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REGULATORY ENFORCEMENT NEWSLETTER - ISSUE 1

A quarterly roundup of regulatory issues

4

reasonable measures to prevent the company from

breaching its disclosure obligations. The MMT also

found that both were aware of Yorkey’s deterioration

well before the company published its 2012 results (on

25 March 2013) and were reckless or negligent for

failing to take any steps to ensure the disclosure of the

information to the public. As a result, the MMT ordered:

Yorkey and Mr Michio each pay a fine of HK$1

million;

Mr Michio and Mr Ng be disqualified from being a

director or involved in the management of a listed

company for 18 and 15 months respectively. The

SFC has recommended Mr Ng, an accountant, be

disciplined by the HKICPA;

The SFC’s investigation and MMT costs be paid by

Yorkey, Mr Michio and Mr Ng; and

Yorkey’s disclosure procedures be reviewed, Mr

Michio and Mr Ng attend SFC approved training.

What next? Civil liability for Mr Michio and

Mr Ng…

On the MMT’s finding, section 307Z of the SFO imposes

a statutory civil obligation on Mr Michio and Mr Ng to

pay compensation to any person who has suffered a

loss following their failure to make a timely disclosure

of the inside information provided it is ‘fair, just and

reasonable’. On the face of it, such claimants would be

the purchasers of Yorkey’s shares after the disclosure

obligation existed and who lost 21% in the value of

their investments when the company’s share price fell.

It will be interesting to see how this part of the law

develops. The sting in the tail for Mr Michio and Mr Ng

is most definitely the prospect of civil claims under

section 307Z. However, they both may also have

breached their duties to Yorkey entitling the company

to bring a claim against them for the loss and damage

it was caused.

Things for listcos and officers to note

The case illustrates how substantial fines and lengthy

disqualification orders will be given. Listed companies

and their officers need to be careful when reviewing

internal management accounts and draft accounts and

aware to disclose any unexpected loss (or profit).

Finally, officers need to bear section 307Z SFO in mind

and the potential liability they may be subjected to on

failing to make a disclosure when necessary and/or

when not having put in place systems to bring such

information to their attention.

Mayer Holdings Limited

(“Mayer”) – keeping quiet

about the auditor’s

resignation, another

example of how

not

to

comply with Part XIVA

On 4 March 2016, the MMT was asked by the

SFC to determine if the disclosure

requirements of sections 307B and 307G of

the SFO had been breached and to identify

those responsible. In total, aside of Mayer,

10 officers of the company were before the

MMT. '

Officer

' is defined widely in the SFO as

a director, manager, secretary or anyone else

involved in the company’s management.

On 7 February 2017, the MMT found Mayer and all

officers save one (who could not be served with the

proceedings) in breach of the Part XIVA. On 5 April

2017, the MMT imposed heavy sanctions on them all.

Factual background

Mayer had been listed in 2004. Its shares had

been suspended on 9 January 2012.

Tommy Chan Lai Yin (“

Chan

”), a qualified

accountant was Mayer’s financial controller and

company secretary. Lai Yuet Hsing (“

Lai

”) was

an executive director and largely responsible for

running Mayer’s business with Chan.

The other officers before the MMT were all

directors of Mayer, including one non-executive

director (“

NED

”).

Audit issues

Between April and August 2012, Grant Thornton

(the “

Auditor

”) had communicated repeated

issues with Mayer’s management about the

company’s 2011 financial statements

(“

outstanding audit issues

”). The Auditor’s

report would be qualified if these issues weren’t

resolved. From September 2012, Mayer, its

directors or audit committee avoided the issues.