On 13 May 2026, the Securities and Futures Commission obtained a disqualification order against Poon Tsz Hang. He was the former financial controller and company secretary of Qunxing Paper Holdings Company Limited. The Court of First Instance in Hong Kong vide order dated 7 May 2026 [2026] HKCFI 2562 disqualified him for two years. The order was made under section 214 of the Securities and Futures Ordinance. Poon cannot act as a director, liquidator, receiver or manager of any company without leave of the Court. He was also ordered to pay the SFC's costs of HK$1.2 million. The case concerns materially overstated turnover and understated bank borrowings in Qunxing's financial statements. The SFC found that Poon failed to discharge his duties as the company's most senior finance officer. The proceedings were disposed of by the Carecraft Procedure based on agreed facts. This report examines the Court's findings, the statutory basis, and the sanction imposed.
Factual Matrix to the Proceedings
By petition presented on 9 September 2019, the Securities and Futures Commission (SFC) sought disqualification orders against five respondents in respect of their conduct of the business or affairs of Qunxing Paper Holdings Company Limited (the Company). The petition alleged conduct offending various paragraphs under section 214(1) of the Securities and Futures Ordinance (SFO).
The matter came before Deputy High Court Judge Winnie Tam, SC, with the hearing held on 18 August 2025 and the Reasons for Decision delivered on 7 May 2026. The order against the third respondent, Poon Tsz Hang (Poon), was announced by the SFC on 13 May 2026.
Qunxing's shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (SEHK) on 2 October 2007. On 30 March 2011, at the Company's request, the SEHK suspended trading of its shares. The listing was cancelled with effect from 30 November 2017.
The Company and Its Operations
At all material times, the Company was an investment holding company with a 100% indirect shareholding in its sole operational arm, a Mainland entity called Shandong Qunxing Paper Ltd (Shandong Qunxing). Among the corporate entities through which the Company held its interest in Shandong Qunxing was Best Known Group Ltd (Best Known). The Company and its subsidiaries (the Group) were engaged in the manufacture and sale of decorative base paper products and printing paper products in Mainland China.
The first, second and fifth respondents were members of the same family who beneficially owned Boom Instant Ltd, the majority shareholder of the Company.
On 17 September 2007, the Company issued an IPO Prospectus for the public offering of its shares, receiving proceeds of about HK$1.846 billion. On 17 December 2010, the Company issued an Open Offer Prospectus for new shares, raising about HK$112 million from public investors.
Poon's Role at Qunxing
Poon held the position of Senior Financial Manager of the Company from 10 December 2007. From 8 May 2009, he became the Company's Financial Controller, and its Company Secretary from 8 January 2014, until he resigned from both positions on 1 April 2014.
It was not disputed that between May 2009 and March 2014, as Financial Controller, Poon owed a duty to act in good faith and in the best interests of the Company, a duty to exercise reasonable care, skill and diligence, and a duty to exercise the skills of a reasonably competent financial controller. He was responsible for the consolidation of accounts and preparation of consolidated financial statements of the Group, the Group's overall financial management, accounting and investor relations. During this period he assumed the most senior finance position within the Group.
The Three Aspects of Misconduct
The earlier civil action under section 213 of the SFO, commenced on 12 December 2013 in HCA 2428/2013, established the underlying misconduct. After trial, G Lam J found the misconduct proved and made declarations and orders for payment to shareholders exceeding HK$1.4 billion. The misconduct was alleged in three particular aspects.
First, the Company exaggerated its turnover before and after its 2007 initial public offering by overstating sales through Shandong Qunxing with two customers, Shanghai On Hing Paper Company Ltd (Shanghai On Hing) and Changzhou Cuiqiao Chengguang Paper Company Ltd (Cuiqiao), in its IPO prospectus, annual reports and announcements for the years 2006 to 2011 (the Overstatements).
Second, the Company failed to disclose to public investors in its annual reports and results announcements for 2009 to 2012 that Shandong Qunxing had taken out substantial bank loans in Mainland China (the Undisclosed Bank Loans).
Third, the Company failed to disclose in a timely manner that Shandong Qunxing's restructuring application under PRC bankruptcy laws was accepted on 24 February 2014, which implied a sudden deterioration of its financial position (the Undisclosed Restructuring Application).
The Scale of the Overstatements
The undisputed overstatement of turnover figures spanned 2006 to 2011. The amount of sales overstated in the Group's books in relation to Shanghai On Hing ranged from RMB107,868,158 to RMB116,683,804 in 2006, representing 11.34% to 12.27% of reported turnover. The percentage of turnover overstated peaked in 2007 at 19.33% to 22.86%, where overstated sales ranged from RMB217,610,958 to RMB257,257,004 against reported turnover of RMB1,125,524,000.
