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Hong Kong Listed Companies Beware – First Ruling in Relation to New Disclosure Obligations12월 1, 2016
The Hong Kong Market Misconduct Tribunal (MMT) has made its first finding of breaches of the disclosure obligations that were introduced in 2013. In its decision in relation to AcrossAsia Limited (AcrossAsia), the MMT found the company and its senior executives had failed to disclose information in relation to proceedings in Indonesia as soon as reasonably practicable. The decision was made on 7 November 2016 with the report and orders being handed down on 30 November 2016.
The Securities & Futures Commission (SFC) commenced proceedings against AcrossAsia in July 2015 alleging a failure to disclose what the SFC described as highly sensitive inside information as soon as reasonably practicable. The SFC has also commenced proceedings against the Chairman, Albert Saychuan Cheok, and CEO, Vicente Binalhay Ang, for their reckless or negligent conduct causing the alleged breach.
The proceedings were the first to be commenced under the disclosure regime that came into effect on 1 January 2013. The information in question related to litigation between AcrossAsia and a subsidiary in Indonesia which had resulted in an insolvency petition being filed against AcrossAsia. The relevant dates in relation to the disclosure of the information were:
- 20 December 2012 – the petition in the proceedings was filed
- 2 January 2013 – the petition and other relevant court documents (which was in Bahasa Indonesia) was received by the company in Hong Kong
- 4 January 2013 – English translations of the court documents were provided to Cheok and Ang
- 9, 10, and 14 January 2013 – Cheok and Ang attended hearings of the petition in Indonesia
- 15 January 2013 – the Indonesian court granted the orders sought by the petition and AcrossAsia sought a suspension of trading
- 17 January 2013 – the Company disclosed the information in relation to the petition to the market.
Following the disclosure of the information and the resumption of trading on 22 February 2013, the share price fell by 22.5%.
All three of the defendants made admissions as to the facts and agreed that they had failed to disclose inside information as soon as reasonably practicable. Cheok and Ang also admitted that they were negligent in failing to cause AcrossAsia to disclose the information in a timely manner. As a result of the admissions, the SFC did not pursue recklessness as a grounds against the two individuals. After considering the evidence, the Tribunal agreed to proceed on that basis and in doing so took into account the fact that the individuals were construing newly introduced legislation and the court documents were not in English and related to foreign proceedings with which they were not familiar.
An interesting part of the MMT’s Report relates to the date at which the failure to disclose arose. The SFC’s case was that the failure arose on 4 January 2013 when the documents were made available in English, whereas AcrossAsia and Cheok argued that it should be 8 January 2013 when legal advice was obtained in relation to the documents. The MMT took the view that the wording of the section, specifically “as soon as reasonably practicable” suggested that it was appropriate for legal advice to be obtained before any disclosure was required to be made. The Tribunal agreed that it would have been unrealistic to expect an announcement on 4 January 2013 before the company had had the opportunity to seek legal advice and went on to say “[c]learly you cannot announce what you don’t understand”. That finding should provide some comfort to listed companies, although it will not protect a company that delays in obtaining legal advice about such issues.
The MMT found that the appropriate fine in each case should be HK$800,000 but discounted the fine issued to AcrossAsia and Ang to HK$600,000 in recognition of fact that their admissions had been offered at an earlier stage than Choek’s. Cheok and Ang were also ordered to complete a training program on compliance with the inside information disclosure requirements. Costs were awarded, both in respect of the MMT proceeding and the SFC investigation. The MMT specifically noted that, although this was the first case to be decided under the new provisions, it was not appropriate for it to impose a deterrent sentence disproportionate to the level of culpability in this case.
There are a number of other pending cases in relation to alleged breaches of the disclosure obligations as the SFC continues to focus on compliance by listed companies with the disclosure obligations and, if the SFC is successful, it will be interesting to see how the penalties compare.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Denis Brock, an O'Melveny partner licensed to practice law in Hong Kong (Solicitor-Advocate), England & Wales (Solicitor-Advocate), Australia, New Zealand and New York, Amanda Beattie, an O'Melveny Counsel licensed to practice law in Hong Kong and New South Wales, Australia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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