(i) HKEX criticises Wisdom Wealth Resources Investment Holding Group Limited and named directors (including executive directors and independent directors). (Announcement; Statement of Disciplinary Action)

This case concerns disclosure in the valuation of a land acquired by the company, which varied significantly within a year of the acquisition.

In Jan 2018, the company published a circular in respect of the land acquisition. A professional valuer was engaged to assess its market value (valuation: RMB 1.15 billion; direct comparison approach used).

In Jul 2018, the company published its interim results which adopted a new valuation performed by the same professional valuer (new valuation: RMB 8 billion; comparison method and investment method used).

There was a seven-fold increase in valuation, which had a dramatic effect on the company’s disclosed financial position including its profit and net assets.

In approving the interim results, the directors have relied on a valuation. However, they did not take sufficient steps to ensure that such reliance was reasonable, and accordingly they have failed to discharge their duties. They had no expertise in valuation of land, but failed to:

• Take any steps to enquire with the valuer on the methodology, assumptions and comparables adopted to justify the substantial increase in valuation

• Seek a second opinion or other professional advice

• Consult the auditors on the reasonableness of the substantial increase in the value of the land

What you should watch out for:

HKEX key messages in announcement

• Directors must exercise independent judgement in respect of valuations and ensure any reliance on valuations is reasonable. Excessive or unquestioning reliance on a valuation may amount to a failure by directors to exercise due skill, care and diligence

• Directors are expected to cast a critical eye over the valuation, generally understand how the valuation was derived or calculated, and question matters such as assumptions, methodology and/or comparables adopted by the valuer. They should also consider consulting auditors or obtaining other professional advice

(ii) The Court of First Instance convicted three individuals with conspiracy to carry out false trading in the shares of Ching Lee Holdings Limited. (Press release)

The case involves the heaviest jail sentence imposed on market manipulation cases since the Securities and Futures Ordinance came into effect in 2003. Two individuals were sentenced to imprisonment of six years and eight months, and the remaining to four years and four months respectively.  

They conspired to maintain an artificial turnover of the shares in the company by conducting manipulative transactions among 156 securities accounts under their control. This resulted in a false or misleading appearance of active trading and an artificial increase in trading volume for the relevant shares. Such activities took place over a period lasting for more than five months in 2016 and netted illicit profits of over $124 m.

(iii) Consultation conclusion and legislative proposals on company re-domiciliation regime (Full document)

The government aims to provide a simple and straight-forward route for non-HK companies to transfer their domicile to HK.

(Background: currently, a company intending to transfer its domicile to HK needs to be wound up in its original domicile and re-establish in HK or enter into a court-sanctioned scheme of arrangement to convert into a wholly- owned subsidiary of a HK company).

It is proposed that the Companies Ordinance (“CO”) be amended to introduce an inward company re-domiciliation regime. The proposed regime will apply to four types of companies (including public companies limited by shares).

Provisions will be put in place to ensure that the company concerned will retain its original identity upon re-domiciliation (i.e. no new legal entity created). The company would have the same rights and obligations as any other incorporated company of its kind in HK and should comply with the relevant CO requirements.