Hong Kong Stock Exchange: Disciplinary actions taken against YE XING GROUP (01941) and its two current directors.

On March 12, the Hong Kong Stock Exchange issued a public reprimand against YE XING GROUP Holdings Limited (01941), its executive director and chairman Ms. Wu Guoqing, and executive director Mr. Zhao Weihao. They were further instructed to undergo training. The reason for this was that the company and the two individuals were found to have violated the Listing Rules in relation to connected transactions between the company and its parent group (ultimately owned by Mr. Zhao). Between May 2020 and February 2021, a subsidiary of the company agreed to provide various agency services to the parent group and paid both refundable and non-refundable deposits to the parent group to secure exclusive agency rights. Some of the refundable deposits were secured against real estate owned by the parent group as per a mortgage agreement reached by both parties. After the agency agreements expired, a subsidiary of the parent group owed the company a refundable deposit of RMB 38.5 million. In September 2021, the parent group sold this subsidiary without notifying the company, and the company only discovered this sale in mid-January 2022. In April 2022, the company agreed to offset part of the outstanding refundable deposit by purchasing several parking spaces from the parent group, reducing the balance to RMB 30.6 million. When the company later found out that the mortgage agreement could not be enforced as it had not been registered, the full amount was impaired in its 2022 full-year results. These transactions constituted connected transactions, provision of financial assistance, and disclosure-required transactions. However, the company failed to comply with the Listing Rules in terms of announcement, circular and independent shareholder approval, as a result of Ms. Wu and Mr. Zhao failing to fulfill their duties as directors. In particular: Ms. Wu, who was responsible for reviewing and approving the transactions, failed to promptly inform the Board of Directors of the transactions to ensure compliance with the Listing Rules. She explained her failure to enforce compliance with the Listing Rules by claiming a misunderstanding of the rules. In addition, she delegated the registration of the mortgage agreement to subordinates, but did not actively supervise and ensure its proper registration, resulting in the company being unable to enforce its mortgage rights. Although Mr. Zhao was not involved in the approval process, he was aware of the transactions before or at the time of approval. He served as the controlling shareholder of the parent group and the executive director of the company, creating conflicts of interest and duty, yet he did not inform the Board of Directors of the transactions or take any steps to avoid suspicion. Additionally, the subsidiary had a responsibility to repay the remaining refundable deposit to the company, but Mr. Zhao did not promptly inform the Board of Directors about the parent group's intention to sell the subsidiary. As a result, the company missed the opportunity to take action to recover the outstanding refundable deposit. All parties involved did not contest the breaches of their respective Listing Rules and agreed to the sanctions and instructions imposed on them.