Hong Kong Exchanges and Clearing has threatened to scrap the listing status of Dong Jian Tech.Com Holdings if its founding chairman and his son remain as executive directors. It is the first time the exchange has issued such a warning and the first time company directors have refused to resign immediately after the HKEx has said their retention of office would be 'prejudicial to the interests of investors'. The two directors - founder and chairman Ngai Hor-ying and his son Vincent Ngai Man-sang - said in a company statement yesterday that they intended to remain as executive directors. They would only resign from office if independent shareholders did not give them a vote of confidence in a special general meeting expected next month. As a result of their refusal to resign, HKEx yesterday said under listing rule 2A.09(8), it could 'suspend or cancel the listing of the company's securities in the stock exchange in the event that the relevant directors remain in office'. The father and son are the only executive directors of Dong Jian which invests in mainland property. It diversified into some technology-related projects after listing in 1998. The HKEx listing committee announced on Wednesday that the two directors' retention of office was 'prejudicial to the interests of investors' because of the 'wilful and persistent failure by each of the relevant directors to discharge his responsibilities' under the listing rules. According to an HKEx investigation, for a period of one year after its listing in July 1998, the two directors failed to ensure the company maintained a public float of at least 25 per cent. Investigations by the company's non-executive directors showed only 5.65 per cent of shares were held in public hands. The company only met the minimum 25 per cent requirement after two private placements in July 1999. In addition, the company did not disclose a change in usage of the HK$28.8 million listing proceeds raised from an initial public offering in July 1998. It also failed to disclose this fact to shareholders via a public announcement. In the company's listing prospectus, the funds were earmarked for property development investments in China. However, about HK$28.1 million of the proceeds were paid to a single third party - a company unrelated to Dong Jian and its subsidiaries. This sum directly funded the acquisition of newly issued Dong Jian shares via some nominee accounts for mainland investors. These investors included Dong Jian's mainland employees and others who had no relationship with the company. 'The listing committee concluded that the two [executive] directors breached the listing rules,' the exchange said. 'The listing committee further found that such breaches were wilful and persistent on the part of the relevant directors.' HKEx thus said: 'In the exchange's opinion, the retention of office by each of the relevant directors is prejudicial to the interests of investors.' Despite the HKEx statement, the company's non-executive directors did not force the two executive directors to resign. They said the two directors 'played a very important role in the business development, management and operation of the group'. '. . . The future business and operation of the company will be adversely affected if both relevant directors resign from the board of directors.' Ngai Hor-ying is the major shareholder, chairman and managing director of Dong Jian. He also is a member of the Chinese People's Political Consultative Conference of Fujian province. His son, Ngai Man-sang, is responsible for marketing and overall management of the company. He also is a council member of the Hong Kong Innovation and Technology Association.