The Securities and Futures Commission is seeking disqualification and compensation orders against Perfect Optronics chairman Cheng Wai-tak and five other directors for their alleged breach of fiduciary duties, demanding HK$252 million in compensation be paid back to the company.
If a compensation order is obtained, it would compel the directors to pay Perfect Optronics for the alleged loss caused by their misconduct, the SFC said.
The SFC's action follows an investigation into Cheng's guarantee in April 2015 to compensate Perfect Optronics if businesses purchased from him failed to meet a minimum profit of HK$34 million for the two years ending 31 December 2016. The guarantee set compensation at a sum equivalent to 9.513 times the shortfall of the guaranteed minimum profit.
On 22 December 2016, nine days before the expiry of the minimum profit guarantee period, Perfect Optronics sold parts of the businesses it acquired from Cheng. The gain from the transaction boosted the profit of the businesses by HK$26.5 million.
As a result, the compensation payable by Cheng to Perfect Optronics due to the shortfall in the guaranteed minimum profit was significantly reduced by HK$252 million.
The SFC alleges that Cheng had a material interest in the transaction due to the significant reduction in the compensation payable by him under the minimum profit guarantee.
As a result, he is alleged to have failed to avoid any involvement in the negotiations for the transaction or properly disclose to the other directors his material interests in it and failed to abstain from voting in the approval of the transaction. Therefore, Cheng was in breach of his fiduciary duty as a director of Perfect Optronics.
In addition, the SFC also alleged that several directors at Perfect Optronics failed to properly investigate the terms of the transaction or consider postponing the transaction until after 31 December 2016.
The SFC released consultation conclusions on proposed enhancements to the Investor Compensation Regime, including raising the compensation limit from HK$150,000 to HK$500,000 per investor per default and covering northbound trading under Mainland-Hong Kong Stock Connect. Subject to the legislative process, the SFC expects to implement the changes in early 2020.
Perfect Optronics is principally engaged in the trading of display components for electronics as well as the development and sale of optics products. Trading in its shares has been halted since September 26 of this year.