Trading Suspension Not an Excuse for Late Disclosure, Hong Kong Tribunal Finds

The late disclosure of price-sensitive information to the market is not impacted by whether or not trading in the shares of a listed company is suspended, Hong Kong's Market Misconduct Tribunal ("MMT") has ruled. In finding Mayer Holdings and nine members of its senior management in breach of the disclosure requirement, the MMT said they had failed to release market sensitive information to the market as soon as possible. The tribunal said it would hold a hearing on 15 March to determine the orders to be imposed on the company and its executives. 

Mayer was brought before the MMT by the Securities and Futures Commission ("SFC") last year, over the delayed announcement to the market of the resignation of its auditor, Grant Thornton, over accounting issues relating to Mayer's acquisitions and subsidiaries. The SFC said the executives and the company knew about the resignation and the accounting issues for three weeks before announcing it to the market, breaching the disclosure requirement under s. 307B of the Securities and Futures Ordinance ("SFO"). 

"The MMT found that the auditors' resignation, the outstanding audit issues together with the potential qualified audit report and the $10 million prepayment to the supplier were specific information regarding Mayer, and price sensitive, in that investors would have viewed it negatively and it would have affected Mayer's share price, and it was not generally known to the public at the time," the SFC said in a statement. 

In its defence, the company had sought to rely on the fact that trading in its shares had been suspended for some time following a steep drop in the second half of 2011. It said the price of the listed securities could not be materially affected by any of the information since trading was not possible. 

"In our opinion, the resignation was sufficiently and materially negative and would still be likely to materially affect the price of the listed securities," the MMT said. "The pre-suspension price of Mayer shares had not dropped to zero. A low price could still be materially affected."

The MMT also pointed to s. 307A(3) of the SFO, which states that "securities listed on a recognised stock market are to continue to be regarded as listed during any period of suspension of dealings in those securities on that market".

The tribunal questioned the company's motives in delaying the announcement. 

"Disclosure of the resignation is a straight-forward matter which could easily have been made within a day or two. Grant Thornton's reasons for resignation were given in the resignation letter. If Mayer should disagree with any of those reasons, Mayer could state their disagreement in the announcement on the resignation or in a subsequent announcement," it said.


North Asia editor for Thomson Reuters Regulatory Intelligence. He is based in Hong Kong.