Entire Section

  • 2019

    Date of decision Subject Matter
     
    1 November 2019 Wonderscape Holdings Limited
     
    15 November 2019 National Agricultural Holdings Limited
     
    18 November 2019 Fuguiniao Co., Ltd.
     
    4 December 2019 Shenzhou Space Park Group Limited
     
    5 December 2019 Landrich Holding Limited
     
    9 December 2019 Longrun Tea Group Company Limited
     
    16 December 2019 Muse Group Holdings Limited
     
    16 December 2019 Yorkshine Holdings Limited
     
    17 December 2019 Hsin Chong Group Holdings Limited
     
    17 December 2019 China Candy Holdings Limited
     

    • 1 November 2019

      Wonderscape Holdings Limited - Decision of the Listing Review Committee
       
      On 16 October 2019, the Listing Review Committee heard an application by Wonderscape Holdings Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 26 July 2019, rejecting the Company’s application to list on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions (both written and oral) presented by the Company and the Listing Department, the Listing Review Committee decided to overturn the decision of the Listing Committee and to allow the Company to proceed with its application for listing.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1. The Company and its subsidiaries (together, the Group) provide beauty treatment services and sell aftercare and cosmetic products. The Group also franchises its business in various cities in Asia, London and New York. Revenue for the Group comes primarily from its business in Singapore, and other Asian markets including Malaysia, the PRC and Hong Kong. Approximately 90% of revenue currently comes from the Group’s services businesses. Revenue from product sales is about 7% to 8%.
       
      2. The Group plans to raise net proceeds of approximately $108 million from listing.
       
      3. The Group intends to use the proceeds primarily for its expansion plans, namely to: (1) provide collateral to a prominent financial institution in Singapore (Bank A) in order to establish a merchant facility (the Bank Collateral) (approximately 43% of net proceeds); (2) develop, market and distribute its latest product (the Product Marketing), known as “TWO L(I)PS” (approximately 34% of net proceeds); and (3) establish a facility (the Training Facility) which can be used as both a training academy (e.g. for therapists) and a research and development facility (approximately 10% of net proceeds).
       
      Applicable Listing Rules and guidance
       
      4. Rule 8.04 provides that both the issuer and its business must, in the opinion of the Exchange, be suitable for listing. Rule 2.06 provides that suitability for listing depends on many factors, and reiterates the Exchange’s discretion to accept or reject applications for listing.
       
      5. Guidance on factors which may be relevant in the Exchange’s assessment of suitability for listing can be found in, amongst other things, Guidance Letters HKEX-GL68-13 and HKEX-GL68-13A (GL68-13A). Suitability for listing is based on a qualitative review and there is no bright-line test. However, applicants will normally be expected to demonstrate adequately, amongst other things, the commercial rationale for listing, including by reference to their proposed use of listing proceeds, and their future objectives and strategies for business operations and growth. GL68-13A is directed at the Exchange’s concerns that the primary motivation for some listings is the listed status itself and the speculative activity and price volatility that it encouraged. It sets out examples of the characteristics of such issuers and the areas in particular it requires sponsors to provide a robust analysis. In this context it also expects the Listing Department to conduct a qualitative review of suitability, including an assessment of its business strategy and its commercial rationale for listing.
       
      Listing Department concerns
       
      6. The Listing Department had concerns regarding the commercial rationale of the Group’s expansion plans.
       
      7. In respect of the Bank Collateral, it was noted that the Group had previously maintained a collateral-free merchant facility with Bank A and other banks, which provided instalment payment plans (IPP) to credit card customers of the banks. However, Bank A had in 2018 requested the Group to provide collateral for such a facility. As the Group did not provide the collateral, it was no longer able to accept payment through Bank A IPP, and sales from Bank A IPP declined by about 96%, or S$3.5 million. However, sales from IPP with other banks, in particular certain Bank B and Bank C, had increased, and the net decrease in IPP sales in 2018 was only 15% (S$1.4 million).
       
      8. On an assumption that, by providing the collateral, Bank A IPP sales could be restored at 2017 levels, it appeared that the Group would generate additional after-tax profit of about S$0.5 million (under $3 million) per year. The Listing Department questioned the reasonableness of this use of such a substantial portion of the proceeds. It was not clear whether the opportunity cost of alternative investments for this sum had been considered.
       
      9. In respect of the Product Marketing, the Listing Department considered that the Group had not substantiated the reason for incurring approximately $28 million on marketing. It was noted that total annual marketing expenses in the Track Record Period were about $10 million; the Group expected to cross-sell its products through its existing network; the Group was al marketing online and via social media without any particular additional expense; and the Group had only incurred about $4 million on marketing the relevant product between August 2018 and April 2019.
       
      10.    Further, there was a concern that the prospects of the Group’s new products were highly uncertain. The Group has to date primarily been a services, rather than a products, business and so there was a concern about whether the Group had relevant experience. Demand for the new products was an unknown, and the Group forecasted a net loss for the relevant products in FY2019 and FY2020.
       
      11. In respect of the Training Facility, it was noted that the Group was al able to train many therapists in the facilities currently available and the necessity for new premises for training had not been substantiated. In relation to research and development, it was noted that the Group had worked with third parties on product development, manufacture and testing, and had relatively limited research and development expenses.
       
      Listing Committee decision
       
      12. The Listing Department’s concerns as described above were shared by the Listing Committee. The Listing Committee considered that in relation to the Bank Collateral, the Company did not provide any cost benefit analysis with regards to the use of HK$46 million as collateral and it was unclear what would be the opportunity costs to the Group of locking up the $46 million; in relation to the Product Marketing, the Company had not substantiated why it needs to incur $28 million to promote the new brand; and in relation to the Training Facility, the Company had not substantiated the reasons to set up an integrated training and R&D facility. Based on the submission before it, the Listing Committee agreed with the Listing Department’s conclusion and rejected the Company’s application.
       
      Main arguments before the Listing Review Committee
       
      The Company’s submission in summary
       
      13. The Company’s main submissions in relation to its expansion plans can be summarised as follows.
       
      14. The Company submitted that its business strategy includes: increasing the profit margins of its existing outlets, in priority to expanding their number; using the opportunity afforded by the listing to expand and promote its own intimate personal care product range which presently accounts for only a small part of its business; accepting the terms of a credit card merchant facility from one of its banks which requires it to deposit cash collateral with the bank; and leasing and equipping new premises for its training and product development activities.
       
      15. In relation to the Bank Collateral, the Company submitted amongst other things that revenues for treatment services are primarily derived from sales of prepaid packages, and the vast majority of customers pay by credit card, with Bank A as the card issuer preferred by the Group’s customer base. The Company did not want to have to provide collateral for the merchant facility but considered it a necessity in order to retain and win customers. The Company noted that the collateral was a deposit and so remained a valuable asset. Adding S$0.5 million per annum to the Group’s profit would be a worthwhile return.
       
      16. In relation to the Product Marketing, the Company submitted the Group is following a natural expansion path by moving from its historical focus on services into sales of related products. The Group has long sold its own and selected other products for post-treatment care, and has recently made two key hires in respect of marketing, and accordingly has the relevant experience. The marketing plans seek to build a new customer base into which the Group’s other offerings can be cross-sold. The targeted product industry is substantial and independently forecasted to grow strongly. A substantial investment in marketing is common during the product introduction phase and it was essential for the Group to market aggressively in order to establish the Group and its product. The Company had provided in the prospectus a detailed breakdown of the anticipated expenses.
       
      17. In relation to the Training Facility, the Company submitted that the Group has simply run out of space, and its existing facilities cannot cope with current demand and expected growth. Moving training to a separate facility would free up space at the headquarters for other business purposes. The Group will achieve cost-savings between July 2019 and December 2020 if it is able to bring its research and development in-house.
       
      18. To the extent that any concerns remained, the Company submitted that they could be addressed by disclosure.
       
      The Listing Department’s submission in summary
       
      19. The Listing Department considered that the Company’s submissions did not satisfactorily address its concerns regarding the Company’s expansion plans, and the Company had not provided additional information to substantiate the commercial rationale for its listing. It maintained the views expressed in its report to the Listing Committee.
       
      20. In relation to the Bank Collateral, the Listing Department questioned the reasonableness of applying 43% of the net proceeds to pay the collateral as the opportunity costs to the Group of locking up the sum were unclear.
       
      21. In relation to the Product Marketing, the Listing Department did not challenge the Company’s business decision to develop its new product line, but queried the proposed use of proceeds, and the Listing Department reiterated its concerns about the prospects of the new business.
       
      22. In addition, in relation to the Training Facility, the Listing Department questioned whether the savings of cost claimed by the Company could be achieved, as the proposed facility was not expected to be completed prior to the end of FY2020.
       
      23. The Listing Department was not questioning the Company’s business strategy or its business decision to develop a new product line. The Listing Department was considering the Company’s plans on the use of proceeds with a degree of professional skepticism, and considered the plans did not look consistent with the Company’s history and therefore, was concerned whether they were justifiable. The Listing Department was not convinced that further disclosure could address its concerns, as the information that it would expect to see had not been produced by the Company through the vetting process or in its submissions. The Listing Department did, however, concede that the application was a borderline case.
       
      Listing Review Committee’s views
       
      24. The Listing Review Committee received and considered the written submissions from the Company and the Listing Department. During the hearing, both the Company and the Listing Department were given opportunities to make further verbal submissions and answer questions from members of the Listing Review Committee on its business strategy and newly launched products.
       
      25. The Listing Department confirmed that its concerns did not relate to the Company’s business strategy and understood the Company’s intention to expand. However, the Listing Department questioned the way the Company proposed to expand because the amount of money it would commit to the expansion did not seem to be consistent with what it had done before and did not seem justifiable.
       
      26. No concerns were raised by the Listing Department on the probability that the Company would only meet the minimum market capitalisation threshold by a small amount. The Listing Department confirmed that the Company’s valuation was not the basis for its recommendation of rejection. The Listing Review Committee therefore concluded that the Listing Department accepted that the Company meets the minimum requirements for profitability, continuity of management, market capitalisation on listing and value of new securities held by the public under Rules 8.05 and 8.09.
       
      27. The Listing Department’s objection to the listing application, as presented to both the Listing Committee and the Listing Review Committee, referred to paragraphs 4.1 and 4.2 of GL68-13A. GL68-13A requires the Listing Department to examine an application with professional skepticism and in this regard, the Listing Department and the Listing Committee have certainly made such an examination. The Listing Review Committee noted that under paragraph 4.1 of GL68-13A (extracted below), a qualitative review on suitability may consider matters such as whether the listing is consistent with its business strategy, including the proposed use of proceeds and whether the applicant has genuine funding needs:
       
        “4.1    Since the publication of this guidance letter, we have observed that certain listing applicants and their sponsors have treated the characteristics we listed in paragraph 1.4 as a checklist. We emphasise that our focus is a qualitative review on the applicant’s suitability such as whether a listing of the applicant is consistent with its business strategy, including the proposed use of proceeds and whether the applicant has genuine funding needs……”
       
      28. Considering all the written and verbal submissions, the Listing Review Committee did not consider that the Company had the characteristics of an applicant to which GL68-13A was principally directed, in that it appeared to the Listing Review Committee that the development of the underlying business, rather than obtaining listing status, was the Company’s motivation to apply for a listing. The application of paragraph 4.1 of GL68-13A and the analysis it expects should be seen in the context of GL68-13A as a whole and the issues it was designed to address. The Listing Review Committee found that the proposed listing of the Company is consistent with its business strategy, and considered the Company’s explanation of its business strategy including its proposed use of proceeds in relation to the Bank Collateral, Product Marketing and Training Facility appeared to have been carefully thought out by the Company and to be credible. It was evident that the Company’s growth had been funded in large part by its own discretionary cashflows. The proposed listing will provide a substantial new source of funding. It is to be expected that this will allow the Company to accelerate its business plans and to consider expenditures which are more substantial than it had been able to make in the past. This disparity between past and proposed expenditure is not of itself a disqualification for listing. Overall, the Listing Review Committee accepted that the Company has genuine funding needs.
       
