Due Diligence Guidelines –
Knowing the Listing Applicant and its Management
Code of Conduct Paragraphs
Key Stock Exchange Guidance Letters
Exchange Guidance Letter GL22-10
Exchange Guidance Letter GL68-13
Exchange Guidance Letter GL26-12
Exchange Guidance Letter GL71-14
Exchange Guidance Letter GL28-12
Exchange Guidance Letter GL86-16
Exchange Guidance Letter GL36-12
Other Key References
Exchange Listing Decision LD31-2012
Exchange Listing Decision LD48-2013
Exchange Listing Decision LD33-2012
Exchange Listing Decision LD53-2013
Exchange Listing Decision LD43-3
Exchange Listing Decision LD96-1
Exchange Listing Decision LD43-2013
Exchange Listing Decision LD107-1
Exchange Listing Decision LD76-2013
Frequently Asked Questions,
Listing Rule 9.11(3b)(i)
Paragraphs 28(1)(b) and 41-47 of Part A of Appendix 1 to the Listing Rules
1. Due Diligence on Directors and Key Senior Management
1.1.1 Based on reasonable due diligence, a sponsor should have a sound understanding of … the personal and business backgrounds of the directors, key senior managers and (where applicable) controlling shareholders of the listing applicant. [Paragraph 17.3(a)(ii) of the Code of Conduct]
1.1.2 Before submitting an application on behalf of a listing applicant to the Stock Exchange a sponsor should come to a reasonable opinion that … the directors of the listing applicant collectively have the experience, qualifications and competence to manage the listing applicant’s business and comply with the Listing Rules, and individually have the experience, qualifications and competence to perform their individual roles, including an understanding of their obligations and those of the listing applicant as an issuer under the Listing Rules and other legal and regulatory requirements relevant to their role. [Paragraph 17.4(c)(iv) of the Code of Conduct]
1.1.3 Regarding the preparation of a listing document, a sponsor should … examine and consider the integrity, qualifications and competence of the directors, including reviewing internal records, board minutes and public filings. [Paragraph 17.6(d)(iv) of the Code of Conduct]
1.1.4 A sponsor should advise and guide a listing applicant and its directors as to their responsibilities under the Listing Rules and other relevant regulatory requirements which apply to a Hong Kong listed company and its directors and take reasonable steps to ensure that during the listing application process they understand and meet these responsibilities. [Paragraph 17.3(b)(i) of the Code of Conduct]
1.1.5 [A sponsor should] assess whether there has been any material change since the date of the last audited balance sheet, including any matter that might impact upon the listing applicant’s business model, performance, prospects or financial condition. [Paragraph 17.6(d)(viii) of the Code of Conduct]
1.2.1 Every director of a listing applicant must have the character, experience and integrity and be able to demonstrate a standard of competence commensurate with his position as a director of a listed issuer. All directors must satisfy the required levels of skill, care and diligence and directors are not considered to satisfy these required levels if they pay attention to the listing applicant’s affairs only at formal meetings.1 The Stock Exchange may also request further information regarding the background, experience, other business interests or character of any director or proposed director.2
1.2.2 Under the Companies (Winding Up and Miscellaneous Provisions) Ordinance, a “shadow director” is a person in accordance with whose directions or instructions the directors, or a majority of the directors, of a company are accustomed to act, and such person may control a company without actually being named as a director and should be deemed to be a director and officer of the company.3 A shadow director is subject to the same duties and responsibilities as a named director.
1.2.3 For a listing applicant incorporated in the PRC, its supervisors must have the character, experience and integrity and be able to demonstrate a standard of competence commensurate with their position as supervisors.4
1.2.4 The Stock Exchange may accept a shorter trading record period under substantially the same management than that required under Listing Rule 8.05(3)(a) and (b) if the listing applicant is able to demonstrate, to the satisfaction of the Stock Exchange, the following:5
(a) the directors and management of the listing applicant have sufficient and satisfactory experience of at least three years in the line of business and industry of the listing applicant. Details of such experience must be disclosed in the listing document; and
(b) management continuity for the most recent audited ﬁnancial year.
