Recent cases reflect the stringent approach taken by the Securities and Futures Commission (SFC) to upholding the Securities (Disclosure of Interests) Ordinance (SDIO). The Commission successfully prosecuted relevant parties under SDIO in three different actions within the past two months.
On October 22 Top New Finance and its director Wu Kezhong pleaded guilty to 12 summonses regarding their failure to report their interests to Hong Kong Exchanges and Clearing (HKEX) and Heshun Specialized Fibre Holdings, a listed company in Hong Kong.
In 2001 Top New Finance entered into a loan agreement and two deeds of mortgage with Gigalink Pty, a majority shareholder of Heshun. Gigalink pledged 75% of Heshun's issued shares to Top New Finance. After partial settlement of the loan by Gigalink, on two occasions Top New Finance as mortgagee released some of Heshun's shares back to the company. The first share release caused Top New Finance's interest in Heshun to fall from 75% to 69.62%, while the second release caused it to fall further to 61.99%. Top New Finance and Wu failed to immediately report their interests to HKEX and Heshun.
The facts of another case are much simpler. On September 17 2001 a Mr Lam was appointed director of a listed company, Wah Fu International Holdings, in which he held shares representing 1.34% of the then issued share capital. Lam should have notified HKEX of his interest in Wah Fu shares on or before September 22 2001. However, he failed to do so until December 27 2001, a delay of nearly two-and-a-half months.
The third case relates to China Motor Bus Company (CMB). Two individuals failed to notify both HKEX and CMB regarding three acquisitions in CMB shares made over two years, which increased their interests of the issued share capital of CMB to 10%, 11% and 12% respectively. Again, they did not report this in time.
The relevant parties of the above cases were respectively fined between HK$36,000 ($4,615) and HK$60,000 ($7,690) in addition to the costs incurred by SFC.
Under SDIO, directors and mortgagees of shares in listed companies are under a duty to notify the listed companies and HKEX of their interests in the companies if they reach the reporting threshold. Undoubtedly, directors or chief executives of listed companies are also under a duty to notify their companies and HKEX of their interests in the companies, irrespective of the percentage of their stakes.