On June 17, Caixin reported that Hong Kong Exchanges and Clearing Limited published an announcement today to make a statement of directorial unsuitability and condemnation to four former directors of Enviro Energy Holdings Limited (01102.HK). These four individuals include:

1. Former Chairman and Executive Director Li Sen;

2. Former Executive Director Zhong Jinghua;

3. Former Independent Non-Executive Director Li Jinyuan; and declaration and condemnation of damaging investor rights:

4. Former Executive Director and CEO Zhou Xuesheng.

The statement of directorial unsuitability refers to a belief by the Hong Kong Stock Exchange that Li Sen, Zhong Jinghua, and Li Jinyuan are not suitable to hold directorship or senior management positions in the company or its subsidiaries.

The declaration of damaging investor rights means that HKEX believes that if Zhou remains a member of the company's board of directors, it will harm the rights of investors.

From 2018 to 2019, Li Sen and Zhou were involved in multiple questionable transactions without the knowledge of other board members, including the conclusion of multiple loan agreements with significant and/or related party transactions by subsidiary companies of the company without complying with applicable Listing Rules; and arrangements for subsidiaries to secure loans owed by Zhou with entities owned by Li Sen.

This arrangement provided personal benefits to Li Sen and Zhou but was completely against the interests of the company. Subsequent defaults by borrowers led to arbitration proceedings being launched against the subsidiary company and the freezing of bank accounts.

A report in August 2019 found several internal control deficiencies in the company, including approval by the board of directors, cash and inventory management, and related party transactions.

Further improper conduct from 2019 to 2020 is mainly related to Li Sen.

First, Li Sen did not inform the company that he was being investigated for alleged embezzlement in mainland China. He had to provide this information to the company for compliance with disclosure requirements under Rule 13.51 of the Listing Rules.

Second, in June 2020, Li Sen's shareholding was transferred to creditors through compulsory execution of stock pledge. The board of directors held a meeting to discuss whether to disclose this information to the public. Li Sen had an obvious conflict of interest in this matter, but not only did he not abstain from voting, he also voted with the deciding vote as chairman, deciding that the company should not publish any announcements.

Third, at the end of June 2020, after Li Sen was found to be under investigation, the board of directors resolved to suspend his directorship. Li Sen then arranged for the company to issue unauthorized and misleading announcements, which required the company to take immediate remedial action, including suspension of trading.

Zhong Jinghua and Li Jinyuan knew about Li Sen's conflict of interest regarding the compulsory execution of stock pledge, but did not handle the situation and blindly followed Li Sen's vote to not disclose the matter.

HKEX stated that Li Sen, Zhong Jinghua, and Li Jinyuan did not cooperate with HKEX's investigation.