Debt-stricken Chinese developer Fantasia Holdings Group and its chairman Pan Jun have been heavily criticised by the Hong Kong stock exchange for breaching an agreement to avoid direct competition with a spin-off company. The exchange publicly rebuked Fantasia and Pan, and ordered the chairman to attend 17 hours of training on corporate governance and other aspects of listing rules. The bourse also meted out criticism to former Fantasia executive director Lam Kam-tong, the spin-off unit Colour Life Services and its former executive directors, Zhou Qin-wei and Tang Xue-bin. The trio will also need to attend training to qualify as directors of listed companies in Hong Kong in the future. Fantasia, a Shenzhen-based developer , was listed in Hong Kong in November 2009 before it spun off Colour Life in June 2014. At the time, both firms planned to continue to engage in property management. They entered into a non-competition agreement to clearly delineate their business focuses, in accordance with a listing rules requirement. Under the deed, Fantasia was only allowed to provide management services for commercial buildings while Colour Life would stick to residential projects. However, the exchange found that the parent company had been involved in 30 residential property contracts while Colour Life carried out work in several commercial buildings. The bourse said the breach had resulted from a failure by the companies and the four key management team members to put in place adequate internal controls to ensure compliance with the deed. That led to inaccurate disclosures in Colour Life’s annual reports between 2015 and 2018 when it claimed the deed had been fully complied with. “The exchange expects issuers contemplating a spin-off to satisfy a requirement that there should be clear delineation between the businesses retained by the parent and the business of the company to be spun off,” Hong Kong Exchanges and Clearing, which runs the bourse, said in a statement. “Adequate and effective internal controls must be put in place to ensure compliance with any such arrangement.” Fantasia, a developer of high-end residential projects and luxury flats in cities such as Beijing and Wuhan, was founded in 1996 by Zeng Jie, the niece of former vice-president Zeng Qinghong. It failed to repay a US$205.7 million bond due on October 4. Fantasia, alongside China Evergrande Group, Fantasia, Modern Land and Kaisa Group Holdings, is among the major developers to have defaulted on offshore debt amid a liquidity crunch. The trouble infecting the sector led four local lenders – HSBC, Standard Chartered, Hang Seng Bank and Bank of East Asia – to put aside US$1.02 billion in provisions last year.