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:
Mr Tsui King Fai, former independent non-executive director of China Aoyuan Group Limited (Company) (Stock Code: 3883);
AND FURTHER DIRECTS Mr Tsui to attend 17 hours of training on regulatory and legal topics and Listing Rule compliance, including two hours on Rule 2.13, and three hours each on (i) directors’ duties, and (ii) the Corporate Governance Code.
This case concerns the failure of Mr Tsui, when acting as an independent non-executive director and audit committee member of the Company, to exercise reasonable skill, care and diligence and to procure the Company and its subsidiaries (Group) to have in place adequate internal controls and procedures relating to, among other aspects, the Group’s centralised treasury function.
The internal controls and procedures of the centralised treasury function, which involved pooling and allocating cash among subsidiaries to maximise cash efficiency (including the provision of funds to each other as general working capital), were materially deficient. For example, the governing policy had not been renewed or updated for years, and there were no effective measures to avoid or manage conflicts of interest and duty.
The deficiencies were conducive to creating the circumstances enabling the provision of RMB3.3 billion financial assistance between 1 January 2021 and 31 March 2022 by the Company’s then subsidiary (the Subsidiary)1, also listed in Hong Kong, to the Company without the approval of the Subsidiary’s board. The Subsidiary also failed to comply with the applicable announcement, circular and independent shareholders’ approval requirements under the Listing Rules.
According to Mr Tsui, the centralised treasury function had been in place for at least 10 years. He admitted that he was aware of the centralised treasury function being led, managed and/or supervised by two common directors of the Company and the Subsidiary. However, he remained ignorant of its activities, working procedures or policies.
The Exchange found that Mr Tsui had failed to take an active interest in the operations of the centralised treasury function. In addition, in contemplation of (and after) the Subsidiary’s separate listing in March 2019, Mr Tsui had failed to take adequate action to assess or review (i) the risks (regulatory and otherwise) that might arise from the continued operation of the centralised treasury function after the Subsidiary’s listing, or (ii) the adequacy and effectiveness of the relevant internal controls and procedures to ensure that companies within the Group (including the Subsidiary, which remained a subsidiary of the Company after its listing and at the material time) would be able to comply with the Listing Rules.
In purported discharge of his responsibilities, Mr Tsui submitted that he had relied on the operational teams, internal audit department and the auditors to escalate or report any related issues to him. He also assumed that the Subsidiary itself, as a separately listed issuer, had in place adequate and effective risk management and internal controls. The Exchange was not satisfied that he had discharged his duties and responsibilities in respect of the Group’s internal controls and procedures.
Key messages:
Independent non-executive directors, who are often members of the audit committee, bear primary responsibility for monitoring and ensuring that the issuer (including its listed and unlisted subsidiaries) has established and maintained adequate and effective internal control systems to safeguard its assets and ensure compliance with the Listing Rules, as well as other applicable laws, rules, and regulations.
Passive reliance on certain personnel to escalate issues or take the initiative to establish and implement internal controls does not absolve independent non-executive directors of their duties and responsibilities.
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Note:
- At the material time, the listed subsidiary was known as Aoyuan Healthy Life Group Company Limited (Stock Code: 3662). It is now known as Starjoy Wellness and Travel Company Limited.
Ends