Hong Kong's Securities And Futures Commission Sanctions Capital VC And Yau Chung Hong

The Securities and Futures Commission (SFC) has taken disciplinary action against Capital VC Limited (Capital VC) and Mr Yau Chung Hong in relation to their breach of Rule 26.1 of the Code on Takeovers and Mergers (Takeovers Code).

Yau and Capital VC failed to make a general offer in respect of Longlife Group Holdings Limited (Longlife), a company listed on Growth Enterprise Market, after having increased their collective shareholding in Longlife to 30.19% on 10 June 2011 thereby triggering a mandatory general offer obligation under Rule 26.1 of the Takevovers Code. 

The Takeovers Executive (Executive) has imposed a Cold Shoulder Order denying Yau direct or indirect access to the Hong Kong securities markets for 18 months from 23 May 2012 to 22 November 2013. 

The Executive also publicly censures Yau and Capital VC in relation to their conduct in this matter. 

Capital VC is an investment company under Chapter 21 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. The principal business of Capital VC is investments in listed and unlisted companies in Hong Kong and the People’s Republic of China. Yau was an executive director, a substantial shareholder and a member of the investment committee of Capital VC.

At all material times Yau managed two investment accounts, one for Capital VC and one for his personal investments. He was the sole decision-maker in executing trades in Longlife shares for Capital VC’s and for his own account. He claimed that he had acquired excessive Longlife shares because of wrong calculations. While he was aware of the need to keep the collective shareholding of Capital VC and himself in Longlife below 30%, there was no evidence that he had made any serious efforts to put in place effective compliance procedures. Yau’s actions directly led to the breach of Rule 26.1 of the Takeovers Code.

Capital VC and its investment committee relied solely on Yau to monitor his and Capital VC’s relevant holdings in Longlife. Without adequate internal policies and procedures to ensure compliance with applicable regulatory requirements including the Takeovers Code, Capital VC must also bear responsibility for Yau’s action and the consequent breach of the Takeovers Code.

The Executive believes that the conduct of Yau and Capital VC has resulted in a serious breach of a fundamental provision of the Takeovers Code which merits strong disciplinary action. Both Yau and Capital VC accept that they have breached Rule 26.1 of the Takeovers Code and agreed to the disciplinary action taken against them under section 12.3 of the Introduction to the Takeovers Code. 

The SFC wishes to take this opportunity to remind practitioners and parties who wish to take advantage of the securities markets in Hong Kong that they should conduct themselves in matters relating to takeovers and mergers in accordance with the Takeovers Code. If they do not, they may find by way of sanction, that the facilities of such markets are withheld in order to protect those who participate in Hong Kong’s securities markets. 

A copy of the Executive Statement and related Takeovers Code provisions and the Cold Shoulder Order can be found in the Takeovers and Mergers Executive Statements section of the SFC website at www.sfc.hk.