Insider dealing report on Gilbert Holdings Limited

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The Insider Dealing Tribunal (IDT) has submitted to the Financial Secretary a report on its inquiry in relation to the listed securities of Gilbert Holdings Limited (Gilbert).

According to the report, the tribunal, under the chairmanship of Deputy High Court Judge Saunders, concluded its findings by unanimous decision that Mr Clarence Wong Wing Wah, Mr Hung Shiu Shan and Mr Sunny Wong Man Fu and Ms Rona Wong Yuen Wan have engaged in insider dealing.

The tribunal made no finding of insider dealing against the other four people named.

The tribunal will proceed to hear representations on a date to be fixed to determine the amount of loss avoided and thereafter to make consequential orders and penalties.

The Gilbert inquiry involved eight implicated parties and 19 witnesses, with a total of 28 actual hearing days.

A summary of the tribunal's report is at the Annex.

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Annex

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Following is a summary of the tribunal's report -

Introduction

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By notice dated August 26, 2002, the then Financial Secretary required the IDT to institute an inquiry in relation to the listed securities of Gilbert Holdings Limited to inquire into and determine -

(a) whether there has been insider dealing in relation to the company connected with or arising out of the dealings in the listed securities of the company by or on behalf of -

Rona Wong Yuen Wan, Lam Loy Lui, Fok Ying She, Hung Shiu Shan, Heidi Chin Muk Tse and Samantha Cheung Shu Yim during the period from January 1, 1998 to May 19, 1998 (both dates inclusive);

(b) in the event of there having been insider dealing as described in paragraph (a) above, the identity of each and every insider dealer; and

The tribunal under the Chairmanship of Deputy Judge Saunders completed its inquiry in respect of liability, that is, to identify those who did or did not commit acts of insider dealing, and submitted a report in that regard to the Financial Secretary on May 11, 2005.

The company

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Gilbert was listed on the Stock Exchange of Hong Kong Limited (SEHK) on October 12, 1995. Gilbert was the principal holding company of seven other subsidiary companies comprised in what was known as the "Gilbert Group", (the Group). The Group was principally engaged in the trading, development, and supply of flax, and an extensive range of linen products including yarns, fabrics and garments. The Group was also engaged in the trading of plastic materials and manufacture and sale of polyester staple fibres through recycling.

The business then carried on by the Group had been begun by Mr Wong Wing Wah, Clarence, (Clarence Wong), in 1984. In that year he had been joined by Mr Ming Chung Yee, Osric, (Osric Ming), who had experience in the textile industry. They were joined in 1991 by Mr Wong Man Fu, Sunny, (Sunny Wong), who was also experienced in the textile industry. The business of the Group developed to the stage that by March 31, 1995, the Group had a turnover of some $416,867,000, from which it earned an operating profit of $32,099,000. Clarence Wong, Osric Ming and Sunny Wong became executive directors of Gilbert when it was listed.

In early 1998, Gilbert experienced liquidity difficulties which eventually led to its being placed in receivership on September 1, 1999. In late April 1998, in view of Gilbert's liquidity difficulties, an approach was made to the Hongkong & Shanghai Banking Corporation, (HSBC), in the hope of securing a short-term loan of $20 million to meet some of Gilbert's then outstanding obligations. A meeting was held between the three executive directors and Gilbert's Financial Controller, and representatives of HSBC on May 8, 1998. At that meeting, HSBC requested further information to enable them to consider the request.

Pursuant to that request, certain financial data was compiled by Gilbert which showed that, at that time, it had indebtedness of around $600 million, and that creditors, both other banks through which Letter of Credit and Trust Receipt facilities had been arranged, and the suppliers of material to Gilbert, were either terminating or tightening existing credit facilities. At the same time Gilbert's accounts receivable were not being promptly paid, and were standing at some $540 million at February 28, 1998.

A second meeting was held on May 15, 1998, between Gilbert and HSBC. The three executive directors did not attend that meeting but sent Gilbert's Financial Controller instead. He was informed, and in turn shortly thereafter, informed the three executive directors, that HSBC had immediately terminated all existing banking facilities and transferred Gilbert's case to be dealt with by HSBC's own Corporate Recovery Unit. HSBC also required an independent auditor to be appointed to review Gilbert's financial position.

On diverse days between May 8 and 19, 1998, (inclusive), six people completely disposed of their entire shareholdings in Gilbert. They were, Ms Rona Wong Yuen Wan, Madam Lam Loy Lui, Mr Hung Shiu Shan, Mr Waylex Fok Ying She, Madam Heidi Chin Muk Tse and Ms Samantha Cheung Shu Yim.

The heavy selling by those six individuals appeared to cause the share price of Gilbert's shares to drop nearly 34% on May 19, 1998 alone, while on the same day the Hang Seng Index, (HSI), rose 0.4%. This prompted the SEHK to demand an explanation from Gilbert. On the May 20, 1998, Gilbert published an announcement, dated May 19, 1998 regarding the 34% fall of its stock price the previous day. It announced that its directors were "proposing to discuss the company's position with its banker and would be seeking its support in respect of the company's commitment to its banks".

Upon the publication of the May 20, 1998 announcement, by which time all six individuals had disposed of their entire shareholdings in the company (the previous day), Gilbert's share price rose 19%, while the HSI rose 1%.

