BOLINA HOLDING CO LTD (IN LIQUIDATION) v. THE STOCK EXCHANGE OF HONG KONG LTD

HCAL 2328/2020

[2021] HKCFI 460

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 2328 OF 2020

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D E C I S I O N

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INTRODUCTION

1.  This is an application for leave to apply for judicial review of the decision of the Listing Review Committee of the Stock Exchange of Hong Kong Limited (“the Exchange”) on 4 November 2020 to cancel the listing of the shares of Bolina Holding Co Ltd (in liquidation) (“the Company”) on the Main Board of the Exchange.

2.  For reasons which I shall endeavour to explain in this decision, the application for leave to apply for judicial review is dismissed.

BASIC FACTS

3.  The Company, incorporated in the Cayman Islands with limited liability, and its subsidiaries (collectively “the Group”) are principally engaged in the design, development, production, marketing and distribution of sanitary ware products (“the Sanitary Ware Business”). The Group has been manufacturing its products in two production plants in the PRC since 2006, and currently has about 1,600 employees.

4.  The Company’s shares have been listed on the Main Board of the Exchange since 13 July 2012 (Stock code: 1190).

5.  On 17 September 2018, a winding up order was made against the Company on the ground that it was unable to settle its debts. Trading of the Company’s shares has been suspended since that date.

6.  Under Rule 6.01A of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“the Listing Rules”), the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months.  In the case of the Company, the resumption deadline fell on 16 March 2020.  In what follows, unless the contest indicates otherwise, references to “Rule” shall be to the Listing Rules.

7.  By an order of the High Court dated 3 October 2018, Messes Lai Kaw Yan Derek and Ho Kwok Leung Glen of Deloitte Touche Tohmatsu were appointed as the Joint and Several Liquidators of the Company (“the Liquidators”).

8.  On 26 October 2018 and 3 April 2019, the Exchange set the following resumption guidance for the Company:

(1)  publish all outstanding financial results and address any audit modifications[1] (“RG1”);

(2)  demonstrate that it has sufficient operations and assets under Rule 13.24 (“RG2”);

(3)  have the winding-up order against the Company withdrawn or dismissed and the appointment of the Liquidators discharged (“RG3”); and

(4)  inform the market of all material information for the Company’s shareholders and investors to appraise its position (“RG4”) (collectively the “Resumption Guidance”).

9.  Notwithstanding the resumption deadline of 16 March 2020, it was only on that date that the Company’s financial adviser, Veda Capital Limited (“Veda”), submitted on behalf of the Company a resumption proposal (“the Resumption Proposal”) to the Exchange.  In Veda’s fax to the Exchange dated 16 March 2020, it was stated, inter alia, that “the planned audit schedule has been affected and delayed as a result of the unforeseen outbreak of the 2019-nCoV”.  The following features of the Resumption Proposal are also of note:

(1)  The information concerning the business operations and change in corporate structure of the Group stated therein had been provided by the operation team of the “Key PRC subsidiaries” of the Company with the assistance of an “Investor” (comprising 5 named individuals).

(2)  The Resumption Proposal was submitted for reference only, and did not purport to be comprehensive, and had not been audited or independently verified by the Liquidators, who had no responsibility for the accuracy or completeness of the information in the Resumption Proposal.

(3)  After their appointment, the Liquidators wrote to the former and current directors and secretaries of the Company requesting them to deliver up any of the Company’s books, records or documents in their possession or under their control with a view to reconstitute the Company’s knowledge, but the Liquidators did not receive any useful information from them.

(4)  The Liquidators had received indicative restructuring proposals from two parties (one of whom was the Investor), and both potential investors had indicated that they would seek to achieve resumption by relying on the existing business model of the Group.

(5)  On 9 January 2020, the Liquidators and the Investor entered into a Restructuring Agreement to implement a proposed restructuring of the Company (“the Proposed Restructuring”) by regularizing the existing business of the Group.  The Proposed Restructuring involved (i) Capital Restructuring, (ii) Subscription, (iii) Open Offer, (iv) Debt Restructuring, and (v) Resumption, which would be subject to the approval of the court, shareholders and creditors.

