Landmark SFC Settlement: The Combest Holdings Case

On 2 June 2025, the Securities and Futures Commission (“SFC”) announced a landmark Court decision requiring former senior executives of Combest Holdings Limited (“Combest”) to pay HK$192 million in compensation to shareholders. This case represents a significant development in Hong Kong securities regulation, particularly in the SFC’s approach to holding shadow directors accountable and securing direct compensation for affected shareholders.

Background

Combest was incorporated in the Cayman Islands and was listed on the Growth Enterprise Market (GEM) of the Hong Kong Stock Exchange until 2020. The company operated as an investment holding company with its business activities conducted through subsidiaries.

In May 2020, the SFC commenced proceedings under sections 212 and 214 of the Securities and Futures Ordinance (“SFO”), against Combest and three individuals: Mr. Ng Kwok Fai (a shadow director), Mr. Liu Tin Lap, and Mr. Lee Man To (both former executive directors). The SFC’s investigation revealed a pattern of serious misconduct spanning several years.

In total, the Combest Group suffered losses of approximately HK$293.5 million through fictitious or artificial transactions and related artificial loans and fees. The company also made false and misleading disclosures to the market, breaching the GEM Listing Rules.

Winding-up of Combest

The SFC initiated winding-up proceedings (HCCW 118/2020) against Combest (“R1”) and included Mr. Ng (“R2”), Mr. Liu (“R3”) and Mr. Lee (“R4”) as respondents. The SFC’s petition sought multiple remedies, including but not limited to an order to wind up Combest pursuant to section 212 of the SFO. This section empowers the SFC to petition for the winding up of a listed company if it is in the public interest and it is just and equitable to do so. This is a remedy that would be relied upon when serious corporate misconduct occurs.

Against the Respondent directors, the SFC sought:

1. Disqualification orders against R2 to R4 (“Respondent Directors”);
2. Further or in the alternative to the above, a compensation order against the Respondent Directors (in favour of Combest and its subsidiaries) pursuant to section 214(2)(e) of the SFO; and
3. Further or in the alternative to the above, an order that Combest and/or its subsidiaries institute proceedings against the Respondent Directors pursuant to sections 214(2)(b) and/or (e) of the SFO.

Interestingly, the court ultimately did not make a winding up order against Combest. Instead, the parties reached an agreement to dispose of the proceedings through the Carecraft procedure.

What is the Carecraft Procedure?

The case was resolved using the Carecraft procedure, which derives its name from the English case Re Carecraft Construction Co Ltd [1994] 1 WLR 172.

The Carecraft procedure provides an alternative to traditional litigation by allowing disputing parties to present an agreed-upon set of facts to the court, which then issues a ruling without a full trial.  It helps resolve cases against directors’ misconduct quickly and cost-effectively, reducing the burden on both the courts and the parties involved.

Under this procedure, the court is not obliged to accept the parties’ agreement. Judges retain full authority to independently assess whether the facts justify the proposed orders, including the length of any disqualification period. While courts typically consider negotiated settlements favorably, they may impose different sanctions if the agreement seems inconsistent with the evidence.

If the judge raises concerns about the proposed order, the parties have several options:

• Modify the terms to better align with the court’s expectations.
• Present additional arguments in court to justify the original proposal.
• Submit supplementary evidence, such as sworn affidavits, to clarify disputed points.

Summary of Combest’s Carecraft Schedule

The Court was satisfied that all conditions were met to invoke the relief under section 214(1) of the SFO. Hon Harris J recognised that section 214(2)(e) of the SFO confers a very broad jurisdiction on the Court and was clearly intended to provide the Court with the widest powers to do justice.

The below highlights the key agreements under the Carecraft procedure:

1. R2 agreed to pay HK$192,443,683 as compensation (“Compensation Sum”) of the SFC’s claims under sections 214(2)(b) and (e) of the SFO, plus HK$440,000 for administrator’s fees.
2. The Compensation Sum would be made directly to the administrator for distribution as special dividends to Combest’s shareholders.
3. Dream Star (holding ~22% of shares of Combest) and Gabriel Ng (brother of R2 and holding 1.56% shares of Combest) agreed to forfeit their entitlement to special dividends, increasing the special dividends payable to independent public shareholders by 32.3%.

This meant that independent shareholders would receive HK$0.066 per share, 2.75 times higher than Combest’s last closing price.

Notwithstanding that Compensation Sum of HK$192,443,683 is less than the total loss and damage suffered by the Group of HK$293,459,926 as agreed for the purpose of this Carecraft hearing, the SFC submitted that it would be in the public interest for an order to be made that the Compensation Sum be paid as full and final settlement of the SFC’s claim for the following reasons:

1. 1. The Carecraft procedure was designed to enable the expeditious disposal of proceedings and avoid the substantial costs that would otherwise be incurred if there was a trial.
   2. In the present case, the following factors militate in favour of ordering the Compensation Sum:
      • the payment of the Proposed Sum would ensure that Combest receives a substantial amount of compensation and avoid the risks of litigation; and Combest receives compensation at an early stage rather than after trial. Given the size and complexity of this case, which was instituted almost 5 years ago, it also means that it would not likely be resolved soon.
      • Significant weight should also be placed on the fact that Combest itself, as the beneficiary of the intended compensation order, has agreed to the settlement terms.
      • The agreement from Combest to declare the Compensation Sum as special dividends and the undertakings from Dream Star and Ng to forfeit their entitlement to special dividends would not be achievable by an order for monetary compensation after trial.

Hon Harris J found the compensation scheme to be in the public interest. He agreed to the proposed term of disqualifications of all Respondent Directors. He also agreed that it was appropriate for the proceedings against Combest to be stayed, allowing time for distribution of special dividends, after which the SFC will apply to dismiss the petition. Therefore, the Court made an order in terms of sought in the draft prepared by the parties.

Conclusion

The Combest case demonstrates the court’s flexibility in fashioning appropriate remedies under section 212 of the SFO. Rather than proceeding with a winding up, which might have been a more drastic remedy with potential loss of value, the court approved a settlement that provided a more targeted remedy for shareholders through the compensation scheme.

This case also represents a landmark in the SFC’s enforcement approach. As stated by Ms. Julia Leung, CEO of the SFC: “This court decision underscores the SFC’s power to hold de facto controllers of listed companies accountable for their misconducts…The provision of direct compensation to affected shareholders marks a pioneering step, demonstrating the SFC’s unwavering devotion to exploring all avenues to achieve the most fair and efficient resolutions to protect the investing public.”

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