The Securities and Futures Commission (SFC) has commenced legal proceedings under section 214 of the Securities and Futures Ordinance (SFO) in the Court of First Instance to seek disqualification orders against seven former directors and two former de facto directors of SoftMedx Healthcare Limited (SoftMedx) for allegedly breaching their fiduciary duties (Notes 1 and 2).
The two former de facto directors are Mr Cho Kwai Chee and Mr Ronnie Hui Ka Wah. This is the second set of SFC’s legal proceedings against Cho under section 214 of the SFO (Note 3).
The seven former directors are: Mr Chan Ka Chung, former chairman and executive director; Mr Cheung Wai Kwan and Mr Wang Jianguo, both former executive directors; Mr Michael Chan Yee Ping, Ms Hu Xuezhen, Mr Lam Chun Ho and Dr Tong Cheuk Man, former independent non-executive directors.
The SFC’s investigation found that from August 2014 to June 2016, Cho and Hui were de facto directors of SoftMedx by taking part in the management of the company’s business or affairs and making decisions of a directorial nature.
In June 2016, SoftMedx’s wholly-owned subsidiary acquired 9.9% of the issued share capital of New Ray Medicine International Holdings Limited for around $79 million from Town Health Pharmaceutical Limited (Town Health Pharmaceutical), an indirect wholly-owned subsidiary of Town Health International Medical Group Limited (Town Health). Cho and Hui were directors of Town Health at the material time, and Cho was also a director of Town Health Pharmaceutical (Note 4).
The announcement made by SoftMedx on 23 June 2016 regarding the above-mentioned acquisition stated that (i) the vendor and the beneficial owner of the transaction were independent third parties of the company and its connected persons; (ii) the consideration of the transaction was determined after arm’s length negotiation between the SoftMedx group and the vendor; and (iii) there were benefits derived from the acquisition. However, the SFC’s investigation reveals that the transaction was not negotiated at arm’s length between SoftMedx Group and Town Health Pharmaceutical, the vendor; and there was also no plan to realise the stated benefits of the transaction.
The SFC alleges that Cho and Hui breached their duties to SoftMedx by (i) failing to disclose their de facto directorship; (ii) causing the company to publish false and/or misleading information in the announcement regarding the independence of the vendor and its beneficial owner; and (iii) placing themselves in a position of conflict between their interests and their duties towards SoftMedx.
The seven former directors of SoftMedx also breached their duties towards SoftMedx by causing the company to publish false and/or misleading information in the announcement.
As part of the legal action, the SFC is also seeking an order for SoftMedx to publish the court’s findings in the proceedings so that shareholders of the company will be informed of former de facto directorships of Cho and Hui in the company and the false and/or misleading disclosures made by the company in the announcement.
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Notes:
The shares of SoftMedx, formerly known as China Wah Yan Healthcare Limited, have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (SEHK) since 29 October 1990. SoftMedx and its subsidiaries principally engage in medical and well-being business involving distribution of medical equipment and products. On 27 November 2017, the SFC suspended the trading of SoftMedx’s shares pursuant to section 8(1) of the Securities and Futures (Stock Market Listing) Rules.
Under section 214 of the SFO, the court may, among other things, make orders to disqualify a person from being a director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having been conducted in a manner, among other things, involving defalcation, fraud, misfeasance or other misconduct towards it or its members. The court may also make any other order it considers appropriate.
The SFC also seeks to disqualify Cho for allegedly breaching his fiduciary duties towards GEM-listed First Credit Finance Group Limited when he acted as a de facto director of the company. Please see the SFC’s press release dated 22 November 2023.
New Ray Medicine International Holdings Limited and Town Health are both listed on the Main Board of the SEHK. Town Health is the beneficial owner of Town Health Pharmaceutical.
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