The Securities and Futures Commission (SFC) and the Stock Exchange of Hong Kong Limited (Exchange) have collaborated in an enforcement action that led to a disciplinary action against Mr Lu Qingxing, former non-executive director, and his son, Mr Lyu Zhufeng, former executive director, of Universal Star (Holdings) Limited (Universal Star) for their failure to procure the disclosure of material information in the company’s prospectus (Notes 1 to 3).
The outcome stemmed from the SFC’s investigation which focused on, among other things, the failure of the pair to disclose 13 outstanding loans involving a subsidiary of Universal Star (as co-borrower or guarantor) to the sponsor or the other directors of Universal Star at the time of its listing (IPO) in May 2019.
The loans – totalling approximately RMB49 million – were taken out by the father between April 2017 and April 2019 of which at least approximately RMB44 million were found to have been paid to him. The loans, which remained outstanding as of August 2020, constituted material financial liabilities but were not disclosed in Universal Star’s prospectus.
Furthermore, the pair pledged a property of the subsidiary of Universal Star to secure the loans after the IPO without the knowledge or approval of other directors, or independent shareholders as required by the Listing Rules.
They had also failed to manage conflicts of interest properly given that the father personally benefited from the loans and the pledge – an obvious breach of their fiduciary duties and caused significant prejudice to investors’ interests.
The SFC referred the matters to and shared with the Exchange its investigation findings, including evidence of the loans, the pledge and payment records of the loan proceeds.
The Exchange subsequently imposed a disciplinary action of “Prejudice to Investors’ Interests Statement” (PII Statement) and censure against the pair, who had resigned from their positions as directors in 2021 and 2023, respectively (Note 4). In the Exchange’s opinion, the interests of investors would have been prejudiced had the pair remained on the board of directors of Universal Star.
The SFC’s Executive Director of Enforcement, Mr Christopher Wilson, said: “The misconduct which led to the Exchange’s PII Statement casts serious doubt on the two individuals’ suitability to continue serving as directors of the company.”
“It is of critical importance that directors of listing applicants and listed companies fulfil their fiduciary duties and ensure full compliance with relevant rules and regulations enforced by the SFC and the Exchange. Boards of directors must also act with transparency, diligence and integrity, particularly in disclosing financial activities and information and managing conflicts of interest.”
“The SFC remains committed to working closely with the Exchange to hold directors accountable for misconduct and protect investors’ interests, thereby upholding corporate governance and integrity of Hong Kong’s capital markets,” Mr Wilson added.
Notes:
- The Stock Exchange of Hong Kong Limited is a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX).
- The Exchange issued a press release in relation to its disciplinary action against Lu and Lyu of Universal Star today.
- Universal Star’s shares were listed on the Exchange on 16 May 2019. The listing of its shares was cancelled with effect from 26 January 2024.
- Lyu resigned as executive director of Universal Star with effect from 13 July 2021, and Lu resigned as non-executive director of Universal Star with effect from 1 January 2023.
