The Hong Kong Securities and Futures Commission has had an initial win in its bid to wind up recycling firm China Metal Recycling, but faces a tougher battle when it applies to mainland courts to get access to the mainland assets of the company.
Accountants and lawmakers said this could be a lengthy and painful process for the city's securities watchdog, although it would not be mission impossible.
The SFC won an order from the Court of First Instance on July 29 to appoint provisional liquidators to the company and to hear an appeal to have the company wound up. The company is accused of overstating its financial position when it applied for a listing on the Hong Kong market in 2009 and in its annual report for that year. The regulator believes those misstatements remain in force.
The provisional liquidators secured a court injunction on July 31 to freeze almost HK$1.7 billion of assets, and filed a writ against the founding chairman of the company Jacky Chun Chi-wai and his wife Lai Wun-yin and 10 firms for losses incurred from false information and financial statements provided by Chun and "purported payments for fictitious transactions".
But in a setback for the SFC, Lai and two companies asked the court on August 9 to lift the injunctions to freeze the assets and the judge, Jason Pow Wing-nin, agreed to their request.
"There was no basis to suggest [Lai] was in fraudulent breach of fiduciary duties. There was no evidence that the defendant knew or participated in the fictitious transactions," Pow said.