Director of abruptly closed Hong Kong beauty chains arrested over $5.2 million in payments for services never provided

About Beauty, which abruptly closed in September, is understood to be one of three chains at the centre of a criminal investigation.
PHOTO: South China Morning Post

The 63-year-old company director of three Hong Kong beauty chains that closed abruptly last month was arrested on Tuesday (Oct 12) morning by customs officials for wrongly accepting payments worth HK$30 million (S$5.2 million) for services never provided.

While customs did not name the shops involved, it is understood they are About Beauty, Dr Protalk and Top Comfort, all of which were closed overnight in early September. The chains had about 10 locations across the city, leaving dozens of employees asking about back wages.

As of 10am on Tuesday, 667 related complaints, involving 593 people and HK$30 million (US$3.9 million), had been received, according to the Customs and Excise Department. The average amount of each complaint was HK$50,000, with one case involving an estimated HK$2 million.

"Our investigation proved that the beauty parlour continued to accept customers' payments even though they knew that they could not operate, as they had failed to pay their rent and some of their leases were going to expire," Divisional Commander Wilson Wong Chi-chung of customs' unfair trade practice unit said at a press briefing.

The company had been a few months behind on rent, customs officials discovered in discussions with landlords and property management companies last month. One landlord took a store to court in July seeking to have its items auctioned off to pay back rent.

"We noticed that different victims had bought different prepaid packages, and some had not yet enjoyed the service," Wong said, adding some customers had paid for new packages before their previous deals had even expired.

He said the arrested director, who was granted police bail, was suspected of having contravened the Trade Descriptions Ordinance and that further arrests were still possible.

Hong Kong’s Customs and Excise Department. 
PHOTO: South China Morning Post

An investigation into the chains' capital flow is continuing, and officers are looking into whether any abnormal sales promotions took place before its closure.

Under the ordinance, the maximum penalty upon conviction is five years' imprisonment and a fine of HK$500,000. The management will also be liable if the offence was committed with their consent or connivance or attributed to their neglect.

The Democratic Party's Ramon Yuen Hoi-man, convenor of Hong Kong Beauty Industry Monitor, revealed that more than 1,100 customers had sought help from the group over amounts ranging from HK$2,500 to about HK$1 million, and involving HK$68 million in total.

About 90 per cent of the customers had settled their payments with credit cards, Yuen said. He urged credit card firms to stop telling customers "the company is just suspended from business but has not closed down" as an excuse for rejecting their chargeback applications.

The three companies in question previously belonged to listed cosmetics retailer Bonjour Holdings, but were sold in 2014 when the company unloaded its subsidiary Bonjour Beauty International.

Bonjour Holdings reiterated on Tuesday that the director in question was no longer related to the group and that it no longer ran any beauty parlour business.

Nelson Ip Sai Hung, chairman of trade group the Federation of Beauty Industry, said consumers did not need to worry about a wave of salon closures as the sector, which had been hit hard by the coronavirus pandemic, had recovered and shutdowns stemmed from disputes over ownership.

But Ip added that beauty parlours faced a dilemma when it came to closing down.

"When the business is struggling, the owner may hesitate about making a decision ...They may not intend to cheat customers to pursue more packages," he said.

"It's hard for the enforcement side to prove it."

This article was first published in South China Morning Post.