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A quarterly roundup of regulatory issues


MMT’s decision

The MMT agreed with the SFC that each of the Auditor’s

resignation, the outstanding audit issues and unsecured

and irrecoverable payments of US$14 million to a

supplier were about Mayer, specific and generally not

known and therefore inside information requiring public

disclosure as soon as was reasonably practicable -

which Mayer had failed to do in breach of section 307B


Auditors’ resignation announcement

It was argued the suspension of Mayer’s shares in early

2012 rendered any resignation announcement


However, section 307A(3) SFO mandates that shares

‘are to continue to be regarded as listed during any

period of suspension…’, therefore Part XIVA continued

to apply to Mayer.

The MMT found that public disclosure of this inside

information should have happened within 1-2 days of

legal advice about the resignation letter coming to

Mayer’s attention (such had happened when Chan was

legally advised to make an announcement on 31

December 2012).

If Mayer disagreed with the Auditor’s reasons they

could have explained why in their announcement. It

was unacceptable not to make the announcement and

disclosure on 23 January 2013 by Mayer was

unreasonable particularly in light of the multiple

reminders Chan/Mayer had received (see above).

It was also argued Chan’s disclosure of the resignation

to the Stock Exchange discharged Mayer’s obligations.

This was rejected because it was not a disclosure that

gave ‘equal, timely and effective access to the public’.

As a matter of law, dissemination of inside information

on the Stock Exchange’s electronic publication system

complies with the SFO.

Qualified audit and irrecoverable payments

The MMT found that:

A qualified audit would be viewed negatively, cast

serious doubt about a company’s accounts and

may even suggest fraud; and

The amount of the prepayments to the supplier

could exceed 10% of Mayer’s shareholders’ funds

and might involve fraud,

therefore, as a result, this information should also have

been disclosed by Mayer.

Directors’ disclosure obligations

Chan, Lai and the other officers of Mayer were under a

statutory duty to take all reasonable measures to

ensure proper safeguards existed to prevent any breach

of Mayer’s disclosure obligations. In 2012/13 Mayer had

no internal systems or written procedures in place to

comply with Part XIVA. As a result, all the officers were

in breach of section 307G SFO.


The NED was only told of the resignation by Chan on 18

January 2013. Nonetheless, the MMT found the NED in

breach of the SFO because of his failure to comply with

section 307G and ensure proper safeguards existed to

prevent Mayer’s breach.

The MMT found it relevant that the NED had not

complained about the lack of systems and policies (he

might have had a defence if he’d done so).

Disqualification as a director or manager of a

listed corporation

The maximum period of disqualification for directors

breaching Part XIVA is 5 years (section 307N SFO). The

MMT stated the most serious cases with repeat

offenders could expect disqualifications for between 3.3

to 5 years. Serious cases but first offences would

attract disqualification for 2 to 3.3 years. The least

serious cases would attract disqualification for up to 2


The MMT felt not disclosing the Auditor’s resignation for

23 days warranted disqualification orders of 1 year for

all the officers save Chan and Lai.

On 27 December 2012, in a letter to Mayer’s

board and audit committee, the Auditor resigned

with immediate effect. The letter reminded

Mayer it needed to quickly publish an

announcement about the resignation as required

in the Listing Rules. In legal advice (on 31

December), a fax from the Stock Exchange (on

15 January) and reminders from the then ex-

Auditor (on 16 January), Chan and Lai were

reminded to make a public announcement.

No announcement was made: the directors were

not even told about the Auditor’s resignation

until 18 January 2013.

Thereafter, Mayer’s board only met on 23

January 2013 and an announcement about the

Auditor’s resignation was published on the same