On 24 August 2021, The Stock Exchange of Hong Kong Limited (the “HKEx”) censured Coolpad Group Limited (Stock Code: 2369) (the “Company”) and six former directors.
During the period from July 2016 to March 2017, the Company entered into three groups of transactions involving advances and/or financial assistance totalling more than RMB1.3 billion. These sums were for the benefit of a group of companies in which Mr. Jia Yue Ting (former executive director (“ED”) and Chairman) (“Mr. Jia”) was the controlling shareholder or entities beneficially owned by an acquaintance of Mr. Jia and Mr. Liu Hong (a former ED).
In breach of the Listing Rules, the Company did not announce these transactions at the appropriate time.
The HKEx found that Mr. Jia and Mr. Jiang Chao (a former ED and CFO) failed to act honestly and in good faith in the interests of the Company as a whole, or for proper purpose. The other directors above failed either to discharge their directors’ duties in respect of the transactions or to ensure the Company had implemented adequate internal controls.
Following the conclusion of the HKEx’s disciplinary proceedings, the Company announced that the Securities and Futures Commission had filed a petition in the High Court for (i) an order to be made against each respondent directors that each of them shall not be, or continue to be, a director; (ii) an order to be made against each respondent directors to compensate the Company and/or the Group for the loss suffered in the sum of RMB83 million; and (iii) an order for the Company to bring civil proceedings in its own name to recover the loss.
The petition was made on the basis that the business and affairs of the Company had been conducted in an unfairly prejudicial manner. The HKEx will continue to provide assistance to the Securities and Futures Commission in its action.
A key takeaway that the HKEx reiterated in their regulatory announcement was that directors must, in entering into transactions on behalf of companies, act honestly and in good faith in the interests of the company as a whole, and for proper purpose. Directors also have clear duties and responsibilities to ensure that appropriate and effective internal control systems are established and maintained.
A copy of the Statement of Disciplinary Action is available on the HKEx website.
Companies wishing to minimize compliance risks such as the above should consider engaging a professional corporate governance advisor, such as Hauzen Services Limited.
Contact us today for advice on your obligations under the Listing Rules as a director or if you require assistance with HKEx enquiries or investigations.