      29. The Listing Review Committee accepted that the expansion of the Company’s own intimate personal care products is at an early stage of development so that an assessment of it can only be made on the basis of projections and there can be no certainty that these projections will be achieved, and that the proposed credit card merchant facility will tie up capital, which in the absence of cross-selling or up-selling opportunities of its intimate care products and therapies, will only yield a modest return. These are both aspects of the Company’s application on which the Listing Department expressed concerns. However, upon a qualitative review of all the relevant facts and circumstances before it (including concerns of the Listing Department), the Listing Review Committee is of the view that the Company has sufficiently demonstrated a commercial rationale for its listing. Some of the Listing Department’s concerns (including detailed implementation of the business strategy including the Company’s proposed use of proceeds) may be addressed by additional disclosure in the prospectus.
       
      Decision
       
      30. For the reasons summarised above, the Listing Review Committee decided to overturn the decision of the Listing Committee and to permit the Company to continue its application for listing.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).

    • 15 November 2019

      National Agricultural Holdings Limited – Decision of the Listing Review Committee
       
      On 13 November 2019, the Listing Review Committee heard an application by National Agricultural Holdings Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 9 August 2019, cancelling the Company’s listing on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions presented by the Company and the Listing Department, the Listing Review Committee decided that the Company’s listing should be cancelled under Rule 6.01A.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1. The Company’s business involved a financial leasing business in the PRC and the operation of a commodity trading platform for agricultural products and chemical fertilisers. It has been listed on the Main Board since December 1999, although trading in the Company’s shares has been suspended since 28 March 2017.
       
      2. The trading suspension arose pending publication of the Company’s annual results for the year ended 31 December 2016. Deloitte Touche Tohmatsu, the Company’s auditor at the time, had raised questions relating to the existence of a certain bank account and balance of a subsidiary of the Company, and related underlying transactions. The Company appointed Ernst & Young (EY) to investigate these matters.
       
      3. In June 2017, certain conditions were imposed on the Company that had to be met to the satisfaction of the Listing Department before the Company could resume trading. Amongst other things, these included requirements that the Company should:
       
        (a)    conduct a forensic investigation into the questions raised by Deloitte Touche Tohmatsu, disclose the findings, and take appropriate remedial actions; and
       
        (b) publish all outstanding financial results and address any audit qualifications.
       
      4. On 4 July 2017, the Securities and Futures Commission directed a suspension under section 8(1) of the Securities and Futures (Stock Market Listing) Rules.
       
      5. On 12 March 2018, the Company announced the key findings of EY’s forensic report. EY concluded, amongst other things, that they were unable to confirm the existence of the bank account.
       
      6. In 2019, the Company made requests for more time with a view to a resumption of trading. These were declined by the Listing Department.
       
      Applicable Listing Rules and guidance
       
      7. The rules applicable to cancellation of listing were amended in 2018 and the current rules came into effect on 1 August 2018 (the Effective Date). Rule 6.01A(1) provides that "… the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months."
       
      8. Guidance Letter HKEX-GL95-18 (GL95-18) provides further guidance on long suspension and delisting. As noted in GL95-18, the objective of the amended delisting Rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting Rules are also aimed at incentivizing suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the Rules.
       
      9. Various transitional provisions are set out in Rule 6.01A(2). In the case of the Company, the relevant transitional rule is Rule 6.01A(2)(b)(ii), which applies to issuers which are not subject to a decision to commence the procedures to cancel a listing and a notice period for delisting immediately before the Effective Date, and when trading in that issuer’s securities has been continuously suspended for 12 months or more as at the Effective Date. Under that rule, the 18 month period referred to in rule 6.01A(1) commences 6 months before the Effective Date.
       
      10. The practical effect of the above rules is that the Company could be cancelled if it had not resumed trading by 31 July 2019.
       
      11. Paragraph 12 of GL95-18 emphasises that, under the Rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the Rules.
       
      12. Paragraph 19 of GL95-18 notes that the remedial period may only be extended in exceptional circumstances.
       
      Listing Committee decision
       
      13. In August 2019, the Listing Department recommended to the Listing Committee that the Company’s listing be cancelled on the basis that the Company had failed to fulfil all the resumption conditions and resume trading by 31 July 2019.
       
      14. The matter was considered by the Listing Committee on 8 August 2019. The Listing Committee decided to cancel the Company’s listing under Rule 6.01A as the Company had failed to resume trading by 31 July 2019.
       
      Developments following the Listing Committee decision
       
      15. On 20 August 2019, the Company sought a review by the Listing Review Committee of the Listing Committee’s decision.
       
      16. The Company did not provide any written submissions to the Listing Review Committee, but on two occasions in correspondence requested an adjournment of the hearing to a date after 31 December 2019. In support of these requests, the Company provided information regarding, amongst other things:
       
        (a) a potential investment and assistance in relation to resumption from a potential investor;
       
        (b) financial statements of two companies referred to by the Company as its subsidiaries, namely Qianlong Computers Company Limited and Sino-Agri Equipment Co., Ltd.; and
       
        (c) an intended investment and assistance in relation to resumption from a further potential investor.
       
      17. On 12 November 2019, the Company confirmed that it would not attend the Listing Review Committee hearing.
       
      18. At the hearing, the Listing Department submitted that the resumption conditions had not been satisfactorily addressed, and that the potential investments which the Company had described in correspondence would be insufficient to address all the resumption conditions, as such an investment would not in itself satisfactorily address the regulatory issues which had been raised.
       
      Listing Review Committee’s views
       
      19. Trading had not resumed trading by 31 July 2019 and accordingly the Company’s listing could be cancelled under Rule 6.01A.
       
      20. There were no exceptional circumstances warranting an extension to the remedial period. Amongst other things, the information provided by the Company in support of its requests for the hearing to be adjourned was both general in nature and limited. Overall, there was no material evidence that the Company either had made, or had real prospects of making, substantive progress towards satisfaction of the resumption conditions.
       
      Decision
       
      21.    The Listing Review Committee therefore decided to decline the Company’s request for the hearing to be adjourned, and to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under Rule 6.01A.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).
       

    • 18 November 2019

      Fuguiniao Co., Ltd. – Decision of the Listing Review Committee
       
      On 6 November 2019, the Listing Review Committee heard an application by Fuguiniao Co., Ltd. (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 9 August 2019, cancelling the Company’s listing on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions presented by the Company and the Listing Department, the Listing Review Committee decided that the Company’s listing should be cancelled under Rule 6.01A.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1. The Company’s business involved the manufacture and trading of shoes and menswear in the PRC. It has been listed on the Main Board since December 2013, although trading in the Company’s shares has been suspended since 1 September 2016.
       
      2. The trading suspension arose following the Company’s failure to publish its interim results for the six months ended 30 June 2016. KPMG, the Company’s auditor at the time, had raised an issue relating to undisclosed guarantees given by the Company for the benefit of bank lending to the Company’s controlling shareholder.
       
      3. Certain conditions were imposed on the Company that had to be met to the satisfaction of the Listing Department before the Company could resume trading. Amongst other things, these included requirements that the Company should:
       
        (a) publish all outstanding financial results and address any audit qualifications;
       
        (b) conduct a forensic investigation into certain matters, announce the findings, and take appropriate remedial measures, including in relation to: (i) audit issues raised by the Company’s former auditors, (ii) various findings that the Company had given undisclosed guarantees, and (iii) matters relating to a finding by the China Securities Regulatory Commission that the Company had breached amongst other things applicable laws and regulations;
       
        (c) demonstrate its compliance with Rule 13.24, which states that an issuer shall carry out, directly or indirectly, a sufficient level of operations or have tangible assets of sufficient value and/or intangible assets for which a sufficient potential value can be demonstrated to the Exchange to warrant the continued listing of the issuer’s securities.
       
      4. In the first half of 2018, the Company made a series of announcements relating to reports prepared by Guotai Junan Securities Co., Ltd (Guotai Junan), the trustee of the Company’s corporate bonds listed on the Shanghai Stock Exchange. Following these announcements, Guotai Junan lodged a bankruptcy petition against the Company, on the basis of default of the corporate bonds. In late July 2018, the Quanzhou Intermediate People’s Court (QIPC) appointed an administrator for the Company, as the Company entered bankruptcy reorganisation proceedings.
       
      Applicable Listing Rules and guidance
       
      5. The rules applicable to cancellation of listing were amended in 2018 and the current rules came into effect on 1 August 2018 (the Effective Date). Rule 6.01A(1) provides that “… the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months.”
       
      6. Guidance Letter HKEX-GL95-18 (GL95-18) provides further guidance on long suspension and delisting. As noted in GL95-18, the objective of the amended delisting Rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting Rules are also aimed at incentivizing suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the Rules.
       
      7. Various transitional provisions are set out in Rule 6.01A(2). In the case of the Company, the relevant transitional rule is Rule 6.01A(2)(b)(ii), which applies to issuers which are not subject to a decision to commence the procedures to cancel a listing and a notice period for delisting immediately before the Effective Date, and when trading in that issuer’s securities has been continuously suspended for 12 months or more as at the Effective Date. Under that rule, the 18 month period referred to in rule 6.01A(1) commences 6 months before the Effective Date.
       
      8. The practical effect of the above rules is that the Company’s listing could be cancelled if trading had not resumed by 31 July 2019.
       
      9. Paragraph 12 of GL95-18 emphasises that, under the Rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the Rules.
       
      10. Paragraph 19 of GL95-18 notes that the remedial period may only be extended in exceptional circumstances.
       
      Listing Committee decision
       
      11. In August 2019, the Listing Department recommended to the Listing Committee that the Company’s listing be cancelled on the basis that the Company had failed to fulfil all the resumption conditions and resume trading by 31 July 2019, and the Company had not demonstrated there were exceptional circumstances warranting an extension of time.
       
      12. The matter was considered by the Listing Committee on 8 August 2019. The Listing Committee decided to cancel the Company’s listing under Rule 6.01A as the Company had failed to resume trading by 31 July 2019.
       
      Developments following the Listing Committee decision
       
      13. On 20 August 2019, the Company applied for a review by the Listing Review Committee of the Listing Committee’s decision. The Company acknowledged that the resumption conditions were not fully satisfied, due to amongst other things, factors outside the Company’s control. In summary, the Company submitted that:
       
        (a) it had commenced certain preparation works with a view to satisfying the resumption conditions;
       
        (b) such preparation works were suspended partly due to the arrangement of the administrator pursuant to the progress of the bankruptcy reorganisation of the Company, which is outside the control of the Company; and
       
        (c)    the decision of the QIPC on the draft reorganisation plan shall be made on or before 25 August 2019, which may enable the Company to resume the fulfilling of the resumption conditions.
       
      14. The Company accordingly sought a 6-month extension of the remedial period to February 2020.
       
      15. On 26 August 2019, the Company announced that on 23 August 2019, the QIPC adjudicated that the approval of the draft reorganisation plan by the Company’s administrators was rejected, the procedure of the Company’s reorganisation was terminated, and the Company was adjudicated bankrupt (the QIPC judgment).
       
      16. At the hearing, the Listing Department submitted that, as a result of the QIPC judgment, the Company’s reorganisation plan was rejected, and the Company was in the process of being liquidated.
       
      17. No representatives of the Company attended the hearing.
       
      Listing Review Committee’s views
       
      18. Trading had not resumed trading by 31 July 2019 and accordingly the Company’s listing could be cancelled under Rule 6.01A.
       
      19. There were no exceptional circumstances warranting an extension to the remedial period. On the contrary, in light of the QIPC judgment, the Company was al in liquidation and there would be no prospect of the Company satisfying the resumption conditions.
       
      Decision
       
      20.    The Listing Review Committee therefore decided to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under Rule 6.01A.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).

    • 4 December 2019

      Shenzhou Space Park Group Limited – Decision of the Listing Review Committee
       
      On 27 November 2019, the Listing Review Committee heard an application by Shenzhou Space Park Group Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 9 August 2019, cancelling the Company’s listing on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions presented by the Company and the Listing Department, the Listing Review Committee decided that the Company’s listing should be cancelled under Rule 6.01A.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1. The Company’s business involved trading of household furniture and wooden products, and mining of iron and titanium ores. It has been listed on the Main Board since January 2000, although trading in the Company’s shares has been suspended since 22 June 2017. At that time, the Company was known as China Household Holdings Limited.
       
