27 Apr 2020
The Securities and Futures Commission (SFC) has obtained disqualification orders in the Court of First Instance against the former vice chairman and executive director of Long Success International (Holdings) Limited (Long Success), Mr Victor Ng, the company’s former non-executive director Mr Zhang Chi, and three former independent non-executive directors, Mr Winfield Ng Kwok Chu, Mr Robert Ng Chau Tung and Mr Tse Ching Leung .
They were disqualified from being a director or being involved in the management of any listed or unlisted corporation in Hong Kong, without leave of the court, for a period of two to five years effective from 22 April 2020.
The orders were made by the Honourable Mr Justice Coleman after all of them admitted that they were in breach of their fiduciary duties and common law duties to act in the interest of Long Success and/or to exercise due and reasonable skill, care and diligence in the course of acting as directors of the company.
In particular, they admitted that they neglected or omitted to exercise their duties as directors of Long Success and had allowed Mr Wong Kam Leong, former chairman and executive director, to exercise domination and control of the affairs of the company and of its board of directors for his personal advantage or other ulterior purposes.
They also admitted that there was no or no effective system of internal controls in place to prevent the above from occurring.
The SFC’s investigation found that Wong, on behalf of a wholly-owned subsidiary of Long Success, acquired a 51% equity interest in Jining Gangning Paper Co, Ltd (Jining Gangning) for HK$190 million in 2009 (Acquisition).
Under the terms of the Acquisition, Mr Chook Hong Shee, the seller, provided a profit guarantee that he would compensate Long Success if Jining Gangning failed to achieve a profit after tax of RMB60 million or recorded a loss for each of the two years ended 31 December 2010 and 2011, respectively. Jining Gangning failed to achieve the agreed profit in both years.
Between March 2011 and March 2012, Wong, on behalf of Long Success, signed three confirmation letters with Chook whereby it was agreed, amongst other things, that payment of the profit guarantee owed by him would be deferred.
In June 2012, Wong, on behalf of Long Success, signed another confirmation letter whereby it was agreed that Long Success would forfeit the profit guarantee amount of HK$30.1 million owed by Chook, but the decision to forfeit the profit guarantee was not approved by the board of directors of Long Success at the material time.
The SFC considered that there was no objective, rational or commercial reason for Long Success to agree to the terms of the confirmation letters which were plainly to the company’s financial detriment. The harm to Long Success was compounded by its adverse financial position at the material time.
The SFC’s proceedings against other former directors of Long Success are ongoing.