Securities and Futures Commission v. Kwok Wing and Others

HCMP 3392/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO3392 OF 2013

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D E C I S I O N

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1.I have before me a petition presented under section 214 of the Securities and Futures Ordinance (Cap 571) by the Securities and Futures Commissioninsofar as it concerns the 4^th respondent. The Commission seeks a disqualification order pursuant to section 214(2)(d) of the Ordinance as against the 4^th respondent.

2.The parties have jointly proposed to dispose of these proceedings by way of the summary Carecraft procedure, subject to the court’s approval.  For this purpose they have submitted a set of agreed facts to the court which, if accepted by the court, will form the basis of the court’s decision.  I consider that it is appropriate to adopt the Carecraft procedure in the present case.

3.I have previously made a similar order against the 3^rd respondent to the petition for reasons set out in my decision dated 9 October 2014, to which I refer.

4.The relevant facts for this procedure are agreed between the parties and set out in a schedule placed before me, which, by consent, will be annexed to my decision when it is reduced into writing.  It is, therefore, unnecessary for me to repeat the facts except to give the following outline.

5.The company concerned was Tack Fat Group International Limited, renamed Tack Fiori International Group Limited on 23 November 2011, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited on 29 April 2002.  The irregularities of which complaint has been made principally centred on the period from June to July 2008.  Trading in the company’s shares was suspended on 30 July 2008.  Soon afterwards the company filed a petition for its own winding-up and provisional liquidators were appointed. 

6.The 4^th respondent was a director of the company between 24 June 2008 and 9 September 2008 when he resigned. 

7.The Commission complained that in June or July 2008, while it already had substantial outstanding liabilities, the company took out six new loans from money lenders totalling some HK$98 million.  As security for the loans, the company granted charges over shares in major subsidiaries and real properties.  As a director who was only appointed on 24 June 2008, the 4^th respondent signed a number of documents regarding the loans.  He has now admitted that, essentially, he signed the documents following the decisions of the 1^st respondent, then Chairman of the Board of Directors and a substantial shareholder of the company, without making any independent enquiries.

8.Information about these loans was price-sensitive and was required to be, but was not, in fact, disclosed to the public to avoid a false market.

9.In addition, in July 2008, a subsidiary of the company, Forever Fit Holdings Ltd (“Forever Fit”), entered into an agreement to acquire 40% of the shareholding and interests in the shareholders’ loans of Global Agricultural Development Limited, apparently from an individual called Li Zhong Ming as vendor, for a total consideration of $300 million. The 4^th respondent was appointed the sole director of Forever Fit on 27 June 2008.  Forever Fit was to pay by procuring another subsidiary of the company to assign receivables due from a specified debtor.  In fact, those receivables were fictitious and did not exist.

10.Also, the company issued public announcements describing the vendor as an independent third party when, in fact, he was acting as the nominee of the 1^st respondent.  Accordingly, the company had made false and misleading announcements to the public and the stock exchange.

11.The 4^th respondent was party to the board resolution approving the acquisition and the related announcements.  He signed the acquisition agreement on behalf of Forever Fit as its sole director.  Again, the 4^th respondent had no meaningful knowledge about the transaction and simply acted in accordance with the 1^st respondent’s decision without any due exercise of independent judgment.

12.There is also a complaint that the company had failed to maintain a financial management system at all though, having regard to the very short tenure of the 4^th respondent as a director, his responsibility for this particular failure was in my view necessarily limited.

13.I have no doubt that the conduct of the 4^th respondent complained of, which he has now admitted, falls within the scope of section 214.  On the basis of the admitted facts, I am satisfied that the conditions for making an order under section 214(2)(d) have been satisfied, as explained in my decision dated 9 October 2014.

14.It seems to me that the admitted facts show that the 4^th respondent was demonstrably lacking in diligence, competence and independence in the performance of his duties, and had disregarded his responsibilities as a director to the company and, indirectly, to all those who had interests in it.  While the 4^th respondent was a director only for a short period of time, he was, during that period, the person who signed the documents relating to the very significant loans and the questionable acquisition transaction.  I agree that his conduct placed him in the middle bracket, ie 6 to 10 years, of the disqualification period referred to in Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 at 174.

15.In all the circumstances, and having regard to the stance that he has since adopted in these proceedings, I consider that the period of 6 years agreed by the parties is an appropriate period of disqualification. 

