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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 already 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).