The Securities and Futures Commission (SFC) has commenced legal proceedings in the Court of First Instance against the former chairman, Mr Tong Shek Lun, and two former executive directors, namely Ms Kinny Ko Lai King and Ms Regina Chung Wai Yu, of Sinogreen Energy International Group Limited (Sinogreen) (Notes 1 & 2).
The SFC alleges that Tong, Ko and Chung had breached their duties as directors of Sinogreen in disposing of a subsidiary in 2008 resulting in loss to Sinogreen. The SFC is seeking court orders that the three former directors be disqualified as company directors and pay compensation to Sinogreen for the loss allegedly caused by their misconduct (Notes 3 & 4).
The SFC’s action follows an investigation into Sinogreen’s disposal of a subsidiary which engaged in the manufacturing of printed circuit boards on the Mainland (the Disposal). The SFC alleges that:
- in the course of negotiating the Disposal with the purchaser, Tong entered into a secret agreement with the purchaser via a private company and received a secret profit of US$1 million (Note 5).
- Tong was required to and failed to make full and proper disclosure of his interests in the arrangement with the purchaser to Sinogreen, his fellow directors, the Stock Exchange of Hong Kong Limited (SEHK) and Sinogreen’s shareholders.
- Ko and Chung failed to act with due care and diligence and to make full and proper inquiries about the Disposal before approving it.
- Tong, Ko and Chung failed to ensure Sinogreen fully complied with disclosure and approval requirements under the Listing Rules of SEHK (Note 6).
Notes:
- Sinogreen, formerly known as Karce International Holdings Company Limited, was listed on the Main Board of the Stock Exchange of Hong Kong Limited (SEHK) on 13 March 1998. Sinogreen was principally engaged in the business of the manufacture of and trading in electronic products, conductive silicon rubber keypads, printed circuit boards, and telecommunication products and investment holdings.
- The legal proceedings were commenced under section 214 of the Securities and Futures Ordinance (SFO). The first hearing of the petition presented by the SFC will be heard in the Court of First Instance on 16 December 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. The court may also order a company to bring proceedings in its own name against any person specified in the order and may make any other order it considers appropriate.
- The disposal concerns the selling of 100% of the equity interest in Jet Master Limited (Jet Master) by Sinogreen’s indirect wholly owned subsidiary, China Ample Investments Limited (China Ample) to KFE Hong Kong Limited (KFE Hong Kong) in 2008. Jet Master held Dongguan Tai Shan Electronics Co Limited, which ran a factory manufacturing printed circuit boards on the Mainland (the PCB factory).
- The SFC alleges that the total considerations for the Disposal was originally set at US$ 4 million as per an initial term sheet dated 28 July 2008. Pursuant to the term sheet, Sinogreen would, among other things, undertake to help KFE Hong Kong upgrade the sewage facilities of the PCB factory. On 12 and 26 September 2008, Tong, on behalf of Sinogreen, signed sale and purchase agreements with KFE Hong Kong which stipulated that the considerations for the Disposal would be US$3 million only. Also on 26 September 2008, Tong signed a consultancy agreement (Consultancy Agreement) on behalf of his wholly owned company called Extract Group Limited (Extract Group) with KFE Hong Kong, pursuant to which Extract Group would take up the sewage upgrading project for the PCB factory and receive consultancy fees of US$1 million.
- The SFC alleges that when taking into account the Consultancy Agreement the Disposal should have been treated as a major transaction and a connected transaction under the Listing Rules of SEHK, and thus Sinogreen had failed to comply with the disclosure and approval requirements applicable to a major transaction and a connected transaction.
A summary of the material events and the allegations is posted on the SFC website