Introduction

On 15 July 2015, the Securities and Futures Commission (the “SFC”) exercised its power under Section 8(1) of the Securities and Futures (Stock Market Listing) Rules (Cap. 571V) (the “Rules”) to suspend trading in the share of Hanergy Thin Film Power Group Limited (Stock Code: 566) (“Hanergy”) on the grounds that the market is misinformed, disorderly or unfair. As disclosed in Hanergy’s latest announcement in relation to the suspension of trading dated 16 July 2015 (the “Announcement”), the SFC was concerned about (i) the ongoing viability of Hanergy’s group given its financial dependence on Hanergy Holding Group Limited, which is the controlling shareholder of Hanergy; and (ii) the ability of Hanergy to keep the market properly informed as required by the Securities and Futures Ordinance (Cap. 571) (the “SFO”).

The SFC has confirmed that it has been investigating the connected transactions between Hanergy and its controlling shareholder and requested for the audited financial statements and audited consolidated financial statements of Hanergy Holding Group Limited. Hanergy failed to produce those documents on the grounds that Hanergy has no control over its controlling shareholder. Therefore, the SFC ordered suspension of dealings in Hanergy’s shares, which is a rarely exercised power.  

Suspension of dealings in shares under the Rules

Suspension under Section 8

Section 8(1) of the Rules empowers the SFC to, by notice to The Stock Exchange of Hong Kong Limited (the “Exchange”), direct the Exchange to suspend all dealings in any shares specified in the notice if it appears to the SFC that:

1.        there is any materially false, incomplete or misleading information in any prospectus, circular, announcement, statement or other document issued or made in connection with a listing of shares on the Exchange or the affairs of a listed issuer;

2.        it is necessary or expedient in the interest of maintaining an orderly and fair market in shares traded on the Exchange;

3.        it is in the interest of the investing public or in the public interest, or it is appropriate for the protection of investors generally or for the protection of investors in any shares listed on the Exchange; or

4.        there has been a failure to comply with any condition imposed by the SFC under Section 9(3)(c).

As revealed in the SFC’s Annual Reports, there were only four directions to suspend trading of shares listed on the Exchange issued by the SFC under Section 8(1) for the period between 2011 and 2015. Obviously this power is rarely invoked by the SFC.

Representation under Section 9

Sections 9(1) and 9(2) of the Rules provide that a listed issuer which is aggrieved by a direction given by the SFC under section 8 of the Rules or the Exchange on its own initiative may make representation in writing to the SFC. Hanergy stated in the Announcement that it intends to make representation to the SFC to cancel the suspension direction and to seek to resume trading under Section 9(3)(c) of the Rules, subject to any conditions imposed by the SFC in accordance with Section 9(4) of the Rules.

However, having considered any representations made by the listed issuer or the Exchange, the SFC may at its own discretion to cancel the listing of the shares of the listed issuer if the SFC is satisfied that:

1.        there has been a failure to comply with any requirement in respect of listing set out in the Rules or in any other rules made under the SFO; or

2.        the cancellation of the listing is necessary to maintain an orderly market in Hong Kong.

As at the date of this newsletter, Hanergy has not made any further announcement of the result of its representation made to the SFC. Nevertheless, Hanergy has made it clear that it may challenge the SFC’s decision by way of judicial review, if necessary.

Potential Grounds of Judicial Review

Hanergy considers the SFC’s direction made under Section 8(1) of the Rules to be unfair and unreasonable. In the context of judicial review, one of the potential grounds of judicial review would be Wednesbury unreasonableness. This grounds of Wednesbury unreasonableness has originated in Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223 in which the test was formulated in the following terms: whether the decision is so unreasonable that no reasonable authority could have come to it.

It may be open to Hanergy to argue that inadequate weight had been given to the fact that the documents requested by the SFC were not in the possession of Hanergy and the fact that Hanergy could not compel its controlling shareholder to produce such documents or information. Nevertheless, the threshold of Wednesbury unreasonableness is relatively high and it is not easy for Hanergy to establish a successful case on this ground.

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: regcom@onc.hk                                                          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.

Published by ONC Lawyers © 2015