(6)  The indicative timetable of the Proposed Restructuring referred to a series of steps to be taken commencing with the submission of the Resumption Proposal to the Exchange in March 2020 up to obtaining a stay of the winding up order and discharge of the Liquidators and resumption of trading in December 2020.

10.  On the basis of the Resumption Proposal, the Company applied for a “temporary extension … from strict compliance with Rule 6.01(A) of the Listing Rules to a date falling on the date of the Resumption” (ie December 2020).

11.  By a letter to the Liquidators dated 8 May 2020, the Exchange informed the Company that the Listing Committee had decided to cancel the Company’s listing under Rule 6.01A (“the Listing Committee Decision”).  In other words, the Company’s application to extend the deadline for resumption of trading under Rule 6.01(A) was rejected.  For the purpose of this judgment, it is not necessary to set out in detail the reasons given for the Listing Committee Decision, save to note that in respect of the suggestion that the Liquidators’ planned audit schedule had been affected and delayed due to the outbreak of COVID-19, the Listing Committee stated that:

“[the Liquidators] did not demonstrate how the 2019-nCoV has affected its audit schedule. Nor did they demonstrate that but for the 2019-nCoV, the Company would have fulfilled this resumption guidance by the resumption deadline, particularly given the joint and several liquidators’ lack of access to all the books and records of the Group.”

12.  The Company applied for a review of the Listing Committee Decision pursuant to Chapter 2B of the Listing Rules.

13.  On 30 September 2020, the Listing Review Committee heard the Company’s application for review.

14.  By a letter to Veda and the Liquidators dated 4 November 2020, the Listing Review Committee informed the Company that it had decided to uphold the Listing Committee Decision that the Company’s listing be cancelled under Rule 6.01A (“the Review Committee Decision”).  The reasons given for the Review Committee Decision were as follows:

“Listing Review Committee’s views

[25] The Listing Review Committee noted that the Company had not met all the resumption guidance and had not resumed trading in its shares, either by the resumption deadline of 16 March 2020 or by the date of the hearing. Accordingly, the listing could be cancelled in accordance with the Listing Rules. The key issue for the Listing Review Committee to determine was whether there existed exceptional circumstances within the spirit of paragraph 19 of GL95-18 to extend the remedial period for the Company.

[26] The Listing Review Committee considered the written submissions, the materials provided by the Company and the powerpoint presentation at the hearing, and the extensive oral submissions made by the Liquidators at the hearing. As at the date of the hearing, the Company was insolvent, and in the process of winding up. The Listing Review Committee considered the latest progress of the Company’s fulfilment of the resumption guidance, and was of the view that the Proposed Restructuring by way of a scheme of arrangement was still subject to various future events and conditions including without limitation obtaining the requisite approval from the Company’s shareholders, creditors and the court. There appeared to be significant uncertainties as to whether all the requisite future events would take place and the conditions would be fulfilled and even if they would in the end, the process would take up significant time. The preliminary indication of support for the Proposed Restructuring by certain creditors of the Company still fell short of the requisite majority as required by law in the event that all creditors attended the court convened creditors’ meeting. The same also spoke for the indicated shareholders’ support.

[27] The Listing Review Committee noted that as at the date of the hearing which was more than six months after the resumption deadline, the Company still had not published the outstanding financial results for FY2018 and FY2019 and the interim results for the six months ended 30 June 2019, and that the anticipated publication of certain financial results was expected to be subject to audit modifications, which would still need to be addressed. The Listing Review Committee further noted the auditor’s response to the Listing Review Committee’s questions at the hearing that the auditor would still need to undertake further work and require further information (including letters of representation and/or approval from the Company’s future directors who were yet to be appointed) before they would be in a position to publish all the outstanding financial results.

