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The Securities and Futures Commission (SFC) commenced proceedings in the Market Misconduct Tribunal (MMT) in early March 2016 against Mayer Holdings Limited (Mayer), a company listed on the Main Board of the Hong Kong Stock Exchange and its 10 current and former senior executives for breach of the statutory obligation to disclose inside information as soon as reasonably practicable under Part XIVA of the Securities and Futures Ordinance (SFO). This is the second set of MMT proceedings brought against listed companies and their officers for breach of the statutory corporate disclosure obligation since the statutory disclosure regime came into force on 1 January 2013.
Between April and August 2012, while auditing Mayer’s financial statements for the year ended 31 December 2011, the then auditors of Mayer repeatedly communicated with Mayer’s management about issues they identified (collectively, outstanding audit issues) including:
On 23 August 2012, Mayer’s then auditors indicated that they would qualify their audit opinion for the financial statements for the year ended 31 December 2011 if the outstanding audit issues were not resolved (potential qualified audit report).
On 27 December 2012, Mayer received a resignation letter from its then auditors.
Mayer published an announcement disclosing the auditors’ resignation together with brief details of the outstanding audit issues on 23 January 2013.
The SFC identified the following three categories of “inside information”:
The SFC alleges that Mayer failed to disclose such inside information to the public as soon as reasonably practicable after the information had come to its knowledge and that its 10 current and former senior executives (including a company secretary and financial controller and members of the board of directors), as officers of Mayer, failed to ensure Mayer complied with its disclosure obligations.
The first MMT proceeding over late disclosure of inside information under the statutory disclosure regime was brought against AcrossAsia Limited (AcrossAsia), its chairman and its chief executive officer in July 2015. In that case, the chairman and the chief executive officer received copies of court documents initiating insolvency-related proceedings in Indonesia against AcrossAsia, along with their English translations, by 4 January 2013, but such information was not announced to the public until 17 January (being two days after the Indonesian court made insolvency-related orders against AcrossAsia). The SFC alleged that the insolvency-related proceedings constitute inside information because they threatened AcrossAsia with loss of control of its major asset and could lead to the company being put into liquidation. The substantive hearing of the proceedings against AcrossAsia, its chairman and its chief executive officer is scheduled to be held from 31 October to 18 November 2016.
The two MMT proceedings indicate that delayed disclosure may result in enforcement actions being taken by the SFC against the listed companies as well as their senior management whose intentional, reckless or negligent conduct has resulted in the listed companies’ breach of the disclosure requirement under Part XIVA of the SFO. It is vital for listed companies’ senior management to be aware of their responsibility to ensure the listed companies comply with their obligations to disclose inside information to the public as soon as reasonably practicable after the information had come to their knowledge.
Alexander Que is a partner at Deacons, Hong Kong. He can be reached at firstname.lastname@example.org.
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