The chairman of software solutions provider Systek Information Technology could reap windfall gains if it succeeds in securing a listing on the Growth Enterprise Market, after some of the firm's assets were transferred to his private company.
Under a pre-listing agreement, a 36.5 per cent stake in Extracomm Technologies, a Canada-based subsidiary of Systek, was transferred free to chairman To Chi-kei on April 25. Systek originally held a 50.05 per cent stake in Extracomm - a company that distributes and markets a computer fax software product, ExtraFax, in North America. Extracomm has a net asset value of about C$310,000 (about HK$1.64 million) and last year recorded turnover of C$965,000 and net profit of C$147,000.
Mr To paid C$81,000 to Systek for a 13.55 per cent stake in Extracomm. The rest of Systek's stake in Extracomm was transferred free to Mr To's private company. Meanwhile, Mr To bought out the remaining 49.95 per cent stake in Extracomm from third-party shareholders for C$300,000. Based on this price, the shares in Extracomm that were transferred free to Mr To were worth C$221,212.
The reorganisation of Extracomm means Mr To now owns the entire business and this 'constitutes a competing business with that of the [Systek] Group, under the GEM Listing Rules', according to Systek's prospectus.
However, Systek's listing sponsor, Core Pacific-Yamaichi Capital, said the transfer does not breach any GEM non-competition listing rules because the firm had fully disclosed the transaction.
Mr To defended the share transfer, describing it as 'a tax saving arrangement for the company'. He did not explain what material benefits Systek would derive from the arrangement.