On 7 May 2026, the Securities and Futures Commission obtained disqualification orders against four former directors of China Candy Holdings Limited. The Court of First Instance in Hong Kong made the orders. The durations reach up to 33 months. The orders concern the directors' negligence in failing to uncover overstatements in the company's financial records. The four are Li Yuna and Yvonne Hung, former executive directors and chairpersons. The other two are Fangus Chu Wai Wa and Ong King Keung, former independent non-executive directors. The SFC found material overstatements in the company's cash and bank balances. It also found that bank and accounting records had been fabricated. The orders were made under section 214 of the Securities and Futures Ordinance. The proceedings were disposed of by the Carecraft procedure. This report sets out the orders, the Court's findings, and the underlying scheme.
The Disqualification Orders
The Securities and Futures Commission (SFC) obtained disqualification orders, with durations of up to 33 months, in the Court of First Instance against four former directors of China Candy Holdings Limited (China Candy or the Company). The orders concern their negligence in failing to uncover the overstatements in the Company's financial records and in discharging their duties as directors.
The four former directors named in the proceedings are Ms Li Yuna and Ms Yvonne Hung, former executive directors and chairpersons, and Mr Fangus Chu Wai Wa and Mr Ong King Keung, former independent non-executive directors.
Under the court orders, Hung and Li were disqualified for 33 months and 24 months respectively, while Chu and Ong were disqualified for 12 months each, from being a director, liquidator, receiver or manager of, or being involved in the management of, any corporation in Hong Kong without leave of the Court. They were also ordered to pay the SFC's costs in the proceedings, to be taxed if not agreed.
The matter came before Harris J. The hearing and decision both took place on 6 March 2026, with the Reasons for Decision delivered on 24 April 2026. The judgment is reported as [2026] HKCFI 2187 under Case No. HCMP 572/2022.
The Company and Its Subsidiaries
China Candy was incorporated in the Cayman Islands on 14 March 2014. It was an investment holding company. Its subsidiaries included Fujian Holeywood Food Industrial Co. Ltd (HW Food) and Jinjiang Holeywood Trading Co. Ltd (HW Trading), collectively the Group, which were principally involved in the manufacture of candy products in the People's Republic of China.
The Company's shares were listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited under stock code 8182 between 11 November 2015 and 31 December 2019, when the listing was cancelled. HLB Hodgson Impey Cheng Ltd (HLB) was the Company's auditor until its resignation on 14 February 2018.
The Directorships and Tenures
Li became the Company's executive director on 30 December 2016 and its chairman on 31 July 2017, resigning from these positions with effect from 30 November 2017. Hung became an executive director on 2 February 2017 and chairman on 30 November 2017. Chu served as an independent non-executive director and a member of the audit committee from 26 October 2015 until his resignation with effect from 24 July 2017. Ong served as an independent non-executive director and chairperson of the audit committee from 29 February 2016 until his resignation with effect from 14 September 2017.
The Overstatements
The Company published its 2016 Interim Report on 11 August 2016 and its 2016 Annual Report on 17 March 2017. Subsequent investigation revealed that both reports contained material overstatements in the Company's cash and bank balances as at 30 June 2016 and 31 December 2016, caused by overstatements in the bank balances of HW Food and HW Trading.
The overstatements were established by comparing the bank ledgers provided by the Company, and HLB's working papers, against the genuine bank statements. As at 30 June 2016, HW Food's account with China Construction Bank in the PRC showed RMB41,201,641 per the bank ledgers against RMB3,601,641 per the genuine statements, an overstatement of RMB37,600,000. HW Trading's account showed RMB503,125 against RMB3,125, an overstatement of RMB500,000. The combined overstatement as at 30 June 2016 was RMB38,100,000. As at 31 December 2016, HW Food's account was overstated by RMB43,480,000.
The overstatement of bank balances represented 87% of the purported cash and bank balances in the 2016 Interim Report and 97% of the purported cash and bank balances in the 2016 Annual Report.
The Inflation and Falsification Schemes
The overstatements were caused by the omission of non-recorded transactions and the booking of non-existent withdrawals in the Company's bank ledgers. To inflate the cash and bank balances, non-existent deposits would generally be booked near month-end, then cancelled out or "rectified" later by omitting non-recorded transactions and booking non-existent withdrawals, an exercise the Court termed the Offset. In the case of the 2016 reports, the Offset took place only after the financial period cut-off points, making the financial position of the Group appear healthier. This scheme of overstating the bank balances, the Inflation Scheme, was perpetrated and concealed by a related Falsification Scheme of fabricating records relating to the Group's financial position.
Breach of Directors' Duties
The four respondents accepted that, as directors, they owed the Company a duty to exercise reasonable care, skill and diligence, a continuing duty to acquire and maintain sufficient knowledge and understanding of the Company's business, and, where responsibilities were delegated, a duty to supervise the discharge of those delegated responsibilities.