      2. The trading suspension arose following the Company’s failure to publish an announcement to address allegations in research reports published by Blazing Research. These reports contained allegations that, amongst other things, the Company had exaggerated financial data including its revenue and profit.
       
      3. In July 2017, the Securities and Futures Commission directed a suspension under section 8(1) of the Securities and Futures (Stock Market Listing) Rules, as a result of suspected irregularities in the Company’s 2013 interim and annual reports.
       
      4. The Company formed an independent board committee (IBC) to investigate the Blazing Research allegations and the suspected irregularities described above. The IBC engaged Zhonghui Anda Risk Services Limited to conduct the investigation.
       
      5. In September 2017, certain conditions were imposed on the Company that had to be met to the satisfaction of the Listing Department before the Company could resume trading. Amongst other things, these included requirements that the Company should:
       
        (a)    conduct an appropriate investigation into the allegations in the research report;
       
        (b) publish all outstanding financial results and address any audit qualifications; and
       
        (c) demonstrate that there is no reasonable regulatory concern about management integrity.
       
      6. The Company also engaged Zhonghui Anda CPA Limited to perform an internal control review.
       
      7. In the second half of 2018, the Company provided the Listing Department with draft or preliminary reports in respect of the internal control review and the investigation. These reports respectively noted control weaknesses and inconsistent financial ledger information.
       
      8. By August 2019, the Company had not provided any further information in respect of any measures to rectify its internal control weaknesses, or its investigation into the financial information. The Company had, however, asked for additional time (first to 31 December 2019 and, when that was rejected by the Listing Department, to 31 October 2019) to meet the resumption conditions.
       
      Applicable Listing Rules and guidance
       
      9. The rules applicable to cancellation of listing were amended in 2018 and the current rules came into effect on 1 August 2018 (the Effective Date). Rule 6.01A(1) provides that "… the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months."
       
      10. Guidance Letter HKEX-GL95-18 (GL95-18) provides further guidance on long suspension and delisting. As noted in GL95-18, the objective of the amended delisting Rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting Rules are also aimed at incentivising suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the Rules.
       
      11. Various transitional provisions are set out in Rule 6.01A(2). In the case of the Company, the relevant transitional rule is Rule 6.01A(2)(b)(ii), which applies to issuers which are not subject to a decision to commence the procedures to cancel a listing and a notice period for delisting immediately before the Effective Date, and when trading in that issuer’s securities has been continuously suspended for 12 months or more as at the Effective Date. Under that rule, the 18 month period referred to in rule 6.01A(1) commences 6 months before the Effective Date.
       
      12. The practical effect of the above rules is that the Company’s listing could be cancelled if trading had not resumed by 31 July 2019.
       
      13. Paragraph 12 of GL95-18 emphasises that, under the Rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the Rules.
       
      14. Paragraph 19 of GL95-18 notes that the remedial period may only be extended in exceptional circumstances.
       
      Listing Committee decision
       
      15. In August 2019, the Listing Department recommended to the Listing Committee that the Company’s listing be cancelled on the basis that the Company had failed to fulfil all the resumption conditions and resume trading by 31 July 2019.
       
      16. The matter was considered by the Listing Committee on 8 August 2019. The Listing Committee decided to cancel the Company’s listing under Rule 6.01A as the Company had failed to resume trading by 31 July 2019.
       
      Developments following the Listing Committee decision
       
      17. On 16 August 2019, the Company applied for a review by the Listing Review Committee of the Listing Committee’s decision.
       
      18. The Company did not provide any written submission in support of its application for a review, but did seek a three-month postponement of the hearing, saying amongst other things that the audited financial statements and the independent investigation report, whilst not yet available, would be available by that time.
       
      19. The Listing Department submitted that the Company had failed to fulfil satisfactorily all resumption conditions and resume trading and accordingly the Company should be delisted.
       
      20. No representatives of the Company attended the hearing.
       
      Listing Review Committee’s views
       
      21. Trading had not resumed by 31 July 2019 and accordingly the Company’s listing could be cancelled under Rule 6.01A.
       
      22. There were no exceptional circumstances warranting an extension to the remedial period or, accordingly, a postponement. There was no material evidence that the Company either had made, or had real prospects of making, substantive progress towards satisfaction of the resumption conditions.
       
      Decision
       
      23.    The Listing Review Committee therefore decided to decline the Company’s request for the hearing to be postponed, and to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under Rule 6.01A.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).
       

    • 5 December 2019

      Landrich Holding Limited – Decision of the Listing Review Committee
       
      On 20 November 2019, the Listing Review Committee heard an application by Landrich Holding Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 12 September 2019, rejecting the Company’s application to list on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions (written and oral) presented by the Company and the Listing Department, the Listing Review Committee decided to overturn the decision of the Listing Committee and to allow the Company to proceed with its application for listing.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1.    The Company and its Group act as a contractor in the construction industry. The Group derives most of its revenue from public sector civil engineering projects, particularly in relation to roads and drainage, and site formation. The majority of the Group’s existing business involves it acting as a subcontractor, although the Group has undertaken some projects as a main contractor either in a joint venture or on a stand-alone basis.
       
      2. The Group has certain licence approvals as a contractor by the Hong Kong Government’s Development Bureau (DB): Roads and Drainage (Group C Probation and Group B Probation), and Site Formation (Group B Probation).
       
      3. The Company’s market capitalisation at the time of listing is expected to be $520 million based on the low-end of the offer price range.
       
      4. The Group seeks to raise from listing about $70 million in net proceeds. Of that, the Group intends to apply $30 million to finance future projects as part of its expansion plan.
       
      5. The Group’s expansion plan involves a strategy to undertake more projects as the main contractor, and to upgrade its DB licences from “probationary” to “confirmed” thus removing certain restrictions which may limit the projects on which the Group can be engaged. Under the DB’s Contractor Management Handbook, the Group would be required to allocate a sum of money as working capital in order to undertake a project as a main contractor. The Group calculates it would need $27 million for this purpose, in order to undertake a 2-year Group B contract and a 3-year Group C contract.
       
      6. The Company notes that gross profit margins of such projects may be lower for main contractor projects than for subcontractor projects, but believes that there are good reasons for undertaking more projects as main contractor. Amongst other things, the Company believes that gross profit can be greater in main contractor projects, main contractor projects may require less resources, and main contractor projects may help to establish the Group’s reputation and/or allow the Group to diversify risks.
       
      Listing Department’s concerns
       
      7. The Listing Department has concerns in relation to the commercial rationale of the expansion plan, which has a focus on increased main contractor work. Amongst other things, the Listing Department notes that the gross profit margin for main contractor work is lower than for subcontractor projects, and accordingly questions whether the plan to increase focus on main contractor work makes financial sense. The Listing Department notes that the Group would have to increase the value of its main contractor projects substantially in order to maintain current levels of profitability. However, if anything, the amount of main contractor work that the Group has been undertaking has been decreasing in recent years.
       
      8. The Listing Department also: (a) notes that it does not make sense to say that main contractor projects may require less resources, given the additional costs and working capital which the Company says are required; and (b) does not understand how main contractor work allows diversification of risks, given the main contractor would remain in a position of overall responsibility for the project.
       
      9. The Listing Department says that the Company has not substantiated the demand for main contractor work, and does not see evidence of market demand for the work required by the Group to upgrade its DB licences.
       
      10.    The Listing Department considers this a borderline case, but believes that the Company has not demonstrated the commercial rationale for listing, and so is unsuitable for listing.
       
      Applicable Listing Rules and guidance
       
      11. Rule 8.04 provides that both the issuer and its business must, in the opinion of the Exchange, be suitable for listing. Rule 2.06 provides that suitability for listing depends on many factors, and reiterates the Exchange’s discretion to accept or reject applications for listing.
       
      12. Guidance on factors which may be relevant in the Exchange’s assessment of suitability for listing can be found in, amongst other things, Guidance Letters HKEX-GL68-13 and HKEX-GL68-13A (GL68-13A). Suitability for listing is based on a qualitative review and there is no bright-line test. However, applicants will normally be expected to demonstrate adequately, amongst other things, the commercial rationale for listing, including by reference to their proposed use of listing proceeds, and their future objectives and strategies for business operations and growth. Paragraph 4.1 of GL68-13A says consideration may be had to whether a listing of the applicant is consistent with its business strategy, including the proposed use of proceeds and whether the applicant has genuine funding needs.
       
      Listing Committee’s decision
       
      13. In September 2019, the Listing Department recommended to the Listing Committee that the Company’s application for listing on the Main Board be rejected on the basis that the Company is unsuitable for listing.
       
      14. The matter was considered by the Listing Committee on 11 September 2019. The Listing Committee decided the Company was not suitable for listing under Rule 8.04 and rejected the application. Amongst other things, the Listing Committee noted that the Company had not substantiated demand for its services as a main contractor, and/or for its civil engineering work as a stand-alone main contractor. The Listing Committee understood that the Company only had two more years to obtain the qualifying projects required to allow it to upgrade its licences from probationary to confirmed status, and that the Company seemed unlikely to be able to fulfil the confirmation requirements to complete the upgrade.
       
      Main arguments before the Listing Review Committee
       
      The Company’s submission in summary
       
      15. The Company submitted that there had been a misunderstanding by the Listing Department and the Listing Committee in respect of the time available for the Company to undertake qualifying contracts to upgrade its licences from “probationary” to “confirmed”. In particular, the Company said that its probationary licences were valid indefinitely. In order to upgrade, a qualifying project needed to be undertaken in the five-year period prior to the upgrade. However, there was no requirement that such a project be undertaken within five years of the award of the probationary licence.
       
      16. The Company submitted that it is inappropriate to conclude there is insufficient future demand for services from the Group by reference to past performance. The Group’s actual revenue from main contractor projects increased year-on-year throughout the Track Record Period from $115 million to $199 million. Reasonable growth was expected in the civil engineering works industry in the coming years, as described in the prospectus. There are currently limits on the projects that the Group can undertake due to restrictions on its financial resources, hence its desire to obtain funds by listing, and due to restrictions relating to the Company’s probationary licence status, which the Company seeks to address by achieving an upgrade of those licences to “confirmed” status.
       
      17. The Company reiterated and expanded on the reasons why, in its submission, being a main contractor, whether on a stand-alone basis or in a joint venture, may be desirable. These included amongst other things potential higher absolute gross profit, reputation enhancement, predictability of revenue and reduction of credit risk (in that the main contractor directly deals with the customer, which is usually the Government), diversification of risk (through the engagement of subcontractors), and the need for less resources, including machinery, labour, equipment and construction materials, and lower rental costs. However, the Group would continue to undertake its profitable subcontractor work. The Group does not propose to undertake main contractor work exclusively post-listing. The Company submitted that this expansion plan is in line with past strategy.
       
      18. In respect of demand, it was submitted that the Group had recently been short-listed for a new project in the Roads and Drainage category, which if undertaken should be a qualifying project allowing an upgrade from “probationary” to “confirmed” in the Roads and Drainage (Group C) category. Having a listed status would also help the Group to be more competitive.
       
      19. The Company submitted that no objection had been made by the Listing Department to the majority of its proposed use of proceeds, relating to other elements of its expansion plans.
       
      20. One reason why the Company sought equity financing rather than debt was because bank loans were typically for no longer than 12 months, which was not long enough when the funds are needed as project working capital.
       
      The Listing Department’s submission in summary
       
      21. The Listing Department acknowledged that there had been a misinterpretation – arising from unclear drafting in the prospectus – in relation to whether or not there was a time limit for upgrading licences from “probationary” to “confirmed” status, and noted that the Company was not subject to a restricted time period in which to upgrade its licences. Nevertheless, the Listing Department continued to have concerns over whether there was sufficient demand for the Group’s civil engineering work.
       
      22. The Listing Department noted that the value of main contractor projects had significantly decreased during the Track Record Period, and that no new main contractor projects had been awarded since December 2018. There was doubt over whether the latest short-listed tender for a project would be successful.
       
