SFC v Styland

SFC challenges the senior management of another listed company by commencing proceedings in the High Court against the former chairman, a former executive director, and two current executive directors of Styland Holdings Ltd. Styland, well-known to many retail investors, was listed in 1991. The group's business includes securities dealing, property investment, general trading and infrastructure development. SFC ordered suspension of trading in Styland's shares on 23 Dec 2002. Trading resumed in Jun 2003 but was suspended again at Styland's request on 21 Apr 2004 pending an announcement of a possible rights issue. Trading remains suspended.

SFC alleges the four directors breached their duties to the company resulting in Styland incurring substantial losses in a number of transactions. SFC is seeking orders that the four directors (or any of them):

• be disqualified as company directors; and
• pay compensation to Styland for losses allegedly caused by their misconduct.

The four directors are former chairman, Mr Kenneth Cheung Chi Shing, current executive directors, Ms Yvonne Yeung Han Yi and Ms Miranda Chan Chi Mei and former executive director Mr Steven Li Wang Tai (the four directors).

SFC also alleges that Cheung breached his duty to the company in a number of transactions in which he is alleged to have received (directly or indirectly) financial benefits totaling $79m. These transactions should have been disclosed to shareholders (and the market) and required shareholder approval which was not sought or given. SFC also alleges Yeung breached her duty through connected transactions not authorised by the company's shareholders (which should have been authorised by shareholders), receiving financial benefits totaling $6.95m.

This is the first time SFC has commenced action seeking compensation for a listed company or sought orders for the commencement of compensation proceedings by the listed company against company directors for alleged misconduct. This action is concerned with three important issues:

1. The obligations of listed company directors to ensure shareholders are given a proper opportunity to scrutinise transactions that require their authorisation;
2. The extent to which Hong Kong law recognises the special responsibilities entrusted to a chairman of a listed company; and
3. The ambit of the court's jurisdiction under S.214 of SFO to order compensation to be paid to a listed company.

If SFC could win this case, then the perceived protection of investors in HK listed companies would be better.