information or raise queries as to how (if at all)  Parko had paid for the Shares Consideration, which was supposed to form part of the Retainer Money.

(5)  The EDs (including the 5^th and 6^th Respondents)  and INEDs (including the 12^th Respondent)  did not raise concerns when it was announced in March 2016 in the name of the Board that neither of the above projects had completed and a total of RMB 1,220,000,000 (the Refunded Sum)  was returned through a series of complex transfers not to NAH but to Guonong Taifeng.

(6)  The EDs (including the 5^th and 6^th Respondents)  and INEDs (including the 12^th Respondent)  have not taken any active steps to understand or investigate the situation even after Deloitte had raised concerns regarding Guonong Taifeng’s Account 8506 in February 2017, or after their interviews with the Commission in August or September 2017.

(7)  The EDs (including the 5^th and 6^th Respondents)  and INEDs (including the 12^th Respondent)  did not seek information, raise queries or concerns or take any active steps to understand or investigate the HK$50,000,000 alleged “Loan” to Dongyue.  When the Board approved the Loan Agreement in April 2016 and announced the same in May 2016, the EDs and INEDs ought to have known then (if not earlier)  that the “Loan” was advanced some 8 months previously without any contemporaneous documentary record or security in NAH’s favour.

13.Specifically as to the 5^th and 6^th Respondents, they were also directors of Parko and ought to have monitored the dealings between Parko and NAH, but did not do so[13].

14.As a consequence of these matters, the 5^th and 6^th Respondents (as EDs)  and the 3^rd Respondent (as senior officer)  were in breach of their duties as set out in [8] to [11] above.  The 12^th Respondent (as an INED)  was also in breach of his duties to NAH in failing to exercise independent judgment and supervision[14].

15.By reason of the acts or omissions of the Relevant Respondents, the Commission submits that the business or affairs of NAH have been conducted in a manner as described in [95] of the 2023 Decision, and each of the Relevant Respondents were partly responsible for the business or affairs of NAH having been so conducted[15].

SFO Section 214 Liability

16.The relevant legal principles in relation to liability under section 214 of the SFO are set out in detail in [88] to [92] of the 2023 Decision.

17.As discussed in [93] to [95] of the 2023 Decision, I am satisfied that the three conditions for relief under section 214(1) of the SFO have been met and the Court’s jurisdiction to grant the remedies under section 214(2) of the SFO is engaged.

Proposed Orders

18.The Commission submits that the following proposed periods of disqualification, which are unopposed, are commensurate with the gravity of the respective conduct of the Relevant Respondents and give appropriate regard to the mitigating circumstances set out in the Carecraft Schedules[16]:

(1)  The 3^rd Respondent: 9 years.

(2)  The 5^th and 6^th Respondents: 7 years.

(3)  The 12^th Respondent: 24 months.

19.The proposed disqualification orders cover any corporation in Hong Kong with no carve-outs.

20.In relation to the 3^rd Respondent specifically, the Commission agrees not to seek an order against her under section 214(2)(e) of the SFO to pay compensation to NAH for the sum of HK$384,000,000, after having regard to further evidence and with a view to securing a just and expeditious disposal of the proceedings[17].

21.The legal principles applicable to the determination of the appropriate period of disqualification are set out in [96] of the 2023 Decision.  I shall not repeat the same here.

22.Mr Kwan Ping Kan[18], counsel for the 3^rd, 5^th and 6^th Respondents, agrees in principle with the proposed disqualification periods.  He highlights the following mitigating factors.

23.In relation to the 3^rd Respondent, Mr Kwan submits:

(1)  She acted promptly and reasonably in acceding to the Commission’s suggestion to dispose of these proceedings by way of the Carecraft procedure, thereby saving the parties and the Court considerable time and costs[19];

(2)  There was no dishonesty or lack of integrity on her part[20];

(3)  There was no remuneration or personal gain obtained by her[21];

(4)  She had no previous disciplinary record in relation to the SFO[22];

(5)  She suffered a serious head injury in 2016.  As a result, she handed over her responsibilities in NAH from the beginning of 2017 and ceased to be involved in NAH altogether from mid-2017 onwards[23]. The Court may have regard to her health condition in deciding the length of the disqualification period[24]; and

(6)  She suffered from severe depression symptoms from August 2017 to February 2018 (exacerbated by her head injury)  and could hardly leave her house.  Despite taking medication including antidepressants, anti-anxiety drugs and other psychotropic drugs on a regular basis, the 3^rd Respondent’s conditions have not significantly improved[25].

24.By way of guidance, Mr Kwan referred to two cases:

(1)  In Securities and Futures Commission v Li Hejun & Ors[26], the 1^st Respondent, who was the chairman and ultimate controller of the subject company, acted in breach of his fiduciary duty in, inter alia, failing to cause the company to collect a very substantial amount of receivables owed by entities under his control.  The Court considered a disqualification period of 8 years to be appropriate[27].

(2)  In Securities and Futures Commission v Tong Shek Lun & Ors[28], the 1^st Respondent, who was the founder and chairman of the subject company, diverted and/or misappropriated to himself a business opportunity worth US$1,000,000.  The Court considered a disqualification period of 7 years to be appropriate.

25.In respect of the 5^th and 6^th Respondents, Mr Kwan submits:

(1)  They were the employees of Hebei Agriculture Means of Production Company Limited who appointed them to become EDs of NAH and also directors of Parko[29];

(2)  While they have attended the relevant board meetings at NAH, neither the 5^th nor the 6^th Respondent participated in NAH’s daily operations[30]; and

(3)  Although they were directors of Parko, neither of them had a real role in, nor did they participate in, Parko’s daily operations[31].

26.Also by way of guidance, Mr Kwan referred to the following:

(1)  In Securities and Futures Commission v Wong Kam Leong & Ors[32], the Court made a distinction between active commission of wrongdoing and negligence (or omission)  [33]. In that case, a disqualification period of below 5 years was adopted.

(2)  The 8^th Respondent was disqualified for 3 years[34]. The allegations against the 5^th, 6^th and 8^th Respondents are substantially similar, save that there is an additional allegation against the 5^th and 6^th Respondents that they ought to have monitored the dealings between Parko and NAH but did not do so[35].  However, despite being Parko’s directors, neither the 5^th nor the 6^th Respondent had a real role in, nor did they participate in, Parko’s daily operations.

27.Mr Kwan went on to submit that as the Court is not bound by parties’ agreement, and it is open to the Court to impose a shorter disqualification period.  In light of the mitigating circumstances and earlier cases set out in [23] to [26] above, he suggests if the Court is minded that the disqualification periods proposed in [18] above should be shortened, it may consider imposing alternative disqualification periods as follows:

(1)  3^rd Respondent: 6 to 7 years (as opposed to 9 years);

(2)  5^th and 6^th Respondents: less than 5 years (as opposed to 7 years).

28.It is correct that the Court is not bound by the parties’ agreement, however, in practice, the Court is likely to be guided by the agreement that the Commission, as a responsible regulator, has reached as to the appropriate sanction to be imposed[36]. Instances can be found in which the Court, upon reviewing the agreed facts and mitigating circumstances, has departed from the parties’ agreement and come to a different conclusion as to the appropriate period of disqualification[37].  As one would expect, the Court is more likely to intervene where it views the proposed disqualification period as manifestly excessive or inadequate[38] or where the proposed carve-outs are too extensive[39].  As long as the periods are within the range that the Court thinks is reasonable it will not interfere, even if the Court might have imposed a slightly different period of disqualification absent an agreement.

29.However, there is a distinction between the Court exercising its independent judgment to impose a disqualification period different from that agreed by the parties, and accepting an invitation from a respondent to depart from the agreement, as Mr Kwan has invited me to do. By so doing the Respondents are resiling from their agreement.

30.If the Relevant Respondents disagree with the Commission’s proposed disqualification period, the proper approach would be to confine the Carecraft agreement to liability only and make submissions on the appropriate length of disqualification period for the Court’s determination[40]. To purportedly agree to a disqualification period in the Carecraft schedule while covertly arguing for a lesser penalty undermines the integrity of the Carecraft procedure.

Relief

31.Having regard to the Commission’s case, I am satisfied that the conduct of the 3^rd, 5^th and 6^th Respondents is sufficiently serious to fall within the middle bracket and a disqualification period of 9 years (for the 3^rd Respondent)  or 7 years (for the 5^th and 6^th Respondents)  is appropriate.

32.As for the 12^th Respondent, the Commission accepts that his conduct falls within the lowest bracket and a disqualification period of 24 months would be appropriate (which the 12^th Respondent also accepts).  I agree that 24 months is commensurate with the gravity of the 12^th Respondent’s conduct and gives appropriate regard to his mitigating circumstances.

33.The Relevant Respondents have also agreed to pay the Commission’s costs, or an appropriate portion thereof, in these proceedings[41].

34.I, therefore, made an order that the Relevant Respondents be disqualified from acting as a director of a company for the periods set out in [18] above and pay the costs of the Commission in these proceedings, to be taxed if not agreed, with certificate for two counsel.

Mr Jin Pao SC and Ms Bonnie YK Cheng, instructed by Securities and Futures Commission, for the Petitioner

Mr Kwan Ping Kan and Mr Jason PH Wong, instructed by Li & Partners, for the 3^rd, 5^th and 6^th Respondents

The 12^th Respondent appeared in person

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF

THE 3RD, 5TH AND 6TH RESPONDENTS (LU YING, REN HAI & PENG GUOJIANG)

Part A: Introduction

1.  On 12 January 2021, the Securities and Futures Commission (“Petitioner”)  issued proceedings under section 214 of the Securities and Futures Ordinance (CAP 571)  (“SFO”)  seeking disqualification orders against 12 respondents, which include:

a.  Chen Li-jun (“Chen LJ”), the 1^st Respondent;

b.  Cai Weiheng (“Cai”), the 2^nd Respondent;

c.  Lu Ying (“Lu”), the 3^rd Respondent;

d.  Chen Jing, the 4^th Respondent;

e.  Ren Hai (“Ren”), the 5^th Respondent;

f.  Peng Guojiang (“Peng”), the 6^th Respondent;

g.  Chen Li An, the 7^th Respondent;

h.  Liu Yong (“Liu”), the 8^th Respondent;

i.  Wen Yuanyi (“Wen”), the 9^th Respondent;

j.  Chiu Kam Hing Kathy (“Chiu”), the 10^th Respondent;

k.  Fan Chung Yue William (“Fan”), the 11^th Respondent; and

l.  Ting Tit Cheung (“Ting”), the 12^th Respondent,

in respect of their conduct of the business and affairs of National Agricultural Holdings Limited (“NAH”).

2.  Subject to the approval of this Court, the Petitioner and the 3^rd, 5^th and 6^th Respondents consent to the disposal of these proceedings against them by way of the summary procedure (“Summary Procedure”)  sanctioned by the High Court in England and Wales in the case of Re Carecraft Construction Co Ltd [1994] 1 WLR 1569 and as adopted by this Court in a number of cases in respect of proceedings under section 214 of the SFO.

Purpose

3.  This Schedule is produced in order to provide this Court, for the purpose of disposing of these proceedings against the 3^rd, 5^th and 6^th Respondents by way of the Summary Procedure, with the core facts that are not disputed in relation to allegations relied upon by the Petitioner.

4.  The facts set out in this Schedule are not disputed between the Petitioner and the 3^rd, 5^th and 6^th Respondents on the basis that the case against them will be dealt with by the Court by way of the Summary Procedure. If the Court for any reason is of the view that these proceedings shall not be dealt with by the Summary Procedure or that a full hearing is appropriate, no admission or concession by either the Petitioner or the 3^rd, 5^th and 6^th Respondents and none of the proposed orders referred to below or liability to pay costs shall be referred to or relied upon by any party at any subsequent hearing without the prior written consent of all parties.

5.  Subject to paragraphs 2 to 4 above and solely for the purpose of resolving these proceedings against the 3^rd, 5^th and 6^th Respondents by way of the Summary Procedure, and by reference to the facts not in dispute set out in Part B of this Schedule (which the 3^rd, 5^th and 6^th Respondents admit and accept), the 3^rd, 5^th and 6^th Respondents accept that during the relevant period, the business or affairs of NAH, for which they, as Financial Manager or Executive Directors (“ED”)  as applicable, were partly responsible, have been conducted in a manner described in Section 214(1)(b)  to (d)  of the SFO, namely:

a.  involving defalcation, fraud, misfeasance or other misconduct towards its members or any part thereof;

b.  resulting in its members or any part of its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

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

Unopposed Orders

6.  On the basis of the facts set out in Part B of this Schedule and the mitigating circumstances set out in Part C of this Schedule, the Petitioner and the 3^rd, 5^th and 6^th Respondents agree, and the 3^rd, 5^th and 6^th Respondents are prepared to accept, that it would be appropriate for the following orders to be made against them:

a.  An order pursuant to section 214(2)(d)  of the SFO that the 3^rd Respondent shall not, for a period of 9 years, without leave of the Court:

i.  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any corporation in Hong Kong, including NAH or any of its subsidiaries and affiliates; and

ii.  in any way, directly or indirectly, be concerned, or take part, in the management of any corporation in Hong Kong, including NAH or any of its subsidiaries and affiliates.

b.  An order pursuant to section 214(2)(d)  of the SFO that each of the 5^th and 6^th Respondents shall not, for a period of 7 years, without leave of the Court:

i.  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any corporation in Hong Kong, including NAH or any of its subsidiaries and affiliates; and

ii.  in any way, directly or indirectly, be concerned, or take part, in the management of any corporation in Hong Kong, including NAH or any of its subsidiaries and affiliates.

c.  That the order under section 214(2)(e)  of the SFO sought by the Commission against the 3^rd Respondent under section D paragraph (2)(ii)  of the Petition filed with the Court on 12 January 2021 to pay compensation to NAH (the 14^th Respondent)  for the sum of HKD 384,000,000 be discontinued as against the 3^rd Respondent only.

d.  Any further order that the Court deems appropriate to impose on the 3^rd, 5^th and 6^th Respondents.

7.  In the event that this Court makes any orders sought against the 3^rd, 5^th and 6^th Respondents by reference to this Schedule, the Petitioner and the 3^rd, 5^th and 6^th Respondents agree that this Schedule be annexed to this Court’s judgment and will jointly seek a direction to that effect. Furthermore, without prejudice to all the Petitioner’s rights under the general law, the Petitioner specifically reserves the right to (a)  disclose the Schedule to third parties where it appears proper to do so in the public interest, including, but not limited to, making use of the Schedule for the purpose of any press release issued in respect of these proceedings and (b)  refer to this Schedule for the purposes ancillary to, connected with and/or arising out of these proceedings.

Part B: Undisputed facts

NAH

Corporate Background and Management

8.  NAH (formerly known as Qianlong Technology International Holdings Limited)  was incorporated in the Cayman Islands.  NAH was listed on the GEM Board of The Stock Exchange of Hong Kong Limited (“SEHK”)  on 17 December 1999 and the Main Board of SEHK on 29 August 2011 (stock code: 1236).

9.  According to NAH’s 2015 Annual Report, its principal activity was investment holding.  The activities of the NAH group (“NAH Group”)  included research, development and distribution of software, provision of related maintenance, usage and information services and provision of financial leasing business in the People’s Republic of China (“PRC”).

10.  Between July and November 2013, Parko (Hong Kong)  Limited (“Parko”), the 13^th Respondent herein, acquired a 54.73% interest in NAH and became its controlling shareholder through a share acquisition and mandatory general offer (“MGO”).

11.  At all material times:

a.  The sole shareholder of Parko is and was Million Rich Hong Kong Holdings Company Limited (“Million Rich”), which in turn is and was owned 51% by Hebei Agricultural Means of Production Company Limited (“Hebei AMP”)  and 49% by Hebei New Cooperative Holding Group Company Limited (“Hebei New Cooperative”).

b.  Parko is and was ultimately controlled by Hebei Supply and Marketing Cooperative, which for administration and operation purposes is and was under the All China Federation of Supply and Marketing Cooperatives (“All China Federation”).  All China Federation is and was in turn under the State Council of the PRC.

c.  Parko’s development and staff appointments are and were advised by the Hebei Provincial People’s Government.

12.  Between January 2015 and 2018, NAH’s board of directors (“Board”)  and key management personnel were as follows:

13.  Chen LJ (R1), Peng (R6)  and Zhang were also directors of Parko since 2014.  On 20 July 2016, Ren (R5)  replaced Zhang as a director of Parko.  Chen LJ (R1), Peng (R6)  and Ren (R5)  remained as directors of Parko as of June 2019.

Parko’s Subscription of NAH Unlisted Warrants

14.  According to a set of Board minutes in respect of a meeting on 28 January 2015, the Board resolved to approve (among other things)  the entering into of a Subscription Agreement between NAH and Parko (“Subscription Agreement”).  The meeting was attended by Chen LJ (R1), the 5^th Respondent, the 6^th Respondent, Liu (R8), Wen (R9), Chiu (R10), Ting (R12)  and Fan (R11).

15.  Also on 28 January 2015, NAH announced that it had entered into a Subscription Agreement with Parko, by which the parties conditionally agreed for Parko to subscribe for up to 212,194,500 subscription warrants (“Warrants”)  to be issued by NAH.  The key terms of the subscription were as follows:

a.  The subscription issue price was HK$0.189 per Warrant.

b.  The Warrants would entitle Parko to subscribe for up to 212,194,500 subscription warrant shares (“Warrant Shares”)  at the subscription exercise price of HK$3.0 per Warrant.  In other words, each Warrant carried the right to subscribe for one Warrant Share.

c.  The subscription right attaching to the Warrants was exercisable within 12 months from the date of their issue.

16.  As at the date of the said announcement, Parko had approximately 51.02% interest in NAH. Chen LJ (R1)  represented to the Petitioner that the subscription was to ensure Parko could maintain a controlling interest of over 51% in NAH.

17.  On 27 April 2015, NAH published a Circular and a Notice of Extraordinary General Meeting (“EGM”)  in respect of the Subscription Agreement which (among other things)  was subject to shareholders’ approval. The Circular contained recommendations from NAH’s Board, Independent Board Committee (comprising all INEDs at the time)  and Independent Financial Advisor respectively for shareholders to vote in favour of the Subscription Agreement.

18.  On 13 May 2015, the EGM was held in which the shareholders of NAH unanimously approved the Subscription Agreement.

19.  According to a written resolution dated 2 June 2015, the Board resolved to approve (among other things)  the issuance and allotment of the Warrants.  The written resolution was signed by Chen LJ (R1), the 5^th Respondent, the 6^th Respondent, Liu (R8), Wen (R9), Chiu (R10), Fan (R11), Ting (R12), Zhang and Law.

