Your World of Legal Intelligence
 Hong Kong | 1-800-335-6202

Securities And Futures Commission v Wang Jian Hua And Others

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date29 October 2015
Year2015
Judgement NumberHCMP745/2013
Subject MatterMiscellaneous Proceedings
CourtHigh Court (Hong Kong)
HCMP745/2013 SECURITIES AND FUTURES COMMISSION v. WANG JIAN HUA AND OTHERS

HCMP 745/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 745 OF 2013

____________

IN THE MATTER of CHINA BEST GROUP HOLDING LIMITED
and
IN THE MATTER of Section 214 of the Securities and Futures Ordinance, Cap 571

____________

BETWEEN
SECURITIES AND FUTURES COMMISSION Petitioner
and
WANG JIAN HUA 1st Respondent
MA JUN LI 2nd Respondent
ZHANG DA QING 3rd Respondent
CHINA BEST GROUP HOLDING LIMITED 4th Respondent

____________

Before: Hon G Lam J in Court
Dates of Hearing: 2 and 4 September 2015
Date of Decision: 29 October 2015

_____________

D E C I S I O N

_____________

I. INTRODUCTION

1. These proceedings were brought by petition by the Securities and Futures Commission (“the Commission”) pursuant to s. 214 of the Securities and Futures Ordinance (Cap. 571) (“the Ordinance”) in relation to the affairs of China Best Group Holding Limited (“China Best”), which is the 4th respondent to the petition. The complaints in the petition concern an aborted acquisition of certain equity interest in a Mainland company. The events directly related to that acquisition took place in the years 2007 to 2009.

2. By the petition the Commission seeks orders from the court to disqualify the 1st to 3rd respondents from being a director or concerned in the management of any corporation, and sought an order that China Best procure one of its subsidiaries to bring an action to recover interest on certain sums paid out for the acquisition.

II. FACTUAL BACKGROUND

3. In this section I shall set out the principal facts and events. Unless otherwise specified, they are uncontroversial.

The parties

4. China Best is a company incorporated in Bermuda in 1996 as an exempted company. Its head office and principal place of business was and still is in Hong Kong. The issued shares of China Best were listed on the Main Board of The Stock Exchange of Hong Kong Limited (“Stock Exchange”) on 26 March 1996 and remain so listed to date.

5. China Best was an investment holding company. The principal activities of the group consisting of China Best and its associated and subsidiary companies (“the Group”) were coal processing, international air and sea freight forwarding and the provision of logistics services as well as trading of securities. Three of the subsidiaries, all incorporated in the British Virgin Islands (“BVI”), are relevant to these proceedings, namely, Clearmind Investments Limited (“Clearmind”), Fortune Zone International Limited (“Fortune Zone”) and Heatwave Industries Limited (“Heatwave”).

6. The 1st respondent is the husband of the 2nd respondent. He was at all material times indirectly a substantial shareholder holding over 30% of the issued shares of China Best via his own BVI company called Best Chance Holdings Limited (“Best Chance”). Prior to 25 November 2005, he was the chairman of the board of directors and an executive director of China Best. On 25 November 2005, he resigned as executive director and the 2nd respondent, an executive director, was elected chairman of the board in his place. The 1st respondent however continued to hold the position of Group BOD Advisor and remained part of China Best’s senior management.

7. The 1st respondent was also at all material times a director of Clearmind and Heatwave, and an authorised signatory of the bank accounts of China Best, Clearmind, Fortune Zone and Heatwave.

8. The 3rd respondent was at all material times an executive director of China Best and had since 5 June 2007 been its Chief Executive Officer.

Asset Rich and ChongHou

9. The petition is concerned with the Group’s aborted acquisition of 60% of the shareholding of a company called ChongHou Energy Resources Limited (“ChongHou”) from another company called Asset Rich International Limited (“Asset Rich”) in 2008.

10. Asset Rich and ChongHou are companies incorporated in the BVI on 8 June 2007 and 25 July 2007 respectively, with the latter being a wholly owned subsidiary of the former. Between 1 September 2007 and 1 October 2008, another BVI company called Rich Wisdom Group Limited, which was held by a Mainland resident called Zhang Ying, held 50% of Asset Rich. Zhang Ying also became a director of Asset Rich on 1 September 2007. In September 2007, the other 50% of the shareholding in Asset Rich was held by a person called Chan Son Wui, and was transferred to another person called Ngan Iek on or about 12 October 2007. These two individuals were Macau residents known to the 1st respondent. Since 1 October 2008, Rich Wisdom Group Limited had held 100% of the shareholding of Asset Rich.