Audit issues and irregularities relating to the verification of sales figures were identified by KPMG. In November 2011, JLA Asia Ltd (JLA) was commissioned by the SEHK to conduct a further independent review of the internal audit review conducted by Zhonglei Risk Advisory Services Limited (Zhonglei), a company engaged by the Company. JLA identified a number of issues and irregularities.
The Company made three public announcements on 22 April 2013, 17 July 2013 and 9 August 2013, in which the Audit Committee and the Board concluded that the audit issues had been clarified and addressed, and that they found no evidence of manipulation of revenue, profit and cash position, falsification of books and records or misappropriation of assets. Not all the irregularities identified by JLA were fully and accurately disclosed in those announcements. JLA disagreed with the conclusions but was unable to point to any concrete evidence otherwise, nor to confirm that the audit issues had been adequately clarified, due to the limited scope of its work and other constraints placed on the investigation.
Other matters under the overstatement category related to a fictitious company chop of Shanghai On Hing, fictitious payments to or purchases from Shandong Qunxing, and three persons held out as members of staff of Shanghai On Hing or Huidong at site visits made by KPMG, Zhonglei and JLA who were in fact not employees of either company.
The Undisclosed Restructuring Application
As to the undisclosed restructuring application, the SFC relied on the notice issued by the Intermediate People's Court of Binzhou City in the PRC on 24 February 2014 stating its acceptance of the restructuring application of Shandong Qunxing under the Enterprise Bankruptcy Law of the PRC. With Shandong Qunxing being the Company's sole operational arm, the severe deterioration of its financial position and the restructuring application constituted inside information that ought to have been disclosed to the public in a timely manner. It was only after the appointment of interim receivers and managers by To J on 28 March 2014 that an announcement about the restructuring application was made on 17 September 2014.
The SFC's Case Against Poon
The SFC's case was that the business or affairs of the Company had been conducted in a manner involving misfeasance or other misconduct towards the Company or its members, resulting in members not having been given all the information they might reasonably expect, and unfairly prejudicial to its members, within the meaning of section 214(1)(b), (c) and (d) of the SFO.
In respect of unfair prejudice, the SFC relied on the fact that the investing public were likely to have been induced by the false or misleading profit figures in the IPO and Open Offer Prospectus and in the relevant annual reports and announcements from 2007 to 2011, as well as the false information about nil bank loans for 2009 to 2012. Since trading was suspended on 30 March 2011 and the listing cancelled on 30 November 2017, the value of the Company's shares is at or close to zero. The public shareholders were prejudiced for having subscribed for and bought shares at prices above their true value in reliance on the false or misleading information.
The SFC considered that Poon failed to discharge his duties during the financial years ended 2009 to 2012, including failing to identify the issues through verification of the local audited reports of Shandong Qunxing, to supervise or review its accounts, and to oversee the implementation of an effective internal reporting system. The SFC considered Poon responsible despite his assertion that the matters were deliberately concealed from him by the first respondent, the second respondent and the PRC Finance Team, taking the view that he would likely have discovered the Undisclosed Bank Loans and the Undisclosed Restructuring Application earlier had he fulfilled his duties.
The Carecraft Procedure
The SFC and Poon consented to the disposal of the proceedings against Poon by way of the summary procedure sanctioned in Re Carecraft Construction Co Limited (the Carecraft Procedure). On 9 May 2025, the parties signed a Statement of Facts Not in Dispute, agreeing to a disqualification of two years and payment of the SFC's costs in the agreed sum of HK$1,200,000.
The Court noted that, in deciding whether to make a disqualification order under the Carecraft Procedure, it is not bound by any agreement reached between the parties, but is under a duty to be independently satisfied, based on the agreed facts, that the business or affairs of the Company were conducted in a manner described under section 214(1) of the SFO, and to determine the scope and duration of disqualification that reflects the gravity of the offence.
Duties of a Financial Controller
In assessing the duties owed by a Financial Controller, the Court found the observations of the Market Misconduct Tribunal in respect of Greencool Technology Holdings Ltd, dated 24 January 2018, to provide helpful guidance. The Financial Controller's duties included supervising the preparation of management reports, budgets, financial reports and statutory accounts, ensuring proper implementation of an appropriate internal control system, and ensuring proper corporate governance. These duties required detailed knowledge of the accounts of the constituent companies and extended to all subsidiaries within the Group, including the Mainland subsidiaries.