1.2.5 If a listing applicant’s primary activity is the exploration for and/or extraction of natural resources and it is unable to satisfy any of the profit test, the market capitalisation/revenue/cash ﬂow test, and the market capitalisation/revenue test in Listing Rule 8.05, it may still apply to be listed if it can establish to the Stock Exchange’s satisfaction that its directors and senior managers, taken together, have sufficient experience relevant to the exploration and/or extraction activity that the listing applicant is pursuing. Individuals relied on must have a minimum of ﬁve years relevant industry experience. Details of the relevant experience must be disclosed in the listing document.6
1.2.6 The personal and business backgrounds of the directors (including shadow directors) and key senior managers of a listing applicant may impact the suitability of the directors and/or the suitability of the listing applicant for listing. For example, if an executive director of the listing applicant was implicated in bribery allegations, this might have implications for his suitability as a director;7 and if the founder of the listing applicant has been found guilty of bribery purportedly in conducting his personal business in an industry closely related to that of the listing applicant, this may lead to questions as to whether the listing applicant had been involved in any criminal activity.8
1.2.7 Non-compliance incidents can be divided into three categories: (a) material impact non-compliances; (b) systemic non-compliances; and (c) immaterial non-compliances. For material impact non-compliance and systemic non-compliance incidents, the Stock Exchange expects the disclosure in the listing document on the views of the directors and the sponsors on the suitability of the directors under Listing Rules 3.08 and 3.09. If the non-compliance incidents in the business operations of the listing applicant are matters of a serious nature and material (e.g. involving fraud or deceit by directors or senior management and/or matters with a significant financial impact on the listing applicant), this can translate into an issue of suitability of the directors and/or suitability for listing of the listing applicant.9 If the listing applicant was involved in non-compliance incidents which give rise to the Stock Exchange’s concern on the directors’ suitability, the sponsor is generally expected to demonstrate to the Stock Exchange’s satisfaction that the incidents do not affect the directors’ suitability under Listing Rules 3.08 and 3.09.10
1.2.8 Having a past record of non-compliance with regulatory requirements or a conviction record does not necessarily mean that a person cannot be accepted as the listing applicant’s director. However, where the past record or conviction raises serious concerns as to an individual’s integrity, and the individual is likely to exert substantial influence on the applicant after listing (e.g. a controlling shareholder and director), there may be concern as to the applicant’s suitability for listing and that director’s suitability under the Listing Rules. Where a person is a controlling shareholder, his majority vote as a controlling shareholder is likely to be decisive in the appointment of the listing applicant’s directors. Accordingly, it is highly likely that a controlling shareholder will be able to exert substantial influence over the applicant’s operation and management and the controlling shareholder may be a “shadow director” even if he is not appointed as such, or has previously resigned as a director. The issue of the applicant’s suitability for listing may therefore not be solved by that person refraining from acting as the applicant’s director.11 Suitability of a person with a past non-compliance record to act as director of a listing applicant should be assessed by considering a number of factors:12
(a) whether the non-compliance incidents raise serious concerns about an individual’s integrity;
(b) whether the listing applicant can demonstrate and the sponsor can confirm that the director has carried out rectification measures to avoid recurrence of the non-compliance incidents;
(c) whether the listing applicant’s internal controls are sufficient to ensure due compliance with all laws and regulations going forward and are not susceptible to undue influence of any one director;
(d) whether adequate disclosure has been made to enable investors to appreciate that person’s character; and
(e) whether there are any other factors to be taken into account that are relevant in determining the suitability of the listing applicant for listing.