[28] The Listing Review Committee noted the Company’s submissions regarding Rule 13.24 compliance, including its draft profit forecasts. Even assuming that the Company was compliant with Rule 13.24 upon completion of the Proposed Restructuring, the matters described above relating to the other resumption guidance would remain unresolved at the date of the hearing. Moreover, the profit forecast would only be signed off upon approval of directors who were yet to be appointed. The Listing Review Committee failed to understand why the Company had not duly addressed all these outstanding issues in a more timely manner (particularly, publication of all outstanding financial results, convening the court meetings, signing off the forecasts and outstanding audited accounts, etc.)

[29] One would also have questioned why the listing status was essential to the subscriber in the proposed subscription if the subscriber (as submitted by the Company through its Liquidators) was an industrial investor and not a financial investor and the Group’s existing business was viable and sustainable, taking into account that the subscriber had already scaled down its commitment to inject funds from HK$230 million to HK$120 million. The Listing Review Committee had also taken note of the fact that the majority of the proceeds raised from the Open Offer would be used to pay off the professional fees.

[30] Having considered all of the submissions and evidence, the Listing Review Committee was of the view that whether the Company could fulfill all the resumption guidance was still clouded with a lot of uncertainties and the Company had not demonstrated with sufficient certainty that it could fulfil all the outstanding resumption guidance within a short period of time or at all. In passing, it should be noted that the Company had failed to meet quite a few deadlines in the expected timetables for fulfilment of resumption guidance (such as publication of all outstanding financial results, application to the Hong Kong Court for leave to convene scheme meeting, etc.) set out in the Company’s submissions dated 16 March 2020 and 31 July 2020 respectively. Given the various issues that remained to be addressed and resolved (such issues not being procedural in nature only) in order to fulfill the outstanding resumption guidance, the Listing Review Committee considered that the Company’s situation did not fall within the exceptional circumstances in paragraph 19 of GL95-18, and that the grant of an extension of the remedial period was not warranted.

Decision

[31] The Listing Review Committee therefore decided to uphold the Listing Committee’s decision that the Company’s listing be cancelled under Rule 6.01A.”

APPLICATION FOR LEAVE TO APPLY FOR JUDICIAL REVIEW

15.  On 27 November 2020, the Company made the present application for leave to apply for judicial review of the Review Committee Decision.  Five grounds of intended judicial review are advanced in the Form 86:

(1)  Ground 1: the Listing Review Committee erred in upholding the Listing Committee Decision to cancel the Company’s listing primarily based on various “procedural matters”.

(2)  Ground 2: the Listing Review Committee erred in deciding that there did not exist exceptional circumstances within the spirit of §19 of HKEX Guidance Letter GL95-18 to extend the remedial period for the Company to comply with the resumption deadline under Rule 6.01(A).  Specifically, the Review Committee failed to consider adequately or give sufficient weight to the serious effects caused by the COVID-19 pandemic on the progress of the Resumption Guidance work carried out by the Company.

(3)  Ground 3: the Listing Review Committee erred in finding that there were significant uncertainties surrounding the obtaining of the requisite approval from, inter alia, the creditors on the proposed Debt Restructuring of the Company, and that the Company still fell short of the requisite majority as required by law in the event that all creditors attended the creditors’ meeting.

(4)  Ground 4: the Review Committee Decision was unreasonable, unfair and inconsistent with previous decisions in which the Listing Review Committee had allowed extensions of time to other listed companies whose situations were similar to, or worse than, the situation of the Company and in cases where the conditions set out in the resumption guidance work prescribed by the Listing Committee had also not been fully completed by them by the time of the relevant resumption deadlines.

(5)  Ground 5: in all the circumstances, the decision to cancel the listing of the Company was so unreasonable that no reasonable person acting reasonably could have made it.

REGULATORY FRAMEWORK

16.  The Exchange operates the stock market in Hong Kong pursuant to the Securities and Futures Ordinance, Cap 571 (“the SFO”). In that capacity, the Exchange acts as the frontline regulator of listed companies and their directors.

17.  Section 21 of the SFO imposes a duty on the Exchange to ensure, so far as reasonably practicable, an “orderly, informed and fair market”.  In discharging its duty, the Exchange is further required to act in the interest of the public, having particular regard to the interest of the investing public, and to ensure that the interest of the public prevails where it conflicts with the interest of the Exchange.

