The Securities and Futures Commission is seeking a court order to freeze HK$1.97 billion worth of assets held by Qunxing Paper, alleging the firm provided misleading information to the public, and force it to buy back shares from all its shareholders.
The regulator sought a court order yesterday to ban the decorative paper maker and its subsidiary, Best Known Group, from disposing of assets amounting to HK$1.97 billion, according to a writ obtained by the South China Morning Post. The sum includes HK$1.6 billion it raised in its 2007 initial public offering, with the rest from a new share offer in 2010 and a warrant issue in 2011.
It alleged the company had breached several provisions of the Securities and Futures Ordinance related to providing false or misleading information.
Qunxing, chaired by Zhu Yuguo, makes decorative base paper used in the manufacture of furniture and wooden floors. The firm did not respond to inquiries about the SFC action.
In the writ, the regulator also said it wanted to seek court order under section 213 of the ordinance to require the company to pay back its shareholders. The provision allows the court to require companies or individuals to pay back victims for the damage caused by their misconduct.
It wants the court to direct the company to make "an offer to all its current public shareholders to repurchase their shares and to holders of its unlisted warrants to unwind the transactions of those warrants".
The regulator also applied to the court to appoint an administrator to handle the frozen assets.
Trading in Qunxing's shares has been suspended since March 2011 after KPMG said it found some inconsistent information during an audit in 2010. The company appointed an independent firm to conduct an investigation and did not find any problems. HLB Hodgson Impey Cheng is now the firm's auditor.
Qunxing's flotation in 2007 was more than 900 times oversubscribed and its shares surged 60.37 per cent on debut. ICEA Capital and Access Capital were the sponsors while KPMG was its listing auditor.
Qunxing issued a profit warning at the end of October saying it might lose certain major customers who might not place new orders after the third quarter of this year. Those customers told the firm that they were disturbed by strangers who visited their offices and asked them to provide information pertaining to their transactions with Shandong Qunxing, a subsidiary of Qunxing.
The case is the third time the SFC has sought compensation for investors under section 213 of the Securities and Futures Ordinance. On Thursday, the High Court ordered the city's biggest convicted insider dealer, Du Jun, to pay 297 investors HK$23.96 million for the money he earned from his illegal dealing in 2007.
Last year, 7,700 investors in Hontex International were paid back after the sport fabric maker was ordered to pay HK$1.03 billion to small shareholders for allegedly misleading information in its listing prospectus.