Court Order Against Ex-CEO of Wah Sang

Last week SFC commenced proceedings in the High Court against Mr Shum Ka Sang, the former chairman, CEO and executive director of Wah Sang Gas Holdings Limited (Wah Sang Gas), and one other former company director seeking an order to disqualify them from acting as company directors or being involved, directly or indirectly, in the management of any corporation for a period to be specified by the court. Listed in GEM since March 2000, the company is engaged principally in providing gas connection service through its subsidiaries on the Mainland.

Under S.214 of SFO ("Remedies in case of unfair prejudice, etc. to interests of members of listed corporations, etc."), the court may make such orders for up to 15 years if it finds those persons are wholly or partly responsible for the company's affairs being conducted in a manner involving defalcation, fraud or other misconduct.

These proceedings follow an SFC investigation of the company into suspicions that the company's accounts had been falsified and asset values were overstated for the financial year ended 31 Mar 2004. On SFC's order, the company's shares were suspended from trading on 6 Apr 2004.

SFC alleges that Shum, who resigned as a director of the company on 22 Oct 2007, knew or was involved in falsifying the accounts or was otherwise responsible by failing to exercise reasonable skill, care and diligence and to act in the company's best interests. The same allegations are also made against another former director, who is named in the proceedings but who has not yet been located and notified of these proceedings.

An independent audit led to the reconstruction of the company's accounts. In new financial results finally filed with SEHK on 11 Jul 2007 (following new management being appointed to run the company), the company reported a reduction in the value of net assets as at 31 Mar 2004 of approximately $720m.

Trading in Wah Sang Gas shares remains suspended and resumption of trading is subject to SFC's approval. The company announced to the market on 29 May 2008 a Restructuring Proposal, which will be the subject of a Circular that it must issue to shareholders no later than 30 Sep 2008.

Once again SFC has demonstrated that it has more teeth to bite the wrongdoers of listed companies than SEHK.