16.I shall, therefore, make the order sought.

17.There will also be an order that the 4^th respondent pay the Commission’s costs in the amount agreed.

Mr Bernard Man, instructed by Securities and Futures Commission, for the petitioner

The 4^th respondent was not represented by counsel

Annex

HCMP 3392 / 2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3392 OF 2013

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SCHEDULE FOR CARECRAFT PROCEDURE IN RESPECT OF
THE 4^TH RESPONDENT (LAM YICK SING)

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A. Introduction

1. On 19 December 2013, the Securities and Futures Commission (the “Petitioner”) issued proceedings under Section 214 of the Securities and Futures Ordinance (the “Ordinance”) seeking, among other things, a disqualification order against Lam Yick Sing (the “4^th Respondent”) in respect of his conduct of the business and affairs of Tack Fat Group International Limited (renamed Tack Fiori International Group Limited on 23 November 2011) (the“Company”).

2. Subject to the approval of this Court, the Petitioner and the 4^th Respondent consent to the disposal of these proceedings against the 4^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. Limited [1994] 1 W.L.R. 172, as clarified by the English Court of Appeal in Secretary of State for Trade and Industry v Rogers [1996] 1 W.L.R. 1569 and as adopted by this Court in a number of cases including but not limited toSecurities and Futures Commission v Yick Chong San [2007] 4 HKLRD 46, Securities and Futures Commission v Fung Chiu and others [2009] 2 HKC 19 (2^nd Respondent), Securities and Futures Commission v Shum Ka Sang Charlie and Shen Yi,unrep., HCMP 1014/2008 (22 May 2009), Securities and Futures Commission v Cheung Chi Shing and others [2011] 1 HKLRD 96 (3^rd Respondent) and Securities and Futures Commission v. Cheung Keng Ching and others,unrep., HCMP 1869/2008 (18 March 2010) (3^rd Respondent) in respect of proceedings under Section 214 of the Ordinance.

3. This Schedule is produced in order to provide the Court, for the purpose of disposing of the proceedings 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 4^th Respondent on the basis that the case against the 4^th Respondent will be dealt with by the Court by way of the Summary Procedure.  If the Court for whatever 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 4^th Respondent nor any proposal for disqualification or the period of disqualification 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 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 4^th Respondent admits and accepts), the 4^th Respondent accepts that during the relevant period, the business and affairs of the Company, for which the 4^th Respondent, as one of the executive directors, was partly responsible, have been conducted in a manner described in Section 214(1)(b) and (c) of the Ordinance, namely:-

(1) involving misfeasance or other misconduct towards it or its members or a part of its members; and

(2) resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs that they might reasonably expect.

6. On the basis of the facts set out in Part B of this Schedule and the agreed mitigating factor set out in Part C of this Schedule, the Petitioner and the 4^th Respondent agree, and the 4^th Respondent is prepared to accept, that it would be appropriate for a disqualification order to be made against the 4^th Respondent under section 214(2)(d) of theOrdinanceunder which he shall not, for a period of 6 years from the date of the order to be made and without the leave of the Court,

(1) be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted company in Hong Kong including the Company or any of its subsidiaries and affiliates; and

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

The definitions of company, subsidiaries and affiliates are set out in Appendix 1 to this Schedule.

7. In the event of a disqualification order being made against the 4^th Respondent by reference to this Schedule, the Petitioner and the 4^th Respondent agree that this Schedule be annexed to the Court’s judgment and will jointly seek a direction to that effect.  In the event of a disqualification order being made against the 4^th Respondent by reference to this Schedule, without prejudice to all the Petitioner’s rights under the general law, the Petitioner specifically reserves the right to (a) disclose this Schedule to third parties where it appears proper to do so in the public interest, including, but not limited to, making use of the Schedule for the purpose of any press release issued in respect of these proceedings; and (b) refer to this Schedule for purposes connected with or ancillary to these proceedings.

B. Facts not in dispute

8. The structure of Part B of this Schedule is as follows:-

(1) Paragraphs 9 to 27 set out the background information relating to:-

(a) the Company (Part B1); and

(b) the board of directors of the Company (Part B2).

(2) Paragraphs 28 to 65 (Parts B3 to B6)set out the facts relied upon by the Petitioner in support of its case that the business and affairs of the Company have been conducted in such manner described in section 214(1)(b) and (c) of the Ordinance.

