Introduction

In June 2022, the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) updated its guidance letter GL95-18 (the “Guidance Letter”), which provides guidance to long suspended issuers (“Long Suspended Issuers”), which are issuers whose securities have been suspended from trading for more than three months, on the operation of the delisting framework under the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”), as well as the general obligations of the Long Suspended Issuers and the Stock Exchange’s regulatory actions during the resumption process. The following summarises the relevant rules regarding delisting and highlights the recent updates that the Stock Exchange have made to the Guidance Letter.

The delisting framework

Under Rule 6.01 of the Listing Rules, the Stock Exchange may at any time suspend or cancel the listing of any securities to protect investors or maintain an orderly market. It may also do so if it considers that (i) there are insufficient public float; (ii) the issuer does not have a sufficient level of operations or assets; or (iii) the issuer or its business is no longer suitable for listing.

Rule 6.10 and 6.01A further provide that the Stock Exchange may either issue a delisting notice specifying a remedial period or delist the issuer immediately. If a remedial period is given, an issuer who fails to remedy the issues and resume trading before the end of such period, or within 18 months from the date on which the trading suspension begins, may also be delisted by the Stock Exchange.

Notwithstanding the above, the Stock Exchange will only delist an issuer immediately under Rule 6.01 in exceptional circumstances where the matters triggering the delisting are fundamental to the general principles for listing and are not remediable.

Updates to the Guidance Letter

The Stock Exchange’s regulatory action

The first update made to the Guidance Letter concerns the decision-making process of the Stock Exchange when facing a possible delisting. Under Rule 2A.08 of the Listing Rules, the Listing Committee reserves to itself the power to decide whether to delist an issuer. Hence, when an issuer is given a remedial period to handle the matter but fails to satisfy the Listing Division with its settlement of the relevant issues and re-compliance with the Listing Rules, the Listing Division will take the matter to the Listing Committee for consideration and recommend delisting of the issuer.

As the Listing Rules do not require the Listing Committee to make its decision subject to any right of the issuer to make submissions, the Listing Committee will generally consider and decide the matter without conducting any adversarial hearing. Thereafter, the issuer will be informed of the decision via a decision letter and will be entitled to apply for a review of the decision. If the issuer applies for a review, the Listing Review Committee will consider the matter afresh base on merits and convene an oral hearing, whereby the issuer can make written submissions and attend the hearing to provide oral submissions to the Listing Review Committee.

Extension of remedial period

The Guidance Letter provides that the Listing Committee may only extend the remedial period in exceptional circumstances. The Stock Exchange supplements in the Guidance Letter in relation to time extensions sought for reason of COVID-19. According to the amended Guidance Letter, if an issuer demonstrates that it is unable to meet the resumption conditions or guidance and re-comply with the Listing Rules within the remedial period due to direct disruptions from outbreak of the COVID-19 pandemic rather than other substantive issues, the Stock Exchange would consider an extension request. In this regard, the Stock Exchange pointed out that an issuer will fail its case if its delay in resuming trade is at least partly attributable to a reason unrelated to COVID-19. Further, the applying issuer is required to provide a concrete action plan with a detailed timetable showing the expected time for trade resumption. While each case will be considered individually, the amended Guidance Letter states that a time extension will not normally exceed six months and further extension may be considered if deemed appropriate.

No fundraisings during suspension due to failure to comply with Rule 13.24

The amended Guidance Letter provides that the Stock Exchange will not grant listing approval to Long Suspended Issuers which are suspended due to failure to comply with Rule 13.24 of the Listing Rules, except that the Long Suspended Issuer can satisfy the Stock Exchange that upon completion of the equity fundraisings, the Long Suspended Issuer will then have fulfilled all the resumption conditions or guidance and re-complied with the Listing Rules.

Failure to publish periodic financial results

Lastly, amended Guidance Letter supplements that in case of issuers who failed to publish periodic financial results in compliance with the Listing Rules, as a general rule, the Stock Exchange would require the issuer to demonstrate compliance with Rule 13.24 of the Listing Rules, which requires it to carry out a business with a sufficient level of operations and assets of sufficient value to support its operations to warrant the continued listing of the issuer's securities, since failure to publish periodic financial statements according to the Listing Rules disallows the Stock Exchange from effectively monitoring the issuer’s business activities and operation during the period which the requisite financial results were unavailable.

Conclusion

The above updates serve as important guidelines for issuers. In particular, given the ever changing development of the COVID-19 pandemic, disruptions to issuers’ operation are common. Hence, the updated guideline regarding extension of remedial period by reason of COVID-19 may come in handy. Issuers are therefore encouraged to study the Guidance Letter and seek professional advice when necessary.