The Securities and Futures Commission (SFC) has obtained a disqualification order in the Court of First Instance against Mr Zhang Yuqing, the former vice-chairman and executive director of Zhongda International Holdings Limited (Zhongda) (Notes 1 and 2).
Zhang has been disqualified from being a director and being involved in the management, of any listed or unlisted corporation in Hong Kong, without the leave of the court, for a period of six years. The duration of his disqualification reflects the gravity of his misconduct. He was also ordered to pay the SFC’s costs in the legal proceedings (Note 3).
The legal proceedings arose from an SFC investigation, which uncovered misconduct by Zhang during his tenure at Zhongda. Specifically, the SFC found that Zhang failed to fulfil his duties as a director with proper skill, care, and diligence by failing to block or disclose to the Board (i) unauthorised fund transfers totalling RMB150 million and (ii) the sale of Zhongda’s stake in “Zhongwei Bus” – both problematic transactions involved two former executive directors of Zhongda (Xu Brothers).
Although the board of Zhongda had approved the RMB150 million fund transfers for repayment of intra-group loans and other bank debts, Zhang failed or neglected to promptly inform the board when the Xu Brothers did not execute the board resolution as intended and refused to return the funds back to Zhongda after making the unauthorised fund transfers to two private companies owned or controlled by themselves.
Regarding the disposal of a 20-per cent stake in “Zhongwei Bus”, the stake was transferred to a private company owned or controlled by the Xu Brothers at a substantially undervalued price and without any payment to Zhongda or its subsidiaries. As a director of “Zhongwei Bus” responsible for its financial management, Zhang should have been aware of the resulting shareholding change and acted to prevent or report the disposal. However, he failed to inform the board, breaching his duty to safeguard Zhongda’s interests.
Given his knowledge of the unauthorised fund transfers and his management role in “Zhongwei Bus”, Zhang ought to have known that Zhongda’s 2011 interim results did not reflect the unauthorised fund transfers and the disposal. Nonetheless, he proceeded to approve the publication of the 2011 interim results, which contained false or misleading information.
Although no allegation has been made that Zhang personally benefited from the unauthorised fund transfers or the disposal, the Court agreed with the SFC that a six-year disqualification was appropriate after taking into account the seriousness of his breaches and the substantial sums involved.
Notes:
- Zhongda, was listed on the Main Board of The Stock Exchange of Hong Kong Limited (SEHK) on 1 November 2001 until its listing status was cancelled by the SEHK with effect from 8 March 2019.
- The SFC commenced legal proceedings by petition on 1 March 2019 under section 214 of the Securities and Futures Ordinance against Mr Xu Lian Guo (former chairman and executive director of the company), Mr Xu Lian Kuan (former chief executive officer and executive director of the company) (collectively referred to as Xu Brothers) and Zhang for disqualification orders. Zhang was absent from the hearing.
- The judgment is available on the Judiciary’s website (Case Number: HCMP 283/2019).