(3) Paragraphs 66 to 69 (Part B7)set out the facts relied upon by the Petitioner in support of its case that the 4^th Respondent was responsible in part for the aforesaid business and affairs of the Company.

B1. The Company

9. The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 12 March 2001.

10. The Company is and was at all material times registered in Hong Kong as an overseas company under Part XI of the then Companies Ordinance (Cap.32) (now Part 16 of the Companies Ordinance (Cap.622)).

11. At all material times, the Company established its principal place of business in Hong Kong at 13^th Floor, Roxy Industrial Centre, 58-66 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong (“Office Premises”).

12. The Company was an investment holding company.  The Company through its operating subsidiaries (collectively the “Group”) principally engaged in the manufacture and sale of garment products, with manufacturing base in the Mainland of the People’s Republic of China (“PRC”)and the Kingdom of Cambodia.

13. Ever Century Holdings Limited (“Ever Century”) was a wholly owned subsidiary of the Company.  Ever Century held directly or indirectly the entire issued share capital of all the remaining subsidiaries of the Group.

14. The shares of the Company were listed on the Main Board of the Stock Exchange of Hong Kong Limited (“HKSE”) on 29 April 2002 (Stock Code No. 928).

15. On 30 July 2008, the shares of the Company were suspended from trading.

16. On 10 September 2008, the Company filed a petition for winding up.

17. On 11 September 2008, Roderick John Sutton and Fok Hei Yu of Ferrier Hodgson Limited were appointed as provisional liquidators of the Company (“Provisional Liquidators”).

18. On 5 August 2011, the Provisional Liquidators were discharged upon the successful completion of the restructuring of the Group.

19. On 9 August 2011, trading in the shares of the Company resumed on the HKSE.

20. With effect from 23 November 2011, the name of the Company was changed to Tack Fiori International Group Limited.

B2. The board of directors of the Company

21. At all material times, Kwok Wing (the 1^st Respondent) was the chairman of the board of directors and a substantial shareholder of the Company, through his interest in Efulfilment Enterprises Limited and Sharp Asset Holdings Limited which together held 762,424,000 shares in the Company (38.12% of total issued shares). 

22. Kwok Wing was represented in the Annual Reports of the Company as having over 36 years of experience in the clothing industry, that he was responsible for the formulation of overall corporate policy and business development strategy of the Group, and that he was also responsible for supervising the operation of the Group’s business and maintaining relationships with the major customers of the Group. 

23. Kwok Wing left Hong Kong in around August 2008 and retired from the board of directors of the Company on 6 October 2009.  He was arrested by the police on arrival in Hong Kong on 30 July 2013 and is currently remanded in the custody of the Correctional Services Department.

24. Kwok Choi Ha, Michelle (the 2^nd Respondent) is the daughter of Kwok Wing’s cousin, Kwok Kam Chuen.  She received up to year 3 secondary school education in China.  She started off as a clerk of the Company and then became a merchandiser.  She became an executive director of the Company from 1 September 2007.  She resigned from this position on 20 March 2009.

25. Ho Yik Kin Norman (the 3^rd Respondent) was an executive director of the Company from 26 March 2001 until his resignation on 9 September 2008.  He was represented in the Company’s Annual Reports as having over 30 years of experience in the clothing industry and was responsible for overseeing the sales and merchandising department of the Group.

26. The 4^th Respondent was an executive director of the Company from 24 June 2008.  He resigned from this position on 9 September 2008. 

27. Between June and October 2008, the Company had two other executive directors:

(1) Gary Drew Douglas, who was appointed on 24 June 2008 and resigned on 12 September 2008; and

(2) Chan Chak Kai, Kenneth, who was appointed on 24 June 2008 and retired on 6 October 2009.

B3. Loans entered into by the Company in June and July 2008

28. In around mid-2008, the Group had various outstanding liabilities, including loans under banking facilities provided by Bank of America, Banco Commercial de Macau S.A., CITIC Ka Wa Bank, and Taipei Fubon Bank.

29. Between June and July 2008, the Company entered into six loan agreements with various moneylenders (“Loans”) which resulted in total additional borrowings of approximately HK$98 million.

(1) On 6 June 2008, the Company entered into a loan agreement with Union Glory Finance Inc. (“Union Glory”) to borrow the sum of HK$30,000,000 (“Union Glory Loan”).  The loan proceeds were, however, paid to Chung Nam Securities Limited.  Union Glory, subsequently, on 7 July 2008, assigned the loan to Forefront Finance Co. Limited (“Forefront”).

