Securities & Futures Commission of Hong Kong

Listed company failures

Q1:

Will the SFC request that a problematic listed company make an announcement about its status?

A:

The Stock Exchange of Hong Kong Limited (SEHK) will liaise closely with the listed company to monitor the situation and to ensure that it keeps the market informed about the latest developments.

Q2:

I am a shareholder of a problematic listed company. Can I have my money back?

A:

The SFC's responsibility is to administer the laws governing the securities and futures markets in Hong Kong and to facilitate market development. It is not the SFC's responsibility to compensate investors for any losses in their investments arising from the failure of a listed company.

Currently, there is no statutory investor compensation scheme covering listed company failures.

The shares of failed listed companies will likely be suspended until the market is fully informed about the latest developments. Shareholders may sell their shares once the suspension is lifted. If trading remains suspended and the company goes into liquidation, shareholders will not be able to sell their shares on the market, but will need to wait for the liquidation proceedings to determine how much money they will recover, if any.

Q3:

Does the SFC have bailout plans for problematic companies?

A:

No. It will be up to the management (or the provisional liquidator, if applicable) of the listed company to decide on the best action to take and to formulate a rescue plan.

Q4:

Can I be compensated if a company eventually goes bankrupt?

A:

The shares of failed listed companies will likely be suspended until the market is fully informed about the latest developments. Shareholders may sell their shares on the market once the suspension is lifted.

If trading remains suspended and the company goes into liquidation, shareholders will not be able to sell their shares on the market, but will need to wait for the liquidation proceedings to determine how much money they will recover, if any.

Q5:

What am I supposed to do with a problematic company's warrants?

A:

Warrants will remain suspended for as long as the underlying shares are suspended. When the suspension is lifted before the expiration of the warrants, warrant holders will be able to realise their investments by selling their warrants.

Q6:

The broker I use is a subsidiary of a problematic listed company. Can I trade as usual or get back my stocks and assets deposited with the broker?

A:

If a broker becomes aware of its inability to maintain sufficient liquid capital as required by law, it is required to notify the SFC and cease its dealing in securities immediately. Where the SFC reasonably believes that a broker is unable to maintain sufficient liquid capital as required by law, the SFC may, after taking all factors into account, suspend its licence accordingly.

If you suffer pecuniary losses as a result of the default of a licensed broker, a licensed margin financier or a bank in relation to securities or futures contracts which are traded or listed on SEHK or Hong Kong Futures Exchange Limited, you may be entitled to make a claim against the Investor Compensation Fund.

Q7:

Will my broker be in financial difficulty if it pledged a large amount of a problematic company's shares to banks to obtain a credit facility extended to its margin clients?

A:

A broker may not encounter financial difficulty if it is able to meet the banks' margin calls.

Q8:

How severe will the impact be on funds holding a problematic company's shares?

A:

In general, a fund's investments in securities (eg, stocks, warrants) issued by a single issuer is limited to only 10%, hence the failure of one company would not have a significant impact.

However, in the case of index-tracking funds, relief may be granted from compliance with the 10% rule to allow these funds to closely track index stocks. If a problematic company is a major constituent of a stock index, the managers of the funds tracking this index would tend to have a significant exposure to the problematic company. Dealing may have to be suspended if the underlying assets cannot be fairly valued or there is inadequate liquidity to meet redemption demand.

Q9:

Will the SFC request that managers of funds with a heavy investment in a collapsed listed company announce whether their operations are severely affected?

A:

The primary concern for the SFC is whether a decision to suspend dealing would be in the interests of investors. It is up to the fund managers and trustees to decide whether to suspend dealing, having regard to the interests of investors and the circumstances of the fund. It may not be necessary for a fund to be suspended if there is adequate liquidity to meet redemption demand.

Fund managers are obligated to notify the SFC immediately of the decision to suspend dealing. Such a decision must also be published immediately (within one day of the decision where practicable) and at least once a month in newspapers, in which the funds' prices are normally published, during the suspension.

Depending on the length of the suspension, a circular which details the reasons for the suspension may be required to be sent to all of the fund's investors. In addition, local investors can contact the fund manager or its Hong Kong representative for further information.

If there is a prolonged suspension of dealing, the SFC will monitor the situation closely and may require regular reporting.

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