Share This:

Mar 23 Legal Update

Share This:

Top stories

HKEX Enforcement Bulletin:  disclosure of information 

HKEX published its latest Enforcement Bulletin, focusing on “disclosure of information”. 

A key theme is “partial truth” disclosures.  HKEX noted instances where an announcement refers only to positive (or bland and neutral) matters, but does not mention other potentially sensitive but material issues. Such omission means that the announcement gives a misleading picture to investors 

In particular, Directors are reminded that they should not content themselves with a “partial truth” announcement. If the announcement is misleading as a result of omission of material information, disciplinary action may follow against those responsible. It will be no defence to say that the limited information disclosed was not factually wrong. 

For example, “resignation announcements” of directors- HKEX further noted the unhelpful practice of referring to “personal reasons”. When any director resigns, particularly if the resignation comes during a time of sensitivity, pressure (financial or otherwise), or disagreement for the listed issuer, the board, or the director personally, careful attention must be paid to ensuring appropriate disclosures.  

(HKEX reminder on guidance under 2007 joint news release “personal reasons” should only encompass reasons such as illness, bereavement or other genuine personal difficulties that change the director’s circumstances. They do not appropriately describe reasons such as work-related schedules, disqualification of the director, detainment by the police or other authorities or change in the issuer’s circumstances).  

HKEX expressed similar concerns over auditor resignation announcements-  simply citing disagreement over audit procedures or audit fees, is of limited value to investors.  

Other useful examples were given (summarised below). 

The bulletin also refers to misconduct by newly listed issuers (e.g. inadequate disclosure in prospectus). There are references to 2022 enforcement cases including those on financial assistance/loans, and breaches of duties by directors to safeguard company assets or interests. (Read our previous legal updates) 


What you should know:

Examples of “partial truths” disclosures   

  • Rosy picture of future prospects of newly acquired business
    NO disclosure:  contingent upon obtaining government approvals (difficult to obtain) 
  • Attribute delay in audited results publication to COVID
    NO disclosure: serious audit issues raised by auditors 


What you should do:

  • Note HKEX reminder on “partial truth” disclosures, in preparing future announcements 
  • Update your board, noting HKEX expectation on directors’ duties  


Hot Trends  


Investor survey insights report 

-Impact of E, S, G trends on voting + investment decisions 


For AGM planning!  


What you should note: 

  • “Rigour” of ESG metrics as key concern 
  • “S”: human capital management is key   
  • How investors assess “shareholder dissent” 
  • AGMs: “No” to “fully virtual” format 



Also in this issue


(i) The Accounting and Financial Reporting Council (“AFRC”) issued two new reports, on audit fee and appointment of auditors in HK(Press release, survey report) 

AFRC’s studies show that many listed companies prioritise audit fees over other factors when selecting auditors and this is apparent in the audit fee trend in HK. When adjusted for inflation, it was noted that (average as well as median) audit fee declined from 2010-2021 

Only 17% of (a relevant category of ) auditors surveyed  think that the audit committees they worked with,  have implemented effectively AFRC’s Guidelines (“the Guidelines”) for Effective Audit Committees- selection, appointment, and re-appointment auditors (Dec 2021). 

Its press release sets out some key messages to audit committees as well as board and management, which are summarised below. (For details- see section C of survey report (P. 40)) 

What you should know and watch out for:

Key messages to audit committees: 

  • Develop a robust set of processes and procedures in auditor selection and audit tender by making reference to the Guidelines 
  • Ensure that audit fees are set at a level that allows auditors to devote sufficient time and specialised resources to conduct a quality audit  

Management and the Board 

  • Not pressure auditors to reduce audit fees to a level that may compromise audit quality 

(ii) SFC launched a consultation on various items of proposed subsidiary legislation for implementing an uncertificated securities market (“USM”)  in HK (Press release, consultation ) 

(Background: under the Securities and Futures and Companies Legislation (Amendment) Ordinance 2021, the broad framework for implementing an USM in HK was put in place . Since then, focus has turned to the development of technical details and specifications of the operational model for USM). 

Among the proposed subsidiary legislation is the Securities and Futures (Uncertificated Securities Market) Rules (“USM Rules”), which aim to provide for various technical matters and processes under the USM environment, including: 

  • The processes and requirements for transferring legal title to prescribed securities 
  • Investors’ ability to request the “dematerialization” of their prescribed securities 
  • Issuer’s authority to initiate the dematerialization of prescribed securities under certain circumstances 
  • The imposition of deadlines to facilitate the market’s full dematerialization 

The consultation will last for 3 months, closing on 30 June 2023. 

This Update in PDF