The Market Misconduct Tribunal (MMT) on 5 April 2017 fined Mayer Holdings and nine of the company’s current and former senior executives a total of HK$10.2 million (US$1.3 million) for their breaches of the disclosure obligations under the Securities and Futures Ordinance (SFO) and disqualified them from being directors or being involved in the management of a listed corporation for up to 20 months. The relevant breaches included failure to disclose certain audit issues affecting Mayer and a delay of more than three weeks in disclosing the auditors’ resignation.
This recent decision demonstrates the MMT’s readiness to impose tough sanctions for breaches of the statutory corporate disclosure laws. Officers or senior management of listed companies are under statutory duties to take all reasonable measures to ensure that proper safeguards exist to prevent the breach of disclosure requirements by listed companies.
Earlier in February 2017, the MMT sanctioned another listed company, Yorkey Optical International (Cayman), its CEO and financial controller for their breaches of the disclosure requirements. The MMT found that there was a 13-week delay in Yorkey’s disclosure of its material losses as a result of the reckless conduct of its officers. The company and the CEO were each fined HK$1 million.
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Compared with the Yorkey case, the MMT sanctioned a wider range of senior management in the Mayer case. The MMT fined a former executive director and the former company secretary (also the then financial controller) HK$1.5 million each and disqualified them from being a director or being involved in the management of a listed corporation for 20 months. The MMT also fined the other executive directors and non-executive directors HK$900,000 each and imposed a disqualification order for 12 months.
The MMT decision serves as a reminder that listed companies and their officers need to be mindful of their individual and collective responsibilities.
THE MAYER CASE
Mayer was listed on the main board of the Hong Kong Stock Exchange and trading in its shares has been suspended since January 2012. Between April and August 2012, Mayer’s auditors repeatedly raised with the management issues identified in the course of auditing Mayer’s financial statements for the year ended 31 December 2011.
In view of the outstanding audit issues, in August 2012, the auditors indicated to the management that they would have to qualify the audit opinion if the outstanding audit issues were not resolved. No constructive response was provided by Mayer or its directors to the auditors to address those outstanding audit issues.
On 27 December 2012, Mayer received a resignation letter from the auditors which was addressed to the board and the audit committee.
The MMT found that the auditors’ resignation, the outstanding audit issues together with the potential qualified audit report were specific information regarding Mayer, price sensitive and not generally known to the public at the material time. The information would also have been viewed negatively by the investors and was of sufficient gravity to affect the share price of Mayer.
However, Mayer only announced the auditors’ resignation together with brief details of the outstanding audit issues on 23 January 2013. The MMT considered that the delay exceeded what was reasonably practicable, and that Mayer was in breach of the disclosure requirement under section 307B of the SFO.
The MMT found that Mayer’s officers had not taken any reasonable measures at any time to ensure that any proper safeguards existed to prevent the breach of the disclosure requirement by Mayer. Hence, each of the nine officers was in breach of the disclosure requirement under section 307G(2)(b) of the SFO.
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Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com
