The Securities and Futures Commission (SFC) has commenced legal proceedings in the Court of First Instance against the chairman, two current executive directors and a former executive director of Minth Group Limited (Minth) (Notes 1 & 2).
The SFC is seeking disqualification orders against Mr Chin Jong Hwa, chairman and executive director of Minth, Mr Shi Jian Hui, chief executive officer and executive director of Minth, Mr Zhao Feng, vice president and executive director of Minth, and Mr Mu Wei Zhong, former chief operating officer and executive director of Minth.
The SFC’s action follows its investigation into the acquisitions of 100% of the equity interest in Magic Figure Investments Limited (Magic Figure) and Talentlink Development Limited (Talentlink HK) by Minth’s subsidiary, Decade (HK) Limited (Decade), in 2008.
The SFC alleges that Chin, Shi, Zhao and Mu had breached their directors’ duties to Minth in the acquisitions resulting in loss to Decade. At the material time, Chin is a substantial shareholder of Minth.
Specifically, the SFC alleges that:
- The sellers in the acquisitions, Mr Hsu Chun Wei (nephew of Chin) and Ms Hsu Hsiao Ling (niece of Chin) were nominees of Chin and therefore not third parties independent of Minth. Chin was in fact the true beneficial owner of the issued shares in Magic Figure and Talentlink HK. A total of $99 million was paid by Decade for the purpose of the acquisitions and not RMB25.9 million as claimed in the Interim Report 2008 issued on 22 September 2008, and further that the bulk of the total consideration paid by Decade ended up in bank accounts controlled by Chin. Chin, therefore, acted in breach of his fiduciary duty owed to Decade and caused loss to Decade because of his material interests in the acquisitions. Chin also failed to disclose any of this to Minth, Decade and/or Minth’s board of directors.
- Minth also falsely represented in its Interim Report 2008 that the sellers in the acquisitions were independent third parties and that the acquisitions resulted in a net cash inflow of RMB30 million.
- Minth falsely represented in its announcement dated 12 June 2009 that the financial assistance to Mr Hsu and Ms Hsu given by Chin, which had been allegedly in place since 2007, was only ultimately repaid to Chin after the acquisitions had been completed by way of proceeds from completion of the acquisitions.
- Minth failed to disclose in its circular to the shareholders dated 10 July 2009 to approve, confirm and ratify the acquisitions the true extent to which the consideration of the acquisitions ultimately went to the bank accounts controlled by Chin. Minth also failed to disclose in the circular a property loan made by the wife of Chin to Mr Hsu and Ms Hsu.
- Shi, Zhao and Mu failed to make full and proper inquiries of Chin’s interests in the acquisitions, the true relationship and the financial assistance between Chin and Mr Hsu/Ms Hsu, and the manner in which the consideration was eventually disbursed, and failed to ensure Minth’s full compliance with the Listing Rules of SEHK.
The SFC is also seeking court orders that Chin pay $99 million compensation to Decade for loss or damage caused by his alleged misconduct.
Notes:
- Minth was listed on the Main Board of the Stock Exchange of Hong Kong Limited (SEHK) on 1 December 2005. The principal activities of Minth’s associates and subsidiaries were design, manufacturing, processing, developing and sales of exterior automobile body parts and moulds of passenger cars.
- The first hearing of the petition presented by the SFC under section 214 of the Securities and Futures Ordinance (SFO) will be heard in the Court of First Instance on 9 July 2014. 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.
- A summary of the material events and the allegations is posted on the SFC website.
