The securities regulator has filed an application with the High Court to wind up Hong Kong-listed China Metal Recycling (CMR), which an American short-seller accused of fraud earlier this year.
The Securities and Futures Commission wants the court to appoint a liquidator to manage the firm's assets, a source familiar with the situation said yesterday.
"The regulator's action is aimed at preventing any assets being misappropriated," the source said.
An SFC spokesman declined to comment.
Lawmaker Ronny Tong Ka-wah, a senior counsel, said yesterday the law allowed the SFC or the financial secretary to apply for a court order to wind up a company if they believed doing so was in the public interest.
Trade in the company's shares has been suspended since January, when a report by Glaucus Research Group accused it of faking its financial statements.
China Metal is the largest scrap metal recycling company in China, according to the China Association of Scrap Metal Utilisation.
Glaucus said in its January report: "CMR purports to be the largest scrap metal recycling company in China. We believe this is a lie. Publicly accessible import data from the Chinese government suggests CMR is a blatant fraud that has deceived the market about the size of its business."
Brokers said winding up a company differed from delisting it in that a liquidator appointed by the court handled the sale of the company's assets and delivered the proceeds to shareholders in a wind-up. Delisting, on the other hand, does not force a change in management and small shareholders may not receive any compensation.
China Metal maintains Glaucus allegations are "groundless".
The stock exchange said in March China Metal had to issue a clarification in response to the allegations before it could resume trading. The company has not provided such a statement.
The firm's chairman, Chun Chi-wai, said in January he was planning to sell 29 per cent of the company to state-owned China Energy Conservation and Environmental Protection Group for HK$3.41 billion. The deadline for the deal, initially set for last month, has been pushed back to the end of this year.
Glaucus put a target price of HK$0 on China Metal's shares, which traded at HK$9.43 before being suspended on January 28.