PCCW vote-splitting was «clear manipulation»

12 May 2009

Hong Kong is the kind of place where the rich and powerful can go about their business without too much trouble from officialdom.

Which makes even more astonishing the bollocking delivered by senior judges to the attempt by Richard Li, the son of Hong Kong’s richest man, to privatize the listed incumbent PCCW.

It may even have played a part in Li’s decision to proceed with one last appeal, having earlier said he would drop the buyout plan because it was distracting for the company and “divisive” to Hong Kong.

Explaining its unanimous decision to block Li’s attempted $2.1 billion privatization, the Court of Appeal said on Monday the scheme was "clear manipulation".

"Vote manipulation is nothing less than a form of dishonesty. The court cannot sanction dishonesty," said Mr Justice Rogers, already a local hero to minor investors for criticizing the buyout during the hearing.

The three appeal court judges were hearing a review into the ruling by lower court judge, Justice Kwan, who flagged the shareholder vote through despite strong evidence that it had been manipulated.

According to Rogers, Kwan had considered that it would be impossible for the court to decide whether there had been vote manipulation and in any case there was "no reason for the court to be concerned" even if share-splitting had taken place.

Kwan had also declined to believe that two of the key characters, PRCD vice-chairman Francis Yuen and Fortis insurance Asia regional director Inneo Lam, had had anything to do with each other, despite "a remarkable series of coincidences."

Yuen was a former executive chairman of Fortis Insurance’s parent company, while it was Lam who had distributed 500,000 PCCW shares to staff and friends to enable the share-splitting to occur.

The two had contact in late 2008 and exchanged number of phone calls in late 2008 and January 2009. In what Rogers called "no mean feat of organization," Lam's secretary obtained the proxy vote papers from Yuen’s secretary and had distributed them and ensured the votes were registered.

The judge noted that 494 people who had received shares Lam voted in favor of the scheme by proxy, and of those 335 of those were agents of Fortis Asia.

Rogers said there was no rationale behind the buyout scheme and no explanation given "for the almost total loss of value of the company" since Li acquired Hongkong Telecom.

In a rebuke to Kwan, Rogers said that if the court were to condone "vote splitting and other forms of vote manipulation" it then it would become a standard practice to distribute shares in order that people could vote.

"To use the vernacular, it would become a free for all; any vote would be meaningless."

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