Introduction

In a unanimous decision delivered on 5 November 2025, the Hong Kong Court of Final Appeal (CFA) in HKSAR v Mak Kwong Yiu (麥光耀) & Others [2025] HKCFA 20 overturned the Court of Appeal and restored criminal convictions for conspiracy to defraud arising from the deliberate concealment of a connected transaction through the use of an intermediary “front” company.

The CFA held that:

1. No direct contractual relationship is required for a transaction to constitute a connected transaction under Rule 14A.25 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Listing Rules);
2. The substance-over-form approach applies – a “Front Party” with no genuine business purpose, pre-arranged to engage a connected person, triggers Chapter 14A obligations;
3. Dishonest concealment of a director’s conflict of interest and evasion of independent scrutiny can ground criminal liability under common law conspiracy to defraud;
4. The Ramsay principle (from WT Ramsay Ltd v IRC [1982] AC 300) and its Hong Kong progeny (Collector of Stamp Revenue v Arrowtown Assets Ltd (2003) 6 HKCFAR 517) are applicable in interpreting regulatory rules with anti-avoidance purposes.

This ruling has far-reaching implications for listed issuers, directors, CFOs, compliance officers, SFC-licensed placing agents, and professional intermediaries.

Background and Facts

The case arose from bond placements by Convoy Financial Holdings Limited (CFHL, formerly Convoy Financial Services Holdings Limited), a listed company on the Hong Kong Stock Exchange (HKEx). CFHL sought to expand its loans business by issuing bonds to clients under Hong Kong’s Capital Investment Entrant Scheme (CIES), who were mainland Chinese investors seeking Hong Kong residency. These clients (referred to as “1019 consultants’ clients”) borrowed from CFHL to subscribe to the bonds, generating profit for CFHL through interest rate differentials.

• Key Entities and Relationships:
  
  • CFHL (the listed company/”Listco”) issued bonds worth approximately HK$3.3 billion between July 2014 and April 2017.
  • Convoy Investment Services Limited (CISL/CIS) was a subsidiary of CFHL and a “connected person” under Chapter 14A of the HKEx Listing Rules (LR), due to shared interests (e.g., D1, Mak Kwong Yiu, was a director of CFHL and held indirect interests in CISL via Quincy Wong).
  • Gransing Securities Co., Limited (Gransing/GS) was interposed as the nominal placing agent for CFHL’s bonds. Gransing then sub-placed the bonds to CISL, which handled the actual placements to CIES clients. CISL received ~98.5% of the commissions (totaling HK$49.6 million), while Gransing retained a nominal fee.
  • D1 (CFHL director and CISL top management), D2 (Chan Lai Yee, CFHL financial controller), D3 (Wong Shuk On, CFHL compliance officer), and D4 (Lee Yick Ming, Gransing’s general manager) were accused of conspiring to use Gransing as a “front” or “disguise” to conceal CISL’s true role, avoiding disclosure requirements under the LR for connected transactions.
• Alleged Offenses:
  
  • Charge 1 (Conspiracy to Defraud CFHL): D1-D4 conspired to defraud CFHL, its board, shareholders, and potential investors by causing CFHL to appoint Gransing (not CISL) as placing agent, concealing CISL’s role, and paying commissions to CISL.
  • Charge 3 (Conspiracy to Defraud HKEx): D1-D3 conspired to defraud HKEx by concealing CISL’s role, preventing HKEx from inquiring or enforcing LR compliance.

The prosecution alleged this concealment exposed CFHL to risks (e.g., undisclosed conflicts of interest) and evaded LR scrutiny, constituting dishonesty under the Ghosh test (from R v Ghosh [1982] QB 1053) and the elements of conspiracy to defraud per Mo Yuk Ping v HKSAR (2007) 10 HKCFAR 386.

