THE STOCK EXCHANGE OF HONG KONG LIMITED
(A wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited)
The Listing Committee of the Stock Exchange of Hong Kong Limited
criticises Mr Fu Heng Yang for breaching the Exchange Listing Rules
The Listing Committee of the Stock Exchange of Hong Kong Limited (the Listing Committee) criticises Mr Fu Heng Yang for breaching the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Exchange Listing Rules (the Model Code) and the Declaration and Undertaking with regard to Directors given by him to the Exchange in the form set out in Appendix 5B to the Exchange Listing Rules (the Director's Undertaking).
At a disciplinary hearing held on9 November 2004, the Listing Committee conducted a hearing into possible breaches by Mr Fu Heng Yang (an independent non-executive director of Hua Lien International (Holding) Company Limited (the Company)), of his obligations under paragraphs A3, B8 and C14 of the Model Code and the Director's Undertaking.
Pursuant to paragraphs A3, B8 and C14 of the Model Code, a director of a listed issuer is prohibited from dealing in the shares of the issuer during the blackout period (i.e. the period of one month before the earlier of: (i) the date of the board meeting at which the issuer's results are approved; and (ii) the deadline for publication of the results, and ending on the date of the results announcement) unless the circumstances are exceptional. In any event, the director must satisfy the issuer's chairman or a director designated for the purpose that the circumstances are exceptional and the proposed disposal is the only reasonable course of action available to the director. The director must first notify the chairman or the designated director in writing and receive a dated written acknowledgement. In the present case, the Company had established a procedure which was similar to the requirements of the Model Code. Mr Fu had agreed to comply with the procedure in a signed notice to the Company dated5 May 2003.
The Company's annual results for the year ended31 December 2003were approved and announced on23 April 2004. On 16 April 2004, Mr Fu informed the Exchange in writing that, due to his failure to meet the margin call of TIS Securities (HK) Limited (TIS), TIS sold, at its discretion, his shares in the Company (amounting to 2,484,000 shares) on 14 April 2004 (the Disposal). Mr Fu had not notified the Company's Managing Director prior to the Disposal but had faxed a copy of his letter dated16 April 2004to the Managing Director afterwards.
The Listing Committee concluded that Mr Fu was in breach of the following:
- paragraphs A3, B8 and C14 of the Model Code as he dealt in the Company's shares during the blackout period and failed to explain the circumstances to the designated director and obtain a dated written acknowledgement prior to the Disposal; and
- the Director's Undertaking to comply to the best of his ability with the Exchange Listing Rules in force from time to time.
The Listing Committee decided to impose a public statement which involved criticism on Mr Fu for the said breaches.
Commenting on the rationale of the Model Code requirements in the context of this case, Richard Williams, Head of Listing said, "The Model Code restricts the freedom of directors and certain employees of listed issuers (and those persons connected to them) to deal in their company's securities. Dealing restrictions are also imposed by statute and the general law. The Model Code imposes restrictions beyond those laid down by the law, the aim being to ensure that directors do not abuse, and do not place themselves under suspicion of abusing, price sensitive information that they may have or are thought to have. In other words, it seeks to ensure that directors cannot even be suspected of insider dealing; it deals with perception, whereas other statutory obligations deal with actions based on actual knowledge. Accordingly compliance with the Model Code is an important benchmark in promoting investor confidence and both procedural and substantive requirements deserve respect and due care and attention from directors."