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
IMPOSES:
A DIRECTOR UNSUITABILITY STATEMENT and CENSURE against:
1. Mr Li Sen, former chairman and executive director;
2. Mr Zhong Jin Hua, former executive director;
3. Mr Li Jin Yuan, former independent non-executive director; and
A PREJUDICE TO INVESTORS’ INTERESTS STATEMENT and CENSURE against:
4. Mr Zhou Xue Sheng, former executive director and CEO.
The Director Unsuitability Statement is a statement that, in the Exchange’s opinion, Mr Li Sen, Mr Zhong and Mr Li Jin Yuan are unsuitable to occupy a position as director or within senior management of the Company or any of its subsidiaries.
The Prejudice to Investors’ Interests Statement is a statement that, in the Exchange’s opinion, had Mr Zhou remained on the board of directors of the Company, the retention of office by him would have been prejudicial to the interests of investors.
From 2018 to 2019, Mr Li Sen and Mr Zhou were involved in several problematic transactions without the knowledge of the rest of the board. These included the entry by Company subsidiaries into:
- loan agreements which were major and/or connected transactions, without complying with the applicable Listing Rule requirements; and
- an arrangement under which the subsidiaries guaranteed a debt originally provided by Mr Zhou to an entity owned by Mr Li Sen. This arrangement gave a personal benefit to Mr Li Sen and Mr Zhou and was not in any way in the Company’s interest. Following a default, the guarantee resulted in arbitration against the subsidiaries and the freezing of the subsidiaries’ bank accounts.
A report prepared in August 2019 identified multiple internal control deficiencies including in relation to board approvals, cash and treasury management, and connected transactions.
Mr Li Sen was at the centre of further misconduct from 2019 to 2020.
- First, he kept secret from the Company that he had been prosecuted in the PRC for suspected misappropriation of public funds. This is information he was required to provide to the Company so that it could comply with its disclosure requirements under Rule 13.51.
- Second, in June 2020, his shareholding was transferred to a creditor by way of enforcement of a share charge. The board convened to discuss whether this should be disclosed to the public. He had a clear conflict of interest on this matter, but he did not abstain from voting and instead used his casting vote as chairman to resolve that the Company should not publish any announcement.
- Third, in late June 2020, and once his prosecution had been discovered, the board resolved to suspend his duties as a director. He then immediately caused the Company to publish unauthorised and misleading announcements. The Company had to take immediate action, which included a suspension of trading, to remedy the situation.
Mr Zhong and Mr Li Jin Yuan were aware of Mr Li Sen’s conflict of interest in relation to the enforcement of the share charge, but did nothing to manage the situation. Instead, they blindly followed Mr Li Sen’s lead to vote for non-disclosure of the matter.
Mr Li Sen, Mr Zhong and Mr Li Jin Yuan failed to cooperate in the Exchange’s investigation.
Key messages:
Directors must be alert to situations involving conflicts of interest. This includes where the conflict applies to other members of the board. All directors should take active steps to manage conflict situations.
Directors must keep the company informed of material information for the purpose of good corporate governance and to ensure that the issuer can make timely and accurate disclosures as required under the Listing Rules.
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