The Securities and Futures Commission (SFC) has obtained disqualification orders with durations of up to 33 months in the Court of First Instance against four former directors of China Candy Holdings Limited (China Candy) over their negligence in failing to uncover the overstatements in the company’s financial records and in discharging their duties as directors (Notes 1 and 2).
The four former directors of China Candy named in the SFC’s legal proceedings are: Ms Li Yuna and Ms Yvonne Hung, former executive directors and chairpersons; Mr Fangus Chu Wai Wa and Mr Ong King Keung, former independent non-executive directors (Note 3).
Under the court orders, Hung and Li were disqualified for 33 months and 24 months respectively, while Chu and Ong were disqualified for 12 months each, from being a director, liquidator, receiver or manager of, or being involved in the management of, any corporation in Hong Kong. They were also ordered to pay the SFC’s costs in the proceedings (Notes 4 to 6).
The SFC’s legal action stemmed from its investigation which found material overstatements in China Candy’s cash and bank balances, as disclosed in its 2016 interim report and 2016 annual report, by 87% and 97% respectively. The SFC also found that China Candy’s bank and accounting records had been fabricated to cover up the overstatements.
The four former directors admitted that they had relied on the external professionals to identify and report potential red flags. The internal control review reports prepared by the external professionals in 2015 and 2016 identified several issues, including discrepancies in cash counts, absence of petty cash records, and inconsistencies in the reporting of monthly management accounts and bank reconciliations. However, the four former directors failed to properly scrutinise these issues and verify whether the promised remedial measures had been implemented. By failing to do so, they had abdicated their duties to independently identify and assess the overstatements and fabrication.
The SFC’s legal proceedings against these four former directors are part of the SFC’s legal action against former directors and ex-financial controller of China Candy.
Notably, the SFC alleges that China Candy’s former chairman and executive director, Mr Xu Jinpei; its former chief executive officer and executive director, Ms Hong Yinzhi; and former chief financial controller, Mr Wang Zhihong, were, at the material time, the instigators and perpetrators of, or at least knowingly permitted, acquiesced or turned a blind eye to the overstatements and fabrication. The court hearing on the legal proceedings against the trio was concluded in March 2026, pending the judgement.
Notes:
- China Candy’s shares were listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited on 11 November 2015 (former stock code: 8182). The listing of its shares was cancelled with effect from 31 December 2019.
- The SFC commenced proceedings under section 214 of the Securities and Futures Ordinance in May 2022. Please see the SFC’s press release dated 20 April 2023.
- Li was an executive director (ED) of the Company from 30 December 2016 and the Company’s chairman from 31 July 2017, until her resignation with effect from 30 November 2017. Hung was an ED of the Company since 2 February 2017 and the chairman of the Company since 30 November 2017, until her resignation with effect from 6 March 2026. Chu was an independent non-executive director (INED) of the Company from 26 October 2015 until his resignation with effect from 24 July 2017. Ong was an INED of the Company from 29 February 2016 until his resignation with effect from 14 September 2017.
- The orders were made following the Court’s approval that the proceedings against Li, Hung, Chu and Ong could be disposed of by way of Carecraft procedure, under which the Court determines the appropriate orders to be made based on an agreed statement of facts and agreed proposed orders.
- The judgment is available on the Judiciary’s website (Case No. HCMP 572/2022).
- In September 2023, the SFC obtained disqualification order in the same proceedings against a former INED Mr Nicholas Chiu Sai Chuen for three years. Please see the SFC’s press release dated 12 December 2023.
