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| The Securities and Futures Commission (SFC) has commenced proceedings under section 214 of the Securities and Futures Ordinance against Mr James Li Nga Kuk and Mr Li Wo Hing, former Chairman and Chief Executive Officer of Medical China Limited, now known as China Asean Resources Limited (CARL) respectively. The SFC is seeking court orders that Li Wo Hing pay an estimated $10.7 million compensation to CARL for loss or damage caused by his alleged misconduct and that Li Wo Hing and James Li be disqualified from acting as directors for seven years and four years respectively (Note 1). The SFC alleges that: a) On 28 and 29 December 2004, Li Wo Hing and James Li issued two cheques of CARL, totalling about $10.7 million. CARL and Li Wo Hing claimed that the cheques were to settle trade debts owed to two US suppliers. However, the SFC found that the money was subsequently transferred to Li Wo Hing and various persons related to him. The SFC alleges that the payments were not supported by any legitimate reason and amounted to misappropriation of company assets, the practical effect of which was to benefit Li Wo Hing and the persons related to him. b) On 23 December 2004, CARL announced the sale of the entire shareholding of a Mainland subsidiary to a buyer for $5 million. The buyer was declared to be an independent third party in the announcement and the subsequent circular, which Li Wo Hing issued on behalf of CARL. However, the SFC found that Li Wo Hing ultimately funded the $5 million the buyer paid. The SFC alleges that the announcement and circular were therefore false and misleading. c) The SFC also found that in 2002 a US supplier of CARL had terminated the distributorship of a subsidiary of CARL. However, on 19 February 2003, James Li issued on behalf of CARL an announcement which stated, among other things, that there had been no change in the distribution right of its group since 19 December 2001, the date of its IPO prospectus. The SFC alleges that the announcement was false and misleading. CARL did not announce termination of the distributorship until 7 April 2003. d) Li Wo Hing and James Li had adopted a practice in which James Li signed blank cheques of CARL without inquiring into or even knowing their purposes, putting the assets of CARL at risk. The SFC alleges that Li Wo Hing and James Li had therefore breached their duties as directors owed to CARL. The estimated $10.7 million compensation sought by the SFC from Li Wo Hing is equivalent to the two cheque payments mentioned in (a) above. The Court of First Instance today granted leave to hear the cases of Li Wo Hing and James Li together on 26 September 2012. Notes: 1. The company was known as Medical China Limited at the material times. It was listed on the Main Board of the Stock Exchange of Hong Kong Limited on 31 December 2001. 2. A summary of the material events and the allegations is posted on the SFC website. |
