Next Digital Ltd and Apple Daily logos are display at the headquarters in Hong Kong, June 17, 2021. Photo: VCG

The Hong Kong Special Administrative Region (HKSAR) government announced it has invoked rarely used powers under the Companies Ordinance to appoint investigators to probe Next Digital, a media company founded and run by separatist Jimmy Lai. 

The Office of the Director of the Finance Department replied to the Global Times on Thursday that it is "the most appropriate approach."

This investigation is based on concerns about the normal operation, adequate control and reputation of Hong Kong-registered companies, so as to maintain Hong Kong's status as an international financial center and commercial center, said the office.

HKSAR Financial Secretary Paul Chan Mo-po said on Wednesday that the move was made in the public interest, adding that he has "grave concerns" over potential mismanagement of the listed firm. 

Chan said that Next Digital claimed in May that its liquidity was sufficient for 18 months of operation, but in June, Apple Daily closed down after the government froze HK$18 million ($2.32 million) in the firm's bank account.

In April, the company paid off a debt of HK$150 million in advance to its major shareholder Jimmy Lai, saying it was unfair to other creditors, Chan noted. 

The last time the HKSAR government used the Companies Ordinance to appoint an investigator was in 1999, following the collapse of investment bank Peregrine.

A number of senior officials of Next Digital were arrested in July on suspicion of national security violations, including its CEO Cheung Kim-hung. Jimmy Lai is currently serving a jail term and is facing multiple national security charges. 

In a statement dated Wednesday, the Hong Kong Securities and Futures Commission (SFC) said it has been making a series of formal enquiries into Next Digital, in parallel with the new probe, insofar they may concern matters falling within the SFC's remit under the Securities and Futures Ordinance. 

Pervious enquiries by the SFC included issues of alleged fraud, money laundering and false trading.

A Hong Kong-based accountant told the Global Times on Thursday that the HKSAR authority's choice of Companies Ordinance over Securities and Futures Ordinance could be out of concern of what is known to industry insiders as a litigation strategy. 

"This approach, simply put, would be easier for investigators to carry out their probes and collect evidence, whereas probes against material misstatements and stock price manipulation would be quite difficult, and inevitably lengthy, in the case of Next Digital, said the accountant on the condition of anonymity. 

"And Companies Ordinance also enables small investors to team up with banks - the creditors - as collateral victims to file for compensation against the company," the accountant said.

Financial industry sources pointed out that Next Digital's operation and management falls far short of the standards of a listed company and is more like a secessionist political group operating under the guise of a corporation. 

Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, pointed out that Next Digital has the characteristics of a secessionist organization.

"During the economic downturn, Next Digital cooperated with external anti-China forces, merged with rebellious forces within Hong Kong, and openly accepted monetary support and political instructions from outside forces," Dong told the Global Times on Thursday. 

"It is reasonable and lawful for the Hong Kong government to exercise its power to investigate the company based on the leads obtained," Dong said. 

Under section 841 of the Companies Ordinance, the financial secretary of Hong Kong may activate the investigator mechanism where it is in the public interest for a company that was formed for a fraudulent or unlawful purpose, or if the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of its members generally or of one or more members, Wu Yingpeng, a lawyer and barrister-at-law in Hong Kong told the Global Times on Thursday.

"This mechanism was established to protect the public interest, and it is conducive to the investigation of relevant crimes and the maintenance of Hong Kong's fair investment and business environment and status as an international financial center," Wu noted.