18.  Section 23 of the SFO empowers the Exchange to make rules for such matters as are necessary or desirable for the proper regulation and efficient operation of the stock market.  The Exchange is specifically authorised to make rules for, amongst other things, the cancellation and withdrawal of the listing of, and the suspension and resumption of dealings in, securities listed on the recognized stock market operated by the Exchange.

19.  The Listing Rules are made by the Exchange pursuant to s 23 of the SFO.  The Listing Rules impose requirements on listed companies and their directors to ensure that investors have and can maintain confidence in the market.  Each company listed on the Main Board of the Exchange must undertake to comply with the Listing Rules when the company submits its application for listing.

SUITABILITY FOR LISTING

20.  The Listing Rules provides that, in order to be listed on the Main Board of the Exchange, issuers must be suitable for listing (Rules 2.03 and 8.04).  The Listing Rules set out certain specific requirements which must be met in order for a new applicant to be qualified for listing.  Amongst other things, currently a new applicant must demonstrate that it has a substantial business by satisfying one or more of (i) the profit test under Rule 8.05(1), or (ii) the market capitalisation / revenue / cash flow test under Rule 8.05(2), or (iii) the market capitalisation / revenue test under Rule 8.05(03).

21.  Suitability for listing is not, however, simply a matter of compliance with the aforesaid quantitative requirements; it also involves a qualitative assessment of the new applicant by the Exchange.  Thus, Rule 2.06 states:

“Suitability for listing depends on many factors. Applicants for listing should appreciate that compliance with the Exchange Listing Rules may not of itself ensure an applicant’s suitability for listing. The Exchange retains a discretion to accept or reject applications and in reaching their decision will pay particular regard to the general principles outlined in rule 2.03. Prospective issuers (including listed issuers) are therefore encouraged to contact the Exchange to seek informal and confidential guidance as to the eligibility of a proposed application for listing at the earliest possible opportunity.”

22.  Once a new applicant is listed and becomes a listed issuer, it must continue to be suitable for listing in order to maintain its listing status, including by the operation of a substantial business.  In particular, Rule 13.24(1) provides:

“An issuer shall carry out, directly or indirectly, a business with a sufficient level of operations and assets of sufficient value to support its operations to warrant the continued listing of the issuer’s securities.

Note: Rule 13.24(1) is a qualitative test. The Exchange may consider an issuer to have failed to comply with the rule in situations where, for example, the Exchange considers that the issuer does not have a business that has substance and/or that is viable and sustainable.

The Exchange will make an assessment based on specific facts and circumstances of individual issuers…

Where the Exchange raises concerns with an issuer about its compliance with the rule, the onus is on the issuer to provide information to address the Exchange’s concerns and demonstrate its compliance with the rule.”

23.  According to Ms Bonnie Yiting Chan, Head of Listing of the Exchange, if an issuer is insolvent and has been placed into liquidation by the court, the intention is that the issuer will be delisted. This, amongst other things, would preserve the quality and reputation of the Main Board, which is essential to maintaining Hong Kong’s role as a leading financial centre.

SUSPENSION OF TRADING UNDER THE LISTING RULES

24.  Where the Exchange considers it necessary for the protection of investors or the maintenance of an orderly market, the Exchange is empowered by the Listing Rules to suspend trading in, and cancel the listing of, a listed issuer’s securities in such circumstances and subject to such conditions as the Exchange thinks fit.  The Exchange may also suspend trading in, and cancel the listing of, a listed issuer’s securities where the Exchange considers that the issuer does not carry on a business as required under Rule 13.24, or the issuer or its business is no longer suitable for listing.  Rule 6.01 states as follows:

“Listing is always granted subject to the condition that where the Exchange considers it necessary for the protection of the investor or the maintenance of an orderly market, it may at any time direct a trading halt or suspend dealings in any securities or cancel the listing of any securities in such circumstances and subject to such conditions as it thinks fit, whether requested by the issuer or not. The Exchange may also do so where:-

(2) the Exchange considers there are insufficient securities in the hands of the public (see rule 8.08(1)); or

(3) the Exchange considers that the issuer does not carry on a business as required under rule 13.24; or

(4) the Exchange considers that the issuer or its business is no longer suitable for listing.”

