Due Diligence Guidelines –
Interaction with Third Parties including Expert Advisers1
…[T]he sponsor should: satisfy itself that:… the expert is independent from the listing applicant and its directors and controlling shareholder(s). [Paragraph 17.7(a)(iii) of the Code of Conduct]
4.2.1 The sponsor should conduct due diligence to satisfy itself that the expert meets the standard of independence set by the relevant professional body. Where the standard of independence is not set by a relevant professional body, the sponsor should obtain written confirmation from the expert that it is independent from the listing applicant and its directors and controlling shareholder(s). The sponsor should be satisfied that there is no cause to enquire further about the truth of such confirmation.7
4.2.2 Although the Code of Conduct is silent on the sponsor’s obligation to assess the independence of non-expert third parties, the sponsor may consider applying the same requirement as set out in Paragraph 17.7(a)(iii) of the Code of Conduct to non-expert third parties. This is particularly necessary when the relevant circumstances have indicated that there is a lack of independence by a specific non-expert third party, which may render it unreasonable for the sponsor to rely on such non-expert third party’s work.
4.3 Recommended Steps
4.3.1 The sponsor should ascertain whether the standard of independence for the third party is set by a relevant professional body.
4.3.2 Where the standard of independence for the third party is not set by a relevant professional body, the sponsor should, if practicable, obtain written confirmation from the third party that:
(a) it is independent from the listing applicant, its subsidiaries and their respective directors and controlling shareholder(s);
(b) it does not have any direct or indirect material interest in the securities or assets of the listing applicant, its connected persons, or any associate of the listing applicant beyond that allowed by Listing Rule 3A.07;
(c) it is not aware of any matters that might affect its independence; and
(d) it expects to remain independent from the listing applicant, its subsidiaries and their respective directors and controlling shareholder(s) until the completion of listing. The sponsor should remain mindful through the course of the transaction of the importance of the third parties being and remaining independent. If any of the third parties’ responses on independence seem potentially inconsistent with what the sponsor has learned during the totality of its work on the transaction, the sponsor should make further enquiries of such third parties, including by interviews or further written materials.
4.3.3 Where the third party has its own rules set by a relevant professional body on the standard of independence, the sponsor may also consider obtaining written confirmation from the third party of compliance with these rules. If this is not possible or practicable, however, the sponsor may confirm the third party’s independence in the same due diligence interview as discussed in paragraph 2.3.2 above. The sponsor should also obtain a copy of the rules set by the relevant professional body on the standard of independence and review the rules.
4.3.4 If practicable, the sponsor should obtain the relevant independence confirmation from the third party before or at the time of signing the engagement letter.
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.