Procedural History and Lower Courts’ Decisions

• Trial Court (District Court, DCCC 657/2019, Reasons for Verdict dated 20 September 2021): Deputy District Judge Newman Wong convicted all defendants. He found Gransing was a “mere disguise” for CISL, creating a connected transaction under LR Rule 14A.25 (requiring disclosure, independent shareholder approval, etc.). He rejected defenses that the arrangements were legitimate, citing WhatsApp messages between D2 and D3 (e.g., referencing Gransing as a “buffer” to avoid “CT” [connected transaction]) as evidence of dishonesty. Sentences: 4 months’ imprisonment (suspended for D3 and others).
• Court of Appeal (CACC 239/2021, Judgment dated 30 April 2024, [2024] HKCA 217): The CA (per Poon CJHC, Pang JA, and Au JA) quashed the convictions. It held that no connected transaction existed under the LR, as there was no direct contractual relationship between CFHL and CISL. The CA applied the “sham” test from Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (per Diplock LJ), finding the agreements genuine (not sham), and rejected a “substance-over-form” approach (e.g., from WT Ramsay Ltd v IRC [1982] AC 300). It ruled that proof of a connected transaction was essential to the charges, and without it, no fraud occurred.
• CFA Leave (27 February 2025): The Appeal Committee granted leave on:
  
  • A point of law of great and general importance (the “Question”): Whether a direct contractual relationship is needed for a connected transaction under LR Rule 14A.25, and specifically, if a “Front Party” (like Gransing) with no genuine business purpose engages a connected person (like CISL), does this constitute a connected transaction?
  • Substantial and grave injustice (SGI): Arguably, the CA erred by requiring proof of a connected transaction and quashing convictions.

Key Arguments by the Parties

The CFA considered arguments from the Prosecution’s Printed Case (9 April 2025), Supplemental Printed Case, and the Respondents’ Printed Cases (from D1, D2, D3, D4).

• Prosecution’s Arguments:
  
  • On the Question: No direct contract is needed; adopt a purposive, substance-over-form interpretation (per Ramsay principle and Collector of Stamp Revenue v Arrowtown Assets Ltd (2003) 6 HKCFAR 517). Gransing was a “front” with no genuine business purpose, making the arrangement a connected transaction to protect shareholders from conflicts (citing HKSAR v Theodore Cheng [2019] HKCFA 9). Concealment risked economic loss to CFHL/shareholders and evaded HKEx scrutiny.
  • On SGI: Proof of connected transaction wasn’t essential; the fraud was in concealing conflicts of interest (per directors’ fiduciary duties in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 and Adams v The Queen [1995] 1 WLR 52). Even without LR breach, dishonesty existed. CA erred by limiting “sham” to Snook without considering broader principles.
  • Factual Rebuttals: Rejected claims of legitimate purpose; WhatsApp messages showed intent to avoid disclosure. D4’s role at Gransing was central to the deception.
• Respondents’ Arguments (Collectively from D1-D4 Printed Cases):
  
  • On the Question: Direct contractual relationship is required under LR Rule 14A.25 (literal interpretation). No “loophole” exists, as LR covers indirect benefits via associates (Rule 14A.07). Gransing had genuine purpose (e.g., as custodian); not a sham under Snook. Theodore case inapplicable (involved direct contracts). Ramsay doesn’t apply to criminal/regulatory contexts without statutory warrant.
  • On SGI: No connected transaction proven (CISL not D1’s associate; Gransing’s role mischaracterized). No fiduciary duty to disclose sub-placements. Agreements would have been approved by board anyway. Unaddressed grounds (e.g., WhatsApp interpretation, factual findings on Gransing’s purpose) should be remitted to CA.
  • Specific to D4 (Lee Yick Ming): As Gransing’s manager, he acted per normal business; no knowledge of fraud. Prosecution failed to prove CISL as connected person.
  • Conflict-Only Case: If no connected transaction, charges fail as mere conflict of interest isn’t criminal (per Reg v Governor of Pentonville Prison, Ex parte Tarling (1980) 70 Cr App R 77).

