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SFC commences legal proceedings against New Ray Medicine International Holding Limited and its former top executives

Issue date: 2020-11-30 16:29:12

The Securities and Futures Commission (SFC) has commenced legal proceedings in the Court of First Instance to seek disqualification orders against former chairman and executive director of New Ray Medicine International Holding Limited (New Ray), Mr Zhou Ling, and the company’s former chief executive officer and executive director, Mr Dai Haidong, for allegedly committing corporate misconduct and breaching their duties towards New Ray.

The SFC also is seeking a court order in the same legal proceedings for Zhou to pay compensation to New Ray (Notes 1 to 3).

The SFC’s action follows an investigation into suspicious payments and undisclosed arrangements between New Ray’s senior executives and the counterparties of transactions involving New Ray which took place in 2015 and 2017.  In this connection, the SFC alleges that after the counterparties received payments from New Ray, significant amounts were then paid to Zhou and Dai.  When New Ray’s board of directors considered and approved these transactions, Zhou and Dai did not declare their personal interest in the transactions, nor disclosed to the board that the counterparties might not be independent third parties.

Specifically, the SFC alleges that (i) Zhou and Dai breached their duties as directors of New Ray; (ii) Zhou obtained a secret profit of $26 million from transactions which he caused New Ray to enter into; and (iii) Zhou caused New Ray’s subsidiary to enter into a number of artificial transactions which required New Ray to pay substantial upfront payments to one of the counterparties.  The aforesaid artificial transactions were not genuinely conducted for the commercial benefit of New Ray but resulted in substantial liquid capital being diverted to that counterparty.

The SFC suspended trading in New Ray’s shares on 6 October 2017 (Note 4).

On 14 August 2020, the SFC issued restriction notices to China Gather Wealth Financial Company Limited and Power Securities Company Limited prohibiting them from dealing with or processing certain assets held in Zhou’s accounts so that there will be funds available for Zhou to pay compensation to New Ray if so ordered by the court (Note 5).

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Notes:

1. New Ray’s shares were listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited on 25 October 2013 and its listing was transferred to the Main Board on 16 June 2015.  New Ray is an investment holding company and the New Ray group principally engaged in the trading of pharmaceutical products in the Mainland.
2. The legal proceedings were commenced under section 214 of the Securities and Futures Ordinance (SFO).  The first hearing will be held in the Court of First Instance on 11 May 2021.
3. Under section 214 of the SFO, the court may, inter alia, make orders to disqualify a person from being a director or being involved, directly or indirectly, in the management of any corporation for a period of up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having been conducted in a manner, among other things, involving defalcation, fraud, misfeasance or other misconduct towards its members.
4. The trading suspension was initiated by the SFC pursuant to section 8(1) of the Securities and Futures (Stock Market Listing) Rules.
5. For further details, please refer to the SFC’s press release dated 14 August 2020.

Source: SFC