The Securities and Futures Commission (SFC) has reached a settlement for three respondents to pay compensation of about $192 million to the Combest Holdings Limited (Combest) for distribution to independent public shareholders of the delisted company to resolve the court proceedings against them in the High Court of Hong Kong by way of a summary procedure (Notes 1 to 3).
The three respondents are Mr Ng Kwok Fai, Mr Liu Tin Lap and Mr Lee Man To. The proposed settlement is subject to the approval of the Court, which has fixed the hearing of the parties’ proposals for the settlement on 2 April 2025. If approved, this will set a record compensation amount in the form of special dividends to independent minority shareholders of a delisted company.
As part of the settlement, the three respondents will pay Combest compensation of about $192 million. Combest has agreed to distribute the full amount of the compensation to its shareholders through special dividends. Additionally, two shareholders who collectively hold 24.4% of Combest have undertaken to return the special dividends they are entitled to receive for redistribution to independent public shareholders. If the Court approves the settlement, the independent public shareholders will receive $0.066 per share, which is 2.75 times higher than the last closing price of Combest’s shares before suspension (Note 4).
The settlement follows an investigation by the SFC commenced in July 2018 which revealed serious concerns about the operations of Combest and the conduct and integrity of its management. To protect the interest of the investing public, the SFC directed The Stock Exchange of Hong Kong Limited (SEHK) to suspend the trading of Combest’s shares on 29 May 2019. Prior to the suspension, Combest shares were last traded at $0.024 per share, with 75.6% of its shares being held by independent public shareholders. On 18 May 2020, the SFC commenced legal proceedings against the respondents. Combest’s shares were delisted by SEHK on 24 December 2020.
Further, as part of the settlement, the SFC and the respondents have agreed to a statement of facts, which includes:
- Ng was a shadow director of Combest since 2016, and Liu and Lee who were the only executive directors at the material time, followed Ng’s directions and instructions to operate Combest’s affairs.
- Ng, Liu and Lee caused Combest to enter into acquisitions of two subsidiary groups in 2016 and 2017. Both acquisitions were substantially overvalued by a total of $229 million. The acquisitions enabled Ng to siphon money off from Combest to benefit himself and create the false impression that Combest had a substantial level of operations and assets to warrant the continued listing of its securities.
- The two acquired subsidiary groups were comprised of fictitious or artificial businesses procured by Ng.
- Ng, Liu and Lee also caused Combest to borrow loans and make payments of fees and interests of about $64 million for no commercial reasons.
- Ng, Liu and Lee artificially inflated the revenue of Combest during various accounting periods between 2016 and 2019 and caused Combest to suffer a total loss of over $293 million.
- By reason of the above, Ng, Liu and Lee breached their fiduciary duties owed to Combest.
“The settlement is the first of its kind that will benefit directly minority shareholders of Combest from the compensation paid by the wrongdoers,” said Ms Julia Leung, Chief Executive Officer of the SFC. “We have endeavoured to keep the market clean, seek justice for the minority shareholders and make wrongdoers pay.”
The Court is scheduled to hear the parties’ proposals for the settlement and submissions on the statement of facts on 2 April 2025. Updated information relating to the Court’s decision including the decision on the compensation and the distribution of special dividends will be released in due course. The SFC reminds shareholders and the investing public to exercise caution when dealing in the shares of Combest.
Notes:
- Combest was listed on the Growth Enterprise Market of SEHK on 8 February 2002.
- On 18 May 2020, the SFC commenced the court proceedings under sections 212 and 214 of the Securities and Futures Ordinance (SFO) in order to seek remedies from Ng, Liu and Lee for their wrongdoings, which have caused losses of more than $293 million to Combest. For details, please see the SFC’s press release dated 21 May 2020.
- The SFC and Combest, Ng, Liu and Lee agreed to resolve the court proceedings by way of a summary procedure commonly known as the Carecraft procedure. The Carecraft procedure refers to the summary procedure sanctioned in the case of Re Carecraft Construction Co Ltd [1994] 1 WLR 172 and adopted by the Court in various instances in respect of proceedings under section 214 of the SFO.
- On 29 May 2019, the SFC directed SEHK to suspend trading in the shares of Combest under section 8(1) of the Securities and Futures (Stock Market Listing) Rules.