11. There is an issue as to whether, in the transactions that I shall presently describe, Zhang Ying was acting on her own account, or acting as a nominee and on the instructions of the 1st respondent or someone else. This is the principal factual issue that requires determination in these proceedings.

Asset Rich’s and ChongHou’s acquisition of Qipanjing Mining and Qipanjing Coking

12. On 8 September 2007, by an Equity Transfer Contract, ChongHou agreed with the existing shareholders of a Mainland company called Inner Mongolia Qipanjing Mining Co Limited (“Qipanjing Mining”) to acquire 60% of the equity interest in Qipanjing Mining at the price of RMB 216 million. I shall call the vendor in this contract “the Transferors”. The contract was signed by Chan Son Wui on behalf of ChongHou.

13. The Transferors also agreed in this contract to transfer to Qipanjing Mining the entire equity interest of another Mainland company known as Qipanjing Coking Co Limited (“Qipanjing Coking”).

14. The result was therefore that, upon the completion of this contract, ChongHou would own 60% of the equity interest of Qipanjing Mining which would in turn own 100% of the equity interest of Qipanjing Coking. Qipanjing Mining and Qipanjing Coking are Mainland companies engaged, as their names suggest, in the coal mining and coke processing industries in Inner Mongolia.

The Acquisition by the Group

15. On about 3 March 2008, Clearmind, a subsidiary of China Best, signed a non-binding memorandum of understanding (“Memorandum of Understanding”) with Asset Rich, whereby Clearmind agreed to purchase and Asset Rich agreed to sell, certain equity interest (as yet unquantified) in ChongHou at a consideration dependent on the valuation of the assets of ChongHou, Qipanjing Mining and Qipanjing Coking (“the Acquisition”). A public announcement regarding the Memorandum of Understanding was made by China Best on the same date (the “March 2008 Announcement”), which had been approved by the board at a meeting attended by the 1st to 3rd respondents amongst others.

16. On about 20 March 2008, Clearmind paid Asset Rich HK$15 million as refundable earnest money under the Memorandum of Understanding (the money was actually remitted by Clearmind to ChongHou). This in turn enabled ChongHou to pay HK$15 million to the Transferors under the Equity Transfer Contract on 28 March 2008.

17. In June 2008, Asset Rich obtained a loan of HK$250 million in Hong Kong from CITIC International Assets Management Limited (“CITIC”) pursuant to a loan agreement dated 24 June 2008 (“the CITIC loan”). Of the entire amount of the loan, HK$235 million was expressly earmarked for the purpose of completing the acquisition of Qipanjing Mining.

18. Financial due diligence on the Acquisition was then conducted for the Group by a firm of certified public accountants (ShineWing (HK) CPA Ltd) and financial advisers (Wallbanck Brothers). Legal due diligence was conducted by the Hong Kong solicitors’ firm of Angela Ho & Associates and by a firm of Mainland lawyers, namely, East Associates.

19. Further to the Memorandum of Understanding, on about 27 November 2008, Clearmind entered into an Acquisition Agreement with Asset Rich whereby Clearmind agreed to purchase and Asset Rich agreed to sell 60% of the shares of and in ChongHou at a consideration of HK$720 million. A public announcement regarding the Acquisition Agreement was made by China Best on 3 December 2008 (the “December 2008 Announcement”). Since ChongHou in turn held 60% of the equity in Qipanjing Mining, the interest that the Group would in effect be acquiring in Qipanjing Mining and its subsidiary Qipanjing Coking was 36% (i.e. 60% × 60%). Under the Acquisition Agreement, the consideration of HK$720 million was to be satisfied in the following manner:

(1) HK$305 million was payable in cash (“the Cash Deposit”), of which HK$15 million had been paid in March 2008 as the earnest money under the Memorandum of Understanding;

(2) HK$130 million was payable by the issuance of new shares at an issue price of HK$0.05 per share by China Best to Asset Rich (such shares representing approximately 24.65% of the existing issued share capital of China Best);

(3) HK$85 million was payable by the issuance of convertible bonds convertible to shares at a conversion price of HK$0.05 per share by China Best to Asset Rich (the conversion shares representing approximately 16.12% of the existing issued share capital of China Best); and

(4) HK$200 million was payable by Clearmind assuming part of the loan borrowed by Asset Rich from CITIC by novation at completion of the Acquisition.

The Acquisition Agreement and a draft of the December 2008 Announcement had been approved at a board meeting of China Best held on 26 November 2008 and attended by the 1st to 3rd respondents amongst others.

The payments

20. Between 28 November 2008 and 22 January 2009, pursuant to the Acquisition Agreement, China Best and its...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT