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Oct 15 Legal Update

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There are some interesting enforcement actions by both the Stock Exchange and the Securities and Futures Commission (“SFC”). Directors’ duties is a recurring theme. In the Stock Exchange enforcement case, it is noteworthy that breaches of Listing Rules also have wider implications, evidencing the lack of an adequate and effective internal controls system. Disciplinary actions were imposed on the company, as well as its executive and non-executive directors. The SFC civil case involved the imposition of disqualification orders against company directors. This reflects the rise in civil actions brought by the SFC and the broad range of remedies it has successfully obtained.

On legislative developments, the Companies (winding up and miscellaneous Provisions)(Amendment) Bill 2015 has been gazetted, which aims at improving and modernizing Hong Kong’s corporate winding up regime.

Summaries and how they affect you


The Stock Exchange of Hong Kong published an enforcement action news release, whereby the Listing Committee censured Huazhong In-Vehicle Holdings Company Limited and certain of its directors; and (ii) criticized other directors.What you should know:

This is a case involving “financial assistance” by a listed issuer to its “connected persons” under Chapter 14A. The principal findings were, firstly, that the subject advances and deposit pledge failed to satisfy the reporting, announcement, and independent shareholder approval requirements under Chapter 14A. In addition, there was inaccurate disclosure as regards its “exempted” status in the relevant corporate documents (namely annual reports, an announcement).

Apart from its Chapter 14A implications, the case is significant in a number of other ways:

  • on internal controls system — the disciplinary action highlights the responsibility of the company as well as its directors to ensure that adequate and effective internal controls are in place
  • on directors’ duties — the case specifically stated that “primary responsibility for ensuring compliance with the Exchange Listing Rules…rests with the directors of the company. The Exchange will discipline directors who fail to establish and/or maintain adequate and effective internal controls …”

Please click here for our summary.

What you should do/watch out for:

Companies should note that breaches in Listing Rules also has wider implications, evidencing the failure to ensure an adequate and effective internal controls system.

The SFC obtained disqualification orders under s.214 of the Securities and Futures Ordinance against former chairman and CEO of First China Financial Network Limited.

What you should know:

It is the culmination of a series of actions first brought by the SFC against the company in November 2012. It involves breaches of directors’ duties owed to their company. The facts relate to an acquisition agreement entered into in 2008. The former chairman of the company, who was related to the vendor of the target company, asserted that the parties had a mutual agreement that any surplus over the agreed guaranteed assets of the target company would be distributed to him. Such a term was not disclosed in the relevant announcement. SFC asserted that there was no credible evidence to support the existence of the mutual agreement.

SFC had already obtained a court order in January 2015 that the former chairman (and two other former executive directors) had breached their directors’ duties to the company by making the distribution. They were ordered to repay a sum of around RMB18.6 m plus interest (representing the amount actually distributed) to the company.

In the subject hearing, the court further determined that given the three directors had dishonestly breached their duties to the company, disqualification orders be made against them for a duration between 4-7 years. i.e. that they be disqualified from being a director or being involved in the management of any listed or unlisted corporation in Hong Kong, without leave of the court, for the relevant duration.

What you should do/watch out for:

This case again reflects active enforcement by the SFC. There has been a rise in civil actions brought by the SFC under s.212-4 of the SFO. SFC has been successful in obtaining a broad range of remedies.


Companies (Winding Up and Miscellaneous Provisions)(Amendment) Bill 2015 was gazetted on 2 October.

What you should know:

The bill, gazetted on 2 October, aims to improve and modernize Hong Kong’s corporate winding-up regime. The main objectives are to increase protection of creditors, streamline the winding up process and further enhance the integrity of the winding up process. Please click here for an overview.

What you should do/watch out for:

It should be noted that detailed proposals to introduce a new statutory corporate rescue procedure and insolvent trading provisions in Hong Kong are still being developed. The stated target is to introduce the relevant amendment bill into Legislative Council in 2017/18.

Privacy law

What you should know:

While this is not an enforcement case by the Privacy Commissioner, it should be noted given its wide media coverage.

On 14 October, The Privacy Commissioner issued a media statement, expressing concerns over possible personal data leakage involving the contactless credit cards issued by banks and commences a compliance check on this issue. This is a response to media enquiries concerning possible personal data leakage involving contactless credit cards. The Commission reminds the card-issuing banks to comply with the requirements under the Data Protection Principles in the Personal Data (Privacy) Ordinance to ensure the protection of personal data of the general public.

What you should do/watch out for:

This case again reflects the much heightened stakeholder sensitivity in privacy generally.