Landmark SFC Settlement – HK$192 Million Compensation for Combest Shareholders
The Securities and Futures Commission (“SFC”) has secured a landmark settlement in the Combest Holdings Limited case (“Combest”), requiring former senior executives of Combest to pay HK$192 million in compensation to shareholders. This case represents Hong Kong’s evolving securities regulation, particularly in holding shadow directors accountable and securing direct compensation for public investors.
Case Summary
Combest, a Cayman Islands-incorporated company listed on the Hong Kong Stock Exchange’s Growth Enterprise Market (“GEM”) until 2020, operated as an investment holding company with its business conducted through subsidiaries. In 2020, the SFC initiated proceedings under sections 212 and 214 of the Securities and Futures Ordinance (“SFO”) against Combest and three individuals, namely Mr. Ng Kwok Fai (“Ng”) (shadow director), Mr. Liu Tin Lap (“Liu”) and Mr. Lee Man To (“Lee”) (former executive directors) (collectively, the “Directors”). The investigation revealed misconduct causing HK$293 million in losses through fictitious transactions, overvalued acquisitions, fictitious fees payment to Ng-related entities, and misleading disclosures breaching GEM Listing Rules.
SFC’s Legal Action
The SFC sought, inter alia, to wind up Combest (HCCW 118/2020) under section 212 of the SFO, relying on various acts of misconduct. As against the Directors, it sought :
- Disqualification orders under section 214(2)(a) and/or (d) of the SFO;
- Compensation orders under section 214(2)(e) of the SFO; and/or
- Orders for Combest to pursue legal action against the Directors under section 214(2)(b) and/or (e) of the SFO.
Instead of winding up, the parties settled via the Carecraft procedure, a streamlined mechanism stemming from Re Carecraft Construction Co Ltd [1994] 1 WLR 172, where the parties reached an agreement to dispose of the proceedings. This mechanism helps resolve cases involving directors’ misconduct quickly and cost-effectively, reducing the time and costs spent by the courts and parties involved.
Settlement and Court Orders
The SFC submitted that, inter alia, the proposed settlement requiring the Directors to pay HK$192 million as full and final settlement of the SFC’s claim is in the public interest for the following reasons:
- Expedited resolution avoiding costs;
- Substantial compensation received by Combest at an early stage;
- Avoidance of litigation risks;
- Combest’s consent as the beneficiary; and
- Special dividends would be unachievable by monetary compensation after trial.
On 29 May 2025, the Court of First Instance approved the proposed settlement involving distribution of special dividends to independent public investors via a jointly appointed administrator. The court disqualified Ng for 12 years (top-tier misconduct) and Liu and Lee for 8 years each (significant aiding role). Proceedings against Combest were stayed pending dividend distribution, after which the SFC will apply for dismissal of the action.
Significance
This settlement delivers direct shareholder redress, reinforcing the SFC’s enforcement powers against de facto controllers. The case highlights the court’s flexibility under the SFO to favor targeted remedies over more drastic measures like winding-up. The case deters misconduct and boosts investor confidence in Hong Kong’s markets.
The Combest case is a civil case where the matters at stake are monetary and disqualification from being directors. However, it should be noted that the case could have ended in a criminal court, as the SFO also contains criminal provisions the contraventions against which may result in imprisonment of up to 10 years. In fact, the Court at the end of the hearing asked the SFC whether it had referred the case to the police or the Department of Justice for considering criminal investigations or proceedings.
Dealing with the SFC requires expertise in the SFO and how it sets the parameters under which the SFC operates. As part of our ongoing commitment to supporting clients in this area, we are pleased to share that an experienced lawyer specializing in white-collar crimes and SFO-related matters will soon join our team. Should you have questions or need guidance on how to deal with inquiries, investigations and court actions by the SFC or other regulatory bodies, we welcome the opportunity to discuss how we may assist.
