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REGULATORY ENFORCEMENT NEWSLETTER - ISSUE 1

A quarterly roundup of regulatory issues

6

These officers had an inescapable personal liability to

comply with Part XIVA and their, in particular the

NED’s, ignorance and incompetence was no excuse.

Chan and Lai deliberately flouted the disclosure regime.

They knew a disclosure was needed but chose not to,

concealing the Auditor’s resignation from Mayer’s

board. The MMT found them to be unquestionably unfit

to be a director of a listed company. They were both

disqualified for 20 months.

Regulatory fines

Chan and Lai were each fined HK$1.5 million for their

breaches. Mayer and the other officers were fined

HK$900,000 (the maximum fine is HK$8 million).

Mayer and the NED pleaded they were in dire financial

circumstances. The MMT dismissed this as a bare

assertion. The MMT stated if a party wanted to raise

their financial resources as a ground for a lower fine,

full and frank disclosure of his financial position was

needed. Neither Mayer nor the NED had done so.

Mayer and the officers were also ordered to pay costs.

Mitigation

While Mayer had admitted liability for breaching Part

XIVA at the MMT hearing, it was held to be much too

late to be a factor.

Finally

The MMT decided to recommend that Chan be

disciplined by the HKICPA. It was stated accountants

had an important role in the listing regime and are

relied on by the public for their expertise in audit and

compliance. Chan’s conduct was stated to be appalling

in ignoring the Stock Exchange’s and Mayer’s solicitor’s

advice.

Hong Kong Courts change

their practice to do the

fullest justice

’ for victims of

fraud

In an earlier litigation bulletin (a copy of

which is available

here )

, we advised clients

what to do if they had been defrauded. This

article explains how Hong Kong’s courts are

also doing their part to help victims out.

The problem

Sadly, there are all too many cases these days where

crimes committed abroad see the proceeds transferred

to Hong Kong bank accounts. No doubt, with Hong

Kong being a reputable financial centre, an instruction

to remit money here does not raise any alarm with the

victim. Typically, the proceeds will only be in the

jurisdiction for a short period of time before being

moved off shore and lost.

We are frequently instructed to help trace, restrain and

recover victim’s money and have recently acted

following crimes committed in America, England,

Ireland, Nigeria, Mali, Singapore, Sweden and

Switzerland. The most common type of fraud entails a

fake or hacked email being sent to the victim with

bogus payment instructions.

Once a payment is made, time is then very much of the

essence. It is a race to locate the funds and restrain

them before they disappear. It is then necessary to

quickly obtain a judgment and enforce it. The victim,

even if pursuing a proprietary or ownership claim, faces

many risks. One of which is that other creditors may

make a claim against the owner of the bank account.

This can then deny the victim any recovery (because

other creditors have already taken everything): this is

the particular issue which the Hong Kong Courts have

tried to resolve.

Declaration of trust

In our experience, the owner of the bank account which

the funds were remitted to is often a recently

incorporated private company with its director and

shareholder offshore. When sued they usually do not

make an appearance to contest the claim. Until a recent

sequence of High Court judgments (including DHCJ

Cooney SC’s judgment in Guaranty and Trust Company

v ZZZIK Inc Limited & Anor, HCA 1139/2016) the

absence of the owner of the bank account has caused

injustice.

With no-one defending the claim there is no trial and

without, the court was reluctant to grant declaratory

relief. Victims would seek declarations that the funds in

the Hong Kong bank account were held on trust for

them. The point would not be determined in default

proceedings instead, the victim would obtain a

monetary judgment on default and would only become

an unsecured judgment creditor with no prior or specific

rights over the funds in the bank account.

Making a declaration in the absence of the

defendant

In the ZZZIK Inc case, DHCJ Cooney SC stated ‘it is not

the normal practice of the court to make a declaration