Due Diligence Guidelines –
2. Verification of Material Information
Regarding the preparation of a listing document, a sponsor should … : … undertake independent verification of all material information, including documents provided, and statements and representations made, by the listing applicant and its directors. [Paragraph 17.6(d)(ix) of the Code of Conduct]
2.2.1 Verification should take place during the drafting of the listing document, as the process of verification itself will assist and affect the drafting. It may cause non-verifiable statements to be omitted. It may also caution against the inclusion in the listing document of qualitative statements which can be reasonably interpreted in different ways.
2.2.2 Verification of the listing document should be substantially completed before the submission of the initial application for listing (commonly known as “A1” or the “advance booking form”) as the Application Proof will be required to be made publicly available on the Stock Exchange’s website at the time it is filed with the Stock Exchange.
2.3 Recommended Steps
2.3.1 As a result of the new requirement to make the Application Proof publicly available, verification needs to start early in the process and the transaction timetable should allow sufficient time for an Application Proof in a more final state to be prepared. At the initial stage of the transaction, the sponsor should discuss the verification process with the listing applicant and other working parties so that all are aware that all the material statements set out in the listing document will need to be verified. The sponsor together with its and the listing applicant’s lawyers should explain to the listing applicant that the primary purpose of verification is to protect the directors who take responsibility for the accuracy and completeness of a listing document. The parties should reach an agreement on how verification comments will be reflected in the draft listing document. The listing applicant should assign personnel to the task as referred to in paragraph 1.3.1 above.
2.3.2 The underwriters’ lawyers should be responsible for drawing up the verification information request lists and the verification notes. The sponsor should be responsible for overseeing the verification process and take a pro-active role in escalating any verification issues with the senior management or directors of the listing applicant. The listing applicant’s lawyers should also take a pro-active involvement in the verification exercise as well as liaising with the listing applicant with respect to the extent to which statements made in the draft listing document can be verified.
2.3.3 During drafting, statements meant to be inserted into the listing document should be critically examined and challenged in order to ensure that those statements will be verifiable. The verification notes should be drawn up alongside the drafting of the listing document so that supporting materials of every material statement can be sought immediately. In order to expedite the verification process, the party responsible for drafting the listing document (if not the underwriters’ lawyers) should assign a team member to pass materials used during the drafting process on to the underwriters’ lawyers. Any supporting materials used by the drafting team should be circulated to the underwriters’ lawyers at the same time as the draft listing document is circulated to the working group.
2.3.4 During the verification process, the listing applicant should be regularly informed of material issues arising out of verification and it should co-operate in addressing comments arising from the verification exercise including deleting unverifiable statements from the draft listing document. Appropriate representatives of the listing applicant should also be asked to review the draft listing document and the verification notes in good time before the board meetings described in paragraphs 2.3.6 and 2.3.8 below.
2.3.5 As a matter of good practice, in order to ensure that the verification notes have been reviewed by the directors, the verification notes should be signed by each of the directors personally rather than under a power of attorney. If a logistical difficulty arises, a director can sign off the verification notes in counterpart returning the document by fax or email, followed by the original.
2.3.6 Prior to the filing of the A1, verification should have been substantially completed. At the board meeting to approve the filing of the A1, the board should have their attention drawn to the verification process that has taken place as well as the key statements in the listing document relating to the company’s competitive strengths, strategy, market position, any investigations, problems or disputes and any key innovations. The directors should be asked to confirm that they are satisfied as to the accuracy and completeness of such statements. The draft listing document and the verification notes should be tabled and approved by the board at that meeting. It is important that the whole of the listing document is carefully considered and approved by each of the directors. Although there are some matters the verification of which it would be reasonable for the directors to delegate to third parties, they should appreciate that such delegation will not relieve them from their responsibility to ensure that each matter is correctly stated in the listing document.
2.3.7 After the filing of the A1, verification of the listing document should be refreshed to the extent that the listing document contains statements relating to the current position of the listing applicant. Historical facts once verified should not require subsequent verification unless some matter has arisen between the filing of A1 and the publication of the listing document which casts doubt on the accuracy.
2.3.8 At the “long board meeting” before the publication of the listing document, the final draft of the listing document and the updated verification notes should be tabled and approved by the board.
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