By Alex Liu

Hong Kong, 2 January 2024: Listed companies have been reminded of the importance of having written guidelines and internal control policies concerning the disclosure of inside information following a significant ruling by the Market Misconduct Tribunal (MMT). The disciplinary body has sanctioned Mayer Holdings Limited and nine of its former senior executives for failing to disclose inside information as soon as reasonably practicable as required under the Securities and Futures Ordinance (SFO).

The panel found Mayer had no written guidelines or internal control policies on such matters, which resulted in its breach of the disclosure requirement. The hearing also decided that the nine former executives had not taken all reasonable measures to ensure proper safeguards were put in place and that their intentional, reckless or negligent conduct had resulted in the breach.

The MMT was told that between April and August 2012, Mayer’s then auditors repeatedly informed management about issues they identified while checking the firm’s financial statements. These included: the suspicious nature of the disposal of a wholly-owned subsidiary of Mayer; the fact that Mayer did not control projects it had bought in Vietnam and that the valuations of these appeared to be inflated; and that Mayer’s jointly controlled entities made two substantial prepayments without security to suppliers which appeared to be irrecoverable.

Mayer then received a resignation letter from the auditors in December 2012 but took four weeks to disclose the auditors’ resignation together with brief details of the outstanding audit issues.

Following the hearing, the MMT ordered that:

• Mayer and the nine former executives pay a total fine of HK$4.65 million, ranging from HK$150,000 to HK$800,000 apiece;
• The nine be disqualified from being a director or being involved in the management of a listed corporation for between 20 and 30 months;
• The nine attend an approved training programme on compliance with corporate disclosure requirements; and
• The Accounting and Financial Reporting Council (AFRC) be recommended to take disciplinary action against Mayer’s former company secretary and financial controller, Tommy Chan.

With regard to the fourth sanction, the disciplinary panel found that Chan – a member of the Hong Kong Institute of Certified Public Accountants – had ignored his duties as Mayer’s company secretary to ensure the company’s compliance with the disclosure requirement and that his conduct reflected a reckless indifference to his responsibilities.

“Company secretaries of listed corporations also bear the primary burden to ensure that the listed corporations are in compliance with relevant disclosure requirements under the SFO. Together with company directors, they play a critical role in upholding transparency and adhering to regulatory obligations,” said Kenneth Luk, the SFC’s Acting Executive Director of Enforcement.

The sanctions effectively bring to an end a Securities and Futures Commission (SFC) investigation which began almost eight years ago. The case was originally heard by the MMT in 2017, but its ruling was successfully contested by Mayer and its directors in the Court of Appeal, which concluded the MMT had erred on a point of law. The court thus referred the matter back to the MMT for fresh consideration.

The MMT was established in 2003 under the provisions contained in the SFO. If the SFC concludes that market misconduct or a breach of a disclosure requirement may have taken place, it can institute proceedings before the MMT.

Aside from the obvious need to meet disclosure requirements, the hearing underscores the authorities’ determination to protect the integrity of Hong Kong’s financial markets and to bolster the city’s reputation as an international financial centre. At BC&C, we have an experienced team dealing with corporate regulation and compliance and are ready to assist.

Alex Liu is Managing Partner of BC&C. He is vastly experienced in many areas of business law with key areas of practice that include commercial and corporate litigation, investigations by governmental bodies and commercial contracts. He can be contacted at alex@boasecohencollins.com.