25.  Rule 6.04 further provides that the procedure for lifting suspension will depend on the circumstances and the Exchange reserves the right to impose such conditions as it considers appropriate.  It continues to state as follows:

“The continuation of a suspension for a prolonged period without the issuer taking adequate action to obtain restoration of listing may lead to the Exchange cancelling the listing.”

DELISTING OF LONG-SUSPENDED ISSUERS

26.  According to Ms Bonnie Yiting Chan, in the period leading up to September 2017, prolonged suspensions of trading became a significant issue for the Exchange.  The then delisting procedures did not facilitate prompt action to delist long-suspended issuers, with the consequence that there had built up a very large number of issuers whose shares had been suspended for more than a year, with no certainty as to when the suspension would be lifted or the issuer delisted (because, for example, the issuer’s financial position remained uncertain and the Exchange did not have a clear basis for delisting under Rule 6.01).  This prevented proper functioning of the market, and undermined the quality of the market and its reputation.

27.  In September 2017, the Exchange commenced a market consultation exercise on the introduction of a prescribed period for issuers to resolve issues which had led to a suspension and to satisfy any resumption conditions imposed by the Exchange, failing which the issuers would be delisted.  The purpose of the proposed rule amendments and the objectives of the consultation were set out in the Exchange’s “Consultation Paper - Delisting and Other Rule Amendments” published in September 2017:

“[5] As at 30 June 2017, there were 56 issuers whose securities had been suspended for three months or more. They included 25 issuers that did not have sufficient operations or assets of sufficient value to meet the continued listing criteria (PN17 companies), 3 issuers that did not have sufficient public float, and 28 issuers that failed to announce financial results and/or inside information (a majority of which had alleged accounting irregularities or corporate misconduct issues). 40 issuers had been suspended for over a year.

[6] Whilst trading suspension gives an issuer the opportunity to remedy the issues causing the suspension with a view towards trading resumption, a prolonged suspension prevents the proper functioning of the market.

[7] In 2015, the Listing Committee reviewed the delisting policy and considered it necessary to adopt a more robust delisting policy in the interest of maintaining the reputation of the Hong Kong market. The existence of long suspended issuers in persistent breach of the Rules in a material manner, or suspected of illegal or improper activities, undermines the quality of our market and its reputation. A robust delisting policy with an effective delisting procedure will facilitate an orderly exit of poor quality issuers, incentivize suspended issuers to act promptly towards resumption and provide a deterrent effect against issuers committing material breaches of the Rules. This will also provide more certainty to the market on how the Exchange handles suspended issuers and brings its practice more in line with other major markets.

[8] This paper proposes Listing Rule amendments to improve the effectiveness of the delisting framework applicable to Main Board issuers and GEM issuers (Chapter 2)…”

28.  After the consultation, the Exchange decided to implement the proposal (with minor modifications in response to market comments).  In particular, the Exchange resolved to (i) add a separate delisting criterion to allow the Exchange to delist an issuer after its continuous suspension for a prescribed period; and (ii) allow the Exchange to publish a delisting notice and give the issuer a period of time to remedy the issues or be delisted.  For issuers whose securities are listed on the Main Board, the prescribed period is 18 months.

29.  The Exchange’s rationale for the 18-month period (“the Prescribed Remedial Period”) for an issuer whose securities are listed on the Main Board to comply with the resumption conditions imposed by the Exchange, and the intention that the period would only be extended in exceptional circumstances, are explained in §§23-25 of the Exchange’s “Consultation Conclusions - Delisting and Other Rule Amendments” (“the Consultation Conclusions”) published on 25 May 2018:

“[23] As noted in the Consultation Paper, the fixed period delisting criterion is aimed at delisting issuers which remain unable to resolve the issues requiring their suspensions after a continuous period of suspension. It would give suspended issuers a clear deadline, incentivizing them to look into the issues and to develop a viable action plan to ensure that it will have remedied the relevant issues to the Exchange’s satisfaction and resumed trading before the end of the prescribed fixed period.

