New Delisting Framework For Hong Kong Listed Companies Effective From August 2018.

Delisting framework for Main Board issuers

The current Main Board Listing Rules set out delisting procedures applicable only in two specific circumstances:

• for issuers without sufficient operations or assets (PN 17 companies) – Practice Note 17 to the Main Board Listing Rules sets out a 3 stage delisting procedure (of at least 6 months each); and

• for issuers that are no longer suitable for listing – the Exchange may publish a delisting notice specifying a period within which the issuers must remedy the issues to avoid delisting.

The current rules do not provide a process for delisting under the other criteria.  The rules set out the general principle that the continuation of a suspension for a prolonged period without the issuer taking adequate action to obtain restoration of listing may lead to the Exchange cancelling the listing.  The rules however do not specify what amounts to “prolonged period” or “adequate action”.

There will be a separate delisting criterion (Fixed Period Delisting Criterion) allowing the Exchange to delist an issuer after a trading suspension of 18 continuous months (Prescribed Fixed Period).

For all the other delisting criteria, there will be a new delisting process (New Delisting Process), under which the Exchange may:

(i)   publish a delisting notice specifying a period of time for the issuer to remedy the relevant issues (Specific Remedial Period) to avoid delisting (Note (1)), or

(ii)  delist the issuer immediately in appropriate circumstances (Note (2)). 

This process is similar to the one currently applicable to issuers that are no longer suitable for listing.

Notes:

(1) The Exchange will impose a Specific Remedial Period ending earlier than the Prescribed Fixed Period if it considers that the issuer: 

(a)  given the nature of the issues to be remedied, ought to remedy the issues and resume trading within a shorter period (for example, insufficient public float); or

(b)  has failed to take adequate action to remedy the issues, prolonging the duration of suspension. For example, the Exchange may impose a Specific Remedial Period of 6 months on an issuer which does not take adequate action to remedy the matters rendering it no longer suitable for listing.

(2) The Exchange may delist an issuer immediately only in exceptional circumstances where the matters triggering the application of a delisting criterion are fundamental to the general principles for listing and are beyond remedy. This may happen, for example, where an issuer becomes no longer suitable for listing after its management and controlling shareholder are found by a court to have operated a fraudulent scheme to overstate its business and profits.

Practice Note 17 will be removed  because the Exchange may delist PN 17 companies under either the Fixed Period Delisting Criterion or the New Delisting Process.

Transitional arrangements:

• for issuers that have been put to the first, second or third stage of delisting under Practice Note 17, Practice Note 17 will continue to apply; and
• for other issuers in respect of which the Exchange has not made a decision to commence the  delisting procedures and imposed a notice period for delisting, if, as at the Effective Date, trading in an issuer’s securities has been continuously suspended:
  • for less than 12 months, the Prescribed Fixed Period under the Fixed Period Delisting Criterion would commence immediately from the Effective Date; or
  • for 12 months or more, the Prescribed Fixed Period under the Fixed Period Delisting Criterion would be deemed to have commenced 6 months before the Effective Date.

Delisting framework for GEM issuers

The GEM delisting framework is similar to that of the Main Board except that GEM Listing Rules provide for a delisting procedure applicable to all the existing delisting criteria. Under this procedure, the Exchange may publish a delisting notice specifying a period (ordinarily, of 6 months) within which the issuer must remedy the issues to avoid delisting.

There will also be a separate Fixed Period Delisting Criterion similar to that under the revised Main Board Listing Rules, but the prescribed fixed period for GEM issuers will be 12 months.

Transitional arrangement:

For GEM issuers that are suspended as at the Effective Date, the prescribed fixed period will commence from the Effective Date. 

For the avoidance of doubt, where the Exchange has made a decision to commence the delisting procedures and imposed a notice period for delisting, such decision and notice period will continue to have effect on the issuer concerned. This is notwithstanding that the actual cancellation of listing has not taken place as at the Effective Date.