(2) On 12 June 2008, the Company entered into a loan agreement with Double Smart Finance Limited (“Double Smart”) to borrow the sum of HK$15,000,000. Kwok Wing, his brother, Kwok Chiu, and Ever Century executed a share charge in favour of Double Smart to charge all their shares in Tack Fat International Holdings Limited (which Kwok Wing and Kwok Chiu held on trust for the Company). 

(3) On 12 June 2008, the Company entered into a loan agreement with Forefront to borrow the sum of HK$27,500,000, in which another entity, Capital Union Inc., participated.  As security for the loan, Chiu Wing Enterprise Company Limited (“Chiu Wing”), a wholly owned subsidiary of the Company, granted Forefront a legal charge to the Office Premises, and the Company executed a share charge over all its shares in Ever Century. 

(4) On 12 June 2008, the Company entered into a loan agreement with Hansom Finance Limited (“Hansom”) to borrow the sum of HK$7,500,000.  The loan is secured by a legal charge in favour of Hansom on a property located at Unit 19D, Roxy Industrial Centre, 58-66 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong (“19D Property”), held by Chiu Wing.

(5) On 9 July 2008, the Company entered into a loan agreement with Willie Financing Limited (“Willie”) to borrow the sum of HK$8,000,000 (“Willie Loan”)secured by a legal charge on the Office Premises. 

(6) On 23 July 2008, the Company entered into a further loan agreement with Hansom to borrow the sum of HK$10,000,000 (“Further Hansom Loan”), secured by a legal charge on the 19D Property owned by Chiu Wing and a share charge over the Company’s shares in Ever Century.

(a) The 4^th Respondent’s involvement in relation to the Loans

30. In relation to the Union Glory Loan:

(1) The 4^th Respondent had, on behalf of the Company, signed a deed of assignment dated 7 July 2008 consenting to an assignment by Union Glory in favour of Forefront of the Union Glory Loan. 

(2) The 4^th Respondent signed the deed of assignment simply because Kwok Wing had instructed him to do so.

31. In relation to the Willie Loan:

(1) The 4^th Respondent signed an attendance sheet annexed to the minutes of a board meeting of the Company purportedly held on 9 July 2008 at 11 a.m. approving the Willie Loan, thereby indicating that he was present at such a meeting.

(2) Additionally, the 4^th Respondent had also, on behalf of the Company, signed the loan agreement which had purportedly been approved by the board of the Company, and also a legal charge over the Office Premises as security for the Willie Loan, memorandum of the particulars of the Willie Loan, drawdown notice and acknowledgment of receipt of the loan amount of HK$8 million.

32. In relation to the Further Hansom Loan:

(1) The 4^th Respondent signed the minutes of a board meeting of the Company, purportedly held on 23 July 2008 and attended by Kwok Wing and the 4^th Respondent only, approving the Further Hansom Loan and the share charge over the shares in Ever Century held by the Company as security for the same.

(2) The 4^th Respondent had, on behalf of the Company, signed the loan agreement and the share charge which had purportedly been approved by the board of the Company, and also the memorandum of the particulars of the Further Hansom Loan, facilities letter, drawdown notice, acknowledgment of receipt of the loan amount of HK$10 million, undated instrument of transfer and sold note in respect of the 700 shares in Ever Century and a legal charge over the 19D Property as security for the Further Hansom Loan.

33. The 4^th Respondent signed the documents related to the Loans in paragraphs 30 to 32 on Kwok Wing’s instructions notwithstanding that:

(1) he knew the banks had refused to provide any further loans to the Company as the Company had too much outstanding debt and therefore the Company could only borrow from moneylenders;

(2) he had no knowledge about these moneylenders;

(3) he did not have any knowledge regarding the Company’s ability to repay the Loans;

(4) he was aware that the Group’s assets that were given as security for the Loans were at risk of being enforced if the Company defaulted in repayment;

(5) in relation to the Company’s ability to repay the Loans, he had simply relied on representations repeatedly made by Kwok Wing that Kwok Wing was handling the matter and was seeking further financing for the Company; and

(6) he also trusted Kwok Wing’s decisions to enter into the relevant loan documents without making any independent inquiries.

