Hong Kong’s special inspector raids Next Digital’s office to seize financial records in its probe into publisher of defunct Apple Daily

The Eastern Magistrate Court granted a search warrant for the inspector Clement Chan to enter Next Digital’s offices in Tseung Kwan O to seize the financial documents
Chan is due to report the results of his investigations within six months

Next Digital

Enoch Yiu

Published: 10:38am, 28 Sep 2021

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A special inspector appointed by Hong Kong’s government today raided Next Digital Limited’s office to seize the company’s financial records as he ratcheted up his investigation of possible fraud at the parent of the now-defunct Apple Daily newspaper.

The search and seizure by the inspector, Clement Chan Kam-wing, was authorised by a warrant issued yesterday by Hong Kong’s Eastern Magistrate Court. The warrant was needed as every member of Next Digital’s senior management team and board of directors has resigned over the past two months, leaving nobody in charge to hand over the books.

The move, expected to last over several days, marks the most dramatic action since Chan was appointed on July 28 by Hong Kong’s Financial Secretary Paul Chan Mo-po to look into allegations of illegal and fraudulent activities at Next Digital. Chan, the managing director for assurance for the accounting firm BDO, is due to deliver the report of his probes in six months.

“I have been having difficulties getting them to provide information, since their Board members collectively resigned,” Chan said in response to a query by South China Morning Post. “Under section 877 of the Companies Ordinance, I have applied for a search warrant yesterday to enter [Next Digital’s] premises to seize the information that I need for my investigation.”

Clement Chan Kam-wing, president of Hong Kong Institute of Certified Public Accountants, on 19 December 2013. Photo: SCMP

Trading in the shares of Next Digital, founded by the media magnate Jimmy Lai Chee-ying, was suspended on the Hong Kong stock exchange since June 16, as the company’s flagship newspaper Apple Daily published its last edition on June 24 following Lai’s arrest in August 2020 under the national security law.

Local authorities have frozen HK$18 million (US$2.3 million) of Next Digital’s assets. The company still operates the digital version of the Taiwan edition of Apple Daily, and it has been reported that several parties have expressed an interest in acquiring the business.

Apple Daily’s headquarters in Tseung Kwan O on 10 August 2021. Photo: Winson Wong.

Eight senior editors and executives of Apple Daily have been arrested since June. Publisher Cheung Kim-hung and editor-in-chief Ryan Law Wai-kwong were charged for their roles in publishing more than 30 articles that allegedly called for foreign sanctions against Hong Kong and mainland Chinese officials. Cheung and Law resigned after their arrests.

Four remaining directors of Next Digital – chairman Ip Yut-kin, and three independent directors Louis Gordon Crovitz, Mark Lambert Clifford, Elic Lam Chung-yan – all stepped down on September 5, according to a stock exchange filing. The four directors called for the government to allow Next Digital to be liquidated, so that employees and creditors can get paid.

Next Digital repaid a HK$150 million loan to its founder and former chairman Lai on April 1, much earlier than its due date, according to a July 22 stock exchange filing. The disclosure raised suspicion that Next Digital may have been used to conduct fraudulent or unlawful activities, leading to the appointment of the special inspector.

Chan, a veteran accountant with 30 years of experience, is the first inspector appointed by the government in two decades.

Hong Kong’s Companies Ordinance empowers the inspector to apply for a court order to seize books and records from any company under investigation. At the same time, he also has the power to summon witnesses for information and statements.

A May 15 cover of the Apple Daily, now defunct, with a report about local authorities freezing HK$500 million of assets that belonged to Jimmy Lai, founder of the newspaper’s parent company Next Digitial Limited. Photo: Chan Ho-him.

On the same day of the inspector’s appointment, Hong Kong’s market regulator Securities and Futures Commission (SFC) announced that it was also investigating Next Digital, amid volatile swings in its share price.

Hong Kong’s audit regulator Financial Reporting Council (FRC) initiated an inquiry and investigation in August into Next Digital’s financial statements for the two and a half years up to September 2020 to see if they contained any misleading public information. The FRC also investigated the company’s auditors – Deloitte Touche Tohmatsu in 2019 and CCTH CPA in 2020 – both of which resigned after giving the company’s financial statements clean bills of health.

Operations at Apple Daily’s printer in Tseung Kwan O, operated by a Next Digital subsidiary, were frozen earlier this month because the property was an asset linked to crimes committed in breach of the Beijing-imposed legislation, Hong Kong’s Secretary for Security Chris Tang Ping-keung said.

This article appeared in the South China Morning Post print edition as: Special inspector seizes Next Digital financial records