20.  Also on 2 June 2015, NAH announced that the subscription was completed and the Warrants were issued to Parko.  The Warrant Shares would be allotted and issued upon the exercise of the subscription rights attached to the Warrants representing approximately 10% of the issued share capital of NAH.  Upon completion of the subscription and exercise of the subscription rights, Parko would have approximately 52.55% interest in NAH.

21.  According to a share certificate produced by NAH to the Petitioner, 212,194,500 shares in NAH were issued to Parko on 9 June 2015.  On the same day, NAH filed a disclosure return with the SEHK which shows that the total number of issued shares had increased by 212,194,500.

22.  Based on the subscription issue price for the Warrants and subscription exercise price for the Warrant Shares, the consideration payable by Parko for the subscription and the conversion into Warrant Shares totalled HK$676,688,260.50 (“Shares Consideration”):

Parko’s Purported Payment of Shares Consideration

23.  Notwithstanding the foregoing, in particular the repeated references to the Subscription Agreement in NAH’s Board minutes and public announcements/circular, NAH was unable to produce the Subscription Agreement upon the Petitioner’s request.

24.  NAH however stated in its Annual Results Announcement for 2015 that:

   “During the year ended 31 December 2015, the Group used part of the proceeds from the issue and exercise of warrants, a cheque issued by Parko to Dongyue Holdings Limited [(“Dongyue”)], a wholly owned subsidiary of China Coopinvest, for its subscription and exercise of the warrants to [NAH] amounting to RMB 528,491,000, as an earnest money for a possible investment in the investment Fund…”

25.  NAH made a similar statement about the use of a cheque issued by Parko to Dongyue in its 2015 Annual Report, 2016 Interim Results Announcement and 2016 Interim Report.

26.  In response to the Petitioner’s request, NAH produced a China Construction Bank cheque dated 2 June 2015 (“CCB Cheque”)  purportedly issued by Parko to Dongyue in the amount of HK$676,688,261.  The CCB Cheque was signed by Chen LJ (R1)  on Parko’s behalf.

27.  NAH also produced a tripartite agreement purportedly entered into by NAH, Parko and Dongyue on 2 June 2015 (“Tripartite Agreement”), which provided that:

a.  Parko had to pay NAH HK$676,688,261 as the Shares Consideration.

b.  NAH was obligated to pay Dongyue “certain sum of money…for an investment and/or joint venture”.

c.  Parko was to pay the Shares Consideration to Dongyue rather than NAH within 10 days and, upon full payment of the Shares Consideration to Dongyue, Parko’s obligation to pay the Shares Consideration to NAH would be fully discharged.

Retainer Money for Potential Establishment of Fund

28.  Meanwhile, on 25 August 2015 and 27 August 2015, NAH announced that it had entered into a framework cooperation agreement (“Cooperation Framework Agreement”)  with one China Co-Op (Shanghai)  Equity Investment Fund Management Company (“China Co-Op”)  in relation to the possible cooperation between NAH and China Co-Op for the establishment of a fund (“Fund”).

29.  It was further announced that:

a.  NAH, as one of the general partners of the Fund, was to make a capital contribution commitment in an amount of not more than 3% of the total capital of the Fund.

b.  As a result of the Cooperation Framework Agreement, NAH had deposited RMB850,000,000 (“Retainer Money”)  to Dongyue, a subsidiary of Coopinvest Company Limited (“Coopinvest”, which in turn owned 50% interest in China Co-Op), to hold in escrow as earnest money for the establishment of the Fund.

c.  Pursuant to the Cooperation Framework Agreement, if the Fund was unable to obtain necessary approval from the All China Federation or relevant authority before 31 December 2015 or such other dates as agreed by the parties, the parties would not enter into any legally binding definitive agreement, and the Retainer Money (after deducting necessary expenses for preparation of the Fund)  was to be returned to NAH forthwith.  Prior to the establishment of the Fund, the Retainer Money would not be considered as capital contribution of the Fund and would be wholly-owned assets of NAH.

30.  Also on 25 August 2015, NAH and China Co-Op entered into an Escrow Agent Agreement which provided for (among other things)  the matters in paragraph 29 above.  Dongyue was neither a party to this Escrow Agent Agreement nor specified as the escrow agent therein.

31.  On 31 December 2015, NAH announced that the parties were still in discussion in respect of the establishment of the Fund.  Since NAH might make less capital commitment to the Fund than expected, the parties agreed that part of the Retainer Money in an amount not exceeding RMB450,000,000 was to be returned to NAH.

32.  According to NAH, there were no Board minutes or resolutions relating to the discussion about the establishment of the Fund, except for resolutions dated 28 March 2016 regarding the refund of monies, as referred to below.  Chen LJ (R1)  admitted that no Board meeting was convened regarding the establishment of the Fund.

Possible Acquisition of Target Company

33.   Separately, on 27 November 2015, NAH announced that it had entered into a non-legally binding letter of intent with Parko and two other companies (which, together with Parko, were the potential vendors)  in relation to the possible acquisition of not less than 51% equity interests in a company established in the PRC (“Target Company”).  The Target Company would be the beneficial owner of a piece of land and certain properties in Shanghai.

34.  On 11 January 2016, NAH announced that NAH and the aforesaid potential vendors had entered into a sale and purchase agreement (“SPA”), pursuant to which the parties conditionally agreed for NAH to purchase from the vendors the entire equity interest in the Target Company at RMB2,685 million (comprising cash consideration and new shares to be issued by NAH to Parko).

35.  On 14 March 2016, NAH announced that:

a.  At the request of Parko’s management, NAH, Parko and one Shi Jia Zhuang Ao Yuan Trading Company Limited (“Ao Yuan”)  had entered into an escrow agreement, pursuant to which NAH was to pay RMB1,300,000,000 as earnest money to Ao Yuan being the escrow agent designated by NAH and Parko within 6 months after entering into the escrow agreement as refundable earnest money for the potential acquisition of the Target Company.

b.  Ao Yuan was a 51% shareholder of Xinyuen Taifeng Agricultural Asset Management (Beijing)  Company Limited.  The latter was a substantial shareholder of Guonong Taifeng Agricultural Consultancy Co., Ltd (“Guonong Taifeng”), which in turn was a subsidiary of NAH.

c.  Pursuant to the said escrow agreement, NAH and Parko were to enter into formal agreement in respect of the acquisition of the Target Company within 15 working days after NAH had paid the earnest money in full.  In the event that the formal agreement failed to complete within six months after the escrow agreement (or such other dates the parties otherwise agreed in writing), or the formal agreement had been terminated for whatever reason, Ao Yuan would refund the earnest money together with accrued interest to NAH upon joint instructions from NAH and Parko.  The earnest money was not to be used by Ao Yuan without the prior consent of NAH and Parko, and was the wholly owned asset of NAH.

d.  Up to December 2015, the NAH Group had paid an aggregate of approximately RMB1,220,000,000 to Ao Yuan. Upon receiving such amount, Parko’s management was satisfied that NAH had sufficient financial resources for the acquisition and a formal agreement was entered into on 11 January 2016.

Purported Transfers

36.   On 31 March 2016, NAH announced the following transfers of funds:

a.  Under NAH’s direction, Dongyue transferred the Retainer Money of RMB850,000,000 (see paragraph 29 above)  to one Guangzhou Yin Qian Investment Management Company Limited (“Guangzhou Yin Qian”), another subsidiary of Coopinvest, to hold the same in escrow.

b.  Under NAH’s direction, Guangzhou Yin Qian further transferred part of the refund of the Retainer Money in the sum of approximately RMB250,000,000 (out of RMB850,000,000)  to Ao Yuan for the purpose of settling the earnest money for the potential acquisition of the Target Company (see paragraphs 33 to 35 above).

c.  As the SPA for acquisition of the Target Company had not completed, Ao Yuan had refunded the earnest money of approximately RMB1,220,000,000 to NAH on 30 March 2016 and it was deposited into a bank account of a non-wholly-owned subsidiary of NAH which was to be used solely for the acquisition.

d.  The parties agreed that the remaining portion of the Retainer Money in the sum of approximately RMB600,000,000 was to be refunded to NAH.  The remaining portion was refunded to NAH from Guangzhou Yin Qian on 30 March 2016 and deposited into a bank account of a non-wholly-owned subsidiary of NAH which was to be used solely for the purpose of the Fund (see paragraphs 28 to 31 above).

37.  At the Petitioner’s request, NAH has produced the following documents as purported evidence of the transfers:

a.  a set of vouchers and corresponding bank transfer records showing the payment of HK$384,000,000 from NAH to one South China Financial Company Limited (“South China Financial”)  through a series of transfers between 13 January 2015 to 5 June 2015;

b.  a letter dated 9 January 2015 issued by NAH instructing South China Financial to transfer HK$384,000,000 to Dongyue;

c.  the CCB Cheque and Tripartite Agreement (see paragraphs 26 and 27 above), which purportedly show that Parko had paid the Shares Consideration of HK$676,688,261 to Dongyue at NAH’s request. In a letter from NAH’s solicitors, Deacons, dated 25 May 2017 to the Petitioner, NAH described in detail how the CCB Cheque was signed by Chen LJ (R1), delivered to Dongyue’s Hong Kong office and then taken away by one Ji Hong, a director of Dongyue. It was also stated that Dongyue did not cash the CCB Cheque;

d.  a letter dated 31 December 2015 issued by NAH purportedly instructing Dongyue to transfer RMB850,000,000 to Guangzhou Yin Qian (per paragraph 36(a)  above);

e.  a letter dated 31 December 2015 issued by NAH purportedly instructing Guangzhou Yin Qian to transfer RMB250,000,000 to Ao Yuan (per paragraph 36(b)  above);

f.  a letter dated 28 March 2016 issued by NAH purportedly instructing Ao Yuan to transfer RMB1,220,000,000 to an account held with Guangzhou Ping An Bank numbered 1101-4500-448506 (“Account 8506”)  (per paragraph 36(c)  above);

g.  a deposit agreement dated 30 March 2016 with Guangzhou Ping An Bank purportedly showing that the holder of the said Account 8506 is Guonong Taifeng (which, as stated in paragraph 35(b)  above, was a subsidiary of NAH);

h.  a letter dated 28 March 2016 issued by NAH purportedly instructing Guangzhou Yin Qian to transfer RMB600,000,000 to Account 8506 (per paragraph 36(d)  above);

i.  a set of minutes purportedly showing that the Board resolved by a written resolution on 28 March 2016 to approve the purported refund of the Retainer Money of RMB850,000,000 to NAH as set out above;

j.  purported bank records of Guangzhou Ping An Bank and a voucher which purportedly show two deposits of RMB1,220,000,000 and RMB600,000,000 on 30 March 2016 into Account 8506.  The bank records also purportedly show that, as of 30 June 2016, Account 8506 had a balance of RMB1,821,450,944.44.  Similar bank records had been provided by NAH to its auditors, Deloitte Touche Tohmatsu (“Deloitte”);

k.  an unpaid invoice (“Invoice”)  purportedly issued by Dongyue to NAH in respect of a sum of HK$1,060,688,261 (equivalent to around RMB850,000,000, i.e. the amount of the Retainer Money).  The Invoice was said to be attached to an email dated 25 August 2015 from Ji Hong (Dongyue’s director)  to Chen Jing (R4 and NAH’s General Manager Assistant).  NAH represented to the Petitioner that Dongyue would issue the Invoice after it had received the said sum as per the “usual practice” in the PRC.  NAH further represented to the Petitioner that it did not have the original of the Invoice because the same was only transmitted to NAH electronically.

38.  The bank balance of around RMB1.8 billion (see paragraph 37(j)  above)  was a highly substantial sum to NAH.  It accounted for 92% of NAH’s cash and cash equivalents (RMB1,974,324,000)  and 76% of its net assets (RMB2,398,075,000), as reported in NAH’s 2016 Interim Results.

39.  The purported transfers above are graphically illustrated at Appendix 2 to this Schedule.  If they had taken place, by the end of June 2016, Guangnong Taifeng’s Account 8506 was supposed to have received a total of RMB1,820,000,000 (“Refunded Sum”), being the RMB1,220,000,000 from Ao Yuan plus the RMB600,000,000 from Guangzhou Yin Qian.  These sums were supposed to represent the refunds from the two projects announced in 2015 in which NAH planned to acquire the Target Company and to establish the Fund respectively.

The Petitioner’s Investigations

40.  On around 18 August 2016, the Petitioner commenced a formal inquiry into the affairs of NAH.  It sought documents from NAH and interviewed its former and current directors and officers.

NAH’s transfer of HK$384,000,000 to South China Financial

41.  The Petitioner investigated into the transfer of HK$384,000,000 from NAH to South China Financial (see paragraph 37(a)  above)  which, together with the Shares Consideration of HK$676,688,261 purportedly paid by Parko, should have made up the RMB850,000,000 (or HK$1,060,688,261)  that purportedly went into Dongyue.

42.  Parko acquired the controlling interest in NAH in 2013 through a share acquisition and MGO. According to the joint announcement of NAH and Parko dated 16 August 2013, Parko was required to pay HK$165,775,000 to acquire 87,250,000 (34.54%)  shares in NAH from the former substantial shareholder.  As a result of the share acquisition, the MGO was triggered and HK$314,165,000 was required for making the MGO.  As such, Parko required a total of HK$479,940,000 (being the sum total of HK$165,775,000 and HK$314,165,000)  for the share acquisition and MGO (assuming it were to take over 100% interest in NAH).

43.  Chen LJ (R1)  represented to the Petitioner that Parko had obtained a loan facility from CCB International Securities Limited (“CCBI”)  and one Precursor Management Inc (“PMI”)  for the share acquisition and MGO.  PMI was in turn wholly owned by Cai (R2), NAH’s former General Manager.  Wen (R9), who is Cai’s ex-wife, was appointed as an ED of NAH by PMI.

44.  According to CCBI and PMI, the credit facility extended by CCBI and PMI to Parko were HK$200,000,000 and HK$280,000,000 respectively.

45.  Eventually, according to NAH’s announcement dated 12 November 2013, only 51,009,200 (20.19%)  shares accepted the MGO and Parko was required to pay approximately HK$96,917,480 for the MGO.

46.  According to CCBI, Parko had to repay HK$115,832,842.11 to CCBI in four tranches.

47.  As to the transfer of HK$384,000,000 from NAH to South China Financial, it was found in the Petitioner’s investigations that:

a.  Cai (R2)  was a 65% beneficial owner of South China Financial and 100% owner of PMI. Chen Jing (R4)  was Cai’s partner in PMI.

b.  While NAH had transferred HK$384,000,000 to South China Financial from 13 January 2015 to 5 June 2015, South China Financial did not transfer the sum to Dongyue, contrary to NAH’s representation (see paragraph 37(b)  above).

c.  Instead, South China Financial had transferred HK$64,351,578.95 to Parko and HK$5,776,900 to PMI between February 2015 and March 2015.

d.  The HK$64,351,578.95 received by Parko was transferred to CCBI, apparently for repayment of the credit facility.

48.  Findings from the Petitioner’s investigation further refute the alleged connection between the said transfer of HK$384,000,000 from NAH to South China Financial and the purported payment of Retainer Money to Dongyue for the Fund:

a.  The transfers from NAH to South China Financial took place from January 2015 to June 2015, much earlier than the Cooperation Framework Agreement on 25 August 2015 for the potential establishment of the Fund (see paragraph 28 above).

b.  Most of the said transfers also preceded the Tripartite Agreement dated 2 June 2015 among NAH, Parko and Dongyue, by which Dongyue was first designated by NAH to receive payment from Parko (see paragraph 27 above).

c.  None of the individuals who ought to know about the arrangement, namely Chen LJ (R1), Cai (R2, NAH’s General Manager, 100% beneficial owner of PMI and 65% beneficial owner of South China Financial), Chen Jing (R4, NAH’s General Manager Assistant and Cai’s partner in PMI)  or Lu (R3 and NAH’s Financial Manager), could account for the transfers from NAH to South China Financial.

d.  There is no reasonable explanation for why monies allegedly had to go through South China Financial, when NAH and the supposed ultimate recipient, Dongyue, are and were both Hong Kong companies having bank accounts in Hong Kong.

e.  NAH admitted that it did not conduct any due diligence on South China Financial, which was purportedly introduced to NAH by either the All China Federation (as represented by NAH to the Petitioner), or by Cai (as represented by Cai himself and Chen LJ to the Petitioner).

Dongyue’s evidence

49.  In reply to the Petitioner’s enquiries, Dongyue:

a.  denied having received the Retainer Money of RMB850,000,000 from NAH, Parko or any third party;

b.  denied having received the CCB Cheque issued by Parko, or HK$676,688,261 (being the amount of the Shares Consideration)  or any portion thereof from Parko;

c.  contended that the Invoice was not a receipt but a demand by Dongyue on NAH to pay Dongyue a sum equivalent to the Retainer Money; and

d.  denied having received the letter dated 31 December 2015 by which NAH purportedly instructed Dongyue to transfer the Retainer Money to Guangzhou Yin Qian (see paragraph 37(d)  above).

Forensic review and replies from banks on Account 8506

50.  In January 2017, Deloitte corresponded with Lu (R3, NAH’s Financial Manager)  and Simon Wong (NAH’s Senior Accounting Manager)  and drew attention to the discrepancy found between the interest income shown on different bank statements and NAH’s vouchers that record the interest income in Account 8506.

51.  By letter dated 21 February 2017, Deloitte informed NAH’s Board and Audit Committee that:

a.  Deloitte had received a bank confirmation in respect of Guonong Taifeng from Guangzhou Ping An Bank which included a statement that Account 8506 did not exist. This was inconsistent with the information provided by NAH’s management.

b.  Bank staff had confirmed to Deloitte during bank visits on 15 February 2017 that Account 8506 did not exist and Guonong Taifeng had only one account with the bank opened in April 2016 with no balances.

c.  Bank staff who had examined the bank statements provided by NAH’s management to Deloitte informed Deloitte that, based on her experience, the chops on each of the bank statements did not correspond to the official business chop of the bank.

d.  Bank staff could not verify and confirm the identity of one Cai Zhen Hao, who, as indicated in a bank confirmation provided by NAH, was a bank contact person.

e.  Another individual called Zhang Hui Ping, who NAH said was a bank contact person and purported to be a male bank official whom Deloitte met during its bank visit for the interim audit in October 2016, turned out to be a female staff.  The female staff informed Deloitte in February 2017 that she had no knowledge of Guonong Taifeng and had never been present at any previous bank visit by Deloitte.

