On 18 March, the Court of First Instance directed Rontex International Holdings Ltd (formerly known as Siberian Mining Co.), a company listed on the HKEx in November 2002, to sue its former delinquent directors for damages for:

  • breach of fiduciary duties;
  • breach of disclosure obligations under the Listing Rules; and
  • conduct unfairly prejudicial to the interest of shareholders in entering various transactions which resulted in a loss of HK$19 million

following an application by the SFC as petitioner under section 214 of the SFO, which effectively entitles the SFC to apply to the Court to intervene in the management of a listed company if it “suspects” the listco’s business is being conducted in a way which involves fraud or misfeasance. In a nutshell the SFC alleged that Rontex failed to utilize the proceeds derived from its listing (circa HK$ 28.8 million) in accordance with certain representations which it made in its listing prospectus (published in October 2002). Specifically, Rontex failed to invest the listing proceeds in furtherance of its baby garment manufacturing business. The Court (Burrell J) ordered Rontex to bring civil action to recover the losses attributable to the alleged miscon-duct.

The action illustrates the critical importance of the obligation of directors to ensure that the company discloses material information to the investing public on a timely basis certainly appears to herald the end of shareholders or the SFC having to fund derivate actions. In a recent SFC press release, Mark Steward (Executive Director, Enforcement), com-mented there was “no reason why shareholders should have to pay for losses caused by directors’ misconduct.” However, be that as it may, although mere suspicion on the part of the SFC would not be sufficient. On the facts of this case the Court was satisfied of the misconduct as none of the evidence adduced on behalf of the SFC was disputed. It was therefore unnecessary in this case for the Court to give any guidance on the evidential threshold / burden for the regulator to meet to succeed with section 214 proceedings.