[24] With this additional criterion, the Exchange will be able to delist an issuer where it does not have a clear basis to do so under MB Rule 6.01. This will provide certainty for the delisting process and address the issue of prolonged suspension in the interests of market quality and reputation, while reasonable opportunities are given to suspended issuers to take remedial actions with a view to resuming trading.

[25] The Listing Committee may only extend the prescribed fixed period in exceptional circumstances to ensure the effectiveness and credibility of the delisting framework and prevent undue delay of the delisting process. It may do so where an issuer has substantially implemented the steps that, it has shown with sufficient certainty, will lead to resumption but, due to factors outside its control, it becomes unable to meet its planned timeframe and requires a short extension of time to finalize the matters. Guidance on the circumstances when an extension of time may be given is set out in the new Guidance Letter on Long Suspension and Delisting, which is published together with this consultation conclusions paper.”

30.  In the Consultation Conclusions, the Exchange considered a proposal that special arrangements should be made for an issuer in financial distress where a liquidator or provisional liquidator had been appointed by the court and was working on a resumption plan for the issuer, having regard to the fact that the liquidator was an officer of the court and could not fully control the time required for a restructuring process which was often complex and would likely involve local and/or foreign court proceedings.  The prescribed period, it was argued, might not be sufficient to allow the successful completion of a scheme of arrangement (§18).  That proposal was, however, not adopted by the Exchange.

31.  The Exchange also made it clear that the new delisting framework was not intended to promote resumption of trading. Instead, it was intended to be “an effective delisting framework [which] enables the Exchange to meet its statutory obligation to maintain a fair, orderly and informed market for the trading of securities, by delisting issuers that no longer meet the continuing listing criteria in a timely manner, incentivizing suspended issuers to act promptly towards resumption and deterring issuers from committing material Rule breaches” (see §28 of the Consultation Conclusions).

32.  On 1 August 2018, the Exchange introduced Rule 6.01A(1).  It states as follows:

“Without prejudice to its power under rule 6.01, the Exchange may cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months.”

33.  As mentioned in §25 of the Consultation Conclusions, the Exchange also published a Guidance Letter (HKEX-GL95-18) in May 2018, which has since been updated in September 2019, on the subject of “Guidance on long suspension and delisting” (“the Guidance Letter”).  That document provides guidance to long suspended issuers on the operation of the amended delisting Rules, their general obligations and the Exchange’s regulatory actions during the resumption process.  The following provisions of the Guidance Letter are relevant for the present purpose:

“[8] The objective of the amended delisting Rules is to keep the necessary trading suspension to the minimum, by facilitating timely delisting of issuers that no longer meet the continuing listing criteria. This, in turn, provides certainty to the market on the delisting process. The delisting Rules are also aimed at incentivizing suspended issuers to act promptly towards resumption and deterring issuers from committing material breaches of the Rules.

[12] Under the Rules, the Exchange would cancel the listing of a long suspended issuer upon the expiry of the remedial period (prescribed or specific) if the issuer has not remedied the issues causing the suspension and re-complied with the Rules. This remedial period sets a deadline referenced to the resolution of the relevant issues and resumption of trading, as opposed to submission of a resumption proposal as in the previous regime.

[13] Accordingly, the issuer must devise its own resumption plan setting out the actions that it considers appropriate to remedy the issues, announce such resumption plan, work according to that plan, and announce regular updates on its resumption progress and business developments. Based on these announcements, the Exchange will monitor the issuer’s resumption status and, where appropriate, give guidance to the issuer. While the Exchange may give guidance to assist the issuer, it is the issuer’s primary responsibility to devise its own resumption plan in order to ensure that it will remedy the relevant issues and re-comply with the Rules before the end of the remedial period to avoid delisting. The issuer may also consult the Exchange at any stage. When the issuer considers that it has remedied the issues and re-complied with the Rules, it must then seek a confirmation from the Exchange that this is the case. Trading will resume after the Exchange gives the confirmation.

