HONG KONG: SFC commences disciplinary proceedings against Chow Yei Ching and others for alleged breach of Hong Kong takeovers mandatory bid rule

Wednesday November 20 2013

The Securities and Futures Commission’s Takeover Executive has commenced disciplinary proceedings before the Takeovers and Mergers Panel against the chairman of Chevalier Group, Mr Chow Yei Ching (Chow); his son, Mr Oscar Chow Vee Tsung, and Mr Joseph Leung Wing Kong over a serious breach of the Hong Kong takeover rules.

The SFC alleges that the three actively co-operated to assist the late Ms Nina Kung to obtain or consolidate control of ENM Holdings Limited and avoid the triggering of a mandatory general offer under the Takeovers Code.

At the relevant time, Kung was the largest shareholder of ENM. She was also the chairwoman and the sole beneficial owner of the Chinachem Group.

Chow, his son, and Leung were closely connected to Kung.

Between 2000 and 2002, Chow acquired a total of 160 million shares of ENM (approximately 9.69% of ENM’s issued share capital) on Kung’s behalf and at her request. Chow paid for the purchase of the ENM shares and was subsequently reimbursed by Kung. The reimbursement was handled by Oscar Chow and Leung.

Chow held the ENM shares under four British Virgin Island companies he owned through the issuance of bearer shares until December 2009. To comply with the changes to BVI law requiring greater transparency in the ownership of bearer shares, Chow arranged for the ownership of the 160 million ENM shares to be split equally between one of his daughters and Oscar Chow in December 2009.

Chow’s acquisitions increased the collective shareholding of the concert group in ENM from 34.64% to 44.33%, thereby triggering a mandatory general offer obligation under the Takeovers Code. However, none of the share acquisitions in ENM by Chow on Kung’s behalf were publicly disclosed and remained undisclosed for a protracted period.

This type of arrangement, which is commonly known as “warehousing”, enabled Kung to secretly hold the ENM shares and avoid an obligation under the Takeovers Code to make a general offer. In consequence ENM shareholders were deprived of their fundamental right to receive a general offer to buy their shares.

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