SFC seeks disqualification and compensation orders against former directors of EganaGoldpfeil (Holdings) Ltd

1 Aug 2011



The Securities and Futures Commission (SFC) has commenced proceedings in the Court of First Instance, seeking disqualification and compensation orders against three former directors of EganaGoldpfeil (Holdings) Ltd (EHL) for alleged misconduct (Notes 1 and 2).

The SFC is seeking an order to disqualify Mr David Wong Wai Kwong, Mr Peter Lee Ka Yue, and Mr Chik Ho Yin and an order that they compensate the EHL group for its losses estimated at $2.13 billion (Note 3). Wong, Lee and Chik were former executive directors of EHL.

The SFC’s allegations concern the following:

a) An independent review by KPMG of certain EHL receivables revealed that the recoverability of those receivables (doubtful receivables) amounting to about $2.55 billion as at September 2007 appeared doubtful. These receivables consisted of trade debts, payments under promissory notes and other prepayments for investments. The doubtful receivables were owed by eight debtor corporations (doubtful debtors). EHL eventually made full impairment provisions for the doubtful receivables as losses totalling $2.6 billion.

b) SFC’s investigation revealed that the directors and/or controllers of at least seven of the doubtful debtors were nominee directors and/or bank signatories appointed by Wong and acted under the instructions of Wong.

c) After the doubtful debtors received payments from the EHL group purportedly under the promissory notes and investment agreements, they immediately transferred the money to other doubtful debtors and other companies or people under the control of or related to Wong. Substantial parts of the money were eventually routed back to the EHL group on the same day and appear to be round-robin transactions. Other parts of the funds were eventually transferred to companies connected to Wong.

d) In all, the fund flows connected to the doubtful receivables did not appear to be consistent with their purposes recorded in the books and records of EHL and the related underlying transactions appeared to be bogus.

e) Wong, Lee and Chik approved the transactions and signed the cheques giving rise to the doubtful receivables. The SFC alleges that they failed to carry out proper inquiry and perform appropriate due diligence before causing or permitting the group to enter into the transactions and parting with substantial sums of money. The SFC further alleges that, as a result, they caused or permitted the misapplication or misuse of EHL’s funds, and exposed the group to unnecessary and unreasonable risk of losses.

The SFC contends that EHL’s losses arising from the doubtful receivables were caused by the three former directors’ breaches of:


A summary of the SFC’s petition can be found on the SFC website (www.sfc.hk).

End

Notes:

1. EHL was listed on the main board of the Stock Exchange of Hong Kong Limited (SEHK) on 25 June 1993. At the request of the company, trading in its shares has been suspended since 12 September 2007. EHL is now in liquidation. EHL was placed in the third stage of delisting by the SEHK with effect from 30 December 2010.
2. Under section 214 of the Securities and Futures Ordinance, the Court of First Instance may make orders disqualifying a person from being a company director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having been conducted in a manner involving defalcation, fraud or other misconduct, or unfairly prejudicial to its members. The court may also order a company to bring proceedings in its own name against any person specified in the order, or make any order the court considers appropriate.
3. The estimated amount of the proposed compensation order is less than the total losses as a result of the doubtful receivables because two of the companies of the EHL Group to which such losses were caused have been dissolved and therefore compensation order is not applicable to these two dissolved companies.




Page last updated : 1 Aug 2012