      23. As to the other uses of proceeds, the Listing Department noted that 42% is intended for future main contractor projects; and 44% is intended for acquisition of machinery and hiring personnel, and that that investment is intended to complement the undertaking of more main contractor projects. The use of all of these proceeds is therefore connected and related to the proposed expansion into main contractor work, and the Listing Department had doubts over the commercial rationale of that proposed expansion.
       
      24. Amongst other things, the Listing Department noted: in relation to profit, even a larger main contractor project value would not generate more profit than a higher margin / lower value subcontractor project (on average); in relation to resources, main contractor projects seem to require more resources than subcontractor projects, not less – for example there is a 10% working capital requirement for main contractor projects; in relation to diversification of risks, the main contractor would have overall responsibility for the project; in respect of rental costs, the Company forecasted spending more on equipment rental in FY 2020 and 2021, not less.
       
      Listing Review Committee’s views
       
      25. GL68-13A provides guidance on how the Exchange will assess suitability for listing, which is a basic condition for listing under Rule 8.04. Amongst other things, GL68-13A relates to concerns that some companies may seek a listing with a primary objective to exploit the value of the listing status, rather than to develop their underlying businesses. Companies which are unable to demonstrate a commercial rationale for listing may be more likely to invite speculative trading.
       
      26. In establishing an applicant’s suitability, GL68-13A makes clear that the focus will be on a qualitative review of the applicant’s business strategy (paragraph 4.1) and whether the applicant can demonstrate it has a convincing commercial rationale for listing (paragraph 4.2). The Listing Department is accordingly required to consider an applicant’s business strategy and commercial rationale for listing. Amongst other things, this involves assessing the Company and the genuineness of its business strategy and commercial rationale for listing in the context of the commercial or industrial sector in which the applicant is engaged. This can be a difficult assessment but should be as objective as possible.
       
      27. In this case, the Listing Review Committee noted that, whilst they are neither exhaustive nor a checklist, the Company only had one of the characteristics listed in paragraph 1.4 of GL68-13A which raise a question about whether heightened scrutiny should be applied in the vetting process, in that the Company’s anticipated capitalisation on listing was only marginally above the minimum required of HK$500 million.
       
      28. As noted above, the Listing Committee’s rejection of the Company’s application appears at least in part to have been based on a misunderstanding that there was a time limit of some two years for the Company to qualify for confirmed licenses, and that this was unlikely to be achieved in the time available. In light of the further explanation provided by the Company that there was no such time limit, the concern about whether there was sufficient time available to achieve an upgrade of licences wholly falls away, and made a borderline case less so.
       
      29. There were extensive submissions in relation to the commercial rationale of the Company continuing to develop its business as a main contractor, either on a stand-alone basis or as a member of a joint venture consortium, in addition to undertaking building works as a subcontractor. While it was accepted that the margins for a main contractor were generally lower than those earned by subcontractors, the Company believed that, as a main contractor, it could in large measure mitigate the risk assumed by subcontracting all or a portion of the main contract, control the amount of working capital needed to support the contract, and deploy its resources, including its professional resources and plant and machinery, more effectively. In addition, the ability to tender for larger contracts as a main contractor was expected to enhance the Company’s standing in its industry and benefit its business. The Listing Review Committee noted that the funds available from listing could allow a company an opportunity to invest much greater resources in activities which may have previously been comparatively modest, and to embark on entirely new initiatives. In this case, the Company’s proposed expansion into more main contractor work appeared to the Listing Review Committee a logical way for a contractor to expand and was likely to be a conventional path of expansion in this industry.
       
      30. The Listing Department expressed concerns over whether there would be demand for the Company’s services as a main contractor. The Listing Review Committee noted that the Company as a holder of probationary licences was limited in the number of contracts it was permitted to undertake as a main contractor and this could explain the absence of new contracts after the end of its Track Record Period.
       
      31. At the hearing, the Company described how it had been short-listed as a main contractor, as a member of a joint venture consortium, for a contract of sufficient size to qualify for a licence upgrade. The Company had been asked to provide detailed financial information in respect of the proposed project, which the Company said indicated that it stood a good chance of winning the tender. The Listing Review Committee accepts that this information may not have been available when the Listing Department and Listing Committee had considered the Company’s application in September. This development was evidence that there may be demand for the Company’s services as a main contractor. Furthermore, the Company denied that it had tendered for this project simply with its listing application in mind.
       
      32. The Company was also asked how its financial performance had been after the end of the three years’ Track Record Period ended 31 March 2019. The Company confirmed that both its revenues and attributable profits for the six months ended 30 September 2019 exceeded both the comparable period in 2018 and the forecast it provided the Listing Department as part of its application for listing. This level of performance was expected to continue during its current financial year. The Listing Review Committee was reassured that the Company had sustained its revenues and profits over the period since its initial application for listing was made in November 2018.
       
      33. The Listing Review Committee was accordingly satisfied that the Company had demonstrated its commercial rationale for listing. However, the Listing Review Committee had concerns about certain matters in the Company’s draft prospectus which did not form part of the basis on which the Listing Department had recommended rejection of the Company’s application. These included concerns that the cash generation of the Company on a consolidated basis had lagged behind its stated profitability. This was particularly evident in the decline in contract liabilities and the increase in the amount of contract assets during the Track Record Period. The Listing Review Committee also had questions as to how certain loans from directors and dividend payments to companies controlled by them related to each other. Unfortunately, the Company was not well prepared to answer these questions and its sponsor and auditor provided the Company little, if any, assistance on these matters at the hearing, so questions remained on how the Company has been financing its business during the Track Record Period.
       
      34. For the reasons set out above, the Listing Review Committee decided to permit the Company to continue its application for listing. This will also give the Listing Department an opportunity to assess in greater detail the current tender for a contract as main contractor which, if successfully completed, may enable the Company to achieve a licence upgrade, and to consider with the Company the concerns expressed above.
       
      Decision
       
      35. For the reasons summarised above, the Listing Review Committee decided to overturn the decision of the Listing Committee and to permit the Company to continue its application for listing.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).

    • 9 December 2019

      Longrun Tea Group Company Limited – Listing Review Committee

      On 29 November 2019, the Listing Review Committee heard an application by Longrun Tea Group Company Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 23 August 2019, cancelling the Company’s listing on the Main Board.

      Having carefully considered all the facts and evidence, and all the submissions (written and oral) presented by the Company and the Listing Department, the Listing Review Committee decided that the Company’s listing should be cancelled under Rule 6.01A.

      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.

      1.    The Company is an investment holding company principally engaged in the distribution of tea and other food products. The Company has a smaller, secondary business segment engaged in the distribution of pharmaceutical products.
       
      2.    The Company’s shares have been listed on the Main Board since September 2002, although trading has been suspended since 15 June 2017.
       
      3.    The trading suspension arose pending an inside information announcement about certain audit issues raised by the Company’s then auditors, Ernst & Young (EY). These issues related to two bank accounts, and in particular to inconsistencies relating to the balance in those accounts (the Audit Issues). EY expressed the view that the Company should engage an independent accounting firm to conduct an independent forensic investigation into the Audit Issues. The Company could not reach a consensus with EY regarding this work, and EY was removed as auditor and replaced by Moore Stephens CPA Limited (Moore Stephens).
       
      4.    The Company appointed Baker Tilly Hong Kong Risk Assurance Limited (Baker Tilly) to perform agreed upon procedures in relation to the matters giving rise to the Audit Issues.
       
      5.    Baker Tilly set out its findings in a report dated 17 November 2017. Amongst other things, Baker Tilly reported on a contractual arrangement (the Contractual Arrangement) involving one of the Company’s subsidiaries (YNLRT), a supplier of tea (the Supplier), and a potential purchaser of tea (the Third Company). The Supplier was owned by the Company’s founder/chairman (the Chairman) and the Chairman’s brother.
       
      6.    In summary, it appeared that the Contractual Arrangement involved a loan from YNLRT to the Third Company, and a payment by the Third Company to the Supplier. It further appeared that the Supplier would then hold tea products, which were effectively reserved for the Third Company. However, the Third Company was under no obligation to complete the purchase of any such tea products, but it appears to have been contemplated that the Third Company could call for delivery of such tea products in future years. If the Third Company did seek delivery of the tea products, the Supplier was obliged under an exclusive arrangement to sell the tea products to YNLRT. YNLRT would then on-sell the same products to the Third Company.
       
      7.    What transpired was that the loan under the Contractual Arrangement was not advanced from YNLRT to the Third Company, but was instead paid directly to the Supplier. The Supplier used the monies received to repay certain bank loans.
       
      8.    The Contractual Arrangement was eventually unwound without any tea being purchased. First, there was a default in repayment on maturity in March 2017 of the loan agreement between YNLRT as lender and the Third Company as borrower. The agreement between the Third Company and the Supplier was then terminated. The Supplier repaid the Third Company, and the Third Company repaid the loan to YNLRT. The repayment was a few months late (in June 2017) but was made in full with interest. The interest rate under the loan agreement was 9% per annum. The loan exceeded RMB 130 million.
       
      9.    The Company acknowledged that the loan constituted a major transaction but, contrary to the Listing Rules, was neither announced nor approved by shareholders.
       
      10.    Moore Stephens disclaimed an opinion on the 2017 annual results due to insufficient appropriate audit evidence on the underlying commercial reasons for the loan, and the nature and reasons for the discrepancies and omissions of recording the loan before EY’s discovery in May 2017. This was at least in part because Moore Stephens had been unable to interview certain employees of the Group alleged to be responsible for the inconsistencies giving rise to the Audit Issues.

      Resumption conditions

      11.    Between September 2017 and August 2018, certain conditions were imposed on the Company that had to be met to the satisfaction of the Listing Department before the Company could resume trading. Amongst other things, these included requirements that the Company should:
       
      (a)    address the Audit Issues;
       
      (b)    publish all outstanding financial results and address any audit qualifications;
       
      (c)    demonstrate that the Company has put in place adequate internal control systems to meet the obligations under the Listing Rules; and
       
      (d)    demonstrate that there is no reasonable regulatory concern about management integrity, and/or any persons with substantial influence over the Company’s management and operations, which will pose a risk to investors and damage market confidence (the Regulatory Concern).

      Applicable Listing Rules and guidance

      12.    The rules applicable to cancellation of listing were amended in 2018 and the current rules came into effect on 1 August 2018 (the Effective Date). Rule 6.01A(1) provides that “… the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months.”
       
      13.    Guidance Letter HKEX-GL95-18 (GL95-18) provides further guidance on long suspension and delisting. As noted in GL95-18, the objective of the amended delisting Rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting Rules are also aimed at incentivizing suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the Rules.
       
      14.    Various transitional provisions are set out in Rule 6.01A(2). In the case of the Company, the relevant transitional rule is Rule 6.01A(2)(b)(ii), which applies to issuers which are not subject to a decision to commence the procedures to cancel a listing and a notice period for delisting immediately before the Effective Date, and when trading in that issuer’s securities has been continuously suspended for 12 months or more as at the Effective Date. Under that rule, the 18 month period referred to in rule 6.01A(1) commences 6 months before the Effective Date.
       
      15.    The practical effect of the above rules is that the Company could be cancelled if it had not resumed trading by 31 July 2019.
       
      16.    Paragraph 12 of GL95-18 emphasises that, under the Rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the Rules.
       
      17.    Paragraph 19 of GL95-18 notes that the remedial period may only be extended in exceptional circumstances.

      The Company’s steps towards resumption

      18.    The Company submitted that it had, by 31 July 2019, taken many steps to address the resumption conditions. They are not all summarised here. For the purposes of this decision, the most relevant matters relate to the Contractual Arrangement and the Regulatory Concern condition.
       
      19.    Amongst other things, the Company said that the loan was to induce and facilitate the Third Company to invest in tea products over which the Company effectively had exclusive distribution rights. If the Third Company ultimately wished to purchase such products, they would be sold to it by the Company (or its subsidiary), which would have obtained the products under the exclusive right to supply from the Supplier.
       
      20.    The Company submitted there would be no downside to the Company under this arrangement if the Third Company eventually (as in fact transpired) chose not to purchase any tea products, as the Company was able to benefit from the substantial interest payable under the loan. The loan was advanced directly to the Supplier in order to have more control over the money. The failure to comply with the applicable Listing Rule requirements for announcement and shareholder approval was simply an oversight.
       
