Hong Kong's Securities and Futures Commission reaches first settlement of its kind, resulting in Hong Kong-listed Kangpai Holdings compensating public shareholders to the tune of HK$192 million.

Recently, the Securities and Futures Commission of Hong Kong (hereinafter referred to as "the SFC") reached a settlement with Convoy Global Holdings Limited (hereinafter referred to as "Convoy Global") and its management team members Wu Guohui, Liu Tianli, and Li Minta, agreeing to resolve the legal proceedings against them in the Hong Kong High Court through a simplified procedure. According to the settlement agreement, the three defendants will pay approximately HKD 192 million to Convoy, to be distributed to the independent public shareholders of the delisted company. The three defendants are Wu Guohui (male), Liu Tianli (male), and Li Minta (male). The settlement proposal must be approved by the court before it can be implemented. The court has scheduled a hearing on April 2, 2025, to consider the settlement proposals of all parties. If approved, this will be the highest compensation ever paid by a delisted company to independent minority shareholders in the form of special dividends. As part of the settlement, upon court approval, the three defendants will pay approximately HKD 192 million to Convoy. Convoy has agreed to distribute the entire compensation amount to its shareholders through special dividends. In addition, two shareholders holding a combined 24.4% of Convoy's shares have pledged to return their entitlement to special dividends in order to redistribute them to independent public shareholders. If the court approves the settlement plan, independent public shareholders will receive HKD 0.066 per share, which is 2.75 times higher than Convoy's last closing price before the trading was suspended. This settlement arose from an investigation initiated by the SFC in July 2018, which found serious concerns regarding Convoy's operation and the conduct and integrity of its management team. To protect the interests of investors, the SFC directed the Stock Exchange of Hong Kong Limited (SEHK) to suspend trading in Convoy shares on May 29, 2019. Prior to the suspension of trading, the last trading price of Convoy shares was HKD 0.024 per share, with 75.6% of the shares held by independent public shareholders. On May 18, 2020, the SFC initiated legal proceedings against the defendants. Convoy shares were delisted by the SEHK on December 24, 2020. In addition, as part of the settlement, the SFC and the defendants have reached an agreement on a statement of fact, which includes: Wu has been a shadow director of Convoy since 2016, with only Liu and Li as executive directors during critical times, following Wu's instructions to operate Convoy's business. Wu, Liu, and Li caused Convoy to enter into transactions to acquire two subsidiary groups in 2016 and 2017. The pricing of the two acquisitions was significantly inflated by a total of HKD 229 million. These acquisitions allowed Wu to misappropriate funds from Convoy for personal gain, creating a false impression that Convoy had significant business and assets, which was used as a reason for the continued listing of its securities. The two acquired subsidiary groups consisted of fictitious or false businesses instigated by Wu. Wu, Liu, and Li caused Convoy to borrow without any business justification, resulting in payments of approximately HKD 64 million in fees and interest. Wu, Liu, and Li falsely inflated Convoy's earnings for multiple accounting periods between 2016 and 2019, resulting in a total loss of over HKD 293 million for Convoy. Based on the above reasons, Wu, Liu, and Li violated their fiduciary duties to Convoy. Ms. Leung Fung-yee, the Executive Director of the SFC, said: "This is the first such settlement of its kind that allows minority shareholders of Convoy to directly benefit from compensation paid by wrongdoers. We have always strived to maintain the integrity of the market, seek justice for minority shareholders, and make wrongdoers pay the price." The court has scheduled a hearing on April 2, 2025, to hear the settlement proposals of all parties and the statements made in the statement of fact. Updates on the court's ruling, including decisions on compensation and the distribution of special dividends, will be announced in due course. The SFC reminds shareholders and the investing public to exercise caution when trading Convoy's shares.