Directors – listed company – disqualification – three directors made false claim so that company assets wrongly paid to company owned by one of directors – appropriate length of disqualification
In proceedings brought by the Securities and Futures Commission (the “SFC”), D1–3 were found liable for having wronged C, a company, by dishonestly presenting a non-existent Mutual Understanding and Agreement (“MUA”), resulting in assets of C worth RMB18,692,000 (the “Sum”) being wrongly paid to a company owned by D3 (see  HKEC 86). The Judge found that Ds had acted in breach of trust. D3 was the instigator; D2 yielded to D3’s pressure without carefully considering C’s interest, while D1 was the least culpable because he did try to resist pressure from D3 and find a legitimate way of returning the windfall to him. The SFC now sought disqualification orders under s. 214(2)(d) of the Securities and Futures Ordinance (Cap. 571) (the “SFO”).
Held, ruling that:
- Disqualification was not mandatory but entirely within the discretion of the court. There was no statutory minimum period of disqualification in Hong Kong under s.214(2)(d) of the Securities and Futures Ordinance (Cap.571). It was therefore more appropriate to define the minimum bracket as “below 5 years” instead of “2 to 5 years”.
- Ds’ conduct merited a starting point for disqualification in the middle bracket of 6 to 10 years. As regards mitigation, D3 had repaid the Sum to C. Neither D1 nor D2 had derived any financial benefit from the dishonest enterprise. All of Ds had acted out of character. However, no credit would be given for D2–3’s very late expression of remorse; or D1’s attempt to resolve the petition by way of the Carecraft procedure because he denied his conduct was dishonest.
- There was no real risk of similar misconduct by Ds should they become directors again. Erring on the side of leniency in favour of Ds, the disqualification periods for D3, D2 and D1 should be 7 years, 5 years and 4 years respectively. No exception would be made for D3 to enable him to work as a manager in a mainland company which held shares in a Hong Kong company during this time.
- (Obiter) The delay in the hearing of over 8 months after the handing down of the judgment allowed D2–3 to continue to manage C in the meantime. This kind of delay was unacceptable and hopefully, would not be repeated.