      21.    In short, the Company submitted that the loan was made for commercially sensible reasons, and no Regulatory Concern should arise in respect of the Contractual Arrangement.
       
      22.    The Company also proposed that, if the Listing Department was unsatisfied with the Company’s explanation, and continued to have a Regulatory Concern, then that could be addressed by a change in control, in that the Chairman would sell his shareholding to an independent third party. Under the proposed sale arrangements, the existing directors of the Company (including the Chairman and his brother) would resign. The Company submitted that the Chairman and his brother would then no longer have any influence in respect of the Company. A memorandum of understanding in relation to this proposed sale had been entered into by the Chairman and the prospective purchaser.

      Listing Department’s recommendation to the Listing Committee

      23.    As of 31 July 2019, the Listing Department was not satisfied that the Company had fulfilled all the resumption conditions. Amongst other things, the Listing Department did not consider it had received satisfactory explanation from the Company about the reasons for the loan. The Listing Department noted that the Third Company had no firm commitment to buy any tea at any point, and there appeared to be no plausible explanation of the reason why the monies were advanced to the Supplier directly by YNLRT – in this regard, the Listing Department noted that the money may have been spent by the Supplier, so any alleged control over the money was not effective. The Listing Department thought that the Contractual Arrangement was designed to disguise financial assistance to the Chairman and his brother.
       
      24.    In relation to the proposed sale, the Listing Department noted that it had not been finalised, so it was not clear if it would proceed. There was a concern that the purchaser may be trying to obtain the listing status of the Company, without a genuine intention to develop the Company’s underlying business.
       
      25.    The Listing Department was also concerned that the sale may not resolve the Regulatory Concern, as the Chairman and his brother might continue to have control or substantial influence over the Company after the sale.
       
      26.    The Listing Department also had a concern about whether the Company on resumption would have a business that has substance and/or is viable and sustainable. This was a concern that the Company would not satisfy the requirements of Rule 13.24, which provides that: “An issuer shall carry out, directly or indirectly, a sufficient level of operations or have tangible assets of sufficient value and/or intangible assets for which a sufficient potential value can be demonstrated to the Exchange to warrant the continued listing of the issuer’s securities.

      Listing Committee decision

      27.    In August 2019, the Listing Department recommended to the Listing Committee that the Company’s listing be cancelled on the basis that the Company had failed to fulfil all the resumption conditions and resume trading by 31 July 2019.
       
      28.    The matter was considered by the Listing Committee on 8 August 2019. The Listing Committee decided to cancel the Company’s listing under Rule 6.01A as the Company had failed to resume trading by 31 July 2019.

      Further submissions

      29.    The submissions made to the Listing Review Committee in relation to the Contractual Arrangement and the Regulatory Concern by both parties largely reiterated and expanded upon the matters summarised above. In particular, the Company made detailed written and oral submissions as to why the loan was in good faith and was commercially reasonable. The Company submitted that if the Listing Department was unsatisfied in relation to the Regulatory Concern, then that was unreasonable and subjective, and appeared to arise from an unwarranted distrust of the Company and/or its management, and there was no reason to doubt the integrity of the Chairman or his brother.
       
      30.    In oral submission and in answer to questions from the Listing Review Committee, the Chairman said that the proposed sale and change of control was not his preference – he did not think it should be necessary and he wanted and intended to remain involved with the Company – but he was reluctantly willing to go through with a sale if it meant that the Company’s listing could be saved.

      Listing Review Committee’s views

      31.    The Listing Review Committee noted that, as a matter of fact, trading had not resumed by 31 July 2019. Accordingly, the Company’s listing could be cancelled under Rule 6.01A.
       
      32.    The Listing Review Committee considered further whether or not the Company had satisfied the resumption conditions. The Listing Review Committee did not consider that the Regulatory Concern condition had been satisfactorily addressed. In particular, the Listing Review Committee was not satisfied with the explanation given by the Company regarding the Contractual Arrangement, and was not convinced of the commercial rationale for the arrangements relating to the loan. The Listing Review Committee noted that the money paid under the Contractual Arrangement was transferred between two companies under the Chairman’s control, and there was evidence that the money, once transferred, was used for other purposes by the Supplier. The Listing Review Committee noted that although the Company had instructed an investigation into the Audit Issues, the scope of that investigation (based on agreed upon procedures) gave less comfort than would have been the case had the Company followed the advice of its then auditors and arranged an independent audit investigation.
       
      33.    The Listing Review Committee considered that the proposed sale was not a sufficient response to the Regulatory Concern issue as: (a) the sale had not been completed and it was uncertain whether it ever would be given it was only at a relatively preliminary stage; and/or (b) even if the sale were completed, the Listing Review Committee had doubts as to whether the Chairman would no longer be involved in the Company and its business, given his strongly professed preference not to sell, a doubt held by the Listing Review Committee over whether the proposed purchaser was truly arm’s length and independent, and the Chairman’s indications during the hearing as to how he expected the Company would be managed and operated after the sale.
       
      34.    The Listing Review Committee was accordingly of the view that, as at least one of the resumption conditions (namely the Regulatory Concern condition) had not been satisfactorily addressed, and resumption of trading had, as a result, not taken place, the Company’s listing should be cancelled.
       
      35.    As the findings above were determinative of the review, the Listing Review Committee did not consider it necessary to decide whether or not the Company had satisfied the other resumption conditions, or whether the Company did not or would not in the future satisfy the requirements of Rule 13.24. The Listing Review Committee accordingly expresses no view on these issues.

      Decision

      36.    The Listing Review Committee therefore decided to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under Rule 6.01A.

      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).

    • 16 December 2019


      Muse Group Holdings Limited – Decision of the Listing Review Committee
       
      On 9 December 2019, the Listing Review Committee heard an application by Muse Group Holdings Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 12 September 2019, rejecting the Company’s application to list on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions (written and oral) presented by the Company and the Listing Department, the Listing Review Committee decided to overturn the decision of the Listing Committee and to allow the Company to proceed with its application for listing.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1.    The Company and its Group currently operate seven retail stores in two clusters: one in Tsim Sha Tsui and one in Causeway Bay, under the brand name “Muse”. The Group sells luxury/branded fashion products. About 90% or more of its revenue comes from sales of apparel, footwear and handbags.
       
      2.    The Group intends to raise net proceeds of approximately $145 million by listing on the Main Board. Of this, about half is intended for use to open six new retail stores across Hong Kong between 2020 and 2022 (comprising about: (i) 28.3% or $40.9 million mainly for purchase of inventory; (ii) 18.6% or $26.9 million mainly for decoration, rental and equipment costs; and (iii) 3.3% or $4.8 million mainly for staff cost) (the Store Expansion Plan). Other major proposed uses of the proceeds include expanding the Group’s e-commerce business, marketing and brand management, enhancing its warehouse space, transportation fleet and procurement team.
       
      3.    The Group’s revenue has increased slightly over the Track Record Period, from $1,266 million in FY2017 to $1,331 million in FY2019.
       
      4.    The Company’s directors believe that there is and will be market demand to support the plan to open six new stores, particularly from overseas visitors (including from the PRC). Amongst other things, the Company relies on a forecast from an industry consultant which expects retail sales of luxury/branded fashion products to increase at a CAGR of 5.6% from 2019 to 2023. The forecast takes into account, amongst other things, expected growth in the tourism industry and affordability of residents in the PRC and Hong Kong.
       
      Listing Department’s concerns
       
      5.    The Listing Department considered that there is insufficient basis to justify the demand for the additional retail stores. Amongst other things, the Listing Department noted that the Group has only recorded minimal revenue growth during the Track Record Period, despite increasing from five to seven stores, and the Group has underperformed the market in that time. The Group had little or no same-store growth rate from FY2017 to FY2019, and had closed down two retail stores in the Track Record Period. The Listing Department also noted that the retail market has been and is likely to continue to be negatively impacted by the economic uncertainty and decline in the tourism from mainland China arising from protests in Hong Kong.
       
      6.    The Listing Department considered that this is a borderline case, but that on balance the Company had not satisfactorily demonstrated the commercial rationale for listing, and the Company was thus unsuitable for listing under Rule 8.04.
       
      Applicable Listing Rules and guidance
       
      7.    Rule 8.04 provides that both the issuer and its business must, in the opinion of the Exchange, be suitable for listing. Rule 2.06 provides that suitability for listing depends on many factors, and reiterates the Exchange’s discretion to accept or reject applications for listing.
       
      8.    Guidance on factors which may be relevant in the Exchange’s assessment of suitability for listing can be found in, amongst other things, Guidance Letters HKEX-GL68-13 and HKEX-GL68-13A (GL68-13A). Suitability for listing is based on a qualitative review and there is no bright-line test. However, applicants will normally be expected to demonstrate adequately, amongst other things, the commercial rationale for listing, including by reference to their proposed use of listing proceeds, and their future objectives and strategies for business operations and growth. Paragraph 4.1 of GL68-13A says consideration may be had as to whether a listing of the applicant is consistent with its business strategy, including the proposed use of proceeds and whether the applicant has genuine funding needs.
       
      Listing Committee’s decision
       
      9.    The Listing Committee decided that the Company failed to demonstrate the commercial rationale for its expansion plan and accordingly that the Company is not suitable for listing under Rule 8.04.
       
      Main arguments before the Listing Review Committee
       
      The Company’s submission in summary
       
      10.    The Company submitted, amongst other things, that the Group had outperformed the market – it referenced its own CAGR of 10.2% between FY2014 and FY2019 against an industry CAGR of 0.9% in approximately the same period. Despite the economic downtrend in Hong Kong, the Group’s overall revenue in the third quarter of 2019 was up over 3% from the same quarter the previous year. The Company submitted that, although its more recent revenue growth lagged behind the industry as a whole, this was because the Group did not (and, due to the absence of funds, was unable to) open new retail stores in order to tap into revenues from customers shopping in areas other than those in which the existing clusters are located.
       
      11.    The Store Expansion Plan targeted the development of clusters in specific places in Hong Kong, and would allow the Group to penetrate into new areas and capture a higher market share and achieve higher revenue growth.
       
      12.    Looking only at statistics for same-store growth rates would not present a full picture, as clusters are expected to generate a disproportionate volume of sales in the main store.
       
      13.    Although there has been a fall in tourism numbers in 2019, particularly from the PRC, the Group’s sales increased during April to September 2019 compared with the corresponding period in 2018, primarily attributable to the Group’s loyal bulk purchase customers. The Company submitted that whilst bulk purchase customers may communicate and place orders with the Group online or by telephone, they would still visit the physical stores in order to look at or try products before placing a purchase order. Having further stores and clusters in Hong Kong would help to increase growth both from individual retail customers and bulk purchase customers.
       
      14.    The Company was optimistic that the Group could overcome the downturn due to, amongst other things, continued economic growth in the PRC, its sales to bulk purchase customers, and an expected recovery in the retail market and tourism industry when the protests and related issues die down in Hong Kong. It was also submitted that the current unrest in Hong Kong would enable the Group to negotiate more favourable rents for its existing and future leases.
       
      15.    During the hearing, the Company’s representative (being the founder, majority shareholder and Chief Executive Officer) submitted that it had never been intended that the Company would become a shell company, and he would therefore voluntarily offer an undertaking to maintain absolute control and a majority shareholding of at least 51% for at least five years after listing (the Undertaking).
       
      The Listing Department’s submission in summary
       
      16.    The Listing Department considered that the Company’s presentation of financial results and statistics in its submission to the Listing Review Committee was misleading, as they masked the fact that the Company’s growth during the Track Record Period has been flat, by cherry-picking data and excluding certain costs or other unfavourable data. Amongst other things, the Listing Department noted that looking at growth across a period longer than the Track Record Period would distort average growth figures as it would include the period of high growth before the Track Record Period – the more recent growth figures are likely to be a better indicator of future growth and are weaker.
       
      17.    The Listing Department noted that the retail downturn in Hong Kong had continued and the outlook remained uncertain, and even if there could be resilience to the retail downturn through sales to bulk purchase customers, those customers communicate with the Group’s sales personnel online, rather than in physical stores, so the opening of additional retail stores should be irrelevant to growth in sales to bulk purchase customers.
       
