On March 12, the Hong Kong Exchanges and Clearing Limited issued a notice reprimanding YE XING GROUP Holdings Limited (01941), its Executive Director and Chairwoman Ms. Wu Guoqing, and Executive Director Mr. Zhao Weihao. The exchange further directed Ms. Wu and Mr. Zhao to undergo training. This action was taken because the company and the two individuals were found to have violated the Listing Rules concerning connected transactions between the company and its parent group, which is ultimately owned by Mr. Zhao.
Between May 2020 and February 2021, a subsidiary of the company agreed to provide certain agency services to the parent group and paid refundable and non-refundable deposits to secure exclusive agency rights. Part of the refundable deposits were secured by properties of the parent group under a collateral agreement reached by both parties. After the relevant agency agreements expired, a subsidiary under the parent group ultimately owed the company refundable deposits totaling RMB 38.5 million. Subsequently, in September 2021, the parent group sold this subsidiary without notifying the company, which only discovered the sale in mid-January 2022.
In April 2022, the company agreed to offset part of the outstanding refundable deposits by purchasing certain parking spaces from the parent group, reducing the remaining balance to RMB 30.6 million. When the company later discovered that the collateral agreement was unenforceable due to lack of registration, the full amount was impaired in its 2022 annual results.
The relevant transactions constituted connected transactions, loans to entities, and discloseable transactions. However, the company failed to comply with the Listing Rules regarding announcements, circulars, and independent shareholder approval. This failure was attributed to Ms. Wu and Mr. Zhao not fulfilling their directorial duties. Specifically, Ms. Wu, who was responsible for reviewing and approving the relevant transactions, failed to promptly inform the company's board of directors about the transactions to ensure compliance with the Listing Rules. In explaining her failure, she claimed a misunderstanding of the Listing Rules' requirements. Additionally, Ms. Wu delegated the registration of the collateral agreement to subordinates but did not actively supervise or ensure its proper registration, rendering the company unable to enforce the collateral rights.
Although Mr. Zhao was not involved in the approval process, he was aware of the relevant transactions before or at the time of their approval. Serving as both the controlling shareholder of the parent group and an executive director of the company, he faced a conflict of interest but did not inform the board of the transactions or take measures to avoid the conflict. Furthermore, the subsidiary was obligated to refund the remaining deposits to the company, yet Mr. Zhao failed to timely notify the board of the parent group's plan to sell the subsidiary. As a result, the company missed the opportunity to take timely action to recover the outstanding refundable deposits.
None of the parties contested their respective violations of the Listing Rules and agreed to the imposed sanctions and directives.