Hong Kong Court Approves Landmark Settlement for De-listed Company Shareholders

On June 11, 2025, the Hong Kong Court of First Instance approved a significant settlement scheme aimed at compensating the independent shareholders of Combest Holdings Limited, a company that was delisted from the Growth Enterprise Market (GEM) of The Stock Exchange of Hong Kong. This decision marks a pivotal moment in the enforcement of securities regulations in Hong Kong, following a series of serious financial misconduct allegations against the company's former management.

The case originated when the Securities and Futures Commission (SFC) initiated proceedings against Combest's shadow director, Ng Kwok Fai, and two former executive directors, Liu Tin Lap and Lee Man To, for their involvement in misleading financial practices that resulted in substantial losses for the company and its shareholders. According to the SFC’s findings, these executives orchestrated acquisitions that were grossly overvalued, thereby misleading investors about the company’s financial health. Specifically, the SFC reported that Combest suffered losses exceeding HK$293 million due to these fraudulent activities.

In the settlement approved by Justice Jonathan Harris, Ng will pay HK$192 million, which will be distributed as special dividends to the independent shareholders of Combest. This amount, while significantly lower than the total losses incurred, is intended to provide some immediate relief to shareholders who have faced a trading suspension since May 2019. The compensation scheme is notable for being structured in a way that is designed to expedite the recovery of funds for shareholders, bypassing the lengthy litigation process that might have ensued.

The court's decision is groundbreaking, as it is the first time a settlement scheme of this nature has been approved in relation to director disqualification proceedings in Hong Kong. The SFC stated that this case sets a precedent for future settlements, potentially expanding the agency's toolkit for protecting investors in cases of corporate misconduct.

Experts have noted that while the settlement provides a mechanism for compensating shareholders, concerns persist regarding the adequacy of the compensation relative to the damages incurred. Dr. Sarah Johnson, an Associate Professor of Finance at the University of Hong Kong, emphasized that the settlement, while pragmatic, leaves many shareholders only partially compensated, which could undermine confidence in the regulatory framework.

The court also imposed disqualification orders on Ng, Liu, and Lee, barring them from serving as directors or managing any corporations for periods ranging from eight to twelve years. This disciplinary action reflects the court's recognition of the severity of their misconduct, particularly Ng's role as the primary architect of the fraudulent schemes.

In his ruling, Justice Harris highlighted the importance of the SFC taking prompt action in referring suspected criminal matters to law enforcement agencies. The judge expressed concern that delays could hinder the prosecution of fraud cases, an issue that remains critical as the SFC continues to navigate complex cases in the realm of corporate governance.

The implications of this ruling extend beyond Combest Holdings. Financial experts predict that the SFC will likely pursue similar settlement agreements in future cases involving corporate fraud, shifting the focus from punitive measures to more collaborative resolutions aimed at protecting investors' interests. This approach could signal a new era in the enforcement of securities laws in Hong Kong, where expediency and shareholder compensation take precedence amidst the challenges of lengthy legal battles.

In summary, the Hong Kong Court of First Instance's approval of the settlement scheme represents a landmark decision in protecting the interests of de-listed company shareholders, while also raising important questions about the sufficiency of compensatory frameworks in addressing corporate malfeasance. As the financial landscape continues to evolve, the SFC's approach and the courts' responses will be critical in shaping the future of corporate governance and investor protection in Hong Kong.