Jurisdiction - Hong Kong
Hong Kong – Conduct Of Directors At Predecessor.

13 October, 2012


Legal News & Analysis – Asia Pacific – Hong Kong – Capital Markets



The predecessor company was listed on an overseas stock exchange, and Mr. A and Mr. B were its only executive directors. Company A was incorporated and acquired the entire business of the group from the predecessor company for the purpose of the Hong Kong listing. 
Company A’s management was essentially the same as that of the predecessor company, and Mr. A and Mr. B were also Company A’s only executive directors in the listing application. 
The predecessor company incurred significant losses from certain transactions that were unrelated to its core business (the Transactions) because its internal stop-loss policy was not complied with by Mr. X. Mr. X was the predecessor company’s senior management member responsible for the execution and control of the Transactions. He did not communicate the related losses to the predecessor company’s board in a timely manner and subsequently resigned. 
The Exchange’s conclusion and analysis
The Exchange concluded that Mr. A’s and Mr. B’s conduct at the predecessor company had not demonstrated the standard of competence expected of directors of listed companies under Listing Rule 3.09, and thus Company A had not yet met the standard required by Listing Rule 8.15.  The Exchange further concluded that a robust monitoring of transactions should be introduced before any 
further review of Company A’s listing application would be considered.  In reaching 
its conclusion, the Exchange considered that: 
• as Mr. A and Mr. B had been the only executive directors at the predecessor 
company when it had incurred the losses, it was therefore important to assess whether their role would affect their suitability as directors and hence whether Company A would be suitable for listing;
• as executive directors of the predecessor, company, Mr. A and Mr. B
bore responsibility for the significant losses arising from the Transactions; and
• losses could have been prevented had Mr. A and Mr. B exercised good 
judgment and adequate oversight of Mr. X and the Transactions.
For a copy of the listing decision LD34-2012, please follow the link: 


For further information, please contact:
Tony Grundy, Partner, Morrison Foerster
John Moore, Partner,  Morrison Foerster

Morrison & Foerster Capital Markets Practice Profile in Hong Kong

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