Hong Kong: MMT's First Ruling On Hong Kong's Inside Information Disclosure Regime - A New Frontier?

Last Updated: 25 January 2017
Article by Tow Lu Lim and Jenny Yu
Most Read Contributor in Hong Kong, October 2018

Introduction

In November 2016, the Market Misconduct Tribunal (MMT) found that AcrossAsia Limited (AAL), its former chairman, Mr. Albert Saychuan Cheok (Cheok) and CEO, Mr. Vicente Binalhay Ang (Ang) were in breach of the disclosure requirement under Part XIVA of the Securities and Futures Ordinance (SFO) by failing to disclose inside information about listed companies as soon as practicable. This is MMT's first ruling on the disclosure requirements since they came into effect on 1 January 2013.

Background

AAL is a company incorporated in the Cayman Islands with shares listed on the Hong Kong Stock Exchange. A dispute arose between AAL and its Indonesian subsidiary PT First Media Tbk (FM) with respect to a loan facility which AAL failed to repay FM. FM obtained an arbitration award against AAL.

In December 2013, due to AAL's failure to meet the award, FM sought enforcement proceedings by way of a petition under the Indonesian Law on Bankruptcy and Suspension of Obligation for Payment of Debts (Petition). The Petition sought amongst other things, for AAL to temporarily suspend payment of debts on the basis that it could not continue paying its debts and for the appointment of administrators to manage AAL's assets (Petition). The Indonesian Court also issued a Summons for AAL to appear in relation to the Petition on 4 January 2013 (Summons). AAL received the Summons on 2 January 2013 and an English translation circulated to its officers on 4 January 2013.

AAL did not disclose the Petition and the Summons to the public until 17 January 2013. The Securities and Futures Commission (SFC) issued proceedings against AAL, Cheong and Ang in the MMT alleging failure to disclose inside information, being the Petition and the Summons, as soon as practicable.

MMT's Findings

AAL, Cheok and Ang admitted they were late in disclosing the Petition and the Summons.

The MMT found the Petition and the Summons constituted inside information for the purposes of Section 307B of the SFO and there was a breach of the disclosure requirements by failing to disclose the Petition and the Summons as soon as practicable.

Cheok and Ang only received an English translation of the Summons on 4 January 2013 and were not familiar with Indonesian proceedings. While the MMT considered that it was unrealistic to make disclosure by 4 January 2013 (as you cannot announce what you do not understand), once legal advice was obtained by 8 January 2013, disclosure should have been made. The MMT found that Cheok and Ang were negligent by failing to do so, despite obtaining legal advice.

The MMT imposed fines of HK$600,000 on AAL, HK$800,000 on Cheok and HK$600,000 on Ang. AAL and Ang's fines were discounted due to early admission whereas Cheok only made an admission on the first day of the hearing.

Apart from the penalties, Cheok and Ang were also ordered to complete training on compliance with inside information disclosure requirements.

Takeaway

This decision demonstrates that the MMT will strictly enforce timely disclosure of inside information. Failure to disclose inside information as soon as practicable may result in market misconduct and fines.

Since this decision, the SFC has commenced proceedings against two other companies for late disclosure of inside information. Further, the SFC has in its December 2016 issue of Corporate Regulation Newsletters emphasised on timely and accurate disclosure of inside information and discusses issues such as the need for listed companies to maintain confidentiality of inside information prior to making announcements. The SFC has also issued "Guidelines on Disclosure of Inside Information".

Listed companies and their directors and officers should understand and ensure compliance with the disclosure requirements and that they will be strictly enforced by the MMT. This development highlights the further risks for directors who may be exposed if they do not act with haste on material developments which may impact the share price of a listed entity.

For D&O insurers, this case is a sign of further developments in this area. Insurers should pay particular attention to what internal policies listed companies have in place for dealing with such matters.

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