      Listing Review Committee’s views
       
      18.    Having considered all the submissions, the Listing Review Committee considered that this was not only a borderline case (as noted by the Listing Department) but also a very difficult case. The Listing Review Committee considered that the Company had demonstrated a commercial rationale for listing, and its intended use of proceeds is consistent with the Company’s business strategy.
       
      19.    The key issue relates to the Company’s Store Expansion Plan. On this issue, the Listing Review Committee noted that the Company had continued to achieve positive sales growth, albeit modest, during the third quarter of 2019, in what has undoubtedly been a challenging retail environment in Hong Kong. The Company submitted that it expected growth to continue in the remainder of the current financial year. The Company further submitted that in order to ensure continuous growth of the Group, the Company would be required to increase its purchases from its 240 brands suppliers, thus necessitating outlay of more cash. The Store Expansion Plan is consistent with such a strategy. Following a question by the Listing Review Committee, the Company confirmed during the hearing that, if the Company was permitted to continue with its application for listing, the Company was willing to include in its prospectus a formal profit forecast, reviewed by the Company’s reporting accountants, for the current financial year ending 31 March 2020 (the Profit Forecast).
       
      20.    The continued growth in the current financial year was attributed primarily to bulk purchase customers. There were conflicting submissions from the parties on whether growth in sales to bulk purchase customers was sensibly achieved by expansion of retail stores, given the apparent preferment by such customers of online sales. In this regard, the Listing Review Committee considered that the Company’s expansion plan appeared to involve both the establishment of further retail stores and the development of its e-commerce business, although this was not apparent from the prospectus and may therefore also not have been apparent to the Listing Committee. The Listing Review Committee considered the Company’s submission that there could be synergies between these two selling methods, in that having more retail stores could help drive online sales, and having an enhanced e-commerce platform could help increase demand in the retail stores, was a reasonably held view. The Listing Review Committee also takes the view that sales through omnichannels is the modus operandi for retailing apparel and accessories these days. As such, the intended use of proceeds for the Store Expansion Plan is reasonable and consistent with the business development of the Company.
       
      21.    In reaching its decision, the Listing Review Committee expects that, if the Company continues with its application for listing: (a) it should include the Profit Forecast in its prospectus (so that investors may know that the Company’s sales are not going to decline materially at least in the current financial year ending 31 March 2020), and (b) the Undertaking should be executed in favour of both the Exchange and the Company (in form and substance reasonably satisfactory to the Listing Department).
       
      Decision
       
      22.    For the reasons summarised above, the Listing Review Committee decided to overturn the decision of the Listing Committee and to permit the Company to continue its application for listing.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).

    • 16 December 2019

      Yorkshine Holdings Limited – Listing Review Committee
       
      On 4 December 2019, the Listing Review Committee heard an application by Yorkshine Holdings Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 23 August 2019, cancelling the Company’s listing on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions (written and oral) presented by the Company and the Listing Department, the Listing Review Committee decided that the Company’s listing should be cancelled under Rule 6.01A.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1. The Company has had two business segments: trading and distribution of iron ore, coal and steel products; and manufacturing, sale and distribution of electrolytic tinplate and related products for the metal packaging industry.
       
      2. The Company’s shares have been listed on the Main Board since December 2010, although trading has been suspended since 1 August 2017.
       
      3. The trading suspension arose as the Company’s auditors, Baker Tilly TFW LLP, required more time to complete the audit for the year ended 30 April 2017, after finding two sets of apparently conflicting sale and purchase agreements pertaining to the same underlying transactions relating to the trading business, but involving different parties. In August 2017, the Company appointed PricewaterhouseCoopers Consulting (Singapore) Pte Ltd (PwC) to conduct an independent review of this issue.
       
      4. Certain conditions were imposed on the Company that had to be met to the satisfaction of the Listing Department before trading could resume. Amongst other things, these included requirements that the Company should:
       
        (a)      address and take appropriate action on the audit issue and PwC’s findings;
       
        (b) publish all outstanding financial results and address any audit qualifications;
       
        (c) demonstrate that the Company has in place adequate internal control systems;
       
        (d) demonstrate the directors meet the standard of competence under Rules 3.08 and 3.09; and
       
        (e) demonstrate that the Company has a sufficient level of operations or assets to warrant the continued listing of its securities under Rule 13.24.
       
      5. The Company announced PwC’s findings on 19 January 2018. Amongst other things, PwC concluded that there were uncertainties around the transactions under investigation, and there were issues relating to the Company’s controls which exposed the Company to risk of trades being transacted by unauthorised persons.
       
      6. The Group’s audited financial information showed that the Group made a net loss in each of the years ending 30 April 2013 to 2019, save that in FY2018/19, there was a net profit as a result of a one-off disposal gain.
       
      7. The Group ceased its trading business in FY2016/17, and had no revenue in FY2017/18. In FY2018/19, the Group had revenue of US$16.4 million from its tinplate business. The Group had total assets of US$52 million as at 30 April 2019, and net assets of US$12.4 million.
       
      8. In July 2019, the Company submitted a resumption proposal, as the Company considered that it had fulfilled all the resumption conditions.
       
      9. The Listing Department agreed that the Company appeared to have satisfactorily addressed the resumption conditions set out in paragraphs 4(a) to (c) above. Amongst other things, the persons involved in the transactions under investigation had been removed or had resigned, the Company had taken appropriate steps to remedy its internal control deficiencies (confirmed in an independent control review), the Company had suspended its trading business, the Company had published all outstanding results, and the qualified opinions on the annual results for the year ending 30 April 2019 did not give rise to material concern.
       
      10.    In relation to resumption condition (d), the Company proposed to restructure its board immediately before resumption of trading, under which all existing directors would resign, save for the controlling shareholder/chairman, who would be re-designated from executive director to non-executive director and have a limited scope of future participation in the Company’s affairs. The Listing Department considered that the proposed restructuring satisfactorily addressed resumption condition (d).
       
      11. However, the Listing Department considered that the Company did not satisfy resumption condition (e), as the Company had not demonstrated a sufficient level of operations or assets of sufficient value to warrant its continued listing under Rule 13.24.
       
      Applicable Listing Rules and guidance
       
      12. Rule 6.01 provides that, amongst other things, "where the Exchange considers it necessary for the protection of the investor or the maintenance of an orderly market, it may at any time direct a trading halt or suspend dealings in any securities or cancel the listing of any securities in such circumstances and subject to such conditions as it thinks fit". Prior to 1 October 2019, rule 6.01 said the Exchange may also do so where "the Exchange considers that the issuer does not have a sufficient level of operations or sufficient assets to warrant the continued listing of the issuer’s securities (see rule 13.24)".
       
      13. Prior to 1 October 2019, Rule 13.24 provided that: "An issuer shall carry out, directly or indirectly, a sufficient level of operations or have tangible assets of sufficient value and/or intangible assets for which a sufficient potential value can be demonstrated to the Exchange to warrant the continued listing of the issuer’s securities."1
       
      14. The rules applicable to cancellation of listing were amended in 2018 and the current rules came into effect on 1 August 2018 (the Effective Date). Rule 6.01A(1) provides that "… the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months."
       
      15. Guidance Letter HKEX-GL95-18 (GL95-18) provides further guidance on long suspension and delisting. As noted in GL95-18, the objective of the amended delisting Rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting Rules are also aimed at incentivising suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the Rules.
       
      16. Various transitional provisions are set out in Rule 6.01A(2). In the case of the Company, the relevant transitional rule is Rule 6.01A(2)(b)(ii), which applies to issuers which are not subject to a decision to commence the procedures to cancel a listing and a notice period for delisting immediately before the Effective Date, and when trading in that issuer’s securities has been continuously suspended for 12 months or more as at the Effective Date. Under that rule, the 18 month period referred to in rule 6.01A(1) commences 6 months before the Effective Date.
       
      17. The practical effect of the above rules is that the Company’s listing could be cancelled if it had not resumed trading by 31 July 2019.
       
      18. Paragraph 12 of GL95-18 emphasises that, under the Rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the Rules.
       
      19. Paragraph 19 of GL95-18 notes that the remedial period may only be extended in exceptional circumstances.
       
      Listing Committee decision
       
      20. In August 2019, the Listing Department recommended to the Listing Committee that the Company’s listing be cancelled on the basis that the Company had failed to fulfil all the resumption conditions satisfactorily and resume trading by 31 July 2019.
       
      21. The matter was considered by the Listing Committee on 22 August 2019. The Listing Committee decided to cancel the Company’s listing under Rule 6.01A as the Company had failed to resume trading by 31 July 2019.
       
      Rule 13.24
       
      22. The key issue before the Listing Review Committee was whether or not the Company met the sufficiency of operations or assets requirements set out in Rule 13.24. As the trading business had ceased, this primarily involved consideration of the tinplate business. This section contains a summary of some of the main submissions presented by the Review Parties on this issue. Please note that this does not purport to set out exhaustively all of the arguments presented.
       
      23. The Company submitted that it had invested a substantial amount of time, effort and money into the redevelopment of a plant in Taizhou, PRC. Funding for this was primarily by interest-free shareholder loan of over US$20 million. The Taizhou plant had restarted production in 2018. Current production capacity is estimated in the region of 100,000 tonnes per annum. When phase 1 of the renovated plant is fully operational, the plant is expected to have a production capacity of 150,000 tonnes per annum.
       
      24. The Company submitted that, although the Taizhou plant was operating at a loss in the financial year ended 30 April 2019, this was due to the plant still being in a start-up phase, and the plant was expected to generate an operating profit in FY2019/20 (US$967,000) and FY2020/21 (US$3.79 million). The Taizhou plant had also operated at a loss prior to its redevelopment (e.g. FY2013/14 and FY 2014/15), but the Company submitted that this was not relevant to its current and future prospects, as the plant was outdated at that time and the then management (who were not associated with the current management) lacked the required expertise.
       
      25. The Taizhou plant was now working well, and had won awards. A new lamination machine was coming online in Q4 2019. Some 30,000 tonnes of tinplate had been produced and sold between June and September 2019. The Company submitted that a key competitor had recently gone bankrupt, which presented an opportunity for the Company to win customers and business. The price of tinplate might also rise as a result of this market development.
       
      26. The Company submitted that its total assets at 30 April 2019 were close to US$52 million, of which about US$41 million comprised property, plant and equipment. Net assets at 31 July 2019 were US$16.4 million, with an effective higher NAV as the shareholder providing the loan for redevelopment of the Taizhou plant is willing to accept loan capitalisation.
       
      27. The Company further submitted that its principal business is investment holding. In the long run, the Company will not solely rely on the tinplate business. Amongst other things, the Company will consider expanding vertically in the manufacture of metal products, and resuming the trading business when appropriate funding is available.
       
      28. The Listing Department had concerns in relation to the tinplate business. Amongst other things, the Listing Department noted that it only had a short track record, and a relatively small scale of operation. The Listing Department considered that the tinplate business lacked a concrete business model and/or credible forecasts to support its viability or sustainability.
       
      29. The Listing Department noted that the tinplate business had been loss-making, both before and after the redevelopment of the Taizhou plant, and was not yet profitable, and the loss-making position did not represent a temporary downturn of the business. The Company had not demonstrated how the business will be able to solicit sufficient customers and generate sufficient sales/revenues to improve performance substantially.
       
      30. The Listing Department submitted that the sales volumes forecasted by the Company exceeded actual sales volumes, and noted that certain agreements which had been entered into to supply 69,000 tonnes of tinplate were still subject to negotiation on price and so uncertain. This called into question the Company’s profit forecasts. In any event, the Company’s forecasted gross profit margin of 4.8% to 6% was thin, and even this level had not been achieved in the period May to September 2019.
       
      31. The Group’s assets had not generated sufficient revenue or profits to ensure the Company operated a viable and sustainable business, and the Company had not demonstrated how its assets would enable it to substantially improve operations and financial performance. The Company’s other proposed expansion plans were preliminary, generic and uncertain.
       
      32. It was also noted in the hearing that the Singapore Exchange (SGX) had decided to delist the Company in July 2019 as the Company had not submitted a resumption proposal in Singapore.
       