1.2.9 The listing document should contain all biographical details of each director/supervisor of a listing applicant as set out in Listing Rule 13.51(2), including his academic background, his previous working experience relevant to his present position in the listing applicant as well as his current and past directorships in listed companies in the last three years.13, 14
1.2.10 The sponsor should also conduct due diligence enquiries in relation to the directors’ appreciation of their and the listing applicant’s obligations including an assessment of the listing applicant’s accounting and management systems that are relevant to: (a) the obligations of the listing applicant and its directors under the Listings Rules and other legal and regulatory requirements, in particular the financial reporting, and disclosure of notifiable and connected transaction requirements; and (b) the directors’ ability to make a proper assessment of the financial position and prospects of the listing applicant and its subsidiaries, both immediately before and after listing. Such assessment should cover the listing applicant’s compliance manuals, policies and procedures, including corporate governance policies and any letters from the reporting accountants to the listing applicant commenting on the listing applicant’s accounting and management systems or other internal controls.15
1.2.11 The sponsor should interview all directors and senior managers with key responsibilities for ensuring compliance with the Listing Rules and other legal and regulatory requirements (including the staff responsible for the accounting and financial reporting function, company secretary and any compliance officers) to assess their individual and collective experience, qualifications and competence and whether they understand relevant obligations under the Listing Rules and other relevant legal and regulatory requirements and the listing applicant’s policies and procedures in respect of those obligations.16 While it is the responsibility of the directors of a listing applicant to determine which individual or individuals constitute senior management, all key senior managers should be interviewed. Senior management may include directors of subsidiaries and heads of divisions, departments or other operating units within the Group as deemed appropriate by the directors of the listing applicant.17
1.2.12 Although non-executive directors (including independent non-executive directors, or “INEDs”) of a listing applicant normally are not required to be involved in the day-to-day management of the listing applicant, they still need to make sufficient commitment to the affairs of the listing applicant. A non-executive director’s time commitment to the listing applicant is likely to be less than an executive director’s, because a non-executive director is not involved in the day-to-day running of the business.18
1.2.13 An INED must have the character, integrity, independence and experience to fulfil his role effectively.19 An INED of a PRC listing applicant must also be able to demonstrate an acceptable standard of competence and adequate commercial or professional experience to ensure that the interests of the general body of shareholders will be adequately represented.20
1.2.14 The company secretary of a listing applicant must be an individual who, by virtue of his academic or professional qualifications or relevant experience, is, in the opinion of the Stock Exchange, capable of discharging the functions of company secretary.21
1.2.15 The sponsor should assess whether there has been any change, including any change to the directors and key senior managers of a listing applicant, since the date of the last audited balance sheet included in the listing document that would require disclosure to ensure the listing document is complete and not misleading.22
1.2.16 The information relating to a listing applicant’s management which is required to be included in a listing document by Part A of Appendix 1 to the Listing Rules is reproduced in Appendix I.
1.3 Recommended Steps
Directors and Officers Questionnaire
1.3.1 The sponsor should consider using a directors and officers questionnaire (the “D&O Questionnaire”) to collect information from the directors and members of senior management (as identified in the listing document) of the listing applicant, from which the sponsor could review and assess each director’s and senior manager’s personal and business background as well as experience, qualification and competence. The directors and members of senior management should be advised to provide comprehensive responses to the D&O Questionnaires. The completed D&O Questionnaires should be returned to the sponsor in advance of the submission of the application for listing, ensuring enough time for the sponsor to review and consider the responses, and follow up on any potential issue revealed in the responses.
1.3.2 A D&O Questionnaire typically includes questions relating to:
(a) general personal background, including name, age, residential and/or business addresses;
(b) general business background and qualifications, including current and past directorships in other listed companies;
(c) positions held with the listing applicant, its subsidiaries and associates, and the relevant lengths of service;
(d) shareholding interests or short position in the shares and underlying shares of the listing applicant or members of the Group;
(e) compensation information (e.g., salary, bonus and stock option);
(f) Group transactions in which the respondent is interested; and
(g) whether they have been a director of any company which has gone insolvent or been in an insolvency situation.
1.3.3 If the responses to the D&O Questionnaires reveal issues which may raise concerns as to the character, experience and/or integrity of the respondent in relation to discharging his or her role, such as criminal records, disciplinary actions by professional bodies, or non-compliance with the Listing Rules, Codes on Takeovers and Mergers and Share Buy-backs, SFO, Companies (Winding Up and Miscellaneous Provisions) Ordinance, Companies Ordinance, the applicable laws in the jurisdictions of incorporation of the listing applicant and its subsidiaries, or the governing laws of jurisdictions in which the listing applicant conducts its business operations, the sponsor should assess whether the matters may translate into an issue of suitability of the directors and/or senior managers and/or suitability for listing of the listing applicant. The sponsor may need to consult lawyers in the relevant jurisdiction with respect to any non-compliance.
1.3.4 The sponsor may consider requesting back-to-back confirmations from directors and/or the listing applicant, including in relation to those confirmations to be submitted to the Stock Exchange.
Records review and Public searches
1.3.5 To ensure a thorough search of publicly available records and information (including through the use of the internet) on each director and key senior manager, the sponsor should enquire and confirm with each director and key senior manager as to any alias, previous or unofficial name ever used by the director or the key senior manager.
