(i) SFC is active in pursuing a range of remedies under court proceedings (s. 214, Securities and Futures Ordinance), pursuant to the theme of combating corporate misfeasance

What you should know/watch out for:

• Obtained “director’s disqualification” order (12 years) and “compensation” order ($84m) against former chairman of First Natural Foods Holdings Limited (embezzlement of fund, and provision of false bank statements to auditors)
• Seeking “disqualification” and “compensation” orders against former chairman of Kong Sun Holdings Limited and China Sandi Holdings Limited (concealment of his interests, so as to obtain shares at a discount in the company’s share placement to independent parties)

(ii) HKEX announced revised themes for enforcement of the Listing Rules and published a revised policy statement on its approach to enforcement (Click: Press Release)

What you should know/watch out for:

• Enforcement themes:
  (i) (same as before) directors’ fiduciary duties, failure of issuers and directors to co-operate with HKEX’s investigations
  (ii) (refined) financial reporting — delays, internal controls and corporate governance issues
  (iii) (refined) delayed trading resumption — also covers prolonged “trading halts”
  (iv) (new) inaccurate, incomplete and/or misleading disclosure in corporate communication
  (v) (new) failure to comply with procedural requirements for notifiable/connected transactions
  (vi) (new) repeated breaches of the Listing Rules

• Revised Enforcement Policy Statement published, reflecting administrative changes to reflect current practice and to bring the statement up to date (last revised in 2013)

(iii) HKEX Enforcement action: Datang International Power Generation Co Ltd and certain former directors (executive directors and a non-executive director) censured/or criticized, for failure to comply with the disclosure and shareholder approval requirements regarding certain “connected transactions” (Click: Press Release).

What you should know:

• The company entered into a series of entrusted loan agreements with a non-wholly owned (40%) subsidiary (amount: RMB 3,402m)
• Before the first agreement, a shareholder of such subsidiary (over 10% interest) was in fact acquired by the company’s controlling shareholder
• The subsidiary became a “connected subsidiary” for the loan agreements (Rule 14A.16)

• Those directors were aware of the acquisition; but did not take steps to alert the relevant department. The company’s internal procedures for connected transactions were not triggered
• The company failed to comply with the reporting, announcement, circular, and independent shareholders’ approval requirements for “connected transactions” (Chapter 14A)
• The company had a history of non-compliance with connected transactions rules

What you should do/watch out for:

• The approach taken by HKEX was in line with its revised enforcement policy
• Significance of repeated non-compliance by issuers, though some may be “minor” in isolation: (i) the appropriate regulatory message from non-compliance not recognised; (ii) there are internal control deficiencies; and/or (iii) there are misunderstandings by the directors of Listing Rule obligations
• Directors should have a full understanding of their obligations under the Listing Rules, to procure the company’s compliance. They should participate in continuous professional development
• The company is to appoint an independent adviser on compliance issues on an ongoing basis for 2 years; all directors to attend specified training on Listing Rules
• Internal controls: an independent adviser is to conduct a review and provide its findings and recommendations to HKEX. It will perform a follow-up assessment in the next 12 months as to the extent by which the company has (a) strengthened its internal controls and procedures to ensure Listing Rule compliance, and (b) followed the advisor’s recommendations