52.  On 28 March 2017, NAH suspended its trading and announced that it would not be in a position to publish its annual results on or before 31 March 2017 because a forensic review and/or investigation was being carried out by an independent accounting firm in connection with a bank account of a wholly-owned subsidiary of NAH.  The announcement referred to the (previously announced)  fact that RMB1,820,000,000 (i.e. the Refunded Sum)  had been refunded to NAH on 30 March 2016 and was deposited into the bank account.

53.  It was also stated in the said announcement that the forensic review was recommended by the auditors of NAH during the course of their audit as they encountered certain incidents and information which called into question the existence of the bank account and the validity of the related bank balance and underlying transactions, “while the executive directors of [NAH] were skeptical about it”.  There was no elaboration in the announcement on the EDs’ “skepticisms”.

54.  The independent accounting firm referred to above was Ernst & Young, China (“EY”). In EY’s final forensic report dated 14 February 2018 (“EY Report”), it was stated (among other things)  that:

a.  EY was not able to confirm the existence of Account 8506, or that Account 8506 received the Refunded Sum from Guangzhou Yin Qian or Ao Yuan.

b.  EY encountered various limitations when making requests for information from NAH’s management regarding Account 8506.

c.  EY was subsequently informed on 8 November 2017 that Account 8506 had been closed.  EY requested but had not been provided with any relevant material in this regard, and was not able to confirm the closing of Account 8506.

d.  Chen LJ (R1)  represented to EY at his interview that it was one Li Yi Jun, the then General Manager of Hebei AMP, who had misappropriated the Refunded Sum from Account 8506.  This however contradicts both Deloitte’s and EY’s findings that the existence of Account 8506 could not be confirmed.

55.  On 12 March 2018, NAH made an announcement of (among other things)  the above findings of EY.

56.  Meanwhile, China Construction Bank (“CCB”)  informed the Petitioner that there was no withdrawal in the amount of HK$676,688,261 (i.e. the amount supposedly paid by Parko to Dongyue under the CCB Cheque)  from Parko’s account numbered 9658931 from 6 February 2015 to 22 February 2017.  The bank statements produced by CCB further show there were insufficient funds in the account to honour payment of the CCB Cheque during the said period.

57.  CCB also furnished documents showing that Chen LJ (R1)  was one of the authorised signatories of the said Parko’s account.  It further confirmed that Chen LJ (R1)  was also an authorised signatory of NAH’s bank accounts.

58.  Further, upon an enquiry with Guangzhou Ping An Bank on Account 8506, the Petitioner was not able to obtain any records of Account 8506 which purportedly received the Refunded Sum.  The Petitioner was only able to obtain records of an account in the name of Guonong Taifeng opened in April 2016 and there was no Refunded Sum in that account.

NAH’s change of evidence

59.  In light of the above findings, the Petitioner made further enquiries with NAH regarding the payment of the Retainer Money and the Refunded Sum.

60.  In Deacons’ letter (on behalf of NAH)  to the Petitioner dated 25 May 2017, it was stated that the CCB Cheque had not been used as payment of the Shares Consideration or as part of the payment of the Retainer Money to Dongyue.  Instead, it was claimed, for the first time, that the Shares Consideration payable by Parko was settled by:

a.  73 transfers from 14 May 2015 to 10 January 2016 totalling RMB381,149,102 made in the PRC from various companies related to Parko’s majority shareholder (i.e. Hebei AMP)  to various related companies of the ultimate controller of Dongyue (i.e. one China Co-op Group Company Limited)  (“Co-op Group”); and

b.  18 transfers from 8 December 2015 to 23 December 2015 totalling around RMB158,863,834 made in Hong Kong by Parko to Dongyue and various related companies of the Co-op Group.

61.  The total amount of funds involved in the above purported transfers (“Alternative Transfers”)  was RMB540,003,936 (said to be equivalent to approximately HK$676,000,000).

62.  However, the evidence does not substantiate NAH’s new claim that the Shares Consideration payable by Parko was settled by the Alterative Transfers:

a.  All the 18 Alternative Transfers in Hong Kong and at least 8 out of the 73 Alternative Transfers in the PRC apparently took place after 25 August 2015, which was claimed by NAH to be the date on which it received the Invoice from Dongyue as alleged receipt of the Retainer Money of RMB850,000,000.

b.  On the assumption that the Alternative Transfers were made to Dongyue or companies in the Co-op Group (instead of NAH directly)  because Dongyue was supposed to be the entity to receive the Retainer Money, 3 of the Alternative Transfers in the PRC took place before the Tripartite Agreement dated 2 June 2015, by which Dongyue was purportedly first designated by NAH to receive payment from Parko.

c.  There is also no reasonable explanation or evidence as to when or how the Alternative Transfers, many of which were purportedly paid to the Co-op Group related companies other than Dongyue, were eventually paid over to Dongyue – which was supposed to have further transferred the same to Guangzhou Yin Qian as part of the Retainer Money (see paragraph 37(d)  above).

d.  Neither NAH nor Parko have produced complete or reliable records of the Alternative Transfers:

i.  NAH represented to the Petitioner that the original accounting records were in the custody of Hebei AMP and, since the Petitioner had not given permission to disclose its investigation of NAH to Hebei AMP, NAH could not obtain such records from Hebei AMP.

ii.  While Parko has produced certain purported records of settlement in respect of the Alternative Transfers in Hong Kong for a sum of up to HK$157,500,000 (out of a total of HK$182,471,000), such purported records of settlements do not specify the purpose of the payments.

iii.  Further, it was found in the Petitioner’s investigations that at least 4 of the Alternative Transfers in Hong Kong (as set out below)  amounting to approximately HK$47,000,000 were for purposes unrelated to the Retainer Money (which was supposed to be paid by Parko to various related companies of the Co-op Group, being the ultimate controller of Dongyue as represented in Deacons’ letter in paragraph 60(a)  above).

Date	Transfer sum (HK$)	Alleged recipient	Investigation result
22 December 2015	7,960,000	Dongyue	Ji Hong (Dongyue’s director)  denied having received the Retainer Money.
8 December 2015	17,000,000	Lam Leung Hung (“Lam”)	Lam, who is a friend of Cai, represented to the Petitioner that the sum was repaid by Cai to him in relation to a share subscription of NAH.
15 December 2015	12,043,000	Yield Point Trading Limited (“Yield Point”)	Yield Point, a remittance agent, produced to the Petitioner a record showing that it transferred RMB10,080,000 to Ao Yuan and the remaining RMB890,312 to two individuals.
22 December 2015	10,000,000	China Score Development Limited (“China Score”)	China Score, a metal trading company, represented to the Petitioner that its sole shareholder had borrowed the sum from a friend who settled the repayment in the PRC through another friend.
Total	47,003,000

iv.  As to the other records (including records of the 73 Alternative Transfers in the PRC), Parko represented to the Petitioner that (a)  the relevant sums were paid by Hebei AMP; (b)  Hebei AMP was subject to an audit and had delivered all financial and accounting records to the authorities; and (c)  Parko would immediately liaise with Hebei AMP for submission of the relevant materials to the Petitioner upon completion of the audit.  To-date, the Petitioner has not received any such materials from Parko.

63.  It was further claimed in Deacons’ letter (see paragraph 60 above), for the first time, that:

a.  After issuing the CCB Cheque, Parko decided to make the bulk of payment to Dongyue in the PRC considering that investments into the Fund would predominantly be in the PRC, exchange fluctuations and other practical factors.

b.  While the said decision was made by Chen LJ (R1)  on behalf of Parko, it would be more accurate to say that it reflected the wishes of Parko’s majority shareholder, Hebei AMP, and that of the Hebei Supply and Marketing Cooperative.

c.  Persons who knew about the foregoing arrangements were Chen LJ (R1), Cai (R2)  and Chen Jing (R4).

d.  The INEDs had no knowledge as the management did not report the various transfers in Board meetings.

e.  NAH maintained it had successfully received (“成功收回”)  the HK$676,000,000 on 30 March 2016.

f.  NAH expressed regret for not having reflected the foregoing arrangements accurately in its announcements and annual reports.

64.  In a letter from NAH to the Petitioner dated 30 June 2017, NAH further stated that the persons who were involved in deciding the change in payment method by Parko were Chen LJ (R1), Cai (R2), Liu (R8)  and Chen Jing (R4), and the same was not reported to the Board, the Audit Committee or Deloitte.

RMB1.85 billion deposit

65.  According to NAH’s announcement dated 12 March 2018, EY was informed by NAH that:

a.  An amount of RMB1.75 billion had been deposited on 30 August 2017 into a bank account of the NAH Group in the PRC which was opened on 6 July 2017.  EY had visited the relevant bank and confirmed with the bank that the said sum had been so deposited by a micro-credit company in the PRC.

b.  An amount of RMB100 million was deposited on 31 August 2017 into another bank account of a subsidiary of the NAH Group by a company.  As at the date of the announcement, EY had not been engaged to perform any verification work on the second deposit.

c.  As at the date of the announcement, NAH was unable to provide EY with any supporting documents in relation to the background or nature of the said deposits (“RMB1.85 billion Deposits”)  or arrange for EY to interview the micro-credit company in the PRC or the company.  Consequently, EY was not able to establish the connection between the Refunded Sum (of RMB1,820,000,000)  and the RMB1.85 billion Deposits.

d.  Chen LJ (R1), Chairman and ED of NAH, had provided an undertaking to the Board dated 3 September 2017 that “he will use his best endeavours to ensure that the [RMB1.85 billion Deposits] shall remain in the relevant bank accounts until the [Board] shall have approved any use or transfer of the [RMB1.85 billion Deposit]” (“Undertaking”).

66.  Matters regarding the RMB1.85 billion Deposit were first drawn to the Petitioner’s attention by NAH’s Audit Committee through its submission on around 13 November 2017 of a draft report of EY dated 8 September 2017.  Chen LJ’s Undertaking was attached to the EY draft report.

67.  In an undated letter from NAH which was received by NAH’s Audit Committee on 23 April 2018, NAH quoted the EY Report as purportedly saying that the Refunded Sum had been returned at the end of August 2017 to Guonong Taifeng accounts in full (“資金已全額回到國農泰豐帳戶”), and claimed that this was “most important and key”.  This is however inconsistent with the relevant findings in the EY Report, as summarised in the 12 March 2018 announcement at paragraph 65 above, by which EY did not confirm that the Refunded Sum had been returned to Guonong Taifeng in full.

68.  In any event, according to NAH’s announcement dated 31 October 2018, NAH’s new auditors, RSM Hong Kong (“RSM”), had reported that:

a.  Although there was the Undertaking by Chen LJ, the RMB1.75 billion and RMB100 million were transferred out of the relevant accounts on 1 September 2017 and 4 September 2017 respectively.

b.  According to the ledger of Guonong Taifeng, the RMB1.85 billion Deposits had been used to purchase certain financial products on 30 September 2017.

c.  However, according to the bank slips inspected by RSM:

i.  RMB1.75 billion was transferred to one Guangzhou Parko Investment Limited (“Guangzhou Parko”), which was a subsidiary of Parko; and

ii.  RMB100 million was transferred to a bank account of Guonong Taifeng at the business department of Shijiazhuang branch of Bank of Beijing.  The transfer of RMB100 million was not recorded in the ledger of Guonong Taifeng and had not been disclosed to RSM.

d.  The nature of the financial products in the aggregate amount of RMB1.85 billion had not yet been ascertained, and the existence and recoverability of the balance of RMB1.85 billion was in doubt.

e.  After reviewing the bank statements of Bank of Beijing, RSM noted that there were certain transactions transacted but not recorded in the ledger of Guonong Taifeng, being payments to Guonong Taifeng from certain parties (including related parties of NAH)  in the total amount of RMB1.75 billion, and payment by Guonong Taifeng to Guangzhou Parko in the amount of RMB1.85 billion.  There might be other off-books transactions not recorded by the Group.

69.  In light of the above developments, the Petitioner made further enquiries with NAH and Parko:

a.  NAH’s response was that, due to the departure of the relevant personnel, it was unable to provide supporting documents for the transfers in paragraph 68 above. NAH nevertheless represented that:

i.  The micro-credit company which was said to have deposited the RMB1.75 billion (see paragraph 65(a)  above)  was one 湖北中經小額貸款有限公司.

ii.  The company which was said to have deposited the RMB100 million (see paragraph 65(b)  above)  was one 河北卓誠企業管理服務有限公司.

b.  Parko’s response was that:

i.  Guangzhou Parko had received both the sums of RMB1.75 billion and RMB1.85 billion from Guonong Taifeng.  The RMB1.75 billion was received through 浦發銀行 while the RMB1.85 billion was received through 北京銀行.

ii.  According to the bank documents, the sum of RMB1.75 billion was transferred to 湖北中經小額貸款有限公司, while the sum of RMB1.85 billion was transferred to 中合(大連)置業有限公司. For the RMB1.85 billion, it was intended to be used by NAH for the purchase of 南海中心. Due to a series of issues, the transaction did not go through.

70.  The response from Parko is inconsistent with NAH’s announcement or response:

a.  According to NAH, the RMB1.75 billion formed part of the RMB1.85 billion.  But Parko’s response suggested that there was one sum of RMB1.75 billion and a further sum of RMB1.85 billion.

b.  According to NAH, the RMB1.75 billion came from the micro-credit company 湖北中經小額貸款有限公司.  But Parko said RMB1.75 billion was transferred to the same entity.

c.  There was no mention by NAH that it could still utilise the RMB1.85 billion, let alone for the purchase of 南海中心.

Other Developments

Trading suspension

71.  On 3 July 2017, the Petitioner, under section 8(1)  of the Securities and Futures (Stock Market Listing)  Rules (“SMLR”), directed the SEHK to suspend the trading of NAH’s shares from 4 July 2017 due to a number of concerns, including (i)  possible false and misleading statements about the existence of NAH’s RMB1.8 billion bank balance as stated in its financial statements; and (ii)  Parko might have defrauded NAH through subscription of the Warrant Shares by not paying the Shares Consideration.

72.  NAH was given the opportunity to respond prior to the suspension, but it only made a holding response requesting for an extension so that it could further investigate the matter.  To-date, save for the EY Report (see paragraph 54 above)  provided to the Petitioner by NAH’s Audit Committee, NAH has not submitted any investigation findings or reports to the Petitioner.

73.  On 1 August 2018, NAH announced that the SEHK had issued a notice to the company stating that the amendments to the delisting framework under the Rules Governing the Listing of Securities of the SEHK (“Listing Rules”)  would come into effect on 1 August 2018.  Pursuant to these amendments, the SEHK has discretion to cancel the listing status of a listed company if the trading of such company’s shares has remained suspended for 12 consecutive months from 1 August 2018.  The 12-month period expired for NAH on 31 July 2019 and NAH failed to resume trading in its shares.

74.  On 9 August 2019, the Listing Committee of the SEHK (“Listing Committee”)  decided to cancel the listing of NAH’s shares on the SEHK under Rule 6.01A of the Listing Rules.

75.  On 20 August 2019, NAH sought a review of the Listing Committee’s decision by the Listing Review Committee.  On 15 November 2019, the Listing Review Committee upheld the decision of the Listing Committee to cancel NAH’s listing.  Accordingly, the SEHK cancelled NAH’s listing with effect on 22 November 2019.  The same was announced by NAH on 20 November 2019.

Resignation of directors

76.  On 26 July 2018, NAH announced that Chen LJ (R1), the 6^th Respondent, Wen (R9)  and Chen Li An (R7)  had resigned as EDs with effect from 26 July 2018 “[i]n order to facilitate the ongoing investigation of the audit issues of the Company and adherence to good corporate governance going forward”.

77.  The announcements referred to in paragraphs 68 and 73 above were issued in the name of three new EDs (and the three then existing INEDs).

78.  The three new EDs were Ma Zhaohui (“Ma”), Yang Ruisheng (“Yang”)  and Lei Zhen. According to the 26 July 2018 announcement, both Ma and Yang are from Hebei AMP.  It is evident that NAH’s ultimate controlling shareholder (through Parko and Million Rich)  still exercises control over the company through appointments to the Board.

79.  On 20 November 2019, NAH announced that the three then existing INEDs, Chiu (R10), Fan (R11)  and Patrick had resigned with effect from 8 November 2019, with the result that all INEDs and all members of NAH’s Audit Committee had resigned.

Alleged Loan from NAH to Dongyue

80.  Separately, the Petitioner has investigated into an alleged loan from NAH to Dongyue, the circumstances were as follows.

81.  In NAH’s 2015 Annual Results and Annual Report, NAH recorded an “Impairment loss of amount due from a related party” of RMB40,000,000 (which would be equivalent to around HK$50,000,000).  The amount was said to be “unsecured, interest-free and repayable on demand” and, in the opinion of the directors, it “cannot be recovered and was fully impaired”.

82.  Then, on 9 May 2016, NAH announced that:

a.  On 28 April 2016, NAH entered into a loan agreement (“Loan Agreement”)  with Dongyue as the borrower in relation to a loan of HK$50,000,000 advanced on 26 August 2015 (“Loan”).

b.  NAH had received payment of the loan and the interest accrued thereon in full in the total amount of HK$51.7 million from Dongyue.

c.  As to the statement in the 2015 Annual Results announcement that the Loan could not be recovered and was fully impaired, NAH would like to supplement and clarify that NAH “had made several attempts to demand and was not able to obtain the financial information of [Dongyue] as at 31 December 2015 to assess its financial position and was unable to assess its recoverability and were in doubt of the recoverability due to the delay in repayment”.

d.  Having considered the business relationship with the group companies of the Co-op Group and the short-term nature of the Loan, the directors considered that the Loan could facilitate the maintenance of good business relationship with the Co-op Group.

83.  The Chinese Loan Agreement (借款協議)  was dated 29 April 2016.  It was signed by Chen LJ (R1)  on NAH’s behalf.  The purpose of the Loan was stated to be for Dongyue’s short-term operation funds.

84.  The Loan Agreement was approved by the Board according to a set of minutes in respect of a meeting on 21 April 2016, attended by Chen LJ (R1), the 5^th Respondent, the 6^th Respondent, Wen (R9), Chiu (R10), Ting (R12)  and Fan (R11).

85.  In NAH’s 2016 Interim Results Announcement dated 31 August 2016, it was stated that the settlement of an impaired loan with accrued interest of approximately HK$51,700,000 was made by Parko on behalf of Dongyue.  It was not explained why Parko would be discharging Dongyue’s liability under the Loan Agreement.

