The Stock Exchange of Hong Kong Limited (Exchange) published earlier this week a new 'Guidance Note on Cooperation' (Cooperation Note) and a revised Sanctions Statement, urging listed issuers and directors to cooperate in its investigations and disciplinary actions, failing which may result in the imposition of a sanction on grounds of non-cooperation.
The publication of the Cooperation Note at this junction is perhaps no coincidence. We note that since the introduction of the Exchange's enhanced disciplinary powers in July 2021, there have been four disciplinary cases where a Director Unsuitability Statement (DUS) was issued. In three out of such four cases, DUS sanctions were imposed against directors (including independent non-executive directors) on grounds of non-cooperation with the Exchange's enquiries.
DUS is a very serious sanction: once imposed, it is expected that the board of the relevant issuer would take active steps to remove the director from holding any office within the issuer; and if the sanctioned director remains in office, follow-on actions (such as denial of market facilities) may be imposed and continued disclosure of such existing DUS must be made in all corporate communication.
Given the serious nature of DUS, the Exchange stated in the 'Consultation Conclusion on Review of Listing Rules relating to Disciplinary Powers and Sanctions' (May 2021) that DUS is reserved for "the most egregious or severe cases of misconduct" (paragraph 92). Such statement is also reflected in the 'Flowchart of the Disciplinary Sanctions against Individuals' attached to the newly revised Sanctions Statement.
As it appears that the Exchange may take non-cooperation as "the most egregious or severe cases of misconduct", directors of listed issuers are strongly advised to read the new Cooperation Note which follows closely the 'Guidance Note on Cooperation with the SFC' issued in December 2017. In paragraph 3.2 of the Cooperation Note, uncooperative conduct is stated to include but not limited to:
- a failure to respond to the Exchange, including a failure to provide substantive responses to some or all of the Exchange's enquiries;
- provision of inaccurate, incomplete or misleading information;
- unnecessarily prolonging the Exchange's investigation;
- failure to attend an interview or disciplinary hearing at which a Party has been requested to appear; or
- the provision of late submissions, evidence or documents.
Given the above, listed issuers and directors should consult their lawyers as soon as possible upon receiving the Exchange's enquiries.
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