1.3.6 With respect to each director, the sponsor should:
(a) review written board and management committee minutes (if any) of a listing applicant and its subsidiaries (to the extent that the listing applicant has been recently reorganised as the holding company of the subsidiaries) that demonstrate each director’s past performance as a director, including participation in board and management committee meetings and decision making relating to the management of the relevant company and its business;
(b) review the financial and regulatory track record of each publicly listed company (Hong Kong and overseas) of which any director is or was an executive or non-executive director (e.g., by reference to company disclosures, media articles and information about those companies on the website of the relevant stock exchange);23
(c) enquire of each director as to whether he/she belongs or previously belonged to any professional body24 and carry out enquiries and searches with relevant professional bodies to which any director states that he/she belonged or belongs to ascertain that the director is of good standing according to the rules of that professional body and whether the director has ever been censured or disciplined or disqualified by any such bodies;25
(d) where appropriate in the circumstances, consider reviewing other private companies in which the director held a senior-level position or directorship; and
(e) conduct bankruptcy and litigation searches on each director in relevant jurisdictions,26 and seek written clarification and confirmation from the director with respect to the search results. Based on the personal and business background of each director, the sponsor should determine a reasonable scope in terms of relevant jurisdictions in which to conduct the searches. Such jurisdictions may include Hong Kong, the place of incorporation of the listing applicant as well as the principal jurisdictions in which the Group has major/material business operations, considering factors including the need for thorough investigation, availability of comprehensive databases in the particular jurisdiction, and the costs and time required. The sponsor should conduct the searches shortly before submission of the application for listing. To ensure that up to date search results are available shortly prior to other critical stages, the sponsor may consider refreshing the searches shortly before, for example, bulk printing the Hong Kong prospectus and listing on the Stock Exchange, depending on the relevant circumstances of the listing applicant and each director. It should also be noted that due to the logistics involved in carrying out searches and the time needed to be able to consider any matters raised in searches, particularly if these are in overseas jurisdictions, there will inevitably be gaps between the dates at which searches are carried out and the dates on which listing documents are filed or issued.
1.3.7 If an individual’s academic recognition (such as attendance at universities or colleges) is disclosed in the listing document, the sponsor should:27
(a) check whether the universities or colleges are accredited by competent accreditation bodies. If they are not, this information must be specifically disclosed in the listing document; and
(b) ascertain whether the courses attended were long distance learning courses or online courses and if so, specify it in the listing document.
1.3.9 With respect to any actual, alleged or suspected family relationships among certain directors, the controlling shareholder, stakeholders and/or members of senior management of the listing applicant, the sponsor may consider requesting the relevant persons to provide appropriate records or statutory declarations affirming the relevant facts.28
1.3.10 After reviewing information and materials relating to the directors’ personal, academic and professional background and experiences, the sponsor should interview each director to assess their fitness and competence to act as a director.
1.3.11 The sponsor should interview all senior managers with key responsibilities for ensuring compliance with the Listing Rules and other legal and regulatory requirements.
1.3.12 The sponsor may consider engaging a third-party investigation agency to conduct a further investigation and an independent check on the personal and business background of a director. If there is doubt as to the truth or accuracy of the available information, it may be more prudent to look for corroborating evidence to the available information, and/or to generally supplement due diligence efforts.
1.3.13 The sponsor should ensure that, prior to submission of the application for listing, each director of a listing applicant:
(a) attends, in the presence of the sponsor and its Hong Kong lawyers, training in respect of his/her responsibilities and obligations as a director of a listed company under the Listing Rules (including the guidance notes, listing decisions and disciplinary decisions, where applicable) and other relevant Hong Kong legal and regulatory requirements including those under The Codes on Takeovers and Mergers and Share Buy-backs and the Securities and Futures Ordinance;
(b) following (a) above, confirms his/her understanding (for example by completing a post-training assessment questionnaire) of his/her responsibilities and obligations under the Listing Rules and other Hong Kong laws and regulations (and other applicable laws) and of good corporate governance requirements, in particular the requirements under the code of corporate governance practices that the Stock Exchange publishes from time to time; and
(c) has confirmed an understanding of Listing Rule 13.51(2).
Following the above, the sponsor should consider whether further one-on-one sessions are required to follow-up or clarify any information provided.