(b) Failure to disclose price sensitive information regarding the Loans

34. Information on the Loans was price-sensitive and constituted information required to be disclosed to avoid a false market.

(1) The Company resorted to borrowing from moneylenders on top of its general banking facilities.

(2) In order to secure the loans from Forefront and Hansom, the Company’s most substantial asset, being shares in Ever Century (which, as stated above, held, directly or indirectly, the entire share capital of all other subsidiaries in the Group), was charged.  Further, shares in Tack Fat International Holdings Limited were charged to secure the loan from Double Smart and real properties in which the Company was interested (through Chiu Wing) were also charged to secure the loans from Forefront, Hansom and Willie.

(3) The Loans and the terms on which they were secured indicated that the Company’s financial position had drastically deteriorated.

(4) The foregoing was specific information about the Company which was not generally known before trading of the shares of the Company was suspended on 30 July 2008 to the persons who were accustomed or would be likely to deal in the listed securities of the Company, but would, if it were generally known to them, be likely to materially affect (i.e. to cause a substantial decline in) the price of the listed securities.

35. The 4^th Respondent acquired knowledge about the Loans entered into in June 2008 after he was appointed as an executive director of the Company on 24 June 2008, and was directly involved in the decision to enter into the Loans in July 2008.  He executed various loan documents on behalf of the Company on the instruction of Kwok Wing as detailed in paragraphs 30 to 32 above.

36. In failing to disclose such price-sensitive information, the 4^th Respondent, amongst others on the board of directors of the Company, permitted or caused the Company to be in breach of Rule 13.09 of the Rules Governing the Listing of Securities on the HKSE (“Listing Rules”).

37. On 30 July 2008, the shares of the Company were suspended from trading pending the release of the results for the year ended 31 March 2008.

38. On 12 August 2008, Gary Drew Douglas on behalf of the Company made an announcement:

(1) giving a profit warning on the financial results of the Company for the financial year ended 31 March 2008;

(2) that the outstanding indebtedness of the Company as at 31 March 2008 amounted to approximately HK$992 million;

(3) that the Company made further borrowings of approximately HK$99 million since 1 April 2008 (with no further particulars or details);

(4) that the Company had defaulted in repayment of bank loans including HK$145 million due to Taipei Fubon Bank, HK$133 million due to CITIC Ka Wah Bank and HK$164,300 due to BCM (Banco Comercial de Macau) S.A.; and

(5) that the Company was unable to repay the amounts due to its creditors.

39. It was not until after the Provisional Liquidators investigated into the records and affairs of the Company that a further announcement was made on 24 October 2008, to disclose additional information about the Loans and to reveal that the entire issued share capital of Ever Century had already been transferred to a company called Merrier Limited (“Merrier”) on 15 August 2008. 

B4. The Company’s acquisition of 40% interest in Global Agricultural Development Limited (“GAD”)

40. On 8 July 2008, Forever Fit Holdings Limited (“Forever Fit”) entered into an acquisition agreement with one Li Zhong Ming (“Li”) whereby Forever Fit agreed to purchase and Li agreed to sell 40% of both the entire issued share capital of and the shareholder’s loan due by GAD at a total consideration of HK$300 million (the “Acquisition Agreement”). 

41. The Company had always been the sole shareholder of Forever Fit, which was incorporated on 28 April 2008.  The 4^th Respondent was appointed as the sole director of Forever Fit on 27 June 2008. 

42. Under the Acquisition Agreement, Forever Fit would provide the consideration by procuring Global Far East (Macao Commercial Offshore) Limited (“Global Far East”), another wholly owned subsidiary of the Company, to assign as beneficial owner all the rights, title, benefits and interests in its account receivables in the aggregate book value of around HK$328 million purportedly due from a debtor known as MUDD (USA) LLC (“MUDD”).  The invoices dated between 1 August 2007 and 31 March 2008 purportedly representing the account receivables were listed in a schedule annexed to the Acquisition Agreement.

43. However, the account receivables due from MUDD to Global Far East were fictitious.  They did not exist.

(a) Disclosure of false and misleading information regarding the Acquisition Agreement

44. On 15 July 2008, the Company announced the proposed acquisition under the Acquisition Agreement.  In the announcement, Li was described as an independent third party who was the sole beneficial owner of the entire issued share capital of GAD. It was further stated that the consideration agreed under the Acquisition Agreement was arrived at after arm’s length negotiations between Li and Forever Fit.

