Enforcement: HK's SFC secures order banning director

The order, which was made by the Honourable Mr Justice Thomas Au, disqualifies Li from being a director or being involved in the management of any listed corporation, without leave of the court, for a period of six years

Li accepted that he:

• failed to manage the company with the necessary degree of skill, care, diligence and competence as may reasonably be expected of a person of his knowledge and experience and holding his office within the company;
• failed to equip himself with the necessary understanding of the Listing Rules, and failed to consider the Listing Rules at the time when the company decided to enter into a number of transactions to acquire assets which resulted in significant losses in the company’s assets (Note 3);
• failed to ensure that the company had obtained independent professional advice on its obligations before entering into those transactions;
• failed to ensure that those transactions were disclosed to shareholders (and the market) and that shareholder approval was sought or given in accordance with the Listing Rules; and
• was responsible in part for the lack of a system of procedures and controls to ensure that prior independent professional advice was taken, that the transactions were in the best interests of the company and that the company’s interests were adequately protected.

Li also accepted that, during the relevant period, the business and affairs of Styland, have been conducted in a manner (1) involving misfeasance or other misconduct towards it or its members or a part of its members; (2) resulting in its members or any part of its members not having been given all the information with respect to Styland’s business or affairs as they might reasonably expect; and (3) unfairly prejudicial to its members or part of its members.

The SFC is also taking similar action against the former chairman and two current executive directors of the company.

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Styland was listed on the main board on 5 December 1991. The group’s business includes securities dealing, property investment, general trading and infrastructure development. Trading in the shares of Styland has been suspended by the Stock Exchange of Hong Kong since 21 April 2004.

Under section 214 of the Securities and Futures Ordinance, the court may make orders disqualifying a person from being a company 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 being conducted in a manner involving defalcation, fraud or other misconduct.

The SFC commenced proceedings against Li, the former chairman and two current executive directors of the company in 2008.

The hearing date of the SFC’s petition in relation to the former chairman and the two current executive directors of the Company has been fixed on 12 January 2011.

The SFC alleges the four directors breached their duties to the company resulting in Styland incurring substantial losses in a number of transactions. The SFC is seeking orders that the four directors (or any of them):

• be disqualified as company directors; and
• pay compensation to Styland for losses allegedly caused by their misconduct.

The four directors are former chairman, Mr Kenneth Cheung Chi Shing, current executive directors, Ms Yvonne Yeung Han Yi and Ms Miranda Chan Chi Mei and former executive director Mr Steven Li Wang Tai (the four directors).

The SFC also alleges that Cheung breached his duty to the company in a number of transactions in which he is alleged to have received (directly or indirectly) financial benefits totalling HKD79 million. The SFC alleges these transactions should have been disclosed to shareholders (and the market) and required shareholder approval which was not sought or given. The SFC also alleges Yeung breached her duty through allegedly connected transactions not authorised by the company’s shareholders (which the SFC asserts should have been authorised by the shareholders), receiving financial benefits totalling HKD6.95 million.

This is the first time the SFC has commenced action seeking compensation for a listed company or sought orders for the commencement of compensation proceedings by the listed company against company directors for alleged misconduct

This action is concerned with three important issues: first, the obligations of listed company directors to ensure shareholders are given a proper opportunity to scrutinise transactions that require their authorisation. This raises the key issue of disclosure of information to both shareholders and the market generally. Secondly, the extent to which Hong Kong law recognises the special responsibilities entrusted to a chairman of a listed company and thirdly the ambit of the court’s jurisdiction under section 214 of the Securities and Futures Ordinance to order compensation to be paid to a listed company.