The Hong Kong Stock Exchange takes disciplinary action against ORIENTSEC INT and six former directors
The Hong Kong Stock Exchange has taken disciplinary action against ORIENTSEC INT and six former directors, condemning its board for serious misconduct in failing to properly manage its lending business, resulting in significant impairment losses for the company. The former executive director and independent non-executive directors were deemed unsuitable to serve as directors and failed to take measures to protect the company's assets. The company granted HKD 378 million in loans to multiple clients between 2015 and 2022 without ensuring the registration of collateral, ultimately leading to defaults by all borrowers
According to Zhitong Finance APP, the Hong Kong Stock Exchange has taken disciplinary action against ORIENTSEC INT (08001) and six former directors. The Hong Kong Stock Exchange condemned ORIENTSEC INT and issued a statement of director unsuitability and condemnation against the company's former executive director Ms. Li Yazhen, former independent non-executive director Mr. Xiao Jianwei, and former independent non-executive director Ms. Chen Minyi. A statement of damage to investor rights and condemnation was issued against the company's former independent non-executive director Mr. Deng Zongwei. The Exchange criticized the company's former executive director Ms. Sun Tianxin and former independent non-executive director Ms. Lu Xuanling.
The statement of director unsuitability means that the Exchange believes Ms. Li, Mr. Xiao, and Ms. Chen are unsuitable to serve as directors or senior management members of the company or any of its subsidiaries. The statement of damage to investor rights indicates that the Exchange believes that if Mr. Deng remains a director on the company's board, it would harm the rights of investors.
This case involves serious dereliction of duty by the board of directors, which failed to properly manage and supervise the company's lending business. Despite an increase in borrower default situations and the auditor issuing warnings regarding multiple loans, the company's directors did not take action to protect the company's assets, resulting in significant impairment losses for the company.
It is reported that between 2015 and 2022, ORIENTSEC INT granted multiple loans totaling HKD 378 million (including interest) to several individual clients and extended the loan terms. The company only conducted high-level due diligence before granting loans or extending loan terms, without ensuring that the relevant properties in mainland China were properly registered as loan collateral, so that the company could enforce the collateral in case of borrower default.
The company's auditor had already reminded the company's audit committee as early as 2018 that the loan collateral was not registered, which would greatly reduce the enforceability of the collateral, and requested the audit committee to inform the company of the situation. Despite repeated reminders from the auditor and the borrowers' failure to repay most of the principal and interest over the years, the company and its directors still did not take sufficient measures to protect the company's assets and continued to extend the loan terms.
Ultimately, all borrowers defaulted on their loans, and the company recognized an impairment provision of HKD 145 million for the fiscal year 2022/23. As of March 31, 2024, the total confirmed impairment loss amounted to HKD 181 million.
Internal monitoring reviews found that the company had multiple internal control deficiencies, leading to its failure to conduct appropriate due diligence, register loan collateral, take sufficient measures to address loan defaults, and ultimately protect its own assets. Insufficient internal controls also resulted in the company failing to identify that the delays in loans and payments constituted transactions that needed to be disclosed, and therefore did not timely disclose the relevant transactions or seek shareholder approval for them
