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Feb 20 Legal Update

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(i) SFC and HKEX issued a joint statement, and a set of frequently asked questions (“FAQs”)  to provide guidance to listed companies and their auditors on disclosure of financial information in view of travel and other restrictions given the COVID-19 virus.  Further announcement (“Further Guidance”) was issued on 16 March.

Where issuers expect a real possibility, that it will be unable to publish preliminary results announcement (or, issue audited financial statements) in accordance with the Listing Rules, it should contact HKEX as early as possible to discuss. The aim is to minimise disruptions to trading while ensuring that the investing public continues to receive sufficient information for informed investment decisions. The announcement addresses the type of information to be provided to HKEX on the impact of the virus.

It also reminds issuers of their obligations under the “disclosure of inside information” regime.

The FAQs address various scenarios, as to the type of financial information that the issuer is able to publish, and impact on continued trading. It also covers whether AGMs can be held in a virtual mode.

In addition to clarifying certain aspects of previous publications, the Further Guidance (subject to conditions) extends the deadline for annual report publication (i.e. 30 April) by 60 days from the date of such Guidance (i.e. mid-May). However, issuers need to check separately, the requirements for holding AGMs.

For this legal update, we focus on the impact of the outbreak on issuers’ disclosure obligations generally, beyond those whose publication of financial results may be disrupted.

What you should do:

  • Assess if any “inside information” disclosure needs to be made NOW
    — Whether business operations, reporting controls, systems, processes or procedures materially disrupted
    — Such disclosure is independent of Listing Rule requirements
  • Appropriate disclosure on impact of COVID-19 in results announcement and annual report
  • (FAQs Q11) “virtual” AGMs: no restrictions under Listing Rules; but issuers need to check their articles of association, and company law of its place of incorporation
  • Extended annual reports deadline: if issuers can make a preliminary announcement of results (with agreement with auditor) under Listing Rules; or (under other situations)  complying with conditions in FAQs
  • (FAQs Q10) impact of “delayed” audited financial statements on AGMs: typically, such statements should be considered at AGMs. Issuers need to check their  articles of association, and applicable company law re: AGM deadlines


(ii) HKEX published guidance materials on revised ESG reporting requirements.
(Click: Press release; background on revisions: our Nov/Dec 19 legal update)

These materials comprise:

  • (New) E-training on “New ESG requirements”
    — provides an overview of various themes
  • (Updated) Frequently Asked Questions Series 18
    — Useful update in light of new requirements
    — E.g. (Q8 on “reporting boundary”) various bases of determining the same, including the same scope as annual accounts; financial thresholds; risk level

The revised ESG requirements will be effective for financial years commencing on or after 1 July. Its focus is on the board’s roles, not only technical reporting. While the actual reporting will happen “later”, it is important to establish the board infrastructure and other systems as soon as possible.

What you should do:

Your first action steps include

  • Board training, starting with providing your board with the directors’ guide, and access to e-learning programme
  • Review governance structure: whether help of board committee needed (e.g. for review of ESG targets). The directors’ guide contains information and examples
  • Review investor feedback on ESG


Also in this issue


(i) HKEX censures/criticises Yorkshire Holdings Limited, named former executive directors, former independent directors (audit committee members), for breaches of the Listing Rules, and raised concerns on internal controls. (Click: Press release).

The case relates to breaches in various areas. Our focus is on “connected transactions” breaches involving the Company’s subsidiary.

There are useful observations on “internal controls”; and “excessive reliance” on the Company’s CFO/Company Secretary to ensure Listing Rule compliance.

Directors are ultimately responsible for Listing Rule compliance. Delegation without  proper supervision and regular reporting is not sufficient to discharge directors’ duties.

These echo messages communicated in HKEX’s latest enforcement newsletter, stressing “individual accountability” and directors’ duties generally. (Click: our Aug 19 Legal Update)

What you should know/watch out for:

  • Internal controls: in addition to having written procedures, these must be implemented, followed, updated, and communicated to staff
  • “Excessive reliance” on CFO/Company Secretary
    — No evidence of supervision or regular reporting to the board
    Delegation does not absolve directors from the duty to supervise the discharge of the delegated functions


(ii) Latest SFC Regulatory Bulletin: update on “front-loaded” approach (Click: Press release; full report)

SFC stated that for post-IPO corporate transactions, market misconduct remains its top priority. Themes include “concealed share ownership and control”, “suspect valuations”, “warehousing of shares and nominee arrangements”.  These have been addressed in our previous legal updates.  (Click: our Feb 19 (previous bulletin), Oct 18, July 19, Nov/Dec 19 updates)

This bulletin also provides examples illustrating failures on the part of directors, in dubious corporate transactions involving overvalued acquisitions and suspect valuations.

SFC would examine not only the transactions, but why the directors would regard such valuations and underlying assumptions as reasonable. This focus on “individual accountability” is also reflected in the HKEX case above.

This Update in PDF