Recommended topics to be covered in the directors’ training are set out in Appendix II.
Bringdown/ongoing due diligence
1.3.14 The sponsor should communicate to each director, and obtain from each director an acknowledgement of his/her obligation to immediately notify and update the sponsor in the event of any change and new or potential development with respect to the information previously provided to the sponsor.
1.3.15 Please refer to paragraph 1.3.6(e) for guidance on periodic refreshment of bankruptcy and litigation searches on each director.
1.3.16 The sponsor should monitor the status and positions of directors in respect of any unresolved claims, allegations, disputes, litigations, investigations or proceedings (collectively, the “Proceedings”) against or involving each director revealed in earlier enquiries. Based on the updated information, the sponsor should assess, among other things,
(a) whether the Proceedings may impact the suitability of the director and/or the suitability for listing of the listing applicant;
(b) whether the Proceedings may divert a significant amount of the director’s time and attention away from the affairs of the listing applicant; and
(c) whether the Proceedings are material enough to warrant appropriate disclosure in the listing document and/or being brought to the attention of the Stock Exchange.
1.3.17 As regards the INEDs of a listing applicant, the sponsor should check their independence against the criteria in Listing Rule 3.13 and seek a written independence confirmation from each INED. If a proposed INED fails to meet any of the independence criteria in Listing Rule 3.13, the listing applicant must demonstrate to the satisfaction of the Stock Exchange that the person is independent.29
6. . Also see paragraph 41(6) of . For pre-conditions that the Stock Exchange would expect a mineral company to satisfy in an application under Listing Rule 18.04 for a waiver from Listing Rule 8.05, see Exchange Guidance Letter . In particular, Exchange Guidance Letter requires that the experience of the management must be specific, “which must be to the particular line of business and industry of the listing applicant.” Also see Exchange Listing Decision for various factors that the Stock Exchange would take into consideration when assessing management experience. The Stock Exchange also requires that the listing applicant demonstrates a clear path to commercial production. For the relevant factors considered in establishing a clear path to commercial production, see Exchange Listing Decision and Exchange Listing Decision .
(i) the full name (which should normally be the same as that stated in the declaration and undertaking of the director or supervisor in the form set out in Form B, H or I in Appendix 5) and age;
(ii) positions held with the issuer and other members of the issuer’s group;
(iii) experience including (i) other directorships held in the last three years in public companies the securities of which are listed on any securities market in Hong Kong or overseas, and (ii) other major appointments and professional qualifications;
(iv) length or proposed length of service with the issuer;
(v) relationships with any directors, senior management or substantial or controlling shareholders of the issuer;
(vi) his interests in shares of the issuer within the meaning of Part XV of the Securities and Futures Ordinance;
(vii) amount of the director’s or supervisor’s emoluments and the basis of determining the director’s or supervisor’s emoluments (including any bonus payments, whether fixed or discretionary in nature, irrespective of whether the director or supervisor has or does not have a service contract) and how much of these emoluments are covered by a service contract;
(viii) full particulars of any public sanctions made against him by statutory or regulatory authorities;
(ix) where he has at any time been adjudged bankrupt or insolvent, the Court by which he was adjudged bankrupt or insolvent and, if discharged, the date and conditions on which he was granted his discharge;
(x) where he has at any time been a party to a deed of arrangement or entered into any other form of arrangement or composition with his creditors, full particulars of the deed of arrangement or the arrangement or composition with his creditors;
(xi) full particulars of any unsatisfied judgements or court orders of continuing effect against him;
(xii) where any enterprise, company or unincorporated business enterprise has been dissolved or put into liquidation (otherwise than by a members’ voluntary winding up when the company, in the case of a Hong Kong company, was solvent) or bankruptcy or been the object of an analogous proceeding, or entered into any form of arrangement or composition with creditors, or had a receiver, trustee or similar officer appointed over it (i) during the period when he was one of its directors or, in the case of an enterprise, a company or an unincorporated business enterprise established in the PRC, during the period when he was one of its directors, supervisors or managers, or (ii) within 12 months after his ceasing to act as one of its directors, supervisors or managers, as the case may be, full particulars, including the name of the enterprise, company or unincorporated business enterprise, its place of incorporation or establishment, the nature of its business, the nature of the proceeding involved, the date of commencement of the proceeding and the amounts involved together with an indication of the outcome or current position of the proceeding;
(xiii) subject to the provisions of the Rehabilitation of Offenders Ordinance or comparable legislation of other jurisdictions, full particulars of any conviction for any offence (including details of each such offence, the court by which he was convicted, the date of conviction and the penalty imposed):
(i) involving fraud, dishonesty or corruption;
