The Securities and Futures Commission (SFC) has commenced legal proceedings in the Court of First Instance to disqualify three former senior executives of China Best Group Holding Limited (China Best) (Notes 1 & 2).
The SFC is seeking disqualification orders against Mr Wang Jian Hua, former advisor to the board of China Best, Ms Ma Jun Li, former chairman and executive director of China Best, and Mr Zhang Da Qing, former chief executive officer and executive director of China Best.
The SFC’s action follows its investigation into a proposed acquisition of 60% of the equity interest in ChongHou Energy Resources Limited (ChongHou) by China Best’s subsidiary, Clearmind Investments Limited (Clearmind), in 2008 (Note 3).
The SFC alleges that Wang, Ma and Zhang had breached their directors’ duties to China Best in handling the proposed acquisition resulting in loss to Clearmind and/or China Best. At the material time, Wang was a substantial shareholder of China Best and Ma was his wife.
Specifically, the SFC alleges that:
- The seller in the proposed acquisition, Asset Rich International Limited (Asset Rich), and its ultimate beneficial shareholder were nominees of Wang and therefore not third parties independent of China Best. A total of $155 million paid by China Best and its subsidiaries to Asset Rich for the purpose of the proposed acquisition ended up being used to discharge Wang’s personal loans or paid to Wang’s personal company. Wang, therefore, profited from the proposed acquisition and had a material interest in the acquisition. However, Wang failed to disclose any of this to China Best’s board of directors.
- China Best falsely represented in two announcements issued on 3 March and 3 December 2008, respectively, that Asset Rich was an independent third party.
- Ma and Zhang failed to inform China Best’s board of directors that the ultimate beneficial shareholder of Asset Rich was not an independent third party and had wrongfully authorized the issue of the two announcements.
- When China Best terminated the proposed acquisition following an enquiry by the Stock Exchange of Hong Kong Limited, Asset Rich failed to refund the cash deposit of $305 million to Clearmind on time. Accordingly, Asset Rich was obliged under the relevant agreement to pay interest accrued on the cash deposit to Clearmind. Wang, however, wrongfully agreed to waive the accrued interest, resulting in loss to Clearmind and/or China Best.
As part of the legal proceedings, the SFC is also seeking court orders that China Best shall bring in its name, or procure Clearmind to bring in its name, court proceedings against Asset Rich to recover the interest accrued on the $305 million cash deposit.
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Notes:
- China Best was listed on the Main Board of the Stock Exchange of Hong Kong Limited on 26 March 1996. The principal activities of China Best’s associates and subsidiaries were coal processing, international air and sea freight forwarding and the provision of logistics services as well as trading of securities.
- The first hearing of the petition presented by the SFC under section 214 of the Securities and Futures Ordinance (SFO) was heard in the Court of First Instance today. Under section 214 of the SFO, the court may, among other things, make orders to disqualify a person from being a director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having been conducted in a manner involving defalcation, fraud, misfeasance or other misconduct towards it or its members or resulting in members not having been given all the information that they might reasonably expect.
- ChongHou held a 60% interest in a sino-foreign joint venture company under PRC laws which was principally engaged in the business of coal mining in Mainland China.
- A summary of the material events and the allegations is posted on the SFC website.