The listed issuer may apply to the Stock Exchange to lift the suspension once it has a business suitable for listing pursuant to Main Board Rule 14.84 or GEM Rule 19.84. However, such application will be treated as if it were a new listing application, which implies that the listed issuer is required to comply with all the new listing requirements and issue a full listing document.
However, it is noteworthy that, the Stock Exchange does not merely focus on the analysis of the company’s cash to assets ratio. Other factors, such as the background facts and circumstances of the company’s business, operation and financial position, are also relevant to the Stock Exchange’s assessment.
Features of the proposed fundraisings
1. The size of the fundraising would be very significant to the company and would bear little or no correlation with the needs of the company’s existing principal business.
2. Funds raised would be used in largely greenfield operations of new businesses with little or no relation to the company’s existing principal business. In some cases, these new businesses were the same as or similar to the businesses of the investor(s). There were also cases where the company claimed to have started the new businesses shortly before the proposed fundraisings (e.g. obtained a money lending licence or acquired a small size money lending company).
3. The investor(s) would obtain control (or de facto control) of the company and would intend to manage the new businesses. In most cases, a significant proportion of the directors of the company would resign and new directors would be nominated by the investor(s).
4. The company would employ the cash obtained from the fundraising to proceed to operate new businesses which are expected to be substantially larger than the original business.
The Stock Exchange’s views
The Stock Exchange also noted that, some companies have tried to address the cash company concerns by providing further details about their business plans and/or signing agreements to commit the use of the cash proceeds. These companies took the view that these actions would allow them to exclude those cash proceeds to be utilised pursuant to such agreements from their cash position upon completion of the fundraisings. The Stock Exchange does not agree with this view as the entering into of such agreements does not address the cash company concern.
Under the cash company rules, the cash company assessment is made based on a company’s cash balance as a result of the fundraisings and the situation as pertaining at the date of completion of the fundraising. The company cannot rely on the future intended use of proceeds, whether by way of legally binding agreement or otherwise, as a means of reducing the cash level at completion for the purpose of the rules. Once the company is considered to have its assets consisting substantially of cash, the Stock Exchange is required to evaluate the business plans (including the intended use of proceeds) as if it were a new listing application.
The law and procedure on this subject are very specialized 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.
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Published by ONC Lawyers © 2016