(ii) under the Companies Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the Bankruptcy Ordinance, the Banking Ordinance, the Securities and Futures Ordinance, the repealed Protection of Investors Ordinance, the repealed Securities Ordinance, the repealed Securities (Disclosure of Interests) Ordinance, the Commodity Exchanges (Prohibition) Ordinance, the repealed Securities and Futures Commission Ordinance, the repealed Commodities Trading Ordinance, the repealed Stock Exchanges Unification Ordinance, the repealed Securities and Futures (Clearing Houses) Ordinance, the repealed Exchanges and Clearing Houses (Merger) Ordinance, the repealed Securities (Insider Dealing) Ordinance, the repealed Leveraged Foreign Exchange Trading Ordinance or any Ordinance relating to taxation, and any comparable legislation of other jurisdictions; or
in respect of which he has, within the past 10 years, been sentenced as an adult to a period of imprisonment of six months or more, including suspended or commuted sentences;
(xiv) full particulars where:
(i) he has been identified as an insider dealer under Parts XIII or XIV of the Securities and Futures Ordinance or the repealed Securities (Insider Dealing) Ordinance at any time;
(ii) any enterprise, company or unincorporated business enterprise with which he was or is connected (as defined in Parts XIII or XIV of the Securities and Futures Ordinance or the repealed Securities (Insider Dealing) Ordinance) or any enterprise, company or unincorporated business enterprise for which he acts or has acted as an officer, supervisor or manager has been identified as an insider dealer under Parts XIII or XIV of the Securities and Futures Ordinance or the repealed Securities (Insider Dealing) Ordinance at any time during the period when he was connected and/or acted as an officer, supervisor or manager;
(iv) he has been found guilty of or been involved in insider dealing, or been held by any Court or competent authority to have breached any securities or financial markets laws, rules or regulations including any rules and regulations of any securities regulatory authority, stock exchange or futures exchange at any time;
(v) any enterprise, company or unincorporated business enterprise in which he was or is a controlling shareholder (as defined in the Listing Rules) or was or is a supervisor, manager, director or officer or has been found guilty of or been involved in insider dealing, or been held by any Court or competent authority to have breached any securities or financial markets laws, rules or regulations including any rules and regulations of any securities regulatory authority, stock exchange or futures exchange at any time during the period when he was a controlling shareholder, supervisor, manager, director or officer; or
(vi) he has been found by the Market Misconduct Tribunal, any Court or competent authority to have breached an obligation under the Inside Information Provisions, or where any issuer of which he was or is a controlling shareholder (as defined in the Listing Rules) or was or is a supervisor, manager, director, chief executive or officer has been found by the Market Misconduct Tribunal, any Court or competent authority to have breached an obligation under the Inside Information Provisions at any time during the period when he was a controlling shareholder, supervisor, manager, director, chief executive or officer;
(xv) where he has been adjudged by a Court or arbitral body civilly liable for any fraud, breach of duty or other misconduct by him involving dishonesty, full particulars of the judgement;
(xvi) where any enterprise, company, partnership or unincorporated business enterprise of which he was or is a partner, director, supervisor or manager has had its business registration or licence revoked at any time during the period when he was one of its partners, directors, supervisors or managers, full particulars of such revocation, including the date upon which such registration or licence was revoked, the reasons for the revocation, the outcome and current position;
(xvii) where he has at any time been disqualified from holding, or deemed unfit to hold, the position of director, supervisor or manager of an enterprise, a company or an unincorporated business enterprise, or from being involved in the management or conduct of the affairs of any enterprise, company or unincorporated business enterprise, pursuant to any applicable law, rule or regulation or by any competent authority, full particulars of such disqualification or ruling;
(xviii) except where such disclosure is prohibited by law, full particulars of any investigation by any judicial, regulatory or governmental authority to which he is subject, including the investigating body, the nature of the investigation and the matters under investigation;
(xix) where he has at any time been refused admission to membership of any professional body or been censured or disciplined by any such body to which he belongs or belonged or been disqualified from membership in any such body or has at any time held a practising certificate or any other form of professional certificate or licence subject to special conditions, full particulars of such refusal, censure, disciplinary action, disqualification or special conditions;
(xx) where he is now or has at any time been a member of a triad or other illegal society, full particulars;
(xxi) except where such disclosure is prohibited by law, where he is currently subject to (i) any investigation, hearing or proceeding brought or instituted by any securities regulatory authority, including the Hong Kong Takeovers Panel or any other securities regulatory commission or panel, or (ii) any judicial proceeding in which violation of any securities law, rule or regulation is or was alleged, full particulars of such investigation, hearing or proceeding;
(xxii) except where such disclosure is prohibited by law, where he is a defendant in any current criminal proceeding involving an offence which may be material to an evaluation of his character or integrity to be a director or supervisor of the issuer, full particulars of such proceeding;
(xxiii) any other matters that need to be brought to the attention of holders of securities of the issuer; and
(xxiv) where there is no information to be disclosed pursuant to any of the requirements of rule 13.51(2), an appropriate negative statement to that effect.