The Court further noted the guidance that a Financial Controller's acceptance of a material reduction in his powers, such that the internal financial affairs of each subsidiary became a "no go" area without any formal public notice, even if not intended, was a deceit on the stock market authorities and on the market. Whether or not the Financial Controller could have uncovered any fraud had he discharged his duties properly was irrelevant when considering whether he was negligent.
The Court accepted the undisputed expert evidence of Mr John Robert Lees, who described the Financial Controller as the head of the accounting and finance functions, acting as the link between the finance department and management.
The Court's Findings on the Statutory Limbs
On the basis of the undisputed facts, the Court was satisfied that the business or affairs of the Company were conducted by Poon in a manner involving misfeasance and other misconduct towards the Company and its members within section 214(1)(b); resulting in members not having been given true and complete information regarding revenue, expenses and operating results within section 214(1)(c); and unfairly prejudicial to its members other than Boom Instant Limited, namely the public shareholders, within section 214(1)(d).
The Sanction and Mitigating Factors
In considering the period of disqualification, the Court took into account the two-fold objectives of protecting the public against future conduct and general deterrence. The Court applied the three brackets of disqualification laid down in Re Sevenoaks Stationers Ltd: a top bracket of 11 to 15 years for particularly serious cases, a middle bracket of 6 to 10 years for serious cases, and a minimum bracket of 2 to 5 years for less serious cases.
The Court accepted as mitigating factors that Poon had been cooperative in the proceedings, accepted liability, and adopted the Carecraft Procedure to save time and costs. The Court accepted that there was no allegation of dishonesty or fraud against him. The Court noted the finding of G Lam J in the earlier action that the first respondent, with the assistance of the second respondent, made all the management decisions for Shandong Qunxing, although this did not relieve Poon of his duties as Financial Controller. Taking into account the agreed mitigating factors and all relevant circumstances, the Court was satisfied that the two-year disqualification, in the minimum bracket of seriousness, was fair and appropriate.
The Carve-Out Application
Poon applied to exempt three non-listed private companies from the disqualification order: CT Consultants Ltd (CTCL), Sino Saga Corporation Services Ltd (Sino Saga), and Wicks Medical Consulting Co Ltd (Wicks Medical). The SFC, having considered the facts including Poon's second and third affirmations, agreed to the exemption on an exceptional basis, while it remained for the Court to be independently satisfied.
The Court held that the carve-out application should be allowed. Each of the three companies was a private company with no public investor's interest involved. CTCL was a company to which Poon provided accounting and consultancy services, representing his primary source of income as the sole breadwinner of a family with two teenaged daughters and an ailing wife. Sino Saga was a non-profit-making company providing secretarial services to Poon and his close family members. Wicks Medical was a company owned by Poon as a passive investor and two others, providing consultancy services to a single client.
The Court reiterated that the power to order disqualification is protective rather than punitive, and that hardship alone is not sufficient to support a carve-out order, though it is not entirely irrelevant. On the facts, the Court did not find it necessary to rely on any hardship factor to justify granting the application.
Discontinuation Against the Other Respondents
All respondents apart from Poon were resident in Mainland China and had not entered an appearance despite being duly served with the petition. The SFC took the view that further pursuit against the Mainland respondents would not be the best use of public resources, as the effort to disqualify them would be disproportionate to the costs the SFC would incur. By summons dated 5 June 2025, the SFC sought leave to discontinue the proceedings against them. The Court saw no reason not to accede to the application and granted leave to discontinue, with no order as to costs as between the SFC and the first, second, fourth and fifth respondents.
The Earlier Compensation to Investors
The disqualification proceedings followed Court orders made in February 2018 against Qunxing and the company's former chairman and vice chairman, Zhu Yu Guo and his son Zhu Mo Qun, requiring them to compensate investors after the section 213 proceedings. The Zhus were ordered to compensate investors who subscribed for Qunxing shares in its initial public offering or purchased shares in the secondary market between 2007 and 2011. The distribution of HK$92 million in compensation to around 27,000 eligible investors by the Court-appointed administrators was completed in January 2023.
The judgment is reported as [2026] HKCFI 2562 and is available on the Judiciary's website under Case No. HCMP 1439 of 2019. Poon was represented by Mr Raphael Leung, instructed by Ince & Co. The SFC was represented by Mr Martin Ho.
(Source: https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=26PR68, https://legalref.judiciary.hk/lrs/common/ju/loadPdf.jsp?url=https://legalref.judiciary.hk/doc/judg/word/vetted/other/en/2019/HCMP001439_2019.docx&mobile=N)