      33. In oral submissions, the Company accepted that it would likely find it difficult if it were to apply for listing today, but that there was confidence that the very significant investment in the Taizhou plant could and would allow a sustainable future business. The Company requested an extension of time until mid-2020, after the current year financial results had become available, in order to demonstrate its potential and resume trading. The Listing Department submitted that the assessment of the Company under Rule 13.24 should be a present test, not a future test.
       
      Listing Review Committee’s views
       
      34. Having considered all of the submissions and evidence, the Listing Review Committee considered that the Company did not meet the requirements of Rule 13.24, as it did not appear to be carrying out a sufficient level of operations, or to have assets of sufficient value, to warrant the continued listing of the Company’s securities.2
       
      35. In reaching this view, the Listing Review Committee noted that substantial efforts and investment had been made into the Taizhou plant. However, the tinplate business had limited track record, has never been profitable, and remains small. Furthermore, it was not clear whether the business would or could become profitable. Amongst other things, the production and revenue in the period between May/June and September 2019 had been below the forecasted levels. Gross margin remained, and was only forecasted to be, very thin. The Company had not demonstrated that it had an effective plan to generate sales. For these reasons, the Listing Review Committee shared the concerns of the Listing Department regarding the substance, viability and sustainability of the Company’s business.
       
      36. The Listing Review Committee further considered that it was not appropriate to extend the remedial period to mid-2020. The Company had been suspended for over two years prior to the Listing Committee’s decision. It was only able to offer limited further information regarding its financial performance between July and the date of the hearing (for example, there was no information especially on the level of sales or revenue relating to October or November) and, as noted above, the Listing Review Committee had concerns about what had been achieved to September 2019. Whilst it was possible that the Company’s business could improve in the remainder of the current financial year, there was no clear evidence that it would do so. GL95-18 is clear that extensions should only be given in exceptional circumstances, and the Listing Review Committee did not think any such exceptional circumstances existed in this case.
       
      Decision
       
      37. The Listing Review Committee therefore decided to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under Rule 6.01A.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).
       

      ****


      1 Rule 13.24 was amended on 1 October 2019 to say that: "An issuer shall carry out, directly or indirectly, 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." The relevant version of the rule for this matter was that in effect prior to 1 October 2019.

      2 The Listing Review Committee noted that the Company would also accordingly have failed to satisfy the requirements in Rule 13.24 applicable after 1 October 2019.

    • 17 December 2019

      Hsin Chong Group Holdings Limited – Listing Review Committee
       
      On 11 December 2019, the Listing Review Committee heard an application by Hsin Chong Group Holdings Limited (the Company) for a review of the decision of the Listing Committee, set out in a letter dated 9 August 2019, cancelling the Company’s listing on the Main Board.
       
      Having carefully considered all the facts and evidence, and all the submissions (written and oral) presented by the Company and the Listing Department, the Listing Review Committee decided that the Company’s listing should be cancelled under Rule 6.01A.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1. The Company has been engaged in building construction, civil engineering, electrical and mechanical engineering, the provision of property and facility management services, and the development of and investment in properties.
       
      2. The Company’s shares have been listed on the Main Board since August 1991, although trading has been suspended since 3 April 2017.
       
      3. The trading suspension arose pending the release of final results for the year ended 31 December 2016. These were published on 19 April 2017, but the Company’s then auditors (PwC) issued a disclaimer opinion due to issues including multiple uncertainties relating to going concern, and a lack of adequate documentary evidence relating to various payments totalling over RMB 1 billion.
       
      4. PwC requested the audit committee of the Company to investigate these issues. In July 2017, Deloitte Advisory (Hong Kong) Limited was engaged to conduct an independent investigation. The findings were announced in January 2018.
       
      5. The annual results for FY2017 were published on 23 March 2018. BDO Limited, which had replaced PwC as auditor in 2017, issued a disclaimer opinion. Since March 2019, the Company has failed to publish any financial statements required under the Listing Rules, including the annual results for FY2018.
       
      6. The Company has been in financial difficulty. Amongst other things, it has substantial borrowing which is in default; receivers have been appointed over three of the Group’s subsidiaries, of which one has been placed into liquidation; the Company had recorded significant net losses in each of FY2016 and FY2017 and the first half of FY2018; a major contract, accounting for 90% of revenue in FY2017, was terminated in 2018; some bank balances of the Group’s subsidiaries have been frozen pursuant to PRC court orders; a number of winding-up petitions have been filed against the Company and its subsidiaries; and on 19 February 2019, individuals from RSM Corporate Advisory (Hong Kong) Limited were appointed as joint provisional liquidators (JPLs) of the Company and two subsidiaries.
       
      7. Certain conditions were imposed on the Company that had to be met to the satisfaction of the Listing Department before the Company could resume trading. Amongst other things, these included requirements that the Company should:
       
        (a)    address all audit issues identified by PwC;
       
        (b) inform the market of all material information for shareholders and investors relating to the audit issues;
       
        (c) demonstrate that it has a sufficient level of operations or assets to warrant the continued listing of its securities under Rule 13.24;
       
        (d) demonstrate the directors meet the standard of competence under Rule 3.08;
       
        (e) have the winding-up petitions against the Company withdrawn or dismissed and the provisional liquidators discharged; and
       
        (f) publish all outstanding financial results and address any audit modifications.
       
      8. On 30 July 2019, the Company submitted a resumption proposal, which set out a plan for fulfilling the resumption conditions. In summary, this included reacquiring Hsin Chong Aster Building Services Limited (Aster), which had been a wholly-owned subsidiary of the Company until 31 December 2018, when it was sold under a mortgagee sale triggered by the Company’s loan repayment default. Aster is licensed by the Government’s Development Bureau, Works Branch, as an approved supplier of material and specialist contractor for public work, although, at the time of submitting the resumption proposal, the licence was suspended due to a shortfall of working capital. The resumption proposal also included various initiatives to settle outstanding indebtedness (including by schemes involving the creditors of the Company) and to raise new funds (including through a subscription for new shares and an open offer).
       
      9. The Company expected to be able to meet the Rule 13.24 requirements on completion of its resumption proposal.
       
      10. The Company proposed to appoint Zhonghui CPA Limited as new auditors to prepare the outstanding accounts.
       
      Applicable Listing Rules and guidance
       
      11. The rules applicable to cancellation of listing were amended in 2018 and the current rules came into effect on 1 August 2018 (the Effective Date). Rule 6.01A(1) provides that "… the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months."
       
      12. Guidance Letter HKEX-GL95-18 (GL95-18) provides further guidance on long suspension and delisting. As noted in GL95-18, the objective of the amended delisting Rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting Rules are also aimed at incentivising suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the Rules.
       
      13. Various transitional provisions are set out in Rule 6.01A(2). In the case of the Company, the relevant transitional rule is Rule 6.01A(2)(b)(ii), which applies to issuers which are not subject to a decision to commence the procedures to cancel a listing and a notice period for delisting immediately before the Effective Date, and when trading in that issuer’s securities has been continuously suspended for 12 months or more as at the Effective Date. Under that rule, the 18 month period referred to in rule 6.01A(1) commences 6 months before the Effective Date.
       
      14. The practical effect of the above rules is that the Company’s listing could be cancelled if it had not resumed trading by 31 July 2019.
       
      15. Paragraph 12 of GL95-18 emphasises that, under the Rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the Rules.
       
      16. Paragraph 19 of GL95-18 notes that the remedial period may only be extended in exceptional circumstances.
       
      The Listing Department’s recommendation to the Listing Committee
       
      17. The Listing Department noted that the deadline of 31 July 2019 is a deadline to resume trading, not simply to submit a resumption proposal. The resumption proposal effectively involves the Company disposing all of its existing assets and liabilities, thereby effectively becoming a shell, and then reacquiring Aster, which would result in a listing of a newly-acquired business. This should be treated as a reverse takeover under Rule 14.06(6)(a).
       
      18. In any event, the Listing Department recommended delisting, as the Company had failed to fulfil the resumption conditions, and there are no exceptional circumstances warranting an extension of the remedial period, as set out in GL95-18.
       
      Listing Committee decision
       
      19. The matter was considered by the Listing Committee on 8 August 2019. The Listing Committee decided to cancel the Company’s listing under Rule 6.01A as the Company had failed to resume trading by 31 July 2019.
       
      Submissions to the Listing Review Committee
       
      Submissions by the Company
       
      20. The Company, represented at the hearing by one of the JPLs, submitted that the resumption proposal involved giving the Company a fresh start. It was recognised that the Company had been through a troubled period, but the resumption plan contemplated putting the existing assets and liabilities into a scheme, and then restoring Aster and its electrical and mechanical business as the Company’s key operations. The resumption plan could allow shareholders to get something back for their investment; the alternative would likely be a total loss.
       
      21. The Company submitted that Aster has a sufficient level of operations and assets to satisfy Rule 13.24. Amongst other things, the Company noted that: Aster’s net assets had grown from $224 million at end of 2016 to $336 million at end of 2018; unaudited revenue and profit after tax for the first half of 2019 were $219 million and $4.8 million respectively; and that the suspension of Aster’s licence was raised in December 2019. The Company submitted that Aster is financially healthy, provided that Aster’s exposure under guarantees that Aster has given in favour of the Company and/or its associated companies can be addressed, and that exposure will be managed through the proposed schemes of arrangement and as part of the wider restructuring plan.
       
      22. The Company submitted that the reacquisition of Aster was not a case of the Company moving into a new business area. On the contrary, the Company was simply settling with a creditor in order to bring back into the Group a business which had been part of the Group for many years, and had only left the Group because of the share pledge arrangements and the related default.
       
      23. In relation to the schemes, the Company submitted that on 17 October 2019, an informal senior noteholders’ meeting was held, and certain senior noteholders indicated their wishes to form an informal steering committee to serve as their representatives in communicating with the Company.
       
      24. In relation to the audit issues, the JPLs have completed their preliminary investigation and will submit a forensic accounting review report to the Listing Department. This should allow the audit issues, and any concerns relating to them, to be satisfactorily addressed.
       
      25. By order of the court in Bermuda, the JPLs have full power over the Company as of 1 November 2019, and all the powers of the existing directors have ceased. Any directors found to be accountable for the audit issues will be removed prior to resumption, and new directors with appropriate experience will be appointed. This should address any concerns around management.
       
      26. The Company is in the course of preparing the annual report for the year ending 31 December 2018 and will make a further announcement in this regard as and when appropriate. This should address any concern around the publication of results.
       
      27. The Company submitted that the action plan set out in the resumption proposal is ongoing, but substantial progress has been achieved, and is expected to be achieved. In oral submission, the Company said that there was reasonable optimism that resumption could be achieved within eight months.
       
      Submissions by the Listing Department
       
      28. The Listing Department did not consider the steps taken by the Company to date to be adequate to resolve the resumption conditions. Amongst other things, the Listing Department noted that: the acquisition of Aster would be a reverse takeover requiring a new listing application, but no such application has been submitted; the schemes involving the creditors remain very preliminary; the annual results for 2018 and the interim results for 2019 have still not been published and the proposed auditors have not yet been appointed, and it remains uncertain when they will be published; and the forensic report regarding the audit issues is outstanding, so those issues remain unaddressed. Overall, the resumption plan remained at a preliminary stage and was dependent on numerous approvals, over which there was no certainty.
       
      29. The Listing Department submitted that an issuer must have remedied all regulatory issues before the end of the prescribed remedial period, and resumption deadlines are not normally extended, as set out in GL95-18. Allowing the Company additional time would be contrary to policy and would encourage trading in shells.
       
      Listing Review Committee’s views
       
      30. Paragraph 12 of GL95-18 states in bold face that "the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-compiled with the Rules. This remedial period sets a deadline referenced to the resolution of the relevant issues and resumption of trading, as opposed to submission of a resumption proposal as in the previous regime." The remedial period for the Company ended on 31 July 2019. The resumption proposal was submitted one day before this date. It was quite evidently highly conditional and none of the steps in its implementation had been implemented. So none of the issues which had caused the suspension of trading in the Company’s securities had been remedied within the remedial period.
       
      31. Paragraph 19 of GL95-18 makes it clear that "the Listing Committee may only extend the remedial period in exceptional circumstances." The circumstances that GL95-18 envisages will permit the Listing Committee to grant an extension are when the steps for a resumption of trading have been substantially implemented and there is a sufficient certainty that trading will be resumed but due to factors outside the issuer’s control, generally procedural in nature, it cannot meet the planned timeframe and requires a short extension. The circumstances which would allow an extension simply do not exist in this instance. While some progress has been made on developing the resumption proposal, notably the restoration of Aster as an approved supplier by the Hong Kong Government following the provision of a bank facility, and progress had been made on the due diligence of Aster by the proposed subscriber, the resumption proposal is far from complete and an extension would cut across the policy on long suspensions introduced by the Exchange in 2018 which requires an issuer to address the causes of suspension within a reasonably short period or face the cancellation of its listing. This policy, therefore, puts on notice advisers, shareholders, creditors and new money providers that a rescue attempt of a company in financial difficulties, whose securities have suspended from trading, will have to be implemented within a comparatively short time frame to hold out any prospect under the present regime of being implemented successfully.
       
      32. In this matter there were additional regulatory uncertainties which may have prevented the resumption proposal from being implemented. It was accepted that the resumption proposal will constitute a reverse takeover offer and, accordingly, the Company will be treated as a new applicant for listing with all the demands that involves. For example, it was unclear how the Company will be able to meet the requirement for a continuity of ownership, as required by Rule 8.05, when the resumption proposal envisaged the introduction of a new majority shareholder on completion.
       
      33. There were also further difficulties in meeting the resumption conditions set by the Exchange. While the Company on completion of its resumption proposal will only own Aster and its troubled operations will be transferred to a special purpose vehicle for the benefit of scheme creditors, so public shareholders would have no real interest in them or their past performance, the Listing Department was adamant that any resumption of trading will require the Company, amongst other conditions imposed for a resumption of trading, to address all the audit issues identified by PwC and to publish all outstanding financial results and address any audit modifications. It was unclear to the Listing Review Committee when such conditions could be fulfilled or even whether they are capable of being fulfilled.
       
      Decision
       
      34.    In the light of the reasons set out above, the Listing Review Committee decided to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under Rule 6.01A.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).
       

    • 17 December 2019

      China Candy Holdings Limited – Listing Review Committee
       
      On 12 December 2019, the Listing Review Committee heard an application by China Candy Holdings Limited (the Company) for a review of the decision of the GEM Listing Committee, set out in a letter dated 16 August 2019, cancelling the Company’s listing on GEM.
       
      Having carefully considered all the facts and evidence, and all the submissions (written and oral) presented by the Company and the Listing Department, the Listing Review Committee decided that the Company’s listing should be cancelled under GEM Rule 9.14A.
       
      We set out below the Listing Review Committee’s reasons for its decision. Please note that this necessarily represents only a summary of the Listing Review Committee’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.
       
      1. The Company is engaged in the manufacture and sale of candies.
       
      2. The Company’s shares have been listed on GEM since November 2015, although trading has been suspended since 12 December 2017.
       
      3. The trading suspension arose at the Company’s request pending the release of inside information. On 14 December 2017, the Company announced that it was under a regulatory enquiry, and had been required to provide certain financial information relating to bank accounts, balances and ledgers of the Company and/or its subsidiaries. The Company said further that the Board had serious concern about the authenticity of this financial information, and had formed an independent committee (comprising its independent non-executive directors) to investigate.
       
      4. Certain conditions were imposed on the Company that had to be met to the satisfaction of the Listing Department before the Company could resume trading. These included requirements that the Company should:
       
        (a) publish all outstanding financial results and address any audit qualifications;
       
        (b) disclose the findings of the investigation and take any remedial action to address the findings;
       
        (c) inform the market of all material information;
       
        (d) demonstrate that there is no reasonable regulatory concern about management integrity, and/or any persons with substantial influence over the Company’s management and operations which will pose a risk to investors and damage market confidence;
       
        (e) demonstrate that the directors of the Company meet a standard of competence commensurate with their position as directors of a listed issuer to fulfil duties of skill, care and diligence as required under GEM Rule 5.01 and 5.02; and
       
        (f)    demonstrate that the Company has in place adequate internal controls and procedures to comply with the GEM Listing Rules.
       
      5. Mazars Corporate Recovery & Forensic Investigation Services Limited (Mazars) was commissioned by the independent committee to conduct an investigation, which covered 1 June 2015 to 31 December 2017. Amongst other things, Mazars found evidence of withdrawal of Company funds to a number of personal accounts belonging to key personnel or staff of the Company (including the CEO), inconsistencies relating to assertions made regarding these withdrawals, a lack of supporting evidence for some of the purported transactions, possible fictitious accounting records, transactions which were not booked in the accounts, and unverifiable bank documents.
       
      6. In July 2019, the Company sought additional time for trading resumption to 31 December 2019. Amongst other things, the Company submitted that its auditor was auditing the Company’s 2017 and 2018 annual results, and the interim results to 30 June 2019, and that it expected to be able to address any concerns or qualifications that may be raised. All outstanding financial statements were expected to be published by early October 2019. The Company said that the remaining unverified payments by or to the CEO were substantially less than the amount of debt owed to the CEO, and that the CEO had agreed to set off any sum she owed to the Company against the debt owed by the Company to her, so the Company would not have incurred any financial loss. The Company considered it unnecessary to undertake any further investigation. The Company would procure the removal of the CEO and another individual who were both suspected of involvement in irregularities. The Company had appointed Grant Thornton to conduct a review of internal control procedures, and the review would be completed by the end of August. On 31 July 2019, the Company applied for a resumption of trading.
       
      Applicable Listing Rules and guidance
       
      7. The rules applicable to cancellation of listing were amended in 2018 and the current rules came into effect on 1 August 2018 (the Effective Date).
       
      8. GEM Rule 9.01 provided that: “Listing is always granted subject to the condition that, where the Exchange considers it necessary for the protection of investors or the maintenance of an orderly market, it may, at any time, halt, suspend or direct the resumption of dealings in an securities or cancel the listing of any securities in such circumstances and subject to such conditions as it thinks fit”. GEM Rule 9.04 further provides that the Exchange may direct a trading halt or suspend dealings in any circumstances.
       
      9. GEM Rule 9.14 provides that: “Pursuant to rule 9.01, the Exchange may cancel the listing of an issuer at any time and may do so in any circumstance including (but not limited to) … in circumstances where the securities of an issuer have been continuously suspended for a prolonged period without the issuer taking adequate action to obtain a restoration of the listing.”
       
      10. GEM Rule 9.14A(1) provides that “Without prejudice to its power under rule 9.14, the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 12 months.”
       
      11. Various transitional provisions are set out in GEM Rule 9.14A(2). In the case of the Company, the relevant transitional rule is GEM Rule 9.14A(2)(a), which applies to issuers which are not subject to a decision to commence the procedures to cancel a listing and a notice period for delisting immediately before the Effective Date, and when that issuer’s securities have been suspended from dealings as at the Effective Date. Under that rule, the 12 month period referred to in GEM Rule 9.14A(1) commences from the Effective Date.
       
      12. The practical effect of the above rules is that the Company’s listing could be cancelled if it had not resumed trading by 31 July 2019.
       
      13. Guidance Letter HKEX-GL95-18 (GL95-18) provides further guidance on long suspension and delisting. As noted in GL95-18, the objective of the amended delisting rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting rules are also aimed at incentivising suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the rules.
       
      14. Paragraph 12 of GL95-18 emphasises that, under the rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the rules.
       
      15. Paragraph 19 of GL95-18 notes that the remedial period may only be extended in exceptional circumstances.
       
      GEM Listing Committee decision
       
      16. In August 2019, the Listing Department made a recommendation of delisting to the GEM Listing Committee. The Listing Department noted that the Company had failed to fulfil satisfactorily the resumption conditions and had not resumed trading by the deadline of 31 July 2019. The Listing Department considered that the Company’s situation did not fall within the exceptional circumstances in which an extension of time may be given.
       
      17. The matter was considered by the GEM Listing Committee on 15 August 2019. The GEM Listing Committee decided to cancel the Company’s listing under GEM Rule 9.14A as the Company had failed to resume trading in its securities by 31 July 2019.
       
      Submissions to the Listing Review Committee
       
      Submissions by the Company
       
      18. In written submissions provided by the Company in September 2019, the Company acknowledged that it had not fulfilled all the resumption conditions by 31 July 2019, but considered that the Company’s situation fell within the scope of the exceptional circumstances under paragraph 19 of GL95-18 and accordingly an extension of time to 31 December 2019 for resumption of trading should be granted.
       
      19. Amongst other things, the Company submitted that it had made positive progress towards fulfilling the resumption conditions, although some delays had occurred which were outside the Company’s control. The first draft reports of all outstanding financial results would be by 11 October 2019, and that when they became available, the Company would address any qualifications raised. The ongoing audit work and the proposed set off with the CEO would address the issues arising from the investigation. Changes had been made to the Company’s management in September, including the removal of the CEO, and the new management had the requisite competence. Grant Thornton’s report on internal controls would be completed “very soon”.
       
      20. The Company also made submissions on how the relevant rules and guidance should be interpreted and applied, with a view to protecting interests of shareholders and investors. In short, the Company submitted that although prolonging the suspension in this case may adversely affect the market’s quality and reputation, cancellation would create lasting damage to shareholders and investors, and so an extension was the “lesser evil”.
       
      21. On 5 December 2019, the Company submitted a letter requesting a postponement of the hearing to a date on or after 27 December 2019, as the auditing works had been delayed by a matter outside of the Company’s (or the auditor’s) control, and the auditor might need two more weeks to complete the outstanding financial reports.
       
      22. In oral submissions at the hearing, the Company provided an update in respect of timing for the financial results and the Grant Thornton report, saying that both were expected to be by the end of December 2019.
       
      Submissions by the Listing Department
       
      23. The Listing Department submitted that the Company had not fulfilled any of the resumption conditions, either by 31 July 2019 or by the date of the hearing. There remained substantial uncertainty as to what the audited financial statements and the internal control report would say. The Listing Department remained concerned about the integrity of management and persons with substantial influence as, despite the CEO’s resignation, she remained highly likely to be able to exert control or substantial influence. The Listing Department submitted that the circumstances described in GL95-18 in which an extension could be granted did not exist in this case.
       
      24. In relation to the interpretation and application of the relevant rules and guidance, the Listing Department submitted that the current rules were made after extensive market consultation and with the approval of the Securities and Futures Commission. The current rules are designed to introduce a robust framework for timely delisting, to provide certainty to the market, and to maintain the quality and reputation of the market.
       
      Listing Review Committee’s views
       
      25. The Listing Review Committee noted that the Company had not met the resumption conditions, either by 31 July 2019 or by the date of the hearing. Accordingly, the listing could be cancelled in accordance with the rules.
       
      26. On the question of whether or not to grant the Company further time to address and fulfil the resumption conditions (whether by way of postponement of the hearing, or an extension of the remedial period), the Listing Review Committee decided that, in the circumstances, no further time should be given. Whilst the Company may have made some progress towards fulfilling the resumption conditions, the Listing Review Committee was not convinced that the Company was close to completing the fulfilment of those conditions. The Company had not provided persuasive or substantive evidence of progress (such as draft reports of preliminary findings) to support its submission that the audited financial information and the internal control review report would be by the end of December 2019. There was also significant uncertainty as to what both the financial information and the internal control review report, even if completed by the end of December, might say. In particular, there might be qualifications of the financial reports, or adverse findings and/or remediation recommendations in the internal control review report, which require further time and work before trading could resume.
       
      27. The Listing Review Committee took into account the submissions of the parties in relation to the interpretation and application of the rules, and was sympathetic to individual shareholders and investors who may be impacted by the cancellation of listing, but considered that the intention of the rules and guidance was for a robust delisting framework, with limited scope for extensions of time for companies which had not resumed trading by the prescribed deadline, notwithstanding the impact this may have on shareholders and investors in the companies concerned, and that its decision in this case was consistent with that intention and appropriate in the circumstances.
       
      Decision
       
      28.    The Listing Review Committee therefore decided to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under GEM Rule 9.14A.
       
      Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).