The issuer must also disclose in the announcement of resignation or removal of a director, supervisor or chief executive the reasons given by or to him for his resignation or removal (including, but not limited to, any information relating to his disagreement with the board and a statement whether or not there are any matters that need to be brought to the attention of holders of securities of the issuer).
The issuer must notify the Exchange and publish an announcement on any important change in the holding of an executive office, including changes to any important functions or executive responsibilities of a director.
14. Exchange Guidance Letter GL86-16, Appendix 1, Section H, Paragraph 3.2 requires the listing document of a listing applicant to contain the following relating to the biography of each director, supervisor and senior management:
(a) his/ her academic background (e.g. names and locations of universities or colleges which are accredited by competent accreditation bodies (if they are not accredited by competent bodies, this information should be specifically disclosed), level of education, major of studies, and whether the courses attended were long distance learning courses or online courses) and professional qualifications, including when (month and year) obtained and the granting authorities;
(b) his/ her previous working experience relevant to his/ her present position in the applicant (preferably in tabular format if information is extensive), including how he/ she gained access to and possessed relevant industry knowledge and experience in relation to the applicant’s businesses, the names and principal business activities of companies which he/ she was previously engaged in before joining the applicant, his/ her roles and responsibilities and period of services in the previous jobs;
(c) any current or past directorships in listed companies in the last three years (or an appropriate negative statement); and
(d) if he/she was a director of a listed company which has a history of material non-compliances with applicable rules and regulations, details of such non-compliances and his/her level of involvement in the non-compliances, and the sponsor’s view on why he/she is suitable to be a director, supervisor or senior management of the listing applicant.
Exchange Guidance Letter GL86-16, Appendix 1, Section H, Paragraph 3.3 further requires the listing document of a listing applicant to disclose the following in the “Directors, Supervisors and Senior Management” section:
(a) the role and composition of audit committee, remuneration committee, nomination committee, and other committees, if applicable, including the identity of the chairperson of each committee;
(b) the directors, supervisors and senior management’s remuneration and incentive plan for senior management and key employees; and
(c) any deviation from the Code Provisions of Appendix 14 to Main Board Rules (e.g. reasons for the same individual acting as chairman and chief executive officer, succession plan, etc.).
25. In case example 6 of Report on Thematic Examinations of Sponsor Activities by the Hong Kong Monetary Authority in November 2011, it was stated that “the Examination Team noted deficiencies in the sponsor’s due diligence on the listing applicant’s directors and senior management, as well as the disclosure of their biographical details in the prospectus. In the prospectus, it was disclosed that the Chief Financial Officer (“CFO”) of the listing applicant became a certified public accountant in a specified year. The document in support of the CFO’s professional qualification was a printout from the online members’ registry of the relevant professional body, which shows that the CFO’s licence was cancelled at the relevant time. Notwithstanding this result, this fact has not been disclosed in the prospectus”.
26. In the event that there is no official court or public search service in a relevant jurisdiction, the sponsor should consider supplementary due diligence enquiries designed to remedy the potential deficiency.
28. Paragraph 41(3) of requires that when any of the directors or senior managers are related, having with any other director or senior manager any of the relationships specified, that fact should be disclosed in the listing document.
HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. See here for the full terms and conditions.