45. On 21 July 2008, an article appearing in the Hong Kong Economic Times alleging that Kwok Wing was one of the substantial shareholders of GAD prompted the HKSE to make an enquiry to the Company pursuant to Rule 13.10 of the Listing Rules.

46. In response of the aforesaid enquiry, the Company made a further announcement clarifying the ownership of GAD.  In the announcement, it was stated, inter alia, that:

(1) Kwok Wing was not the registered and beneficial owner of any share in GAD immediately prior to the date of the Acquisition Agreement.

(2) Wan Lai Ngan (“Ms Wan”), the wife of Kwok Wing, was the sole registered and beneficial owner of GAD from 15 November 2005, being the date of its incorporation.

(3) On 9 February 2007, Ms Wan transferred her entire interest, being one ordinary share, in GAD to Kwok Wing whereupon he became the sole shareholder of GAD. 

(4) On 15 October 2007, Kwok Wing disposed of his entire interest, being one ordinary share, in GAD to Li.

(5) Li was a third party independent of and not connected with the Group.

47. On 22 July 2008, HKSE made a further enquiry to the Company seeking clarification on the circumstances surrounding each disposition of shares in GAD by the respective parties.

48. By a fax dated 22 July 2008 from the Company’s legal advisers to HKSE, it was stated that:

(1) the disposal of interest in GAD from Ms Wan to Kwok Wing on 9 February 2007 was a family arrangement and the consideration was based on the nominal value of the share transferred; and

(2) the disposal of interest in GAD from Kwok Wing to Li on 15 October 2007 was due to commercial reasons, but the consideration could not be disclosed due to the sensitive nature of the transaction under the political environment in Cambodia.

49. By a fax dated 24 July 2008, HKSE queried whether the information contained in the Company’s announcements dated 15 and 21 July 2008 was accurate and complete in all material respects and whether the series of transactions in 2007 represented an arrangement whereby HKSE would deem Li to be a connected person under Rule 14A.06 or Rule 14A.11(4) of the Listing Rules.  HKSE, pursuant to Rule 3A.20 of the Listing Rules, further directed the Company to appoint a compliance adviser to review the aforesaid matters.

50. On 31 July 2008, the Company through its legal adviser sought to have HKSE’s direction reviewed by the Listing Committee pursuant to Rule 2B.06 of the Listing Rules.

51. Subsequently, no follow up action has been taken by the Company to review or comply with the direction.

52. Li was a worker from the PRC who worked as a cutting-machine operator in the Company’s factory in Cambodia until 4 to 5 years before his acquisition of GAD on 15 October 2007.

53. Li did not have the financial resources to acquire the entire interest in GAD.  Kwok Wing was in fact the beneficial owner of GAD and Li was acting as Kwok Wing’s nominee.

54. The Company’s acquisition of 40% interest in GAD (through Forever Fit) was accordingly a connected transaction under Rule 14A.13(1)(a) of the Listing Rules.  The Company had therefore made false and misleading announcements and representations to the public and HKSE regarding the status of Li and the ownership of GAD.

(b) The 4^th Respondent’s involvement in the approval of the Acquisition Agreement and the relevant announcements

55. In respect of the minutes of a board meeting of the Company purportedly held on 7 July 2008 at 4 p.m. approving the Acquisition Agreement and the related announcement, the 4^th Respondent signed an attendance sheet indicating that he was present at such a meeting.

56. In respect of the minutes of the board meeting of the Company purportedly held on 8 July 2008 at 4:05 p.m. approving certain amendments to the Acquisition Agreement and the related announcement, the 4^th Respondent signed an attendance sheet indicating that he was present at such a meeting.

57. At all material times, the 4^th Respondent was the sole director of Forever Fit, the purchaser, and a wholly owned subsidiary of the Company.  The 4^th Respondent accepted his appointment as a director of Forever Fit on Kwok Wing’s instructions.  On Kwok Wing’s instructions, the 4^th Respondent had signed the Acquisition Agreement on behalf of Forever Fit as its sole director.

58. At the time when the acquisition was approved and announced, however, the 4^th Respondent:

(1) did not know any information about GAD;

(2) had not met nor did he know any information about Li, the seller;

(3) did not know the details of the transaction;

(4) simply relied on Kwok Wing’s representation that any due diligence on the acquisition had been properly carried out; and

(5) trusted Kwok Wing’s decision to enter into the transaction without any due exercise of independent commercial judgment.