CFA’s Reasoning

The CFA (Ribeiro PJ, Fok PJ, Lam PJ, Stock NPJ, Sir William Young NPJ) unanimously allowed the appeal. Key judgments:

• Sir William Young NPJ (Lead Judgment): Upheld trial judge’s findings that Gransing was interposed to conceal CISL’s role, risking CFHL’s interests. Rejected CA’s narrow Snook application; adopted broader substance-over-form (per Ramsay). Found connected transaction via effective control/arrangement, not requiring direct contract. Dishonesty proven; defendants knew of risks to shareholders/HKEx.
• Lam PJ (Concurring, Alternative Route): Even without proving Gransing as connected, ask: Would direct CISL appointment be connected? Yes (common ground). Concealment thus fraudulent, avoiding independent director/HKEx scrutiny. Distinguished Snook (civil context) from criminal fraud (Adams). Breach of fiduciary duties can ground conspiracy if dishonest (Ex parte Tarling distinguished).
• Stock NPJ (Concurring): Emphasized purposive LR interpretation to prevent abuse; Gransing lacked commercial rationale.
• Other PJs: Agreed with above, restoring convictions.

The CFA addressed unresolved CA grounds (e.g., WhatsApp interpretation) by upholding trial findings, deeming remittal unnecessary.

Legal Framework:  Chapter 14A Listing Rules

Core Legal Issues

1. Substance Over Form: Ramsay Principle Applies

CFA (per Sir William Young NPJ):

“The Ramsay principle applies to the interpretation of the Listing Rules where the purpose is to prevent circumvention of investor protection safeguards.”

Gransing had no commercial rationale – it was a pre-contrived buffer.

2. Snook v London [1967] 2 QB 786 – Narrowly Confined

• Diplock LJ: Sham = documents not intended to create legal relations as stated.
• CFA (per Lam PJ):
  

  “Snook applies to civil claims between contracting parties. It does not preclude criminal liability for dishonest concealment through genuine but abusive legal arrangements.”

Cited: Adams v The Queen [1995] 1 WLR 52 (PC) – conspiracy via non-disclosure of fiduciary breach.

3. Directors’ Fiduciary Duties & Criminality 

CFA (Lam PJ):

“Even if the arrangement is not a connected transaction, dishonest concealment of a director’s conflict and evasion of INED/HKEx scrutiny constitutes conspiracy to defraud.”

 4. Dishonesty: The Ghosh Test

• R v Ghosh [1982] QB 1053
• Mo Yuk Ping v HKSAR (2007) 10 HKCFAR 386

Trial Judge (upheld): Defendants knew disclosure would trigger scrutiny and believed ordinary persons would find it dishonest.

Legal Implications

This judgment has far-reaching implications fo listed companies, directors, CFOs, CEOs, compliance officers, SFC-licensed placing agents, and professional intermediaries:

• For Listed Companies: Emphasizes that Listing Rules Chapter 14A applies substantively, not formally. Companies cannot use intermediaries (“fronts”) to circumvent connected transaction rules, even with genuine contracts. This closes potential loopholes, requiring robust compliance systems to identify indirect connected dealings. Failure risks criminal probes, especially in bond/share placements.
• For Directors / CEO / CFO: Heightens fiduciary duties; mere conflicts aren’t criminal, but dishonest concealment (e.g., to evade disclosure) can lead to conspiracy charges. Directors must proactively disclose indirect interests (e.g., via associates). This aligns with Aberdeen and Adams, potentially increasing board scrutiny and personal liability.
• For Professionals (e.g., Brokers, Compliance Officers, Placing Agents): Professionals like D4 must ensure arrangements aren’t deceptive. Licensed entities (under SFC) face heightened risk of criminal liability if involved in concealment. It promotes ethical practices, deterring “buffers” in transactions, and may lead to more SFC/HKEx inquiries into sub-placements.

For tailored advice on Listing Rules compliance, directors’ duties, or HKEx or SFC regulatory defence, contact us for a confidential consultation.

Alfred Leung, Partner

alfredleung@hkytl.com | +852 3468 7202

This article is introductory in nature. Its content is current at the date of publication.  It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this article. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.