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Friday 9 December 2016

16-431MR Court fines Sino Australia Oil and Gas Limited and disqualifies former chairman, Tianpeng Shao

The Federal Court of Australia has ordered that Sino Australia Oil and Gas Limited (in liquidation) (Sino) pay a pecuniary penalty of $800,000 and its former chairman, Mr Tianpeng Shao, be disqualified from managing corporations for a period of 20 years. 

The penalty and disqualification ordered follows a decision of the Court on 11 August 2016, where it declared that Sino and Mr Shao had contravened the Corporations Act 2001. 

Justice Davies said:

'Mr Shao’s explanation was that he did not understand Australia’s legal requirements. If he did not understand Australia’s legal requirements, his lack of knowledge demonstrated a lack of diligence and care by him in informing himself properly and fully about the company’s legal obligations and a serious lack of appreciation of the importance of continuous disclosure.' 

In imposing the pecuniary penalty upon Sino, the Court gave consideration to the maximum penalty available, which is $1 million, and the increasing trend in entities from emerging markets seeking and obtaining listing on the ASX, particularly from the Asia-Pacific region.

ASIC Commissioner John Price said, ''The provision of accurate and timely information lies at the heart of the integrity and efficiency of our financial markets and those principles were undoubtedly breached in this case.

'The Court accepted that the penalty should reflect the need for a strong message that it is vital that people contemplating entry to the Australian market must familiarise themselves with and understand the rules of the market, and adhere to those rules.'

Download the Court’s decision

Background

Sino was the Australian holding company of a Chinese operating company providing specialised drilling services to the oil and gas industry. Sino was listed on the Australian Securities Exchange Limited on 12 December 2013 after raising approximately $13.6 million under an initial public offering (IPO).

In March 2014, ASIC obtained an injunction from the Federal Court of Australia on an urgent basis freezing the Australian bank account of Sino after concerns were raised with ASIC that Mr Shao was attempting to transfer $7.5 million – representing almost the entire cash held by Sino in Australia – to bank accounts in China for purposes that were not disclosed, or not properly disclosed, in Sino’s prospectus documentation during the IPO. (refer: 14-121MR)

On 21 May 2015 the Court ordered, on the application of ASIC, that Mr Peter McCluskey, a partner of Ferrier Hodgson, be appointed as provisional liquidator of Sino and to make inquiries in relation to, among other things, the business activities of Sino and its subsidiaries in China and provide a report to the court. (refer: 15-124MR)

On 4 March 2016 the Court ordered the winding up of Sino and the appointment of Mr McCluskey as the company’s liquidator. (refer: 16-062MR). A copy of the Court’s decision in relation to wind up can be found here.

On 11 August 2016 the Court declared that Sino had contravened sections 674(2), 728(1)(a), 728(1)(b), 728(1)(c),1041H of the Corporations Act 2001 and that Mr Shao had contravened sections 180(1) and 674(2A) (refer: 16-255MR). A copy of the Court’s decision in relation to is declarations can be found here.

On 8 December 2016 the Court ordered, upon an application by the Sino’s liquidator, that a compensation order of $5,539,758 be made against Mr Shao to meet Sino’s liability to its shareholders.

Under section 553B of the Act, a pecuniary penalty is not admissible in proof against a company in liquidation.

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Last updated: 09/12/2016 12:31