March 22 Legal Update
HKEX case on directors’ duties
HKEX imposes a “Prejudice to Investors’ Interests” statement (“PII Statement”) against the former chairman and an independent director (“INED”) of National Investments Fund limited, censures its named executive directors and INEDs, and directs some directors to attend training on Listing Rules compliance. (Announcement; Statement of Disciplinary Action)
PII Statement is a statement that, in HKEX’s opinion, had either named director remained on the company’s board, the retention of office by him would have been prejudicial to the interests of investor. (Effective July 2021) Revised HKEX disciplinary regime had lowered the thresholds for such sanction.
The company is a listed “investment company” (Listing Rules Chapter 21). Its primary investment objective is to achieve short to medium term capital appreciation by investing in listed/unlisted companies. It is required to announce its net asset value per share (“NAV”) on a monthly basis.
From 2011 to 2015, $61m was used in an unchecked spending spree to acquire luxury assets, e.g. a yacht ($24.5m), a diamond ($20m), furniture ($3.8m). These were not in accordance with investment objectives, while the company’s financial position was significantly deteriorating (with losses and net operating and investing cash outflow). In 2014, the company started recording a book value of $21.7 m on “Other Tangible Assets” (stated as representing “art work, diamond and diamond ring”).
Former chairman solely approved at least some of the acquisitions.
The other directors approved monthly announcements of NAV. Notwithstanding the deteriorating financial position and the significant expenditure on above assets, they failed to take an active interest in company affairs and follow up anything untoward regarding the acquisitions.
What you should know:
Illustrate key concepts of HKEX expectations
- (Context: Chapter 21 companies) Directors must carefully review the company’s monthly financial information with an “enquiring mind”, and take an active interest in its performance
- “Follow up any untoward matters” : significant expenses which fall outside the company’s objectives and policies.
RANE and Nasdaq Cybersecurity Survey (Jan 2022)
– Boards taking steps to improve oversight of cyber risk but gaps remain
Useful tips on what boards should focus on!
- How various cyber risks relate to one another
- Amount and type pf training
- Cybersecurity managed by the right person (IT? Risks?)
- Cybersecurity insurance
- Annual assessment + tabletop simulations: best practices
Also in this issue