Jurisdiction - Hong Kong
Hong Kong – Listing Decision Issued by the HKEx Regarding Whether a Company’s Cash Flow Generated During a Period of Noncompliance Should Be Counted Toward the Calculation of Minimum Cash Flow.

17 June, 2015


In this listing decision, the HKEx determined that the cash flow generated during a period of noncompliance should not count toward the calculation of minimum cash flow under the Growth Enterprise Market (GEM) Rule 11.12A(1) and that the company at issue therefore was not eligible for listing. GEM Rule 11.12A(1) states that an applicant must have an adequate trading record of at least two financial years comprising a positive cash flow of at least HKD 20m in aggregate for the two financial years generated from operating activities in the ordinary and usual course of business.
The company in the listing decision was in a business that required compliance with certain regulations that stipulated that no person shall carry on the business unless all the requirements under the regulations had been complied with. Any breach of the regulations was an imprisonable offence. The company did not comply with the regulations for 22 months during its track-record period and would not meet the minimum cash flow requirement under GEM Rule 11.12A(1) if the cash flow generated from the business during the period of noncompliance was excluded.
The HKEx determined that, given that the company did not comply with the relevant regulations during the period of noncompliance, the regulations were fundamental to the company’s business, and the serious breach of regulations had occurred for a substantial part of the track-record period, the noncompliant cash flow could not be regarded as being generated in the ordinary and usual course of business and therefore should be excluded from the calculation of minimum cash flow.

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