How Late is Too Late?
Introduction
On 7 November 2016, the MMT found AcrossAsia, its former chairman, Mr. Albert Saychuan Cheok (“Cheok”) and chief executive officer, Mr. Vicente Binalhay Ang (“Ang”) guilty for breaching disclosure requirements under sections 307B(1) and 307G(2) of the Securities and Futures Ordinance (the “SFO”). This is the first time that the MMT has made a finding of breaches of the new disclosure obligations on listed companies since they became effective on 1 January 2013. Previously, disclosure of information was governed by non-statutory obligations under the Listing Rules (Ch.13 of the Main Board Listing Rules or Ch.17 of the Growth Enterprise Market (the “GEM”) Listing Rules), which was deemed inadequate as the Hong Kong Stock Exchange (the “HKEx”) has limited disciplinary powers (for example, the HKEx can suspend or cancel listing in extreme cases but has no power to fine).
Facts of the Case
Background of AcrossAsia
AcrossAsia, a Cayman Islands incorporated company, was listed on the GEM of the HKEx in July 2000. The main income and profit of AcrossAsia comes from AcrossAsia’s operations of PT First Media Tbk (“PTFM”) and its subsidiaries, a telecommunications company listed on the Indonesian Stock Exchange, in which AcrossAsia has a 55.1% interest.
Events that triggered the disclosure requirement
On 30 June 2011, AcrossAsia borrowed US$55 million from PTFM at an interest rate of 4.75% per annum for 3 months, which was to be automatically rolled over for up to 9 months. AcrossAsia however failed to repay PTFM on the due date (i.e. 30 June 2012), and PTFM commenced arbitration proceedings in the Indonesian National Board of Arbitration (the “INBA”) on 30 August 2012. The INBA found in favour of PTFM and ordered AcrossAsia to repay PTFM on 12 September 2012 (the “INBA Ruling”).
AcrossAsia’s disclosure of the INBA Ruling
On 20 September 2012, AcrossAsia disclosed the INBA Ruling as price sensitive information under Rule 17.10 of the GEM Listing Rules. Shortly afterwards, the Central Jakarta District Court (the “CJDC”) declared the INBA Ruling enforceable, and PTFM subsequently applied to CJDC to enforce the INBA Ruling
Emergency meeting of AcrossAsia’s board of directors
On 3 October 2012, an emergency meeting of AcrossAsia’s board of directors, which was attended by Cheok and Ang, was held to discuss the ramifications of the enforcement of the INBA Ruling. However, AcrossAsia continued to fail to repay the outstanding loan to PTFM by the final due date on 5 December 2012 set by the CJDC, and as such, PTFM initiated insolvency-related proceedings in Indonesia (the “Insolvency Proceedings”) and the CJDC also subsequently summoned AcrossAsia to appear in court on 28 December 2012 (the “Summons”). AcrossAsia received the Summons in Bahasa Indonesian by fax on 2 January 2013, and the fax was translated to English and circulated to Cheok and Ang on 4 January 2013. The information contained in the fax was announced to the public on 17 January 2013.
The Law on Disclosure of Information
Under section 307B(1) of the SFO, a listed corporation must disclose inside information to the public as soon as reasonably practicable after such information has come to its knowledge. Inside information is specific information about a listed corporation, a shareholder or officer of the corporation, or the listed securities of the corporation or their derivatives which is not generally known to the persons who are accustomed or would be likely to deal in the listed securities of the corporation, but would, if generally known to them, be likely to materially affect the price of the listed securities. In simple terms, any specific, price sensitive information about the corporation must be disclosed to the market as soon as practically possible.
The timing of such disclosure depends on when a listed corporation is taken to have knowledge of the inside information. Under the SFO, a listed corporation is taken to have knowledge of the inside information when the information is known, or ought reasonably to be known, by an officer of the corporation provided that a reasonable person acting as an officer of the corporation would consider the information to constitute inside information. An officer could, under section 307G(1), also be deemed to have breached the disclosure obligations if his intentional, reckless, or negligent conduct caused the breach, or if the officer failed to take reasonable measures to ensure the existence of proper safeguards to ensure a listed corporation’s compliance with such disclosure obligations.
SFC’s Allegations and MMT Findings
The Securities and Futures Commission (the “SFC”) alleged that the Insolvency Proceedings and the Summons constituted inside information as the information is likely to materially affect the price of AcrossAsia’s listed securities since it threatened AcrossAsia with loss of control of its major asset which could lead to AcrossAsia being put into liquidation. It was also specific information about AcrossAsia which was not generally known to those accustomed or likely to deal in its listed securities. As such, Cheong and Ang were obliged to disclose the information as soon as reasonably practicable on or after 4 January 2013 under section 307B(1) of the SFO, when the contents of the Summons sent by fax was translated to English. The MMT found that a delay of 13 days was too late. As Cheong and Ang were likely to have actual knowledge of the information upon the translation of the fax into English, they could have immediately taken all steps necessary in the circumstances to disclose the information,[1] such as internal assessment of the matter and seeking professional advice. Cheok and Ang were also found guilty of reckless or negligent conduct in failing to ensure AcrossAsia’s compliance with its disclosure obligations under section 307G(2)(a) of the SFO.
Conclusion
The decision highlights it is essential for listed companies and its management to make disclosure for all inside information on a timely basis. Any delay in disclosure may result in enforcement actions being taken against a listed company and its management under section 308N of the SFO, a maximum fine of HK$8 million and a 5-year disqualification order against the offending officers can be imposed. It is thus vital for listed companies and their senior management to be fully aware of their responsibility to ensure compliance with their obligations to disclose inside information to the public as soon as reasonably practicable after the information had come to their knowledge, and to seek legal advice if uncertainty arises.
For enquiries, please contact our Litigation & Dispute Resolution Department:
T: (852) 2810 1212
W: www.onc.hk
F: (852) 2804 6311
19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong
Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
