Exchange’s Disciplinary Action against Three Former Directors of National Arts Group Holdings Limited (Delisted, Previous Stock Code: 8228)

香港联合交易所有限公司
(香港交易及结算所有限公司全资附属公司)
THE STOCK EXCHANGE OF HONG KONG LIMITED
(A wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited)

The Stock Exchange of Hong Kong Limited

CRITICISES:

1. Mr Chow Kai Weng, former Chairman, CEO and executive director of National Arts Group Holdings Limited (Delisted, Previous Stock Code: 8228);
2. Mr Cheng Wang Chun, former executive director; and
3. Mr Ho Leung Ting, former executive director,

AND FURTHER DIRECTS:

each of the above directors to attend training.

In 2021, the directors approved the Company’s acquisitions of two target companies which held property units under construction in Malaysia. At the time of the acquisitions, the target companies had not yet fully paid the developers for the property units. Under the acquisition terms, the vendors and/or their related parties would remain responsible for the target companies’ outstanding payment obligations to the developers.

The Company made full payment upfront by issuing new shares in the Company to the vendors with a total value of $108.8 million. There was a lock-up arrangement in respect of the consideration shares allotted to one vendor, but the Company later agreed for this to be partially released. 

The vendors and/or their related parties failed to discharge their outstanding payment obligations. Construction was delayed. None of the property units had been delivered to the Company. The vendors had sold most of the consideration shares.

The directors should have been aware that the acquisitions involved major risks, including that the vendors and their related parties might not fulfil the outstanding payment obligations, and/or the property construction might not be completed. The credit risk in respect of the vendors was material.

The directors failed to conduct due diligence in respect of the financial capability of the vendors and their related parties. The directors failed to properly monitor the projects after the acquisitions, including that payments were being made and the construction was progressing. The directors breached their duties to exercise reasonable skill, care and diligence in respect of the acquisitions.

Ends