86.  In response to the Petitioner’s enquiries, Dongyue stated that:

a.  In August 2015, Ji Hong (Dongyue’s sole director)  knew from China Co-op that NAH and China Co-op had entered into an escrow agreement pursuant to which NAH was to transfer HK$50,000,000 to a bank account designated by China Co-op.

b.  On 26 and 28 August 2015, Dongyue received a total of HK$49,999,994 from NAH.

c.  On around 10 September 2015, Dongyue transferred the same sum to one China Agriculture Media (Hong Kong)  Group Co. Ltd (“China Agriculture Media”)  at the request of NAH and upon the confirmation of China Co-op.  Chen LJ (R1)  was a director of China Agriculture Media at the relevant times.

d.  To Ji Hong’s knowledge, in around mid-April 2016, NAH requested China Co-op to take the following actions:

i.  Dongyue (as borrower)  and NAH (as lender)  was to execute the Loan Agreement;

ii.  Dongyue (as borrower)  and China Agriculture Media (as lender)  was to execute another loan agreement; and

iii.  Pursuant to the said agreements, China Agriculture Media was to remit the amount of the Loan to Dongyue, which in turn was to remit the same to NAH.

e.  Further to negotiations between China Co-op and NAH (in which Dongyue did not participate), the said agreements were executed by Dongyue, NAH and China Agriculture Media on 7 May 2016.  To protect Dongyue’s interest and at the request of China Co-op, NAH issued an explanatory note on 7 May 2016 (which was dated 29 April 2016)  to confirm that Dongyue was only required to retrospectively sign the Loan Agreement for audit purposes and it did not have to bear any responsibility for the Loan.

f.  As it turned out, China Agriculture Media did not remit the Loan to Dongyue, and Dongyue as such did not remit the same to NAH.

g.  At the request of NAH, Dongyue signed an audit confirmation to confirm the Loan as at 31 December 2015.

h.  The persons who liaised with Dongyue in respect of the above arrangements were Lu (R3, Financial Manager of NAH)  and the Liu (R8, director of China Co-op and ED of NAH).

87.  In other words, on Dongyue’s version of events, the RMB50,000,000 was not in fact a loan advanced by NAH to Dongyue.  Dongyue has produced (among other things)  the following documents in support of its version of events:

a.  bank statement showing the deposit of around HK$49,999,994 into Dongyue’s account in August 2015 and withdrawal of the sum in September 2015 (see paragraphs 86(b)  and 86(c)  above);

b.  the explanatory note (signed by Chen LJ (R1)  on behalf of NAH), referred to in paragraph 86(e)  above, and a further explanatory note (also signed by Chen LJ on behalf of NAH)  dated 25 March 2016 to similar effect;

c.  the Loan Agreement (see paragraph 86(d)(i)  above);

d.  a further loan agreement between Dongyue and China Agriculture Media (see paragraph 86(d)(ii)  above); and

e.  an audit confirmation signed by Dongyue (see paragraph 86(g)  above).

The Petitioner’s Complaints

First Complaint – Parko and the Shares Consideration

88.  It is evident that Parko did not in fact pay the Shares Consideration of HK$676,688,260.5 to NAH pursuant to the Subscription Agreement:

a.  CCB’s confirmation that the CCB Cheque had not been cashed from Parko’s account, which in any event had insufficient funds during the relevant period to honour the cheque (see paragraph 56 above);

b.  Dongyue’s denial of ever receiving the CCB Cheque or any portion of the Shares Consideration from Parko (see paragraph 49 above);

c.  Findings of Deloitte, EY and the Petitioner that the existence of Account 8506, into which the Refunded Sum (of which the Shares Consideration should have formed part)  was supposed to have gone, could not be confirmed (see paragraphs 51 to 58 above);

d.  NAH’s new case that Parko did not settle the Shares Consideration by the CCB Cheque but instead through the Alternative Transfers (see paragraphs 60 to 64 above).  Such a wholesale change of evidence and running of a completely new case directly contradict NAH’s publicly announced position and its previous submissions to the Petitioner;

e.  The Petitioner’s findings as set out in paragraph 62(a)  to 62(c)  above;

f.  NAH’s inability to produce any underlying records for the Alternative Transfers (see paragraph 62(d)  above).  NAH’s claim that it could not obtain such records from Hebei AMP because the Petitioner had not given permission to NAH to disclose these investigations is unreasonable and incredible, given that:

i.  The Alternative Transfers were purportedly for settlement of the Shares Consideration with NAH.  NAH ought to have retained the underlying records;

ii.  In any event, NAH could reasonably have demanded the records from Hebei AMP without having to reveal the Petitioner’s investigations;

g.  Parko’s inability to produce complete or reliable records of the Alternative Transfers (see paragraph 62(d)  above):

i.  For the Alternative Transfers in Hong Kong, the purported records produced by Parko only added up to HK$157,500,000, around HK$47,000,000 of which were for unrelated purposes. In any event none of the records themselves show that the purpose of the transfers was for settlement of the Shares Consideration by Parko to NAH.

ii.  Parko’s claim that all outstanding records were retained by Hebei AMP which was allegedly subject to an audit is unreasonable and incredible.  Parko and/or Hebei AMP ought to have retained at least copies of such records.  In any event Parko has not followed up on the matter with the Petitioner as promised.

h.  The common directors of NAH and Parko (i.e. Chen LJ (R1), the 6^th Respondent and Zhang)  and those who admittedly knew about the alleged Alternative Transfers (i.e. Chen LJ (R1), Cai (R2)  and Chen Jing (R4))  knew or ought to have known whether and if so how Parko had paid the Shares Consideration of HK$676,688,260.5 to NAH. These individuals have not proffered any or any reasonable account or explanation.

89.  In the premises:

a.  NAH issued 212,194,500 shares to Parko, NAH’s controlling shareholder, for no or grossly inadequate consideration in return. The Shares Consideration was supposed to represent a highly substantial sum to NAH.

b.  NAH’s public statements about the use of the proceeds from Parko paid by “cheque” in its 2015 Annual Results Announcement, 2015 Annual Report, 2016 Interim Results Announcement and 2016 Annual Report (see paragraphs 24 and 25)  were false.  To-date, there has been no public clarification by NAH of the above, notwithstanding NAH’s own new case that Parko did not actually pay the Shares Consideration by cheque.

c.  The arrangements regarding the two alleged projects announced in 2015, i.e. the potential establishment of the Fund and the intended acquisition of the Target Company, were not genuine.  Both projects purportedly involved deployment of the Shares Consideration; neither of them came to fruition in the end.  At the very least, NAH’s public announcements dated:

i.  25 August 2015 (stating that NAH had deposited the RMB850,000,000 Retainer Money to Dongyue, see paragraph 29 above);

ii.  31 December 2015 (stating that part of the Retainer Money was to be returned to NAH, see paragraph 31 above);

iii.  14 March 2016 (stating that NAH had paid RMB1,220,000,000 to Ao Yuan, see paragraph 35 above); and

iv.  31 March 2016 (describing how the Refunded Sum was received by Guonong Taifeng’s Account 8506, see paragraph 36 above)

contained false or misleading information.  In short, if Parko did not pay the Shares Consideration to Dongyue, Dongyue would not have the RMB850,000,000 Retainer Money to transfer to Guangzhou Yin Qian, and the subsequent transfers to Ao Yuan/Guonong Taifeng could not have happened.

d.  The genuineness of the documents produced by NAH in support of Parko’s payment of the Shares Consideration, including the CCB Cheque, purported letters of instruction, bank records and vouchers (see paragraph 37 above)  is highly questionable or were fabricated.

90.  Furthermore, the aforesaid matters have resulted in the continued suspension of trading in NAH’s shares since 4 July 2017 (as directed by the Petitioner)  and the delisting of the company (see paragraphs 71 to 75 above).

91.  By reason of the above, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation (with NAH issuing 212,194,500 shares to Parko for no or grossly inadequate consideration in return), fraud, misfeasance and/or other misconduct as described in section 214(1)(b)  of the SFO;

b.  resulting in its members (i.e. the minority shareholders, not Parko)  not having been given all the information with respect to its business or affairs that they might reasonably expect (section 214(1)(c)  of the SFO); and/or

c.  unfairly prejudicial to its members (i.e. the minority shareholders, not Parko)  (section 214(1)(d)  of the SFO).

Second Complaint - NAH’s Payment of HK$384 million to South China Financial

92.  It is evident that the HK$384,000,000 transferred by NAH to South China Financial did not eventually go to Dongyue (to form part of the RMB85,000,000 Retainer Money)  but went instead to Parko and PMI for purposes unrelated to NAH.

93.  In the premises:

a.  A substantial sum of HK$384,000,000 had been misappropriated from NAH.

b.  The misappropriation had been concealed from NAH’s minority shareholders, to whom it was announced that Dongyue received a total of RMB850,000,000 as Retainer Money (which sum was supposed to include the HK$384,000,000 from South China Financial).

c.  NAH’s letter dated 9 January 2015 and signed by Chen LJ (R1)  purportedly instructing South China Financial to transfer HK$384,000,000 to Dongyue (see paragraph 37(b)  above)  was not genuine.

94.  By reason of the above, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance and/or other misconduct (i.e. misappropriation of HK$384,000,000)  as described in section 214(1)(b)  of the SFO;

b.  resulting in its members (i.e. the minority shareholders)  not having been given all the information with respect to its business or affairs that they might reasonably expect (section 214(1)(c)  of the SFO); and/or

c.  unfairly prejudicial to its members (i.e. the minority shareholders)  (section 214(1)(d)  of the SFO).

Third Complaint - The RMB1.85 billion Deposit

95.  After enquiries were raised about the existence of Guonong Taifeng’s Account 8506 (into which the RMB1,820,000,000 Refunded Sum from the projects was supposed to have been injected), a total of RMB1.85 billion was apparently deposited with certain bank accounts within the NAH Group.  However, within a few days and notwithstanding (i)  Chen LJ (R1)’s Undertaking, (ii)  supposed monitoring by NAH’s Audit Committee and (iii)  the involvement of independent forensic accountants, the RMB1.85 billion was transferred out of the accounts again through a series of opaque transactions and for purposes that cannot be verified.

96.  In the premises, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance and/or other misconduct (i.e. the transfer out of the RMB1.85 billion deposit)  as described in section 214(1)(b)  of the SFO;

b.  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect (section 214(1)(c)  of the SFO); and/or

c.  unfairly prejudicial to its members (section 214(1)(d)  of the SFO).

Fourth Complaint - The Alleged Loan to Dongyue

97.  It is evident that the alleged Loan of HK$50,000,000 from NAH to Dongyue was not in fact a loan to Dongyue, but a sum transferred through Dongyue to China Agriculture Media (of which Chen LJ (R1)  was a director)  for an unexplained purpose(s).  The sum was, for reason(s)  unexplained, returned with interest by Parko to NAH.

98.  In the premises:

a.  The following announcements of NAH contained false or misleading information which was never publicly rectified by NAH:

i.  the 2015 Annual Results and Annual Report, which referred to the “Loan” from a “related party” as being not recoverable and fully impaired (see paragraph 81 above);

ii.  the 9 May 2016 announcement, which described the “Loan” and the “Loan Agreement” between NAH and Dongyue with no mention of the arrangement with China Agriculture Media (see paragraph 82 above);

iii.  the 2016 Interim Results Announcement, which referred to “settlement” of the “Loan” by Parko with no mention of the arrangement with China Agriculture Media (see paragraph 85 above);

iv.  The “Loan Agreement” which was executed by NAH and approved by the Board (see paragraphs 82 to 85 above)  did not reflect the true position.

v.  In any event, the sum of HK$50,000,000 was transferred to Dongyue on 26 August 2015.  On Dongyue’s evidence, the “Loan Agreement” was not executed until 8 months later on 7 May 2016 (but dated 28 April 2016)  and only for audit purposes.  Even assuming that the sum was a loan to Dongyue or China Agriculture Media (which is not accepted by the Petitioner), it could not have been in NAH’s interests for such a loan to be advanced without any documentary record or security in the first place.

99.  In the premises, the business or affairs of NAH regarding the alleged “Loan” have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance and/or other misconduct (section 214(1)(b)  of the SFO).  The advancement of HK$50,000,000 to a third party without any documentary record or security amounted to misappropriation of NAH’s funds.  This is so notwithstanding that the sum happened to be returned to NAH subsequently;

b.  resulting in its members not having been given all the information respect to its business or affairs that they might reasonably expect (section 214(1)(c)  of the SFO); and/or

c.  unfairly prejudicial to its members (section 214(1)(d)  of the SFO).

Responsible Persons/Entity

Chen Li-jun

100.  Chen LJ was at all material times the central figure behind NAH and Parko and the matters complained of these proceedings:

a.  He executed on behalf of either NAH or Parko all of the key documents referred to above, including the CCB Cheque, Tripartite Agreement, Cooperation Framework Agreement, Escrow Agent Agreement, NAH’s letters of instructions for the purported transfers to Dongyue/Guangzhou Yin Qian/Ao Yuan/Account 8506, the Undertaking, the Loan Agreement, explanatory notes on the Loan, and all relevant Board minutes.

b.  He along with Cai (R2)  were the authorised signatories of NAH’s bank accounts.  They were considered by other directors and officers to be the core persons behind NAH’s investments and all payments had to be signed off by them.  Chen LJ was also the authorised signatory of Parko’s bank account with CCB (see paragraph 57 above).  He was regarded as being in charge of Parko, and had to approve transfers for NAH and Parko.

c.  He did most of the talking in meetings and decision-making for NAH.

d.  He represented to the Petitioner that starting from 2015, NAH’s announcements could only be published with his approval.

e.  He and the 3^rd Respondent were said to be persons who gave instructions for, and confirmed, NAH’s replies to the Petitioner’s enquiries.

101.  Whether in his interviews with or NAH’s replies to the Petitioner, Chen LJ was unable to provide any reasonable or credible explanations for the questionable transactions.  In particular:

a.  He repeatedly said during the interviews that he needed to investigate into the matters.  But he has not come back to the Petitioner with any investigation results to-date.

b.  His insistence that Account 8506 existed and his evidence about Li Yi Jun having transferred funds away from the account are refuted by the findings of Deloitte, EY and the Petitioner, none of which could confirm the existence of the account.

c.  It is evident that Chen LJ (R1)  had intentionally breached his duties to NAH (please refer to paragraphs 103 to 105 below – Chen LJ owed the same duties to NAH)  given his intricate involvement in the matters complained of in the Petitioner’s investigations. In particular:

i.  His role in Parko and China Agriculture Media put him in a seriously conflicted position:

1.  Parko had benefited, at the expense of NAH, from not having to pay for the Shares Consideration and from the receipt of monies transferred by NAH to South China Financial (see paragraph 47 above);

2.  China Agriculture Media had benefited from the “Loan” which was transferred to it by NAH through Dongyue;

ii.  The siphoning away of the RMB1.85 billion Deposit was a blatant breach of Chen LJ’s Undertaking.

iii.  By reason of the matters in paragraphs 89, 93, 96 and 98 above, elaborate arrangements were put in place to conceal the true position of the questionable transactions from regulatory bodies, NAH’s minority shareholders and the investing public.

Senior officers: Cai (R2), the 3^rd Respondent and Chen Jing (R4)

102.  Each of Cai, Chen Jing and the 3^rd Respondent knew or ought to have known about, and were involved in, the matters complained of in these proceedings.  In particular:

a.  As General Manager, Cai was involved in NAH’s investment projects and responsible for presenting them to the Board.

b.  Given Cai’s ownership of PMI and controlling interest in South China Financial, he knew or ought to have known about NAH’s transfers of monies to South China Financial, especially about the sums which went to PMI.

c.  Chen Jing assisted Cai in managing NAH and assumed a substantial role in its financial affairs. She was also Cai’s partner in PMI.

d.  The 3^rd Respondent was NAH’s Financial Manager and assumed a substantial role in its financial affairs.

e.  Both the 3^rd Respondent and Chen Jing were said to know about the details of the Fund project.

f.  The 3^rd Respondent was further said:

i.  to be involved in NAH’s transfers of funds, to have coordinated the payment of earnest money and the refund, and to know about NAH’s accounting documents;

ii.  to have produced the purported bank records that were submitted to Deloitte;

iii.  to have provided the CCB Cheque and the purported vouchers;

iv.  to have requested Dongyue’s execution of the Loan Agreement and transfer of the “Loan” to China Agriculture Media.

g.  Chen LJ and the 3^rd Respondent were said to be the individuals who gave instructions for, and confirmed, NAH’s replies to the Petitioner’s enquiries.

h.  Cai and the 3^rd Respondent claimed to know about the alleged change of Parko’s payment method for the Shares Consideration from the CCB Cheque to the alleged Alternative Transfers since early 2016 and the end of 2015 respectively.  Even assuming this were true (which is not accepted by the Petitioner), Cai and/or the 3^rd Respondent ought to have rectified the false or misleading announcements of NAH on Parko’s “cheque” and the false or misleading information submitted by NAH to the Petitioner, but did not do so.

i.  Paragraphs 63(c), 64, 100(b)  and 100(e)  are repeated insofar as they relate to Cai, Chen Jing and/or the 3^rd Respondent.

Misconduct of the 3^rd, 5^th and 6^th Respondents

103.  At all material times, the 3^rd, 5^th and 6^th Respondents owed the following duties to NAH:

a.  fiduciary duties, including:

i.  to act honestly and in good faith in the interests of NAH;

ii.  to act for proper purpose(s);

iii.  to avoid situations where his interests may be in actual or potential conflict with that of NAH;

iv.  not to obtain any undisclosed profit from his position;

b.  a duty of care at common law to exercise due and reasonable care, skill, diligence and independent judgment that would be exercised by a reasonably diligent person with:

i.  the general knowledge, skill and experience that may be reasonably expected of a person carrying out the same functions as carried out by the director or senior officer in relation to NAH; and

ii.  the general knowledge, skill and experience that he has.

104.  At all material times, the 5^th and 6^th Respondents, as directors of NAH, were also under a duty to ensure full compliance with the Listing Rules, including Rule 3.08 thereof.

105.  Further, the 5^th and 6^th Respondents owed a duty to NAH to properly supervise the affairs of its subsidiaries, including Guonong Taifeng.  By reason of the matters set out above, the business or affairs of Guonong Taifeng were also the business or affairs of NAH.

106.  By reason of the matters above, it is evident that, at the material times:

a.  Chen LJ (R1)  and (to a lesser extent)  Cai (R2), Chen Jing (R4)  and/or the 3^rd Respondent were able to, and did, dominate and control the affairs of NAH and the Board for personal advantage or other ulterior purposes.

b.  There was no or no effective system of internal control in NAH.

c.  The EDs (including the 5^th and 6^th Respondents)  and INEDs had allowed the affairs of NAH and/or the Board to be so dominated, and neglected or omitted to identify or rectify the misconduct and/or breach of duties by Chen LJ, Cai, Chen Jing and/or the 3^rd Respondent.

107.  In particular:

a.  There are no Board minutes or resolutions regarding the establishment of the Fund.  There was a Board meeting where the letter of intent for the potential acquisition of the Target Company was confirmed and approved.

b.  It is evident that the EDs (including the 5^th and 6^th Respondents)  and INEDs did not have prior knowledge of, let alone participate in, any consideration or discussions regarding the Fund or the potential acquisition of the Target Company.  Nor were they shown the underlying agreements for these projects.

c.  The EDs (including the 5^th and 6^th Respondents)  and INEDs did not seek information or raise queries about the above projects even when they were announced in August 2015 in the name of the Board, notwithstanding the substantial amount involved (including the payment of the RMB850,000,000 Retainer Money).

d.  The EDs (including the 5^th and 6^th Respondents)  and INEDs did not seek information or raise queries as to how (if at all)  Parko had paid for the Shares Consideration, which was supposed to form part of the Retainer Money.

e.  The EDs (including the 5^th and 6^th Respondents)  and INEDs did not raise concerns when it was announced in March 2016 in the name of the Board that neither of the above projects had completed and a total of RMB1,220,000,000 (the Refunded Sum)  was returned through a series of complex transfers not to NAH but to Guonong Taifeng.

f.  The EDs (including the 5^th and 6^th Respondents)  and INEDs have not taken any active steps to understand or investigate the situation even after Deloitte had raised concerns regarding Guonong Taifeng’s Account 8506 in February 2017, or after their interviews with the Petitioner in August or September 2017.

g.  The EDs (including the 5^th and 6^th Respondents)  and INEDs did not seek information, raise queries or concerns or take any active steps to understand or investigate the HK$50,000,000 alleged “Loan” to Dongyue.  When the Board approved the Loan Agreement in April 2016 and announced the same in May 2016, the said EDs ought to have known then (if not earlier)  that the “Loan” was advanced some 8 months previously without any contemporaneous documentary record or security in NAH’s favour.

h.  Specifically, as to the 5^th and 6^th Respondents, they were also directors of Parko and ought to have monitored the dealings between Parko and NAH, but did not do so.

108.  In the premises, the EDs (including the 5^th and 6^th Respondents), INEDs and senior officers (including the 3^rd Respondent)  were in breach of their duties to NAH as set out in paragraphs 103, 104 and 105 above.

109.  In all, by reason of the acts or omissions of the 3^rd, 5^th and 6^th Respondents, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance or other misconduct towards its members or any part thereof;

b.  resulting in its members or any part of its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

c.  unfairly prejudicial to its members or any part of its members,

and the 3^rd, 5^th and 6^th Respondents were partly responsible for the business or affairs of NAH having been so conducted.

Part C: Mitigating factors

110.  The 3^rd, 5^th and 6^th Respondents have acted promptly and reasonably in acceding to the Petitioner’s suggestion to dispose of these proceedings by way of the Summary Procedure.

111.  As a result, considerable time and costs have been saved by the parties.

112.  At all material times, the 3^rd, 5^th and 6^th Respondents were employees of Hebei AMP, which was the ultimate controlling shareholder of NAH. The 3^rd Respondent was appointed by Hebei AMP to become a Financial Manager of NAH. The 5^th and 6^th Respondents were appointed by Hebei AMP to become EDs of NAH and directors of Parko.

113.  The 3^rd Respondent was responsible for NAH’s accounting record-keeping and making payments.

114.  The 5^th and 6^th Respondents had attended the relevant Board meetings of NAH, but they did not participate in NAH’s daily operations.

115.  Although the 5^th and 6^th Respondents were directors of Parko, they did not have a real role or participate in Parko’s daily operations.

116.  There was no dishonesty or lack of integrity on the part of the 3^rd, 5^th and 6^th Respondents.

117.  There was no remuneration or personal gain obtained by the 3^rd, 5^th and 6^th Respondents.

118.  The 3^rd, 5^th and 6^th Respondents have no previous disciplinary records in relation to the SFO.

119.  If, pursuant to this Schedule, the Court disposes of these proceedings summarily, the 3^rd, 5^th and 6^th Respondents agree that there should additionally be an order that they 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 this   ^th day of August 2024.

Securities and Futures CommissionPetitioner Signed by Nelson Siu, for and on behalf of the Petitioner	Li & Partners Solicitors for the 3rd, 5th and 6th Respondents

Definitions

In this Schedule: -

“corporation” means a company or other body corporate incorporated either in Hong Kong or elsewhere;

“company” means a company as defined in section 2(1)  of the Companies Ordinance (CAP 622). The expression “company” in the definitions of subsidiary, holding company and affiliate below, shall be read as including a corporation;

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

i.  the composition of the board of directors of which is directly or indirectly controlled by the holding company; or

ii.  more than half of the issued share capital of which is directly or indirectly controlled by the holding company; or

iii.  which is a subsidiary of a company which is a subsidiary of the holding company; or

iv.  which is accounted for and consolidated in the holding company’s consolidated financial statements;

“holding company” in relation to a company shall be read as a reference to a company of which that last-mentioned company is a subsidiary; and

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

SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF

THE 12TH RESPONDENT (TING TIT CHEUNG)

Part A: Introduction

1.  On 12 January 2021, the Securities and Futures Commission (“Petitioner”)  issued proceedings under section 214 of the Securities and Futures Ordinance (CAP 571)  (“SFO”)  seeking disqualification orders against 12 respondents, which include:

a.  Chen Li-jun (“Chen LJ”), the 1^st Respondent;

b.  Cai Weiheng (“Cai”), the 2^nd Respondent;

c.  Lu Ying (“Lu”), the 3^rd Respondent;

d.  Chen Jing, the 4^th Respondent;

e.  Ren Hai (“Ren”), the 5^th Respondent;

f.  Peng Guojiang (“Peng”), the 6^th Respondent;

g.  Chen Li An, the 7^th Respondent;

h.  Liu Yong (“Liu”), the 8^th Respondent;

i.  Wen Yuanyi (“Wen”), the 9^th Respondent;

j.  Chiu Kam Hing Kathy (“Chiu”), the 10^th Respondent;

k.  Fan Chung Yue William (“Fan”), the 11^th Respondent; and

l.  Ting Tit Cheung (“Ting”), the 12^th Respondent,

in respect of their conduct of the business and affairs of National Agricultural Holdings Limited (“NAH”).

2.  Subject to the approval of this Court, the Petitioner and the 12^th Respondent consent to the disposal of these proceedings against the 12^th Respondent by way of the summary procedure (“Summary Procedure”)  sanctioned by the High Court in England and Wales in the case of Re Carecraft Construction Co Ltd [1994] 1 WLR 1569 and as adopted by this Court in a number of cases in respect of proceedings under section 214 of the SFO.

Purpose

3.  This Schedule is produced in order to provide this Court, for the purpose of disposing of these proceedings against the 12^th Respondent by way of the Summary Procedure, with the core facts that are not disputed in relation to allegations relied upon by the Petitioner.

4.  The facts set out in this Schedule are not disputed between the Petitioner and the 12^th Respondent on the basis that the case against him will be dealt with by the Court by way of the Summary Procedure. If the Court for any reason is of the view that these proceedings shall not be dealt with by the Summary Procedure or that a full hearing is appropriate, no admission or concession by either the Petitioner or the 12^th Respondent and none of the proposed orders referred to below or liability to pay costs shall be referred to or relied upon by either party at any subsequent hearing without the prior written consent of both parties.

5.  Subject to paragraphs 2 to 4 above and solely for the purpose of resolving these proceedings against the 12^th Respondent by way of the Summary Procedure, and by reference to the facts not in dispute set out in Part B of this Schedule (which the 12^th Respondent admits and accepts), the 12^th Respondent accepts that during the relevant period, the business or affairs of NAH, for which he, as Independent Non-Executive Director (“INED”)  and Member of NAH’s Audit Committee (“Audit Committee”), was partly responsible, have been conducted in a manner described in Section 214(1)(b)  to (d)  of the SFO, namely:

a.  involving defalcation, fraud, misfeasance or other misconduct towards its members or any part thereof;

b.  resulting in its members or any part of its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

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

Unopposed Orders

6.  On the basis of the facts set out in Part B of this Schedule and the mitigating circumstances set out in Part C of this Schedule, the Petitioner and the 12^th Respondent agree, and the 12^th Respondent is prepared to accept, that it would be appropriate for the following orders to be made against him:

a.  An order pursuant to section 214(2)(d)  of the SFO that the 12^th Respondent shall not, for a period of 24 months, without leave of the Court:

i.  be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any corporation in Hong Kong, including NAH or any of its subsidiaries and affiliates; and

ii.  in any way, directly or indirectly, be concerned, or take part, in the management of any corporation in Hong Kong including NAH or any of its subsidiaries and affiliates.

b.  An order that the 12^th Respondent shall pay an appropriate portion of the costs (which shall be determined by the Court)  of the Petitioner in these proceedings up to the date when the Court disposes of these proceedings against the 12^th Respondent by way of the Summary Procedure, to be taxed if not agreed.

7.  Without prejudice to all the Petitioner’s rights under the general law, subject to the direction of the Court, the Petitioner specifically reserves the right to (a)  disclose this Schedule to third parties where it appears proper to do so in the public interest, including, but not limited to, making use of this Schedule for the purpose of any press release issued in respect of these proceedings and (b)  refer to this Schedule for the purposes ancillary to, connected with and/or arising out of these proceedings.

Part B: Undisputed facts

NAH

Corporate Background and Management

8.  NAH (formerly known as Qianlong Technology International Holdings Limited)  was incorporated in the Cayman Islands.  Its shares were listed on the GEM Board of The Stock Exchange of Hong Kong Limited (“SEHK”)  on 17 December 1999 and the Main Board of SEHK on 29 August 2011 (stock code: 1236).  It was renamed NAH on 10 February 2014.

9.  According to NAH’s 2015 Annual Report, its principal activity was investment holding.  The activities of the NAH group (“NAH Group”)  included research, development and distribution of software, provision of related maintenance, usage and information services and provision of financial leasing business in the People’s Republic of China (“PRC”).

10.  Between July and November 2013, Parko (Hong Kong)  Limited (“Parko”), a Hong Kong-incorporated company and the 13^th Respondent herein, acquired a 54.73% interest in NAH and became its controlling shareholder through a share acquisition and mandatory general offer (“MGO”).

11.  At all material times:

a.  The sole shareholder of Parko is and was Million Rich Hong Kong Holdings Company Limited (“Million Rich”), which in turn is and was owned 51% by Hebei Agriculture Means of Production Company Limited (“Hebei AMP”)  and 49% by Hebei New Cooperative Holding Group Company Limited (“Hebei New Cooperative”).

b.  Parko is and was ultimately controlled by Hebei Supply and Marketing Cooperative, which for administration and operation purposes is and was under the All China Federation of Supply and Marketing Cooperatives (“All China Federation”).  All China Federation is and was in turn under the State Council of the PRC.

c.  Parko’s development and staff appointments are and were advised by the Hebei Provincial People’s Government.

12.  Between January 2015 and 2018, NAH’s board of directors (“Board”)  and key management personnel were as follows:

13.  Chen LJ (R1), Peng (R6)  and Zhang were also directors of Parko since 2014.  On 20 July 2016, Ren (R5)  replaced Zhang as a director of Parko.  Chen LJ (R1), Peng (R6)  and Ren (R5)  remained as directors of Parko as of June 2019.

Parko’s Subscription of NAH Unlisted Warrants

14.  According to a set of Board minutes in respect of a meeting on 28 January 2015, the Board resolved to approve (among other things)  the entering into of a Subscription Agreement between NAH and Parko (“Subscription Agreement”).  The meeting was attended by Chen LJ (R1), Ren (R5), Peng (R6), Liu (R8), Wen (R9), Chiu (R10), Fan (R11)  and the 12^th Respondent.

15.  Also on 28 January 2015, NAH announced that it had entered into a Subscription Agreement with Parko, by which the parties conditionally agreed for Parko to subscribe for up to 212,194,500 subscription warrants (“Warrants”)  to be issued by NAH.  The key terms of the subscription were as follows:

a.  The subscription issue price was HK$0.189 per Warrant.

b.  The Warrants would entitle Parko to subscribe for up to 212,194,500 subscription warrant shares (“Warrant Shares”)  at the subscription exercise price of HK$3.0 per Warrant.  In other words, each Warrant carried the right to subscribe for one Warrant Share.

c.  The subscription right attaching to the Warrants was exercisable within 12 months from the date of their issue.

16.  As at the date of the said announcement, Parko had approximately 51.02% interest in NAH. Chen LJ (R1)  represented to the Petitioner that the subscription was to ensure Parko could maintain a controlling interest of over 51% in NAH.

17.  On 27 April 2015, NAH published a Circular and a Notice of Extraordinary General Meeting (“EGM”)  in respect of the Subscription Agreement which (among other things)  was subject to shareholders’ approval. The Circular contained recommendations from NAH’s Board, Independent Board Committee (comprising all INEDs at the time)  and Independent Financial Advisor respectively for shareholders to vote in favour of the Subscription Agreement.

18.  On 13 May 2015, the EGM was held in which the shareholders of NAH unanimously approved the Subscription Agreement.

19.  According to a written resolution dated 2 June 2015, the Board resolved to approve (among other things)  the issuance and allotment of the Warrants.  The written resolution was signed by Chen LJ (R1), Ren (R5), Peng (R6), Liu (R8), Wen (R9), Chiu (R10), Fan (R11), the 12^th Respondent, Zhang and Law.

20.  Also on 2 June 2015, NAH announced that the subscription was completed and the Warrants were issued to Parko.  The Warrant Shares would be allotted and issued upon the exercise of the subscription rights attached to the Warrants representing approximately 10% of the issued share capital of NAH.  Upon completion of the subscription and exercise of the subscription rights, Parko would have approximately 52.55% interest in NAH.

21.  According to a share certificate produced by NAH to the Petitioner, 212,194,500 shares in NAH were issued to Parko on 9 June 2015.  On the same day, NAH filed a disclosure return with the SEHK which shows that the total number of issued shares had increased by 212,194,500.  Million Rich (Parko’s shareholder), and Hebei AMP and Hebei New Cooperative (Million Rich’s two shareholders), also filed disclosure of interest notices reporting the acquisition of 212,194,500 shares in NAH on 28 January 2015 and 9 June 2015 respectively.

22.  Based on the subscription issue price for the Warrants and subscription exercise price for the Warrant Shares, the consideration payable by Parko for the subscription and the conversion into Warrant Shares totalled HK$676,688,260.50 (“Shares Consideration”):

Subscription price per Warrant	HK$0.189
Subscription exercise price per Warrant Share	HK$3.0
Shares Consideration for 212,194,500 shares	HK$3.189 x 212,194,500 = HK$676,688,260.50

Parko’s Purported Payment of Shares Consideration

23.  Notwithstanding the foregoing, in particular the repeated references to the Subscription Agreement in NAH’s Board minutes and public announcements/circular, NAH was unable to produce the Subscription Agreement upon the Petitioner’s request.

24.  NAH however stated in its Annual Results Announcement for 2015 that:

“During the year ended 31 December 2015, the Group used part of the proceeds from the issue and exercise of warrants, a cheque issued by Parko to Dongyue Holdings Limited [(“Dongyue”)], a wholly owned subsidiary of China Coopinvest, for its subscription and exercise of the warrants to [NAH] amounting to RMB 528,491,000, as an earnest money for a possible investment in the investment Fund…”

25.  NAH made a similar statement about the use of a cheque issued by Parko to Dongyue in its 2015 Annual Report, 2016 Interim Results Announcement and 2016 Interim Report.

26.  In response to the Petitioner’s request, NAH produced a China Construction Bank cheque dated 2 June 2015 (“CCB Cheque”)  purportedly issued by Parko to Dongyue in the amount of HK$676,688,261.  The CCB Cheque was signed by Chen LJ (R1)  on Parko’s behalf.

27.  NAH also produced a tripartite agreement purportedly entered into by NAH, Parko and Dongyue on 2 June 2015 (“Tripartite Agreement”), which provided that:

a.  Parko had to pay NAH HK$676,688,261 as the Shares Consideration.

b.  NAH was obligated to pay Dongyue “certain sum of money…for an investment and/or joint venture”.

c.  Parko was to pay the Shares Consideration to Dongyue rather than NAH within 10 days and, upon full payment of the Shares Consideration to Dongyue, Parko’s obligation to pay the Shares Consideration to NAH would be fully discharged.

Retainer Money for Potential Establishment of Fund

28.  Meanwhile, on 25 August 2015 and 27 August 2015, NAH announced that it had entered into a framework cooperation agreement (“Cooperation Framework Agreement”)  with one China Co-Op (Shanghai)  Equity Investment Fund Management Company (“China Co-Op”)  in relation to the possible cooperation between NAH and China Co-Op for the establishment of a fund (“Fund”).

29.  It was further announced that:

a.  NAH, as one of the general partners of the Fund, was to make a capital contribution commitment in an amount of not more than 3% of the total capital of the Fund.

b.  As a result of the Cooperation Framework Agreement, NAH had deposited RMB850,000,000 (“Retainer Money”)  to Dongyue, a subsidiary of Coopinvest Company Limited (“Coopinvest”, which in turn owned 50% interest in China Co-Op), to hold in escrow as earnest money for the establishment of the Fund.

c.  Pursuant to the Cooperation Framework Agreement, if the Fund was unable to obtain necessary approval from the All China Federation or relevant authority before 31 December 2015 or such other dates as agreed by the parties, the parties would not enter into any legally binding definitive agreement, and the Retainer Money (after deducting necessary expenses for preparation of the Fund)  was to be returned to NAH forthwith. Prior to the establishment of the Fund, the Retainer Money would not be considered as capital contribution of the Fund and would be wholly-owned assets of NAH.

30.  Also on 25 August 2015, NAH and China Co-Op entered into an Escrow Agent Agreement which provided for (among other things)  the matters in paragraph 29 above.  Dongyue was neither a party to this Escrow Agent Agreement nor specified as the escrow agent therein.

31.  On 31 December 2015, NAH announced that the parties were still in discussion in respect of the establishment of the Fund.  Since NAH might make less capital commitment to the Fund than expected, the parties agreed that part of the Retainer Money in an amount not exceeding RMB450,000,000 was to be returned to NAH.

32.  According to NAH, there were no Board minutes or resolutions relating to the discussion about the establishment of the Fund, except for resolutions dated 28 March 2016 regarding the refund of monies, as referred to below.  Chen LJ (R1)  admitted that no Board meeting was convened regarding the establishment of the Fund.

Possible Acquisition of Target Company

33.  Separately, on 27 November 2015, NAH announced that it had entered into a non-legally binding letter of intent with Parko and two other companies (which, together with Parko, were the potential vendors)  in relation to the possible acquisition of not less than 51% equity interests in a company established in the PRC (“Target Company”).  The Target Company would be the beneficial owner of a piece of land and certain properties in Shanghai.

34.  On 11 January 2016, NAH announced that NAH and the aforesaid potential vendors had entered into a sale and purchase agreement (“SPA”), pursuant to which the parties conditionally agreed for NAH to purchase from the vendors the entire equity interest in the Target Company at RMB2,685 million (comprising cash consideration and new shares to be issued by NAH to Parko).

35.  On 14 March 2016, NAH announced that:

a.  At the request of Parko’s management, NAH, Parko and one Shi Jia Zhuang Ao Yuan Trading Company Limited (“Ao Yuan”)  had entered into an escrow agreement, pursuant to which NAH was to pay RMB1,300,000,000 as earnest money to Ao Yuan being the escrow agent designated by NAH and Parko within 6 months after entering into the escrow agreement as refundable earnest money for the potential acquisition of the Target Company.

b.  Ao Yuan was a 51% shareholder of Xinyuen Taifeng Agricultural Asset Management (Beijing)  Company Limited.  The latter was a substantial shareholder of Guonong Taifeng Agricultural Consultancy Co., Ltd (“Guonong Taifeng”), which in turn was a subsidiary of NAH.

c.  Pursuant to the said escrow agreement, NAH and Parko were to enter into formal agreement in respect of the acquisition of the Target Company within 15 working days after NAH had paid the earnest money in full.  In the event that the formal agreement failed to complete within six months after the escrow agreement (or such other dates the parties otherwise agreed in writing), or the formal agreement had been terminated for whatever reason, Ao Yuan would refund the earnest money together with accrued interest to NAH upon joint instructions from NAH and Parko.  The earnest money was not to be used by Ao Yuan without the prior consent of NAH and Parko, and was the wholly owned asset of NAH.

d.  Up to December 2015, the NAH Group had paid an aggregate of approximately RMB1,220,000,000 to Ao Yuan.  Upon receiving such amount, Parko’s management was satisfied that NAH had sufficient financial resources for the acquisition and a formal agreement was entered into on 11 January 2016.

Purported Transfers

36.  On 31 March 2016, NAH announced the following transfers of funds:

a.  Under NAH’s direction, Dongyue transferred the Retainer Money of RMB850,000,000 (see paragraph 29 above)  to one Guangzhou Yin Qian Investment Management Company Limited (“Guangzhou Yin Qian”), another subsidiary of Coopinvest, to hold the same in escrow.

b.  Under NAH’s direction, Guangzhou Yin Qian further transferred part of the refund of the Retainer Money in the sum of approximately RMB250,000,000 (out of RMB850,000,000)  to Ao Yuan for the purpose of settling the earnest money for the potential acquisition of the Target Company (see paragraphs 33 to 35 above).

c.  As the SPA for acquisition of the Target Company had not completed, Ao Yuan had refunded the earnest money of approximately RMB1,220,000,000 to NAH on 30 March 2016 and it was deposited into a bank account of a non-wholly-owned subsidiary of NAH which was to be used solely for the acquisition.

d.  The parties agreed that the remaining portion of the Retainer Money in the sum of approximately RMB600,000,000 was to be refunded to NAH.  The remaining portion was refunded to NAH from Guangzhou Yin Qian on 30 March 2016 and deposited into a bank account of a non-wholly-owned subsidiary of NAH which was to be used solely for the purpose of the Fund (see paragraphs 28 to 31 above).

37.  The Petitioner has investigated into the various purported transfers.  At the Petitioner’s request, NAH has produced the following documents as purported evidence of the transfers:

a.  a set of vouchers and corresponding bank transfer records showing the payment of HK$384,000,000 from NAH to one South Financial Company Limited (“South China Financial”)  through a series of transfers between 13 January 2015 to 5 June 2015;

b.  a letter dated 9 January 2015 issued by NAH instructing South China Financial to transfer HK$384,000,000 to Dongyue;

c.  the CCB Cheque and Tripartite Agreement (see paragraphs 26 and 27 above), which purportedly show that Parko had paid the Shares Consideration of HK$676,688,261 to Dongyue at NAH’s request. In a letter from NAH’s solicitors, Deacons, dated 25 May 2017 to the Petitioner, NAH described in detail how the CCB Cheque was signed by Chen LJ (R1), delivered to Dongyue’s Hong Kong office and then taken away by one Ji Hong, a director of Dongyue. It was also stated that Dongyue did not cash the CCB Cheque;

d.  a letter dated 31 December 2015 issued by NAH purportedly instructing Dongyue to transfer RMB850,000,000 to Guangzhou Yin Qian (per paragraph 36(a)  above);

e.  a letter dated 31 December 2015 issued by NAH purportedly instructing Guangzhou Yin Qian to transfer RMB250,000,000 to Ao Yuan (per paragraph 36(b)  above);

f.  a letter dated 28 March 2016 issued by NAH purportedly instructing Ao Yuan to transfer RMB1,220,000,000 to an account held with Guangzhou Ping An Bank numbered 1101-4500-448506 (“Account 8506”)  (per paragraph 36(c)  above);

g.  a deposit agreement dated 30 March 2016 with Guangzhou Ping An Bank purportedly showing that the holder of Account 8506 is Guonong Taifeng (which, as stated in paragraph 35(b)  above, was a subsidiary of NAH);

h.  a letter dated 28 March 2016 issued by NAH purportedly instructing Guangzhou Yin Qian to transfer RMB600,000,000 to Account 8506 (per paragraph 36(d)  above);

i.  a set of minutes purportedly showing that the Board resolved by a written resolution on 28 March 2016 to approve the purported refund of the Retainer Money of RMB850,000,000 to NAH as set out above;

j.  purported bank records of Guangzhou Ping An Bank and a voucher which purportedly show two deposits of RMB1,220,000,000 and RMB600,000,000 on 30 March 2016 into Account 8506.  The bank records also purportedly show that, as of 30 June 2016, Account 8506 had a balance of RMB1,821,450,944.44.  Similar bank records had been provided by NAH to its auditors, Deloitte Touche Tohmatsu (“Deloitte”);

k.  an unpaid invoice (“Invoice”)  purportedly issued by Dongyue to NAH in respect of a sum of HK$1,060,688,261 (equivalent to around RMB850,000,000, i.e. the amount of the Retainer Money).  The Invoice was said to be attached to an email dated 25 August 2015 from Ji Hong (Dongyue’s director)  to Chen Jing (R4 and NAH’s General Manager Assistant). NAH represented to the Petitioner that Dongyue would issue the Invoice after it had received the said sum as per the “usual practice” in the PRC.  NAH further represented to the Petitioner that it did not have the original of the Invoice because the same was only transmitted to NAH electronically.

38.  The bank balance of around RMB1.8 billion (see paragraph 37(j)  above)  was a highly substantial sum to NAH.  It accounted for 92% of NAH’s cash and cash equivalents (RMB1,974,324,000)  and 76% of its net assets (RMB2,398,075,000), as reported in NAH’s 2016 Interim Results.

39.  The purported transfers above are graphically illustrated at Appendix 2 to this Schedule.  If they had taken place, by the end of June 2016, Guangnong Taifeng’s Account 8506 was supposed to have received a total of RMB1,820,000,000 (“Refunded Sum”), being the RMB1,220,000,000 from Ao Yuan plus the RMB600,000,000 from Guangzhou Yin Qian.  These sums were supposed to represent the refunds from the two projects announced in 2015 in which NAH planned to acquire the Target Company and to establish the Fund respectively.

The Petitioner’s Investigations

40.  The Petitioner became concerned about the conduct of the business or affairs of NAH. On around 18 August 2016, the Petitioner commenced a formal inquiry into the affairs of NAH.  It sought documents from NAH and interviewed its former and current directors and officers.

NAH’s transfer of HK$384,000,000 to South China Financial

41.  The Petitioner has investigated into the transfer of HK$384,000,000 from NAH to South China Financial (see paragraph 37(a)  above)  which, together with the Shares Consideration of HK$676,688,261 purportedly paid by Parko, should have made up the RMB850,000,000 (or HK$1,060,688,261)  that purportedly went into Dongyue.

42.  Parko acquired the controlling interest in NAH in 2013 through a share acquisition and MGO. According to the joint announcement of NAH and Parko dated 16 August 2013, Parko was required to pay HK$165,775,000 to acquire 87,250,000 (34.54%)  shares in NAH from the former substantial shareholder.  As a result of the share acquisition, the MGO was triggered and HK$314,165,000 was required for making the MGO.  As such, Parko required a total of HK$479,940,000 (being the sum total of HK$165,775,000 and HK$314,165,000)  for the share acquisition and MGO (assuming it were to take over 100% interest in NAH).

43.  Chen LJ (R1)  represented to the Petitioner that Parko had obtained a loan facility from CCB International Securities Limited (“CCBI”)  and one Precursor Management Inc (“PMI”)  for the share acquisition and MGO.  PMI was in turn wholly owned by Cai (R2), NAH’s former General Manager.  Wen (R9), who is Cai’s ex-wife, was appointed as an ED of NAH by PMI.

44.  According to CCBI and PMI, the credit facility extended by CCBI and PMI to NAH were HK$200,000,000 and HK$280,000,000 respectively.

45.  Eventually, according to NAH’s announcement dated 12 November 2013, only 51,009,200 (20.19%)  shares accepted the MGO and Parko was required to pay approximately HK$96,917,480 for the MGO.

46.  According to CCBI, Parko had to repay HK$115,832,842.11 to CCBI in four tranches.

47.  As to the transfer of HK$384,000,000 from NAH to South China Financial, it was found in the Petitioner’s investigations that:

a.  Cai (R2)  was a 65% beneficial owner of South China Financial and 100% owner of PMI. Chen Jing (R4)  was Cai’s partner in PMI.

b.  While NAH had transferred HK$384,000,000 to South China Financial from 13 January 2015 to 5 June 2015, South China Financial did not transfer the sum to Dongyue, contrary to NAH’s representation (see paragraph 37(b)  above).

c.  Instead, South China Financial had transferred HK$64,351,578.95 to Parko and HK$5,776,900 to PMI between February 2015 and March 2015.

d.  The HK$64,351,578.95 received by Parko was transferred to CCBI, apparently for repayment of the credit facility.

48.  Findings from the Petitioner’s investigation further refute the alleged connection between the said transfer of HK$384,000,000 from NAH to South China Financial and the purported payment of Retainer Money to Dongyue for the Fund:

a.  The transfers from NAH to South China Financial took place from January 2015 to June 2015, much earlier than the Cooperation Framework Agreement on 25 August 2015 for the potential establishment of the Fund (see paragraph 28 above).

b.  Most of the said transfers also preceded the Tripartite Agreement dated 2 June 2015 among NAH, Parko and Donyue, by which Dongyue was first designated by NAH to receive payment from Parko (see paragraph 27 above).

c.  None of the individuals who ought to know about the arrangement, namely Chen LJ (R1), Cai (R2, NAH’s General Manager, 100% beneficial owner of PMI and 65% beneficial owner of South China Financial), Chen Jing (R4, NAH’s General Manager Assistant and Cai’s partner in PMI)  or Lu (R3 and NAH’s Financial Controller/Manager), could account for the transfers from NAH to South China Financial.

d.  There is no reasonable explanation for why monies allegedly had to go through South China Financial, when NAH and the supposed ultimate recipient, Dongyue, are and were both Hong Kong companies having bank accounts in Hong Kong.

e.  NAH admitted that it did not conduct any due diligence on South China Financial, which was purportedly introduced to NAH by either All China Federation (as represented by NAH to the Petitioner), or by Cai (as represented by Cai himself and Chen LJ to the Petitioner).

Dongyue’s evidence

49.  In reply to the Petitioner’s enquiries, Dongyue:

a.  denied having received the Retainer Money of RMB850,000,000 from NAH, Parko or any third party;

b.  denied having received the CCB Cheque issued by Parko, or HK$676,688,261 (being the amount of the Shares Consideration)  or any portion thereof from Parko;

c.  contended that the Invoice was not a receipt but a demand by Dongyye on NAH to pay Dongyue a sum equivalent to the Retainer Money; and

d.  denied having received the letter dated 31 December 2015 by which NAH purportedly instructed Dongyue to transfer the Retainer Money to Guangzhou Yin Qian (see paragraph 37(d)  above).

Forensic review and replies from banks on Account 8506

50.  In January 2017, Deloitte corresponded with Lu (R3, NAH’s Financial Manager)  and Simon Wong (NAH’s Senior Accounting Manager)  and drew attention to the discrepancy found between the interest income shown on different bank statements and NAH’s vouchers that record the interest income in Account 8506.

51.  By letter dated 21 February 2017, Deloitte informed the Board and Audit Committee that:

a.  Deloitte had received a bank confirmation in respect of Guonong Taifeng from Guangzhou Ping An Bank which included a statement that Account 8506 did not exist. This was inconsistent with the information provided by NAH’s management.

b.  Bank staff had confirmed to Deloitte during bank visits on 15 February 2017 that Account 8506 did not exist and Guonong Taifeng had only one account with the bank opened in April 2016 with no balances.

c.  Bank staff who had examined the bank statements provided by NAH’s management to Deloitte informed Deloitte that, based on her experience, the chops on each of the bank statements did not correspond to the official business chop of the bank.

d.  Bank staff could not verify and confirm the identity of one Cai Zhen Hao, who, as indicated in a bank confirmation provided by NAH, was a bank contact person.

e.  Another individual called Zhang Hui Ping, who NAH said was a bank contact person and purported to be a male bank official whom Deloitte met during its bank visit for the interim audit in October 2016, turned out to be a female staff.  The female staff informed Deloitte in February 2017 that she had no knowledge of Guonong Taifeng and had never been present at any previous bank visit by Deloitte.

52.  On 28 March 2017, NAH suspended its trading and announced that it would not be in a position to publish its annual results on or before 31 March 2017 because a forensic review and/or investigation was being carried out by an independent accounting firm in connection with a bank account of a wholly-owned subsidiary of NAH.  The announcement referred to the (previously announced)  fact that RMB1,820,000,000 (i.e. the Refunded Sum)  had been refunded to NAH on 30 March 2016 and was deposited into the bank account.

53.  It was also stated in the said announcement that the forensic review was recommended by the auditors of NAH during the course of their audit as they encountered certain incidents and information which called into question the existence of the bank account and the validity of the related bank balance and underlying transactions, “while the executive directors of [NAH] were skeptical about it”.  There was no elaboration in the announcement on the EDs’ “skepticisms”.

54.  The independent accounting firm referred to above was Ernst & Young, China (“EY”). In EY’s final forensic report dated 14 February 2018 (“EY Report”), it was stated (among other things)  that:

a.  EY was not able to confirm the existence of Account 8506, or that Account 8506 received the Refunded Sum from Guangzhou Yin Qian or Ao Yuan.

b.  EY encountered various limitations when making requests for information from NAH’s management regarding Account 8506.

c.  EY was subsequently informed on 8 November 2017 that Account 8506 had been closed.  EY requested but had not been provided with any relevant material in this regard, and was not able to confirm the closing of Account 8506.

d.  Chen LJ (R1)  represented to EY at his interview that it was one Li Yi Jun, the then General Manager of Hebei AMP, who had misappropriated the Refunded Sum from Account 8506.  This however contradicts both Deloitte’s and EY’s findings that the existence of Account 8506 could not be confirmed.

55.  On 12 March 2018, NAH made an announcement of (among other things)  the above findings of EY.

56.  Meanwhile, China Construction Bank (“CCB”)  informed the Petitioner that there was no withdrawal in the amount of HK$676,688,261 (i.e. the amount supposedly paid by Parko to Dongyue under the CCB Cheque)  from Parko’s account numbered 9658931 from 6 February 2015 to 22 February 2017.  The bank statements produced by CCB further show that there were insufficient funds in the account to honour payment of the CCB Cheque during the said period.

57.  CCB also furnished documents showing that Chen LJ (R1)  was one of the authorised signatories of the said Parko’s account.  It further confirmed that Chen LJ (R1)  was also an authorised signatory of NAH’s bank accounts.

58.  Further, upon an enquiry with Guangzhou Ping An Bank on Account 8506, the Petitioner was not able to obtain any records of Account 8506 which purportedly received the Refunded Sum.  The Petitioner was only able to obtain records of an account in the name of Guonong Taifeng opened in April 2016 and there was no Refunded Sum in that account.

NAH’s change of evidence

59.  In light of the above findings, the Petitioner made further enquiries with NAH regarding the payment of the Retainer Money and the Refunded Sum.

60.  In Deacons’ letter (on behalf of NAH)  to the Petitioner dated 25 May 2017, it was stated that the CCB Cheque had not been used as payment of the Shares Consideration or as part of the payment of the Retainer Money to Dongyue.  Instead, it was claimed, for the first time, that the Shares Consideration payable by Parko was settled by:

a.  73 transfers from 14 May 2015 to 10 January 2016 totalling RMB381,149,102 made in the PRC from various companies related to Parko’s majority shareholder (i.e. Hebei AMP)  to various related companies of the ultimate controller of Dongyue (i.e. one China Co-op Group Company Limited)  (“Co-op Group”); and

b.  18 transfers from 8 December 2015 to 23 December 2015 totalling around RMB158,863,834 made in Hong Kong by Parko to Dongyue and various related companies of the Co-op Group.

61.  The total amount of funds involved in the above purported transfers (“Alternative Transfers”)  was RMB540,003,936 (said to be equivalent to approximately HK$676,000,000).

