REGULATORY ENFORCEMENT NEWSLETTER - ISSUE 1
A quarterly roundup of regulatory issues
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
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
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