Peace Mark was a jewellery and watch retailer and manufacturer that had been listed in Hong Kong since 1993. The company was heavily indebted following a series of acquisitions in 2007. Most of the debt was short-term. Despite a share placing in June 2008, rumours began to circulate regarding the company’s financial position resulting in a collapse in the share price in August 2008. This in turn led a loss of confidence from its lenders, several of whom withdrew their support. The company had insufficient cash to meet repayments. The company’s shares were suspended on 18 August 2008, and provisional liquidators were appointed in September 2008.
A High Court judgment from November 2008 disclosed the liquidators’ doubts about the management’s integrity. Moreover, they raised concerns about fake sales and receivables:
“In the course of their investigation into the debts of the Group, they became concerned over the legitimacy of both sales and trade receivables relating to the Group’s wholesale and distribution business. They thought the Group had partially financed its acquisitions and loss making businesses via a trade finance “money go-round” utilizing sales of non-existent goods to corporate entities controlled by parties with close ties to the management of the Group that actually carry on little, if any, legitimate business. It appears that the Group’s operations are substantially smaller and less profitable than reported in its reports.”
Webb-site Reports: Peace Mark’s warning signals
Peace Mark: Annual Report 2008