Hontex told to pay back HK$1b to investors
A Hong Kong-listed company has been ordered to pay back more than HK$1 billion to investors after a landmark decision in the High Court.
The ruling came after sports fabric maker Hontex International Holdings used misleading information in its listing prospectus in 2009.
It is the first time the Securities and Futures Commission has used section 213 of the Securities and Futures Ordinance to seek compensation for investors left out of pocket because of market misconduct.
The SFC said Hontex's prospectus overstated turnover and profit before tax in the three years up to its listing on Christmas Eve 2009.
In March 2010, the markets watchdog ordered Hontex to suspend trading - meaning that the company traded for just 64 days in Hong Kong after its local offering.
The SFC said: 'Hontex does not agree the extent of the overstatements alleged by the SFC because it cannot verify the true position.
'Nonetheless it has accepted that these figures in the IPO prospectus were materially false.'
High Court Judge Jonathan Harris yesterday granted the order for Hontex to make a repurchase offer to 7,700 investors who subscribed for the company's shares in its initial public offering (IPO) or who purchased them after its listing.
The company's total repurchase will come to HK$1.03 billion, or HK$2.06 per share. That is the level it reached before it was suspended from trading and is higher than the HK$1 billion raised in the IPO.
Hontex will also have to pay a further HK$197.76 million to the court within 28 days, adding to the HK$832.24 million already frozen by the court under interim orders. The company will host a shareholders meeting to vote for the repurchase scheme while the controlling shareholders will abstain from voting.
The court order followed more than a year of legal tussling between the SFC and Hontex.
The arguments centred on whether the commission could seek a court order for Hontex to pay compensation before any court or tribunal had first made a ruling on its misconduct.
SFC chief executive Ashley Alder said the ruling represented 'an important milestone in the SFC's efforts to protect the investing public from the consequences of wrongdoing'.
The SFC and Hontex finally signed a statement of fact yesterday, enabling the court to grant the compensation order.
In the agreement, Hontex acknowledged it was reckless in allowing materially false and misleading information in its prospectus, contravening section 298 of the Securities and Futures Ordinance.
Section 298 bans anyone from give misleading information to induce other people to buy shares.
In admitting a contravention of section 298, neither Hontex nor its directors are admitting any criminal contravention of this provision.
However, the SFC said yesterday's agreement did not prevent it from taking criminal proceedings against Hontex over the misleading information in the IPO.
The Hontex prospectus was said by the SFC to have overstated its turnover by this amount (HK$2.5 billion) from 2006 to 2008