NEW YORK Hong Kongs Securities and Futures Commission (SFC) has begun an official process to wind up a large Hong Kong-based scrap company after its investigations supported a U.S. research firms findings that the company had overstated its operations and revenue.
The SFC had petitioned Hong Kongs Court of First Instance to liquidate China Metal Recycling (Holdings) Ltd., a publicly listed company in Hong Kong, it said July 29.
The commission obtained orders from the court to appoint Borrelli Walsh Ltd.s Cosimo Borrelli and Jocelyn Chi Lai Man as provisional liquidators for the recycler.
The developments follow an SFC investigation that found evidence suggesting that China Metal Recycling had overstated its financial position in the prospectus used for its initial public offering in 2009 and in its annual report for that same year.
The SFC alleged that this was achieved by inflating the size of the companys business and the amount of revenue generated by its major subsidiary. The SFC alleged that an overwhelming majority of the subsidiarys purchases from its three major suppliers for the financial years ended Dec. 31, 2007, 2008 and 2009, "were fictitious by escalating amounts in each successive year."
The SFCs investigation also found evidence "showing that the suspected exaggeration of China Metal Recyclings financial situation remains a current issue that would affect its 2012 financial results, which to date remain unissued."
In January, Glaucus Research Group California LLC released a 38-page report questioning China Metal Recyclings publicly declared size and scope of business.
Citing Chinese import data and other official information, Glaucus rejected China Metal Recyclings claim that it was Chinas largest scrap metals recycling company. China Metal Recycling called the allegations "completely inaccurate and wholly unfounded," but on Jan. 28 asked Hong Kong Exchanges & Clearing Ltd. to halt trading in its shares (amm.com, Jan. 31).
The company announced on March 28 that the Stock Exchange of Hong Kong Ltd. had imposed certain conditions for trading of the companys shares to resume. According to the SFC, those conditions havent yet been satisfied and trading in the companys shares remains suspended.
The commission will seek to suspend the powers of the current board of directors at China Metal Recycling; transfer administrative control of the company to the provisional liquidators; and prevent any disposition of the companys property, and any transfer of shares or alteration in the status of the members of the company, unless ordered by court.
A hearing has been set for Aug. 2 to determine whether the court will continue the appointment of the provisional liquidators.