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Hong Kong Exchange Takes Disciplinary Action Against Ping An Securities & 2 Directors, Loss of $34.8 Million Loan to the 2 Directors & Sold 2 Assets at Only $1 Each
11st August 2022 | Hong Kong
Hong Kong Exchange (HKEX) has taken disciplinary action against Ping An Securities (Stock Code: 231) and imposed a prejudice to investors’ interests statement against former Executive Directors Gong Qing Li and Lin Hong Qiao for loan losses of $34.8 million (HKD 273.6 million, Loans to the 2 directors were not repaid), selling 2 assets for only $1 each, and approving the sale of 60% equity interest and losing control of the company thereafter. Hong Kong Exchange: “Mr Gong and Mr Lin caused the Company’s subsidiary to grant loans totaling around HK$273.6 million. The loans were not repaid, and this caused significant loss to the Company. The same directors effected three disposals of the Company’s subsidiaries and/or assets which resulted in the Company losing control of its subsidiaries without receiving any consideration. According to an investigation report commissioned by the Company, Mr Gong was the mastermind behind the disposals and Mr Lin was complicit in the execution. There was no commercial rationale for the transactions which were clearly not in the interest of the Company. The loans and disposals were carried out without the necessary approval of the Board. The transactions were subject to procedural requirements which were not complied with by the Company.” Read: HKEX Statement
“ Total Loss of $34.8 Million Loan to the 2 Directors & Sold 2 Assets for Only $1 Each “
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Key messages from HKEX: Directors are required, among other things, to act in good faith in the interests of the Company and be answerable to the Company for the application and misapplication of its assets. To ensure transparency, trust and confidence in the market, listed issuers must make timely notifications of transactions to their shareholders and the market when required to do so under the Rules.
Summary of Ping An Securities $34.8 Million Loan & Sale of 3 Assets
Loans
From July to September 2018, a subsidiary of the Company, Super Harvest Finance Limited (SH Finance) holding a money lenders license in Hong Kong granted loans to three independent borrowers totaling approximately HK$273.6 million (Loans). Each of the Loans constituted a major transaction of the Company subject to announcement, circular and shareholders’ approval requirements under the Listing Rules.
The Loans were executed by Mr Gong and Mr Lin as members of the Executive Committee (EC). Under the Terms of Reference (TOR), whilst the EC had the power to, among others, approve transactions on behalf of the Company, it did not have the power to approve any transactions that were subject to reporting, announcement and/or shareholders’ approval requirements under the Rules. Further, upon transaction of business, the EC was to report its decisions to the Board. The other members of the EC and the remainder of the Board were not aware of, and did not authorize, the Loans.
The Loans were not announced until 11 and 31 October 2019, after a delay of over one year. No shareholders’ approval were sought. The Loans were never repaid and the Company suffered losses which accounted for around 30 per cent of the total losses recorded in 2019.
Disposals
On 15 July 2019, the Board approved the disposal of its 60 per cent equity interest in Lianrun Shanghai Information Technology Co., Ltd. (Lianrun) at a consideration of RMB4 million. It transpired that in August 2019 Mr Lin had effected an alleged trust arrangement whereby the purchaser would hold Lianrun on trust for the Company, without paying any consideration. The Company lost control of Lianrun shortly after.
On 25 September 2019, Mr Gong and Mr Lin disposed of the Company’s interest in another subsidiary, Super Harvest Asset Management Limited (SHAM), at a consideration of US$1.00. As part of the terms of the disposal, Mr Gong and Mr Lin changed their directorships in SHAM and SHAM’s subsidiary, Super Harvest Global Fund SPC (SHF). The disposal was cancelled two days later but the changes in directorships were not reinstated.
On 6 November 2019, SHAM transferred the sole management share in SHF to a third party at a consideration of US$1.00 by way of another alleged trust arrangement. No consideration was received by the Company and the Company lost control of SHF thereafter.
Each disposal constituted a discloseable transaction of the Company. Save for the initial approval for the disposal of Lianrun, the subsequent trust arrangement and disposals of SHAM and SHF were not known to, or approved by, the Board. The disposals were not announced by the Company until March and June 2020.
Investigation by the Company
Upon enquiry by the Company, Mr Lin was not able to provide justification for the trust arrangement in connection with the disposal of Lianrun. He later refused to respond to the Company. Mr Gong did not respond to the Company at all.
The Special Investigation Committee (SIC) established by the Company commissioned an investigation to be carried out in relation to the disposal of SHAM and the management share of SHF. The Company announced the key findings of the investigation report on 17 July 2020 which concluded, among other things, that Mr Gong was apparently the mastermind who executed the disposals with assistance from Mr Lin and two others. However, the nature, substance and commercial rationale behind the disposals were difficult to explain due to insufficient and unclear information.
Mr Gong and Mr Lin also failed to cooperate with the investigation of the Listing Division (Division).
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