The Securities and Futures Commission (SFC) has obtained a disqualification order in the Court of First Instance against Mr Au Yeung Ho Yin, the former chief financial officer (CFO) and executive director of Fujian Nuoqi Co., Ltd. (Nuoqi) for his failure to discharge his duties as a member of the senior management of Nuoqi (Notes 1 to 4).
Au Yeung was disqualified from being a director, liquidator, receiver or manager of the property or business of any corporation in Hong Kong or being involved in the management of any corporation in Hong Kong, for a period of three years (Note 5). He was also ordered to pay the SFC’s costs in the proceedings.
The disqualification order was made after Au Yeung admitted his failure to discharge his duties to oversee the accounting and finance functions of Nuoqi, advise and assist the board of directors of Nuoqi, and supervise the preparation of Nuoqi’s accounts and financial reports and ensure proper corporate governance.
The SFC’s investigation revealed that approximately RMB225 million, approximately 95% of the net proceeds of RMB236.52 million from Nuoqi’s global offering of its shares (IPO proceeds), was withdrawn on multiple instances from Nuoqi’s bank accounts by the company’s former chairman. The withdrawals, which took place shortly after listing of Nuoqi shares in January 2014, were made without proper approval by Nuoqi’s board of directors and did not serve any genuine commercial purpose.
Justice Peter Ng of the Court of First Instance remarked that Au Yeung has breached his duties as CFO by failing to investigate the transfers of RMB50 million and HK$19.55 million, representing a portion of the unauthorized withdrawals totalling RMB225 million, for certain alleged acquisitions which were outside the scope specified in Nuoqi’s listing prospectus for its global offering of shares (Note 6). He also failed to discharge his duties as an executive director of Nuoqi to alert his fellow directors about the transfers. Furthermore, he inserted a paragraph in Nuoqi’s 2013 annual report stating that the unused IPO proceeds were deposited in Hong Kong licensed banks and would be used as outlined in the listing prospectus. This statement was false or misleading because RMB160 million out of the net IPO proceeds of RMB236.52 million was transferred to a Mainland bank and was not used within the scope specified in the listing prospectus.
The SFC’s Executive Director of Enforcement, Mr Christopher Wilson, said: “The investing public comes to rely on chief financial officers of listed companies to safeguard business assets through their supervision of corporate financial functions and reporting. As such, this case makes it abundantly clear that chief financial officers have the supervisory duty to make proper enquiry about suspicious transactions and promptly report them to the boards.”
“They also have the obligation to ensure that all disclosures in the financial reports published by listed companies are accurate and complete. This is because investors rely on them to appraise the financial position of listed companies,” Mr Wilson added.
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Notes:
Nuoqi shares were listed on the Main Board of the Stock Exchange of Hong Kong Limited on 9 January 2014. Nuoqi was principally engaged in retailing of men’s casual apparel. Au Yeung, who was the chief financial officer and company secretary of Nuoqi as at January 2014, became an executive director of the company on 14 June 2014. He resigned from all positions on 25 July 2014.
Please see the SFC’s press release dated 4 June 2019.
Under section 214 of the Securities and Futures Ordinance, the court may, inter alia, make orders to disqualify a person from being a director or being involved, directly or indirectly, in the management of any corporation for a period of 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, among others, involving defalcation, fraud, misfeasance or other misconduct towards it or its members.
The order was made following the Court’s approval that the proceedings could be disposed of by way of the Carecraft procedure (which required the submission of an agreed statement of facts on the basis of which the court would determine the appropriate order(s) to be made).
The disqualification order took effect on 1 December 2023. The Court of First Instance handed down the Reasons for Decision on 30 September 2024.
Nuoqi published its prospectus dated 30 December 2013 in respect of the global offering of its shares.
The reasons for decision is available on the Judiciary’s website (HCMP 736/2019).
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