香港聯合交易所有限公司
(香港交易及結算所有限公司全資附屬公司)
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
CENSURES:
- Ye Xing Group Holdings Limited (Stock Code: 1941) (Company);
- Ms Wu Guoqing, executive director and chairman; and
- Mr Zhao Weihao, executive director.
AND FURTHER DIRECTS:
Ms Wu and Mr Zhao to attend training.
The Company, Ms Wu and Mr Zhao were found to have breached the Listing Rules in respect of, among others, connected transactions between the Company and its parent group, ultimately owned by Mr Zhao.
Between May 2020 and February 2021, the Company’s subsidiaries agreed to provide certain agency services to its parent group and, to secure the exclusive rights of providing such services, paid refundable and non-refundable deposits to the parent group. The refundable deposits were partly secured by the parent group’s immovable properties under a pledge agreement.
A subsidiary of the parent group ended up owing to the Company refundable deposits of RMB38.5 million upon expiry of the relevant agency agreements. Subsequently, in September 2021, the parent group disposed of that subsidiary without informing the Company, which discovered the disposal in mid-January 2022.
In April 2022, the Company agreed to partially offset against the outstanding refundable deposits by acquiring some car parking spaces from the parent group, leaving a balance of RMB30.6 million. This amount was fully impaired in the Company’s 2022 annual results after the Company found that the pledge agreement had not been registered and was therefore unenforceable.
The relevant transactions constituted connected transactions, an advance to an entity, and a discloseable transaction. However, the Company failed to comply with the announcement, circular and independent shareholders’ approval requirements under the Listing Rules. The Company’s Listing Rule breaches were caused by Ms Wu’s and Mr Zhao’s failure to discharge their director’s duties. In particular,
- Ms Wu, who reviewed and approved the relevant transactions, failed to inform the Company’s Board (Board) of the transactions in time for ascertaining and complying with the Listing Rule requirements. To explain her failure to procure the Company’s Listing Rule compliance, she asserted that she had misunderstood the Listing Rule requirements. In addition, while delegating the registration of the pledge agreement to her subordinate, Ms Wu failed to actively supervise the subordinate and ensure that the pledged agreement was duly registered. This caused the Company to be unable to enforce the pledge.
- Mr Zhao, while not involved in the approval process, was aware of the relevant transactions before or when they were approved. He, as the controlling shareholder of the parent group and an executive director of the Company, was subject to conflicts of interest and duty. However, he did not inform the Board of the transactions or take any steps to avoid the conflicts. In addition, he failed to inform, in a timely manner, the Board of the parent group’s intended disposal of its subsidiary which was liable to refund the outstanding refundable deposits to the Company. The Company was deprived of an opportunity to take timely action to seek recovery of the outstanding refundable deposits.
The above parties did not contest their respective breaches of the Listing Rules and accepted the sanctions and directions imposed on them.
Key messages:
The notifiable and connected transaction rules are aimed at, among others, ensuring that shareholders are properly informed about and have a collective say on significant transactions, and that all shareholders are treated fairly and equally when an issuer enters into these transactions.
Directors are expected to be fully aware of the relevant requirements and procure the issuer’s timely compliance. When in doubt, they should promptly consult professional advisers or the Exchange. Ignorance or misunderstanding of the Listing Rules is no defence for non-compliance.
More specifically, the Listing Rules require directors to avoid actual and potential conflicts of interest and duty. Where an actual or potential conflict arises, the director is expected to promptly make full and frank disclosure to the issuer and comply with the other requirements under the applicable laws, the Listing Rules and the issuer’s internal controls and procedures. Among others, the director should declare his/her interests and abstain from voting at the relevant board and shareholder meetings.
Whilst delegation of duties is permissible, directors must supervise the discharge of the delegated functions by continuing to acquire sufficient knowledge of the delegated matters and following up on anything untoward that comes to their attention.
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Ends