62.  However, the evidence does not substantiate NAH’s new claim that the Shares Consideration payable by Parko was settled by the Alterative Transfers:

a.  All the 18 Alternative Transfers in Hong Kong and at least 8 out of the 73 Alternative Transfers in the PRC apparently took place after 25 August 2015, which was claimed by NAH to be the date on which it received the Invoice from Dongyue as alleged receipt of the Retainer Money of RMB85,000,000.

b.  On the assumption that the Alternative Transfers were made to Dongyue or companies in the Co-op Group (instead of NAH directly)  because Dongyue was supposed to be the entity to receive the Retainer Money, 3 of the Alternative Transfers in the PRC took place before the Tripartite Agreement dated 2 June 2015, by which Dongyue was purportedly first designated by NAH to receive payment from Parko.

c.  There is also no reasonable explanation or evidence as to when or how the Alternative Transfers, many of which were purportedly paid to the Co-op Group related companies other than Dongyue, were eventually paid over to Dongyue – which was supposed to have further transferred the same to Guangzhou Yin Qian as part of the Retainer Money (see paragraph 37(d)  above).

d.  Neither NAH nor Parko have produced complete or reliable records of the Alternative Transfers:

i.  NAH represented to the Petitioner that the original accounting records were in the custody of Hebei AMP and, since the Petitioner had not given permission to disclose its investigation of NAH to Hebei AMP, NAH could not obtain such records from Hebei AMP.

ii.  While Parko has produced certain purported records of settlement in respect of the Alternative Transfers in Hong Kong for a sum of up to HK$157,500,000 (out of a total of HK$182,471,000), such purported records of settlements do not specify the purpose of the payments.

iii.  Further, it was found in the Petitioner’s investigations that at least 4 of the Alternative Transfers in Hong Kong (as set out below)  amounting to approximately HK$47,000,000 were for purposes unrelated to the Retainer Money (which was supposed to be paid by Parko to various related companies of the Co-op Group, being the ultimate controller of Dongyue as represented in Deacons’ letter in paragraph 60(a)  above).

Date	Transfer sum (HK$)	Alleged recipient	Investigation result
22 December 2015	7,960,000	Dongyue	Ji Hong (Dongyue’s director)  denied having received the Retainer Money.
8 December 2015	17,000,000	Lam Leung Hung (“Lam”)	Lam, who is a friend of Cai, represented to the Petitioner that the sum was repaid by Cai to him in relation to a share subscription of NAH.
15 December 2015	12,043,000	Yield Point Trading Limited (“Yield Point”)	Yield Point, a remittance agent, produced to the Petitioner a record showing that it transferred RMB10,080,000 to Ao Yuan and the remaining RMB890,312 to two individuals.
22 December 2015	10,000,000	China Score Development Limited (“China Score”)	China Score, a metal trading company, represented to the Petitioner that its sole shareholder had borrowed the sum from a friend who settled the repayment in the PRC through another friend.
Total	47,003,000

iv.  As to the other records (including records of the 73 Alternative Transfers in the PRC), Parko represented to the Petitioner that (a)  the relevant sums were paid by Hebei AMP; (b)  Hebei AMP was subject to an audit and had delivered all financial and accounting records to the authorities; and (c)  Parko would immediately liaise with Hebei AMP for submission of the relevant materials to the Petitioner upon completion of the audit.  To-date, the Petitioner has not received any such materials from Parko.

63.  It was further claimed in Deacons’ letter (see paragraph 60 above), for the first time, that:

a.  After issuing the CCB Cheque, Parko decided to make the bulk of payment to Dongyue in the PRC considering that investments into the Fund would predominantly be in the PRC, exchange fluctuations and other practical factors.

b.  While the said decision was made by Chen LJ (R1)  on behalf of Parko, it would be more accurate to say that it reflected the wishes of Parko’s majority shareholder, Hebei AMP, and that of the Hebei Supply and Marketing Cooperative.

c.  Persons who knew about the foregoing arrangements were Chen LJ (R1), Cai (R2)  and Chen Jing (R4).

d.  The INEDs had no knowledge as the management did not report the various transfers in Board meetings.

e.  NAH maintained it had successfully received (“成功收回”)  the HK$676,000,000 on 30 March 2016.

f.  NAH expressed regret for not having reflected the foregoing arrangements accurately in its announcements and annual reports.

64.  In a letter from NAH to the Petitioner dated 30 June 2017, NAH further stated that the persons who were involved in deciding the change in payment method by Parko were Chen LJ (R1), Cai (R2), Liu (R8)  and Chen Jing (R4), and the same was not reported to the Board, the Audit Committee or Deloitte.

RMB1.85 billion deposits

65.  According to NAH’s announcement dated 12 March 2018, EY was informed by NAH that:

a.  An amount of RMB1.75 billion had been deposited on 30 August 2017 into a bank account of the NAH Group in the PRC which was opened on 6 July 2017.  EY had visited the relevant bank and confirmed with the bank that the said sum had been so deposited by a micro-credit company in the PRC.

b.  An amount of RMB100 million was deposited on 31 August 2017 into another bank account of a subsidiary of the NAH Group by a company.  As at the date of the announcement, EY had not been engaged to perform any verification work on the second deposit.

c.  As at the date of the announcement, NAH was unable to provide EY with any supporting documents in relation to the background or nature of the said deposits (“RMB1.85 billion Deposits”)  or arrange for EY to interview the micro-credit company in the PRC or the company.  Consequently EY was not able to establish the connection between the Refunded Sum (of RMB1,820,000,000)  and the RMB1.85 billion Deposits.

d.  Chen LJ (R1), Chairman and ED of NAH, had provided an undertaking to the Board dated 3 September 2017 that “he will use his best endeavours to ensure that the [RMB1.85 billion Deposits] shall remain in the relevant bank accounts until the [Board] shall have approved any use or transfer of the [RMB1.85 billion Deposit]” (“Undertaking”).

66.  Matters regarding the RMB1.85 billion Deposit were first drawn to the Petitioner’s attention by the Audit Committee through its submission on around 13 November 2017 of a draft report of EY dated 8 September 2017.  The Undertaking was attached to the EY draft report.

67.  In an undated letter from NAH which was received by the Audit Committee on 23 April 2018, NAH quoted the EY Report as purportedly saying that the Refunded Sum had been returned at the end of August 2017 to Guonong Taifeng accounts in full (“資金已全額回到國農泰豐帳戶”), and claimed that this was “most important and key”.  This is however inconsistent with the relevant findings in the EY Report, as summarised in the 12 March 2018 announcement at paragraph 65 above, by which EY did not confirm that the Refunded Sum had been returned to Guonong Taifeng in full.

68.  In any event, according to NAH’s announcement dated 31 October 2018, NAH’s new auditors, RSM Hong Kong (“RSM”), had reported that:

a.  Although there was the Undertaking given by Chen LJ (R1), the RMB1.75 billion and RMB100 million were transferred out of the relevant accounts on 1 September 2017 and 4 September 2017 respectively.

b.  According to the ledger of Guonong Taifeng, the RMB1.85 billion Deposits had been used to purchase certain financial products on 30 September 2017.

c.  However, according to the bank slips inspected by RSM:

i.  RMB1.75 billion was transferred to one Guangzhou Parko Investment Limited (“Guangzhou Parko”), which was a subsidiary of Parko; and

ii.  RMB100 million was transferred to a bank account of Guonong Taifeng at the business department of Shijiazhuang branch of Bank of Beijing.  The transfer of RMB100 million was not recorded in the ledger of Guonong Taifeng and had not been disclosed to RSM.

d.  The nature of the financial products in the aggregate amount of RMB1.85 billion had not yet been ascertained, and the existence and recoverability of the balance of RMB1.85 billion was in doubt.

e.  After reviewing the bank statements of Bank of Beijing, RSM noted that there were certain transactions transacted but not recorded in the ledger of Guonong Taifeng, being payments to Guonong Taifeng from certain parties (including related parties of NAH)  in the total amount of RMB1.75 billion, and payment by Guonong Taifeng to Guangzhou Parko in the amount of RMB1.85 billion.  There might be other off-books transactions not recorded by the NAH Group.

69.  In light of the above developments, the Petitioner made further enquiries with NAH and Parko:

a.  NAH’s response was that, due to the departure of the relevant personnel, it was unable to provide supporting documents for the transfers in paragraph 68 above. NAH nevertheless represented that:

i.  The micro-credit company which was said to have deposited the RMB1.75 billion (see paragraph 65(a)  above)  was one 湖北中經小額貸款有限公司.

ii.  The company which was said to have deposited the RMB100 million (see paragraph 65(b)  above)  was one 河北卓誠企業管理服務有限公司.

b.  Parko’s response was that:

i.  Guangzhou Parko had received both the sums of RMB1.75 billion and RMB1.85 billion from Guonong Taifeng.  The RMB1.75 billion was received through 浦發銀行 while the RMB1.85 billion was received through 北京銀行.

ii.  According to the bank documents, the sum of RMB1.75 billion was transferred to 湖北中經小額貸款有限公司, while the sum of RMB1.85 billion was transferred to 中合(大連)置業有限公司. For the RMB1.85 billion, it was intended to be used by NAH for the purchase of 南海中心. Due to a series of issues, the transaction did not go through.

70.  The response from Parko is inconsistent with NAH’s announcement or response:

a.  According to NAH, the RMB1.75 billion formed part of the RMB1.85 billion.  But Parko’s response suggested that there was one sum of RMB1.75 billion and a further sum of RMB1.85 billion.

b.  According to NAH, the RMB1.75 billion came from the micro-credit company 湖北中經小額貸款有限公司.  But Parko said RMB1.75 billion was transferred to the same entity.

c.  There was no mention by NAH that it could still utilise the RMB1.85 billion, let alone for the purchase of 南海中心.

Other Developments

Trading suspension

71.  On 3 July 2017, the Petitioner, under section 8(1)  of the Securities and Futures (Stock Market Listing)  Rules (“SMLR”), directed the SEHK to suspend the trading of NAH’s shares from 4 July 2017 due to a number of concerns, including (i)  possible false and misleading statements about the existence of NAH’s RMB1.8 billion bank balance as stated in its financial statements; and (ii)  Parko might have defrauded NAH through subscription of the Warrant Shares by not paying the Shares Consideration.

72.  NAH was given the opportunity to respond prior to the suspension, but it only made a holding response requesting for an extension so that it could further investigate the matter.  To-date, save for the EY Report (see paragraph 54 above)  provided to the Petitioner by the Audit Committee, NAH has not submitted any investigation findings or reports to the Petitioner.

73.  On 1 August 2018, NAH announced that the SEHK had issued a notice to it stating that the amendments to the delisting framework under the Rules Governing the Listing of Securities of the SEHK (“Listing Rules”)  would come into effect on 1 August 2018.  Pursuant to these amendments, the SEHK has discretion to cancel the listing status of a listed company if the trading of such company’s shares has remained suspended for 12 consecutive months from 1 August 2018.  The 12-month period expired for NAH on 31 July 2019 and NAH failed to resume trading in its shares.

74.  On 9 August 2019, the Listing Committee of the SEHK (“Listing Committee”)  decided to cancel the listing of NAH’s shares on the SEHK under Rule 6.01A of the Listing Rules.

75.  On 20 August 2019, NAH sought a review of the Listing Committee’s decision by the Listing Review Committee.  On 15 November 2019, the Listing Review Committee upheld the decision of the Listing Committee to cancel NAH’s listing.  Accordingly, the SEHK cancelled NAH’s listing with effect on 22 November 2019.  The same was announced by NAH on 20 November 2019.

Resignation of directors

76.  On 26 July 2018, NAH announced that Chen LJ (R1), Peng (R6), Wen (R9)  and Chen Li An (R7)  had resigned as EDs with effect from 26 July 2018 “[i]n order to facilitate the ongoing investigation of the audit issues of [NAH] and adherence to good corporate governance going forward”.

77.  The announcements referred to in paragraphs 68 and 73 above were issued in the name of three new EDs (and the three then existing INEDs).

78.  The three new EDs were Ma Zhaohui (“Ma”), Yang Ruisheng (“Yang”)  and Lei Zhen. According to the 26 July 2018 announcement, both Ma and Yang are from Hebei AMP.  It is evident that NAH’s ultimate controlling shareholder (through Parko and Million Rich)  still exercises control over the company through appointments to the Board.

79.  On 20 November 2019, NAH announced that the three then existing INEDs, Chiu (R10), Fan (R11)  and Patrick had resigned with effect from 8 November 2019, with the result that all INEDs and all members of the Audit Committee had resigned.

Alleged Loan from NAH to Dongyue

80.  Separately, the Petitioner has investigated into an alleged loan from NAH to Dongyue, the circumstances were as follows.

81.  In NAH’s 2015 Annual Results and Annual Report, NAH recorded an “Impairment loss of amount due from a related party” of RMB40,000,000 (which would be equivalent to around HK$50,000,000). The amount was said to be “unsecured, interest-free and repayable on demand” and, in the opinion of the directors, it “cannot be recovered and was fully impaired”.

82.  Then, on 9 May 2016, NAH announced that:

a.  On 28 April 2016, NAH entered into a loan agreement (“Loan Agreement”)  with Dongyue as the borrower in relation to a loan of HK$50,000,000 advanced on 26 August 2015 (“Loan”).

b.  NAH had received payment of the loan and the interest accrued thereon in full in the total amount of HK$51.7 million from Dongyue.

c.  As to the statement in the 2015 Annual Results Announcement that the Loan could not be recovered and was fully impaired, NAH would like to supplement and clarify that NAH “had made several attempts to demand and was not able to obtain the financial information of [Dongyue] as at 31 December 2015 to assess its financial position and was unable to assess its recoverability and were in doubt of the recoverability due to the delay in repayment”.

d.  Having considered the business relationship with the group companies of the Co-op Group and the short-term nature of the Loan, the directors considered that the Loan could facilitate the maintenance of good business relationship with the Co-op Group.

83.  The Loan Agreement (借款協議), which was written in Chinese, was dated 29 April 2016.  It was signed by Chen LJ (R1)  on NAH’s behalf.  The purpose of the Loan was stated to be for Dongyue’s short-term operation funds.

84.  The Loan Agreement was approved by the Board according to a set of minutes in respect of a meeting on 21 April 2016, attended by Chen LJ (R1), Ren (R5), Peng (R6), Wen (R9), Chiu (R10), Fan (R11)  and the 12^th Respondent.

85.  In NAH’s 2016 Interim Results Announcement dated 31 August 2016, it was stated that the settlement of an impaired loan with accrued interest of approximately HK$51,700,000 was made by Parko on behalf of Dongyue.  It was not explained why Parko would be discharging Dongyue’s liability under the Loan Agreement.

86.  In response to the Petitioner’s enquiries, Dongyue stated that:

a.  In August 2015, Ji Hong (Dongyue’s sole director)  knew from China Co-op that NAH and China Co-op had entered into an escrow agreement pursuant to which NAH was to transfer HK$50,000,000 to a bank account designated by China Co-op.

b.  On 26 and 28 August 2015, Dongyue received a total of HK$49,999,994 from NAH.

c.  On around 10 September 2015, Dongyue transferred the same sum to one China Agriculture Media (Hong Kong)  Group Co. Ltd (“China Agriculture Media”)  at the request of NAH and upon the confirmation of China Co-op.  Chen LJ (R1)  was a director of China Agriculture Media at the relevant times.

d.  To Ji Hong’s knowledge, in around mid-April 2016, NAH requested China Co-op to take the following actions:

i.  Dongyue (as borrower)  and NAH (as lender)  was to execute the Loan Agreement;

ii.  Dongyue (as borrower)  and China Agriculture Media (as lender)  was to execute another loan agreement; and

iii.  Pursuant to the said agreements, China Agriculture Media was to remit the amount of the Loan to Dongyue, which in turn was to remit the same to NAH.

e.  Further to negotiations between China Co-op and NAH (in which Dongyue did not participate), the said agreements were executed by Dongyue, NAH and China Agriculture Media on 7 May 2016.  To protect Dongyue’s interest and at the request of China Co-op, NAH issued an explanatory note on 7 May 2016 (which was dated 29 April 2016)  to confirm that Dongyue was only required to retrospectively sign the Loan Agreement for audit purposes and it did not have to bear any responsibility for the Loan.

f.  As it turned out, China Agriculture Media did not remit the Loan to Dongyue, and Dongyue as such did not remit the same to NAH.

g.  At the request of NAH, Dongyue signed an audit confirmation to confirm the Loan as at 31 December 2015.

h.  The persons who liaised with Dongyue in respect of the above arrangements were Lu (R3, Financial Manager of NAH)  and Liu (R8, director of China Co-op and ED of NAH).

87.  In other words, on Dongyue’s version of events, the RMB50,000,000 was not in fact a loan advanced by NAH to Dongyue.  Dongyue has produced (among other things)  the following documents in support of its version of events:

a.  bank statement showing the deposit of around HK$49,999,994 into Dongyue’s account in August 2015 and withdrawal of the sum in September 2015 (see paragraphs 86(b)  and 86(c)  above);

b.  the explanatory note (signed by Chen LJ (R1)  on behalf of NAH), referred to in paragraph 86(e)  above, and a further explanatory note (also signed by Chen LJ (R1)  on behalf of NAH)  dated 25 March 2016 to similar effect;

c.  the Loan Agreement (see paragraph 86(d)(i)  above);

d.  a further loan agreement between Dongyue and China Agriculture Media (see paragraph 86(d)(ii)  above); and

e.  an audit confirmation signed by Dongyue (see paragraph 86(g)  above).

The Petitioner’s Complaints

First Complaint – Parko and the Shares Consideration

88.  It is evident that Parko did not in fact pay the Shares Consideration of HK$676,688,260.5 to NAH pursuant to the Subscription Agreement:

a.  CCB’s confirmation that the CCB Cheque had not been cashed from Parko’s account, which in any event had insufficient funds during the relevant period to honour the cheque (see paragraph 56 above);

b.  Dongyue’s denial of ever receiving the CCB Cheque or any portion of the Shares Consideration from Parko (see paragraph 49 above);

c.  Findings of Deloitte, EY and the Petitioner that the existence of Account 8506, into which the Refunded Sum (of which the Shares Consideration should have formed part)  was supposed to have gone, could not be confirmed (see paragraphs 51 to 58 above);

d.  NAH’s new case that Parko did not settle the Shares Consideration by the CCB Cheque but instead through the Alternative Transfers (see paragraphs 60 to 64 above).  Such a wholesale change of evidence and running of a completely new case directly contradict NAH’s publicly announced position and its previous submissions to the Petitioner;

e.  The Petitioner’s findings as set out in paragraph 62(a)  to 62(c)  above;

f.  NAH’s inability to produce any underlying records for the Alternative Transfers (see paragraph 62(d)  above).  NAH’s claim that it could not obtain such records from Hebei AMP because the Petitioner had not given permission to NAH to disclose these investigations is unreasonable and incredible, given that:

i.  The Alternative Transfers were purportedly for settlement of the Shares Consideration with NAH.  NAH ought to have retained the underlying records;

ii.  In any event, NAH could reasonably have demanded the records from Hebei AMP without having to reveal the Petitioner’s investigations;

g.  Parko’s inability to produce complete or reliable records of the Alternative Transfers (see paragraph 62(d)  above):

i.  For the Alternative Transfers in Hong Kong, the purported records produced by Parko only added up to HK$157,500,000, around HK$47,000,000 of which were for unrelated purposes.  In any event, none of the records themselves show that the purpose of the transfers was for settlement of the Shares Consideration by Parko to NAH.

ii.  Parko’s claim that all outstanding records were retained by Hebei AMP which was allegedly subject to an audit is unreasonable and incredible.  Parko and/or Hebei AMP ought to have retained at least copies of such records.  In any event, Parko has not followed up on the matter with the Petitioner as promised.

h.  The common directors of NAH and Parko (i.e. Chen LJ (R1), Peng (R6)  and Zhang)  and those who admittedly knew about the alleged Alternative Transfers (i.e. Chen LJ (R1), Cai (R2)  and Chen Jing (R4))  knew or ought to have known whether and if so how Parko had paid the Shares Consideration of HK$676,688,260.5 to NAH. These individuals have not proffered any or any reasonable account or explanation.

