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The Securities and Futures Commission (SFC) has obtained an order in the Court of First Instance against Mr Chin Jong Hwa, the former Chairman and Executive Director of Minth Group Limited (Minth), ordering him to pay a sum of RMB 20.3 million as compensation to Minth’s wholly-owned subsidiary, Decade (HK) Limited (Decade), following findings of misconduct in connection with the loss suffered by Decade in the acquisition of two companies in 2008 (Notes 1 to 4).
Chin, together with three former Executive Directors, Mr Shi Jian Hui, Mr Mu Wei Zhong and Mr Zhao Feng, have also been disqualified from being directors or being involved in the management of any listed or unlisted corporation in Hong Kong for a period of three to six years, effective from 27 November 2019 (Notes 5 & 6).
The orders were made following admissions that they were in breach of their fiduciary duties and common law duties to exercise due and reasonable skill, care and diligence in the course of acting as directors of Minth.
Specifically, Chin accepted that he had failed to:
- procure Decade to negotiate for the lowest possible price for the plots of land acquired in the acquisition of the two companies;
- fully disclose his conflict of interests to the board and shareholders of Minth as required by Listing Rules of the Stock Exchange of Hong Kong Limited (SEHK), namely, his family relationship with the sellers in the acquisition, his significant control of the two companies in the acquisition, the full terms of the acquisition, and the manner in which the consideration for the acquisition was eventually dealt with; and
- take action to prevent Minth from making numerous false and/or misleading representations, as well as material non-disclosure to the SFC, the SEHK and the investing public.
It was notable that the acquisition was not a transaction with independent third parties, as disclosed, in that Chin had significant control at all times over the two companies in the acquisition and in turn the plots of land acquired through his nephew and niece, Mr Hsu Chun Wei and Ms Hsu Hsiao Ling, both of whom were the sellers at the time.
In addition, Chin had failed to fully disclose the full terms of the acquisition, including the fact that the actual total consideration for the acquisition was RMB 88,593,000 instead of RMB 25,917,000 as disclosed, that Minth’s subsidiary would be responsible for the estimated construction fees of RMB 29,380,000 under a construction contract for the plots of land acquired, and that the bulk of the total consideration for the acquisition ended up in bank accounts controlled by Chin or related to him.
Shi, Mu and Zhao admitted that they had failed to make further inquiries which should have revealed Chin’s conflict of interests in the acquisition and may have prevented Minth from making numerous misrepresentations to the SFC, the SEHK and the investing public.
Notes:
- Minth was listed on the Stock Exchange of Hong Kong Limited on 1 December 2005. The principal activities of Minth’s associates and subsidiaries were design, manufacturing, processing, developing and sales of exterior automobile body parts and moulds of passenger cars at the material time.
- The SFC commenced the proceedings in April 2014 under section 214 of the Securities and Futures Ordinance. For details, please see the SFC’s press release dated 15 April 2014.
- The orders were made following the Court’s approval that the proceedings could be disposed of by the way of the Carecraft procedure which require the submission of an agreed statement of facts upon which the Court will determine the appropriate orders to be made.
- The compensation consists of: (i) the sum of RMB 12 million being the compensation ordered to be paid by Chin to Decade for the loss it suffered in the acquisition; and (ii) the sum of RMB 8,329,789 being pre-judgment interest from 29 April 2008 to the date of judgment (i.e. 6 November 2019) plus post-judgment interest up to the date of payment. The total compensation amount is approximately RMB 20,329,789.
- Chin is disqualified from being a director for six years, whilst Shi, Mu and Zhao are each disqualified from being a director for three years. The commencement of the period of the disqualification against Chin is stayed, pending the determination of his application to exempt certain private companies from the disqualification order made against him. Chin’s application will be heard on 12 November 2019.
- Under section 214 of the Securities and Futures Ordinance, the Court may make orders disqualifying a person from being a director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having been conducted in a manner involving misfeasance or other misconduct towards the company.
