ASIC: Court finds against Sino Australia Oil and Gas Limited and its former chairman Tianpeng Shao

Australian Securities and Investments Commission (ASIC) announced that the Federal Court of Australia made declarations that Sino Australia Oil and Gas Limited (in liq.) (Sino) and its former chairman, Tianpeng Shao, contravened the Corporations Act.

As part of its case, ASIC alleged that Sino breached its continuous disclosure obligations and made misleading and deceptive statements in its prospectus documentation during 2013. ASIC also alleged that Mr Shao failed to act with the proper degree of care and diligence as a Sino director and that he breached continuous disclosure laws.

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 (the Act), finding that it :

  • made false representations in its prospectus documentation in relation to patents that it claimed it and its Chinese-based subsidiary held;
  • failed to disclose that its profit forecast for the 2013 calendar year would be significantly less than forecast in its replacement prospectus;
  • failed to disclose in its prospectus documents the existence of a loan agreement with the sole director of Sino's Chinese-based subsidiary;
  • made misleading and deceptive statements in its prospectus documentation in relation to the existence of service contracts it claimed to hold in China;
  • made misleading or deceptive statements in relation to a claim that it had received a sum of $3.1 million from the proceeds of convertible notes; and
  • provided false information to its auditors in relation a Chinese-based subsidiary.

In relation to Mr Shao, the court declared that he contravened ss180(1) and 674(2A) of the Act, finding that he:

  • was involved in the contraventions committed by Sino;
  • failed to inform himself about Sino's disclosure requirements and failed to understand Sino's prospectus documentation; and
  • had attempted to transfer $7.5 million from Sino's Australian bank accounts to accounts in China for the purpose of advancing a loan to a Chinese-based subsidiary in circumstances where the loan would have been irrecoverable;

In relation to Mr Shao's approving prospectus documents in English despite not being able to speak or read the language and without obtaining a full Chinese translation, Justice Davies said:

"Mr Shao as chairman of the Board signed off each of the prospectus documents....That required him to inform himself fully and comprehensively about the content of the prospectus documents to ensure that the information contained in those prospectus documents was accurate. The failure by Mr Shao to ensure that he could understand, even in the most basic sense, the content of the documents he was signing was a breach of his director's duties."

"The importance of providing accurate and timely information lies at the heart of our financial markets and those principles were breached in this case. This is a significant decision given these principles are vital to maintain the integrity and efficiency of our markets," ASIC Commissioner John Price said.

The court will hear further submissions as to penalty on a date to be fixed.

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