89.  In the premises:

a.  NAH issued 212,194,500 shares to Parko, NAH’s controlling shareholder, for no or grossly inadequate consideration in return. The Shares Consideration was supposed to represent a highly substantial sum to NAH.

b.  NAH’s public statements about the use of the proceeds from Parko paid by “cheque” in its 2015 Annual Results Announcement, 2015 Annual Report, 2016 Interim Results Announcement and 2016 Annual Report (see paragraphs 24 and 25)  were false.  To-date, there has been no public clarification by NAH of the above, notwithstanding NAH’s own new case that Parko did not actually pay the Shares Consideration by cheque.

c.  The arrangements regarding the two alleged projects announced in 2015, i.e. the potential establishment of the Fund and the intended acquisition of the Target Company, were not genuine.  Both projects purportedly involved deployment of the Shares Consideration; neither of them came to fruition in the end.  At the very least, NAH’s public announcements dated:

i.  25 August 2015 (stating that NAH had deposited the RMB850,000,000 Retainer Money to Dongyue, see paragraph 29 above);

ii.  31 December 2015 (stating that part of the Retainer Money was to be returned to NAH, see paragraph 31 above);

iii.  14 March 2016 (stating that NAH had paid RMB1,220,000,000 to Ao Yuan, see paragraph 35 above); and

iv.  31 March 2016 (describing how the Refunded Sum was received by Guonong Taifeng’s Account 8506, see paragraph 36 above)

contained false or misleading information.  In short, if Parko did not pay the Shares Consideration to Dongyue, Dongyue would not have the RMB850,000,000 Retainer Money to transfer to Guangzhou Yin Qian, and the subsequent transfers to Ao Yuan/Guonong Taifeng could not have happened.

d.  The genuineness of the documents produced by NAH in support of Parko’s payment of the Shares Consideration, including the CCB Cheque, purported letters of instruction, bank records and vouchers (see paragraph 37 above)  is highly questionable or the documents were fabricated.

90.  Furthermore, the aforesaid matters have resulted in the continued suspension of trading in NAH’s shares since 4 July 2017 (as directed by the Petitioner)  and the delisting of NAH (see paragraphs 71 to 75 above).

91.  By reason of the above, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation (with NAH issuing 212,194,500 shares to Parko for no or grossly inadequate consideration in return), fraud, misfeasance and/or other misconduct as described in section 214(1)(b)  of the SFO;

b.  resulting in its members (i.e. the minority shareholders, not Parko)  not having been given all the information with respect to its business or affairs that they might reasonably expect (section 214(1)(c)  of the SFO); and/or

c.  unfairly prejudicial to its members (i.e. the minority shareholders, not Parko)  (section 214(1)(d)  of the SFO).

Second Complaint - NAH’s Payment of HK$384 million to South China Financial

92.  The Petitioner repeats paragraphs 41 to 48 above. It is evident that the HK$384,000,000 transferred by NAH to South China Financial did not eventually go to Dongyue (to form part of the RMB85,000,000 Retainer Money)  but went instead to Parko and PMI for purposes unrelated to NAH.

93.  In the premises:

a.  A substantial sum of HK$384,000,000 had been misappropriated from NAH.

b.  The misappropriation had been concealed from NAH’s minority shareholders, to whom it was announced that Dongyue received a total of RMB850,000,000 as Retainer Money (which sum was supposed to include the HK$384,000,000 from South China Financial).

c.  NAH’s letter dated 9 January 2015 and signed by Chen LJ (R1)  purportedly instructing South China Financial to transfer HK$384,000,000 to Dongyue (see paragraph 37(b)  above)  was not genuine.

94.  By reason of the above, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance and/or other misconduct (i.e. misappropriation of HK$384,000,000)  as described in section 214(1)(b)  of the SFO;

b.  resulting in its members (i.e. the minority shareholders)  not having been given all the information with respect to its business or affairs that they might reasonably expect (section 214(1)(c)  of the SFO); and/or

c.  unfairly prejudicial to its members (i.e. the minority shareholders)  (section 214(1)(d)  of the SFO).

Third Complaint - The RMB1.85 billion Deposit

95.  The Petitioner repeats paragraphs 65 to 70 above. In short, after enquiries were raised about the existence of Account 8506 (into which the RMB1,820,000,00 Refunded Sum from the projects was supposed to have been injected), a total of RMB1.85 billion was apparently deposited with certain bank accounts within the NAH Group.  However, within a few days and notwithstanding (i)  the Undertaking given by Chen LJ (R1), (ii)  supposed monitoring by the Audit Committee, and (iii)  the involvement of independent forensic accountants, the RMB1.85 billion was transferred out of the accounts again through a series of opaque transactions and for purposes that cannot be verified.

96.  In the premises, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance and/or other misconduct (i.e. the transfer out of the RMB1.85 billion Deposits)  as described in section 214(1)(b)  of the SFO;

b.  resulting in its members not having been given all the information with respect to its business or affairs that they might reasonably expect (section 214(1)(c)  of the SFO); and/or

c.  unfairly prejudicial to its members (section 214(1)(d)  of the SFO).

Fourth Complaint - The Alleged Loan to Dongyue

97.  The Petitioner repeats paragraphs 80 to 87 above. It is evident that the alleged Loan of HK$50,000,000 from NAH to Dongyue was not in fact a loan to Dongyue, but a sum transferred through Dongyue to China Agriculture Media (of which Chen LJ (R1)  was a director)  for an unexplained purpose(s).  The sum was, for reason(s)  unexplained, returned with interest by Parko to NAH.

98.  In the premises:

a.  The following announcements of NAH contained false or misleading information which was never publicly rectified by NAH:

i.  the 2015 Annual Results and Annual Report, which referred to the “Loan” from a “related party” as being not recoverable and fully impaired (see paragraph 81 above);

ii.  the 9 May 2016 announcement, which described the “Loan” and the “Loan Agreement” between NAH and Dongyue with no mention of the arrangement with China Agriculture Media (see paragraph 82 above);

iii.  the 2016 Interim Results Announcement, which referred to “settlement” of the “Loan” by Parko with no mention of the arrangement with China Agriculture Media (see paragraph 85 above);

iv.  The “Loan Agreement” which was executed by NAH and approved by the Board (see paragraphs 82 to 85 above)  did not reflect the true position.

v.  In any event, the sum of HK$50,000,000 was transferred to Dongyue on 26 August 2015.  On Dongyue’s evidence, the “Loan Agreement” was not executed until 8 months later on 7 May 2016 (but dated 28 April 2016)  and only for audit purposes.  Even assuming that the sum was a loan to Dongyue or China Agriculture Media (which is not accepted by the Petitioner), it could not have been in NAH’s interests for such a loan to be advanced without any documentary record or security in the first place.

99.  In the premises, the business or affairs of NAH regarding the alleged “Loan” have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance and/or other misconduct as described in section 214(1)(b)  of the SFO.  The advancement of HK$50,000,000 to a third party without any documentary record or security amounted to misappropriation of NAH’s funds.  This is so notwithstanding that the sum happened to be returned to NAH subsequently;

b.  resulting in its members not having been given all the information respect to its business or affairs that they might reasonably expect as described in section 214(1)(c)  of the SFO; and/or

c.  unfairly prejudicial to its members as described in section 214(1)(d)  of the SFO.

Responsible Persons/Entity

Chen LJ (R1)

100.  Chen LJ was at all material times the central figure behind NAH and Parko and the matters complained of these proceedings:

a.  He executed on behalf of either NAH or Parko all of the key documents referred to above, including the CCB Cheque, Tripartite Agreement, Cooperation Framework Agreement, Escrow Agent Agreement, NAH’s letters of instructions for the purported transfers to Dongyue/Guangzhou Yin Qian/Ao Yuan/Account 8506, the Undertaking, the Loan Agreement, explanatory notes on the Loan, and all relevant Board minutes.

b.  He along with Cai (R2)  were the authorised signatories of NAH’s bank accounts.  They were considered by other directors and officers to be the core persons behind NAH’s investments and all payments had to be signed off by them.  Chen LJ was also the authorised signatory of Parko’s bank account with CCB (see paragraph 57 above).  He was regarded as being in charge of Parko, and had to approve transfers for NAH and Parko.

c.  He did most of the talking in meetings and decision-making for NAH.

d.  He represented to the Petitioner that starting from 2015, NAH’s announcements could only be published with his approval.

e.  He and Lu (R3)  were said to be persons who gave instructions for, and confirmed, NAH’s replies to the Petitioner’s enquiries.

101.  Whether in his interviews with or NAH’s replies to the Petitioner, Chen LJ was unable to provide any reasonable or credible explanations for the questionable transactions.  In particular:

a.  He repeatedly said during the interviews that he needed to investigate into the matters.  But he has not come back to the Petitioner with any investigation results to-date.

b.  His insistence that Account 8506 existed and his evidence about Li Yi Jun having transferred funds away from the account are refuted by the findings of Deloitte, EY and the Petitioner, none of which could confirm the existence of the account.

c.  It is evident that Chen LJ had intentionally breached his duties to NAH (please refer to paragraphs 103 to 105 below – Chen LJ owed the same duties to NAH)  given his intricate involvement in the matters complained of in the Petitioner’s investigations.  In particular:

i.  His role in Parko and China Agriculture Media put him in a seriously conflicted position:

1.  Parko had benefited, at the expense of NAH, from not having to pay for the Shares Consideration and from the receipt of monies transferred by NAH to South China Financial (see paragraph 47 above);

2.  China Agriculture Media had benefited from the “Loan” which was transferred to it by NAH through Dongyue;

ii.  The siphoning away of the RMB1.85 billion Deposit was a blatant breach of the Undertaking given by Chen LJ.

iii.  By reason of the matters in paragraphs 65 to 70, 91, 94 and 99 above, elaborate arrangements were put in place to conceal the true position of the questionable transactions from regulatory bodies, NAH’s minority shareholders and the investing public.

Senior officers: Cai (R2), Lu (R3), Chen Jing (R4)

102.  Each of Cai, Chen Jing and Lu knew or ought to have known about, and were involved in, the matters complained of in these proceedings. In particular:

a.  As General Manager, Cai was involved in NAH’s investment projects and responsible for presenting them to the Board.

b.  Given Cai’s ownership of PMI and controlling interest in South China Financial, he knew or ought to have known about NAH’s transfers of monies to South China Financial, especially about the sums which went to PMI.

c.  Chen Jing assisted Cai in managing NAH and assumed a substantial role in its financial affairs. She was also Cai’s partner in PMI.

d.  Lu was NAH’s Financial Controller/Manager and assumed a substantial role in its financial affairs.

e.  Both Lu and Chen Jing were said to know about the details of the Fund project.

f.  Lu was further said:

i.  to be involved in NAH’s transfers of funds, to have coordinated the payment of earnest money and the refund, and to know about NAH’s accounting documents;

ii.  to have produced the purported bank records that were submitted to Deloitte;

iii.  to have provided the CCB Cheque and the purported vouchers;

iv.  to have requested Dongyue’s execution of the Loan Agreement and transfer of the “Loan” to China Agriculture Media.

g.  Chen LJ and Lu were said to be the individuals who gave instructions for, and confirmed, NAH’s replies to the Petitioner’s enquiries.

h.  Cai and Lu claimed to know about the alleged change of Parko’s payment method for the Shares Consideration from the CCB Cheque to the alleged Alternative Transfers since early 2016 and the end of 2015 respectively.  Even assuming this were true (which is not accepted by the Petitioner), Cai and/or Lu ought to have rectified the false or misleading announcements of NAH on Parko’s “cheque” and the false or misleading information submitted by NAH to the Petitioner, but did not do so.

i.  Paragraphs 63(c), 64, 100(b)  and 100(e)  are repeated insofar as they relate to Cai, Chen Jing and/or Lu.

Misconduct of the 12^th Respondent

103.  At all material times, the 12^th Respondent owed the following duties to NAH:

a.  fiduciary duties, including:

i.  to act honestly and in good faith in the interests of NAH;

ii.  to act for proper purpose(s);

iii.  to avoid situations where his interests may be in actual or potential conflict with that of NAH;

iv.  not to obtain any undisclosed profit from his position;

b.  a duty of care at common law to exercise due and reasonable care, skill, diligence and independent judgment that would be exercised by a reasonably diligent person with:

i.  the general knowledge, skill and experience that may be reasonably expected of a person carrying out the same functions as carried out by the director or senior officer in relation to NAH; and

ii.  the general knowledge, skill and experience that he has.

104.  At all material times, the 12^th Respondent, as a director of NAH, were also under a duty to ensure full compliance with the Listing Rules, including Rule 3.08 thereof.

105.  Further, the 12^th Respondent owed a duty to NAH to properly supervise the affairs of its subsidiaries, including Guonong Taifeng.  By reason of the matters set out above, the business or affairs of Guonong Taifeng were also the business or affairs of NAH.

106.  By reason of the matters above, it is evident that, at the material times:

a.  Chen LJ (R1)  and (to a lesser extent)  Cai (R2), Chen Jing (R4)  and/or Lu (R3)  were able to, and did, dominate and control the affairs of NAH and the Board for personal advantage or other ulterior purposes.

b.  There was no or no effective system of internal control in NAH.

c.  The EDs and INEDs (including the 12^th Respondent)  had allowed the affairs of NAH and/or the Board to be so dominated, and neglected or omitted to identify or rectify the misconduct and/or breach of duties by Chen LJ (R1), Cai (R2), Chen Jing (R4)  and/or Lu (R3).

107.  In particular:

a.  There are no Board minutes or resolutions regarding the establishment of the Fund.  There was a Board meeting where the letter of intent for the potential acquisition of the Target Company was confirmed and approved.

b.  It is evident that the EDs and INEDs (including the 12^th Respondent)  did not have prior knowledge of, let alone participate in, any consideration or discussions regarding the Fund or the potential acquisition of the Target Company.  Nor were they shown the underlying agreements for these projects.

c.  The EDs and INEDs (including the 12^th Respondent)  did not seek information or raise queries about the above projects even when they were announced in August 2015 in the name of the Board, notwithstanding the substantial amount involved (including the payment of the RMB850,000,000 Retainer Money).

d.  The EDs and INEDs (including the 12^th Respondent)  did not seek information or raise queries as to how (if at all)  Parko had paid for the Shares Consideration, which was supposed to form part of the Retainer Money.

e.  The EDs and INEDs (including the 12^th Respondent)  did not raise concerns when it was announced in March 2016 in the name of the Board that neither of the above projects had completed and a total of RMB1,220,000,000 (the Refunded Sum)  was returned through a series of complex transfers not to NAH but to Guonong Taifeng.

f.  The EDs and INEDs (including the 12^th Respondent)  have not taken any active steps to understand or investigate the situation even after Deloitte had raised concerns regarding Account 8506 in February 2017, or after their interviews with the Petitioner in August or September 2017.

g.  The EDs and INEDs (including the 12^th Respondent)  did not seek information, raise queries or concerns or take any active steps to understand or investigate the HK$50,000,000 alleged “Loan” to Dongyue.  When the Board approved the Loan Agreement in April 2016 and announced the same in May 2016, the EDs and INEDs ought to have known then (if not earlier)  that the “Loan” was advanced some 8 months previously without any contemporaneous documentary record or security in NAH’s favour.

108.  In the premises, the 12^th Respondent, as one of the INEDs at the material times, was in breach of his duties to NAH as set out in paragraphs 103, 104 and 105 above in situations where the company would reasonably have looked to INEDs (including the 12^th Respondent)  for their independence of judgment and supervision.

109.  In all, by reason of the acts or omissions of the 12^th Respondent, the business or affairs of NAH have been conducted in a manner:

a.  involving defalcation, fraud, misfeasance or other misconduct towards its members or any part thereof;

b.  resulting in its members or any part of its members not having been given all the information with respect to its business or affairs that they might reasonably expect; and/or

c.  unfairly prejudicial to its members or any part of its members,

and the 12^th Respondent was partly responsible for the business or affairs of NAH having been so conducted.

Part C: Mitigating factors

110.  The 12^th Respondent has acted promptly and reasonably in acceding to the Petitioner’s suggestion to dispose of these proceedings by way of the Summary Procedure.

111.  As a result, considerable time and costs have been saved by the Petitioner.

112.  If, pursuant to this Schedule, the Court disposes of these proceedings summarily the 12^th Respondent agrees that there should additionally be an order that he pays an appropriate portion of the costs (which shall be determined by the Court)  of the Petitioner in these proceedings up to the date when the Court disposes of these proceedings against the 12^th Respondent by way of the Summary Procedure, to be taxed if not agreed.

Dated this  day of December 2024.

Securities and Futures Commission Petitioner Signed by Nelson Siu, for and on behalf of the Petitioner	Ting Tit Cheung 12th Respondent

Definitions

In this Schedule: -

“corporation” means a company or other body corporate incorporated either in Hong Kong or elsewhere;

“company” means a company as defined in section 2(1)  of the Companies Ordinance (CAP 622). The expression “company” in the definitions of subsidiary, holding company and affiliate below, shall be read as including a corporation;

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

i.  the composition of the board of directors of which is directly or indirectly controlled by the holding company; or

ii.  more than half of the issued share capital of which is directly or indirectly controlled by the holding company; or

iii.  which is a subsidiary of a company which is a subsidiary of the holding company; or

iv.  which is accounted for and consolidated in the holding company’s consolidated financial statements;

“holding company” in relation to a company shall be read as a reference to a company of which that last-mentioned company is a subsidiary; and

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