(i) Market Misconduct Tribunal delivered judgment for the AcrossAsia case (SFC press release; full MMT report), the first inside information disclosure case.

What you should know:

• Nature: delay in disclosure
• Foreign (Indonesian) petition filed against the company (including appointment of administrator to manage its assets) for failure to repay loan following court award
• Relatively “light” penalty ($600k against the company; $600k-800k against two directors)
• Tribunal assessed misconduct as “towards the bottom of the scale”
• SFC accepted misconduct was “negligent” rather than “intentional” or “reckless”
• Mitigating factors: Tribunal assessed duration of delay as “just over 1 week” (measured from after obtaining foreign legal advice)
• Timeline (in 2013)
  (i) 4 Jan: company received court documents in English (in Indonesian: 2 Jan)
  (ii) 8 Jan: obtained Indonesian legal advice
  (iii) 15 Jan: order granted by Indonesian court against the company
  (iv) 15 Jan: share trading suspended
  (v) 17 Jan: company made disclosure
• Defendants’ conduct — admission of misconduct; took proactive steps to handle Indonesian proceedings; previous disclosure during earlier stages of court proceedings
• Little market loss attributable to failure to disclose, given thinly traded stock

What you should do/watch out for:

• A listed company has to assess when “inside information” has arisen, in this case after it became aware of the foreign petition
• Disclosure should be made “as soon as practicable” (for a foreign court document, after assessing its nature by taking foreign legal advice)
• Mitigating factors are noteworthy, including SFC accepted the misconduct as “negligent” (rather than “reckless”), and the defendants’ admission of misconduct

(ii) SFC’s new Executive Director, Enforcement, delivered a speech on SFC enforcement focus

What you should know/watch out for:

• Enforcement cases increasing at a rate of 20% per year, with more complex cases
• SFC’s top priorities are listed companies-related concerns
• 4 permanent specialized teams established, 3 relating to listed companies:
  (i) corporate fraud (e.g. fraud in financial statements)
  (ii) corporate misfeasance (e.g. disclosing false or misleading information resulting in investor losses)
  (iii) insider dealing and market manipulation (e.g. market misconduct cases)
• SFC is expected to continue to be active in enforcement actions

(iii) HKEX also published a Guidance Letter on issues related to “controlling shareholder” and related Listing Rules implications (HKEX GL-89-16).

What you should know:

• Clarifies HKEX’s interpretation and practice regarding the definition of “controlling shareholder”
• (Rule 1.01) “controlling shareholder” is any person/group of persons who are entitled to exercise 30% or more of voting power at general meetings; or in a position to control a majority of its board composition
• HKEX will “presume” certain shareholders to be a “group of controlling shareholders”
• HKEX gives some simplified examples of ownership structures
• Example regarding “investment vehicle” (SPV): where some shareholders hold their interests in the issuer via an investment vehicle which exclusively holds such interests and does not have any operations
• Example regarding “associates”: where some shareholders are “close associates” (e.g. spouses, and other cases under Rule 1.01)

What you should do/watch out for:

• While the Guidance Letter reflects HKEX’s current practice and is not expected to lead to anything new, listed companies should consider if they are affected
• Ownership structures may in practice be more complex than the simplified examples given, and HKEX should be consulted
• It contains a useful summary of continuing obligations applicable to “controlling shareholders”
• These include disclosure (e.g. “contract of significance”), and restrictions in voting under certain circumstances (which typically catches “associates” already)
• Click here for our summary including key HKEX examples and charts

Competition Commission: trade associations as a focus

As noted in our October update, “trade associations” is a focus of the Competition Commission. It published an Advisory Bulletin (Click here for the press release) raising concerns on certain provisions in the Codes of Conduct of the Hong Kong Institute of Architects (“HKIA”) and the Hong Kong Institute of Planners (“HKIP”) respectively.

It highlighted the fact that it reviewed the published practices of over 350 trade associations before the commencement of the ordinance: (i) most associations have removed “high risk practices” like price restrictions and fee scales; (ii) HKIA and HKIP have not amended similar “high risk practices” in their respective codes of conduct.

What you should know/watch out for:

• While HKIA and HKIP are themselves specifically exempted from the application of the conduct rules under the ordinance, their members are NOT exempted if they are “undertakings” under the ordinance
• All companies should note this important principle, and watch out for potentially anti-competitive conduct even though their counterparties are themselves exempted under the ordinance