They accepted that they had acted negligently or in breach of their duty of care, skill and diligence by failing to uncover the overstatements, thereby failing to disclose the true financial position of the Company to its shareholders. CT Partners Consultants Ltd (CT Partners) had prepared internal control review reports identifying potential red flags, but each respondent admitted failing to pay attention to those red flags, failing to ensure the board received and approved monthly management accounts in accordance with CT Partners' procedure, and failing to ensure the recommended measures were implemented. Each admitted relying on HLB and CT Partners to identify and report audit or internal control issues, thereby abdicating the duty to independently identify and assess such issues.
On this basis, the respondents accepted that the business or affairs of the Company had been conducted in a manner within the meaning of sections 214(1)(b), (c) and (d) of the SFO between 1 June 2015 and 31 December 2017, and that they were responsible for the same.
Principles Governing Disqualification
The Court was guided by established principles. The power to determine the period of disqualification is discretionary, requiring the Court to be satisfied that the director's involvement involved a sufficiently serious failure to satisfy his or her duties. The objectives of a disqualification order are twofold: to protect the public, recognised as the primary purpose, and general deterrence. The Court adopts a broad-brush approach and must be independently satisfied on the agreed facts, while not being bound by the parties' agreement, though in practice it is likely to be guided by the agreement reached by the SFC as a responsible regulator.
The period must reflect the gravity of the offence, assessed by fixing the correct period to fit the conduct and then discounting for mitigating factors. The maximum disqualification period of 15 years is divided into three brackets as guides: a top bracket of over 10 years for particularly serious cases, a middle bracket of 6 to 10 years for serious cases, and a minimum bracket of up to 5 years for relatively less serious cases.
The Executive Directors: Li and Hung
The Court found the misconduct of Li, the 24-month respondent, to be one of negligence falling within the minimum bracket. Li admitted she should have discovered the overstatements, which she accepted to be material, given their substantial scale, her position, and her duty to ensure proper and adequate internal controls. Counsel for Li emphasised that her appointment as executive director occurred only one day before the end of the 2016 financial year, that only a small proportion of the impugned transactions occurred after her appointment, that she was appointed at the age of 29 without prior listed-company directorship or an accounting background, and that there was no allegation of dishonesty or personal benefit. The Court was satisfied that 24 months was commensurate with the gravity of her conduct and gave appropriate regard to the mitigating factors.
For Hung, the 33-month respondent, the Court took into account the same general factors, together with the fact that she had remained an executive director and chairman for a much longer period than Li, almost nine years as of the date of the Reasons, against four to eleven months for Li. Hung, appearing in person, accepted the mitigating factors and made no further submission. The Court was satisfied that 33 months was commensurate with the gravity of her conduct.
The Independent Non-Executive Directors: Chu and Ong
Chu and Ong, each disqualified for 12 months, were independent non-executive directors and members of the audit committee, Chu as a member and Ong as chairperson. Each admitted that, although not involved in day-to-day business, he should have acquainted himself with adequate knowledge to perform his audit committee duties, including monitoring and scrutinising the Company's corporate governance and reviewing its internal controls. Each admitted failing to attend to CT Partners' identified red flags and relying completely on HLB and CT Partners.
Counsel for both noted there was no suggestion of fraud, dishonesty, defalcation, lack of commercial probity, personal gain, or knowing involvement in either scheme, and that their breach was partly due to a false sense of security created by the unqualified audit opinions issued by the external auditor upon independent bank confirmation. Chu, aged 58, and Ong, aged 50, had each held positions at other listed companies but no longer did so. The Court was satisfied that 12 months was commensurate with the gravity of each respondent's conduct.
The Carve-Out for the Seventh Respondent
The SFC and Chu agreed to carve out a private company, Excellent Management Ltd (XML), from the disqualification order. XML is an integrated solutions and software company offering technology and consulting services for travel companies in Hong Kong and the Asia-Pacific region. Chu had worked for XML since 1997 and was responsible for its finance and accounting services. Given the business nature of XML and the absence of any plan for public listing, the SFC submitted that Chu's involvement posed minimal risk to the investing public and that the purpose of protecting the public would still be achieved. The Court agreed and allowed the carve-out.
The Wider Proceedings
The proceedings against these four respondents form part of the SFC's broader action, commenced under section 214 of the SFO on 12 May 2022, against eight respondents. The SFC alleges that China Candy's former chairman and executive director, Mr Xu Jinpei, its former chief executive officer and executive director, Ms Hong Yinzhi, and former chief financial controller, Mr Wang Zhihong, were the instigators and perpetrators of, or at least knowingly permitted, acquiesced or turned a blind eye to, the overstatements and fabrication. The trial against these three concluded in March 2026, pending judgment.
In September 2023, the SFC obtained a disqualification order of three years in the same proceedings against a former independent non-executive director, Mr Nicholas Chiu Sai Chuen, disposed of by the Carecraft procedure on 19 September 2023.
The SFC was represented by Mr Jenkin Suen SC. Li was represented by Mr Alan K.L. Au. Hung appeared in person. Chu and Ong were represented by Mr Vincent C.C. Chan.
(Source: https://legalref.judiciary.hk/lrs/common/ju/gotoPdf.jsp?lan=en&url=https://legalref.judiciary.hk/doc/judg/word/vetted/other/en/2022/HCMP000572A_2022.docx, https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=26PR67)