On Friday May 29, 1998, Gilbert published a second announcement, dated May 28, 1998, again at the request of the SEHK. In this notice, its directors confirmed that the current short-term bank borrowings of the group amounted to about $600 million, and that Arthur Andersen & Co had been appointed to conduct a review on the financial position of the company.

On the first four trading days following the publication of this announcement, Gilbert's share price dropped by some 26%, 21%, 9% and 6% respectively each day, compared with the day immediately preceding. Turnover was some 20, 41/2, 10 and 61/2 times respectively that of the day immediately before the announcement. The cumulative drop in the share price at the end of the fourth trading day since the announcement (on June 3, 1998), was 63.4%.

It was alleged that before the release of the announcement on May 29, 1998 in relation to the financial position of Gilbert and in particular its working capital requirements, various parties had taken advantage of the relevant information they possessed to deal, counsel or procure another person(s) to deal in Gilbert shares, thus constituting insider dealing.

Findings

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The tribunal concluded its findings by unanimous decision as follows -

(I) Mr Hung Shiu Shan (Mr Hung)

Mr Hung is the father-in-law of Sunny Wong, a director of Gilbert. It is satisfied that Mr Hung had received relevant information from Sunny Wong who was known to be connected with the company and Mr Hung would have known or would have reasonable cause to believe that Sunny Wong held that information by virtue of his connection with Gilbert. He was found to have been an insider dealer in breach of section 9(1)(e) (Note 1) of the SIDO in relation to -

(a) the sale of 48,000 Gilbert shares, held to his personal benefit in his Tai Tak account between May 8, 1998 and May 14, 1998; and

(b) the sale of 1,010,000 Gilbert shares, held by him for the benefit of Sunny Wong between May 8, 1998 and May 14, 1998.

(II) Mr Sunny Wong Man Fu (Sunny Wong)

Sunny Wong was at all relevant times a director of Gilbert, who was in possession of relevant information and knew it to be relevant information. Sunny Wong was found to be an insider dealer in breach of section 9(1)(a) (Note 2) of the SIDO in relation to the sale of 1,010,000 Gilbert shares, held by his father-in-law, Mr Hung, for the benefit of Sunny Wong between May 8, 1998 and May 1998.

When Sunny Wong disclosed the relevant information to his father-in-law, Mr Hung, knowing or having reasonable cause to believe that Mr Hung would make use of the information for dealing in the securities of Gilbert, Sunny Wong was found to be an insider dealer in breach of section 9(1)(c) (Note 3) of the SIDO in relation to the sale of 48,000 Gilbert shares, held by Mr Hung to his own benefit between May 8 and 14, 1998.

(III) Mr Clarence Wong Wing Wah (Clarence Wong)

Clarence Wong was at all relevant times the Chairman of Gilbert who was in possession of relevant information and knew it to be relevant information. He was found to have been an insider dealer in breach of section 9(1)(a) of the SIDO in relation to -

(a) the sale of 5,967,845 Gilbert shares, held to his personal benefit, in accounts held by his eldest sister Rona Wong;

(b) the sale of 386,155 Gilbert shares in accounts held by his eldest sister Rona Wong, held to her personal benefit; and

(c) the sale of 4,278,000 Gilbert shares, held to his personal benefit in the account of his business friend Mr Fok Ying She at Shenyin Wanguo on May 19, 1998.

(IV) Ms Rona Wong Yuen Wan (Rona Wong)

Rona Wong is the eldest sister of Clarence Wong. It is satisfied that Rona Wong had received relevant information from Clarence Wong who was known to be connected with the company and Rona Wong would have known or would have reasonable cause to believe that Clarence Wong held that information by virtue of his connection with Gilbert. She was found to have been an insider dealer in breach of section 9(1)(e) of the SIDO in relation to -

(a) the sale of 386,155 Gilbert shares in accounts held by her for herself personally;

(b) the sale of 220,000 Gilbert shares by her mother Madam Lam Loy Lui on May 18, 1998; and

The tribunal made no finding of insider dealing against the other four people named in the notice issued on August 26, 2002.

Note 1: Section 9(1)(e) of the SIDO states that when a person who has information that he knows is relevant information in relation to that corporation which he received (directly or indirectly) from a person -

(i) whom he knows is connected with that corporation; and

(ii) whom he knows or has reasonable cause to believe held that information by virtue of being so connected,

deals in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) or counsels or procures another person to deal in those listed securities or their derivatives.

Note 2: Section 9(1)(a) of the SIDO states that insider dealing in relation to a listed corporation takes place when a person connected with that corporation who is in possession of information which he knows is relevant information in relation to that corporation deals in any listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) or counsels or procures another person to deal in such listed securities knowing or having reasonable cause to believe that such person would deal in them.

Note 3: Section 9(1)(c) of the SIDO states that insider dealing in relation to a listed corporation takes place when relevant information in relation to that corporation is disclosed directly or indirectly, by a person connected with that corporation, to another person and the first-mentioned person knows that the information is relevant information in relation to the corporation and knows or has reasonable cause for believing that the other person will make use of the information for the purpose of dealing, or counselling or procuring another to deal, in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives).

Ends/Tuesday, May 31, 2005

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