B5. Failure to maintain a proper financial management system

59. The Company, under the management of its board of directors, which included the 4^th Respondent, failed to maintain a financial management system at all such that by the time the Provisional Liquidators were appointed, most of the books and records of the Company and its subsidiaries could not be found.

60. The auditors of the Company gave a qualified opinion in the Independent Auditor’s Report dated 1 August 2007 for the year ended 31 March 2007, which was incorporated in the 2007 Annual Report of the Company, citing insufficient information and a failure to provide all necessary books and records.

61. The Independent Auditor’s Report of the Company dated 22 July 2009 for the year ended 31 March 2008, which was incorporated in the 2008 Annual Report, gave an adverse opinion due to the loss of books and accounts.

62. Kwok Wing was the sole person in control of the financial records of the Company and had moved the books and records of the Company overseas.

B6. Serious dereliction of duties by the 4^th Respondent

63. In conducting the affairs of the Company in relation to the transactions by the Company, the 4^th Respondent had acted (or failed to act) in serious abdication and dereliction of duties by acting on the mere say-so and instructions of Kwok Wing without exercising proper independent judgment in fulfilling his duties as an executive director of the Company.

64. The 4^th Respondent has informed the Petitioner that, despite being an executive director of the Company:

(1) he regarded himself as “just an employee” of the Company and that his main role was simply to act as an assistant to Kwok Wing and to attend to administrative tasks;

(2) he signed documents on behalf of the Company on the instructions of Kwok Wing and trusted Kwok Wing’s decision without any due exercise of commercial judgment;

(3) he did as he was told by Kwok Wing; and

(4) he was not clear on the duty of disclosure owed by a listed company and would simply rely on Kwok Wing’s decision on whether disclosure should be made.

B7. Misconduct by the 4^th Respondent

65. At  all material times, as a director of the Company, the 4^th Respondent owed, among others, the following duties to the Company:-

(1) to exercise reasonable care and diligence in his management of the Company;

(2) to act in good faith and in the best interests of the Company; and

(3) to exercise reasonable care and diligence to implement a sound and prudent system of financial control so as to minimize the risk of misappropriation of corporate assets.

66. Further, under Rule 3.08 of the Listing Rules, the 4^th Respondent was responsible for fulfilling his fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law and was further required to, inter alia, (i) act honestly and in good faith in the interests of the Company as a whole, (ii) act for proper purpose, (iii) be answerable to the Company for the application or misapplication of its assets, and (iv) apply such degree of skill, care and diligence as may be reasonably expected of a person of his knowledge and experience and holding his office within the Company.  The 4^th Respondent was required to take an active interest in the Company’s affairs and obtain a general understanding of its business.  He was required to follow up anything untoward that comes to his attention.

67. In relation to the facts and matters set out in Part B3 to B6 above, the 4^th Respondent had acted in breach of his duties to the Company and had conducted the business or affairs of the Company in a manner described in Section 214(1)(b) and (c) of the Ordinance, namely:-

(1) involving misfeasance or other misconduct towards it or its members or a part of its members; and

(2) resulting in its members or any part of its members not having been given all the information with respect to the Company’s business or affairs that they might reasonably expect.

68. By reason of his position and responsibilities in the Company, the 4^th Respondent acknowledges and accepts that he was partly responsible for the aforesaid conduct of the business and affairs of the Company.

C. Agreed mitigating factor

69. The 4^th Respondent adopted a reasonable course of action in agreeing to conclude these proceedings by way of the Summary Procedure which would save both the time and costs of the Petitioner and the Court.

D. Proposal for Disqualification

70. On the basis of the undisputed facts set out in Part B and the agreed mitigating factor set out in Part C above, the parties agree that it would be appropriate for a disqualification order to be made against the 4^th Respondent under section 214(2)(d) of the Ordinance that, for a period of 6 years from the date of the order to be made, he shall not:-

(1) be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any listed or unlisted company in Hong Kong including the Company or any of its subsidiaries and affiliates; and

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

E. Costs

71. If, pursuant to this Schedule, the Court disposes of these proceedings summarily, the 4^th Respondent agrees that there should additionally be an order that the 4^th Respondent do pay the Petitioner’s costs in the sum agreed with the Petitioner.

Dated the      day of     2015.

Appendix 1

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.