On 19 November 2021, Hong Kong’s Independent Commission Against Corruption (the “ICAC”) charged four individuals with conspiracy to defraud The Stock Exchange of Hong Kong Limited (the “HKEX”), Main Board-listed Asia Resources Holdings Limited (“Asia Resources”), and its board of directors and shareholders for concealing or failing to disclose a “backdoor listing” agreement when placing convertible notes to increase Asia Resources’ share capital and money laundering. The individuals involved are Chim Pui-chung, 75, a substantial shareholder of Asia Resources at the time, Ricky Chim Kim-lun, 52, then chairman of Asia Resources (“Ricky Chim”); Wong Poe-lai, 65, an associate of a merchant named in the charge (“Wong”)1; and Ma Zhonghong, 48, the merchant (“Ma”)2 (collectively, the “Defendants”). The ICAC investigation followed the Securities and Futures Commission’s (“SFC”) referral of a corruption complaint. After completing its investigation, the ICAC sought legal advice from the Department of Justice, which advised that charges be laid against the Defendants.
HKEX’s Requirements for Reverse Takeovers
The case acts as a reminder of the HKEX’s stringent rules on reverse takeover transactions (i.e. backdoor listings) and listed companies’ obligations to keep the market informed. The requirements for reverse takeovers of HKEX-listed companies are set out in Chapters 14 and 19 of the HKEX’s Main Board and GEM Listing Rules, respectively. The HKEX will treat a listed company proposing a reverse takeover as if it were a new listing applicant, requiring it to issue a listing document, pay the initial listing fee and appoint a sponsor to assist it with its listing application and conduct due diligence as required by the HKEX Listing Rules and Paragraph 17 of the SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC. The HKEX Listing Rules require listed companies to publish an announcement of a proposed reverse takeover as soon as possible. Prior to the publication of an announcement, information regarding a reverse takeover must be kept confidential, and if confidentiality cannot be maintained, the listed company should apply to the HKEX for a trading halt or suspension of trading pending publication of the announcement.3 Alternatively, if the HKEX is satisfied that the purpose of the transaction is not to achieve a backdoor listing, the HKEX will instead classify it as an extreme transaction under Listing Rule 14.06(C). Extreme transactions are not treated as new listings: they require the listed company to publish a circular to shareholders, appoint a financial adviser and obtain shareholders’ approval for the transaction.