[14] In light of the above, the steps that a suspended issuer should take include:

(a) promptly after trading is suspended, review the matter giving rise to the suspension and identify the relevant issues;

(b) devise a resumption plan with actions that it intends to take to remedy the issues and re-comply with the Rules. The resumption plan should be accompanied with a clear timeframe in respect of each stage of work under the plan to ensure that the relevant issues can be remedied and the Rules can be re-complied as soon as practicable and, in any event, before the remedial period ends. The timeframe should take into account not only the time required by it to implement the resumption plan, but the time that may be reasonably required by the Exchange to be satisfied that the issues have been remedied and the Rules re-complied;

…

[16] During a suspended issuer’s remedial period, the Exchange will:

(a) issue resumption conditions/guidance to the issuer, setting out the requirements that the issuer must have fulfilled before trading can resume. These conditions/guidance are primarily based on the issuer’s announcement(s) about the matter giving rise to the suspension and the issues identified by the issuer, and are generally issued within the first three months of the suspension of trading. The Exchange may revise these resumption conditions/guidance from time to time as the issuer’s circumstances change (for example, a suspended issuer subsequently found to be involved in fraudulent activities will be required to conduct a forensic investigation);

…

[18] If the issuer fails to fulfil the resumption conditions/guidance before the remedial period ends, the Listing Department will take the matter to the Listing Committee for consideration and recommend the Listing Committee to delist the issuer .

[19] To ensure the effectiveness and credibility of the delisting framework and prevent undue delay of the delisting process, the Listing Committee may only extend the remedial period in exceptional circumstances. It may do so where:

(a) an issuer has substantially implemented the steps that, it has shown sufficient certainty, will lead to resumption of trading; but

(b) due to factors outside its control, it becomes unable to meet its planned timeframe and requires a short extension of time to finalize the matters. The factors outside the issuer’s control are generally expected to be procedural in nature only.

This may happen where, for example, an A1 application has been approved by the Exchange but, due to a delay in the court hearing for approving a scheme of arrangement, the issuer requires additional time to implement the relevant transactions. The Exchange envisages that if an extension of time is given on the expiry of the remedial period, the Listing Committee would not normally extend the remedial period for a second time.”

34.  Two observations may be made here.  First, it is clear from that the Guidance Letter that the Prescribed Remedial Period is intended to be strict, and the period would be extended only in exceptional circumstances.  Second, whether the circumstances are “exceptional” for this purpose is primarily a matter for the Exchange, not the court, to decide.

THE EXCHANGE’S DECISION MAKING PROCESS

35.  Rule 2A.01 provides that the Board of the Exchange has arranged for all of its powers and functions in respect of all listing matters to be discharged by the Listing Committee and/or its delegates, subject to the review procedure set out in the Listing Rules.

36.  Rule 2A.17 provides that the Listing Committee shall consist of 28 members or such greater number as the Board of the Exchange may from time to time agree, comprising at least 8 individuals who represent the interests of investors, 19 individuals who will be a suitable balance of representatives of listed issuers and market practitioners including lawyers, accountants, corporate finance advisers and Exchange Participants or officers of Exchange Participants, with the Chief Executive of the Hong Kong Exchanges and Clearing Limited acting as ex officio non-voting member. The composition of the Listing Committee is intended to ensure that it is made up of persons who are independent and have specialist expertise in relation to listing-related matters including business, accounting, finance and legal/regulatory aspects, and are well placed to determine currently acceptable standards in the market place.

37.  The Listing Committee, whose members serve on a part-time basis and only meet to make decisions periodically, delegates the day-to-day administration of the Listing Rules to the Listing Division, which is made up of full time employees of the Exchange.  Subject to certain specific exceptions (eg the power to cancel the listing of a listed issuer), the Listing Committee has arranged for most of its powers under the Listing Rules to be discharged by the Listing Division in the first instance (Rule 2A.02).  The Listing Division will also interpret, administer and enforce the Listing Rules subject to the review procedures set out in Chapters 2A and 2B of the Listing Rules.

38.  Under Rule 2A.08, the Listing Committee has reserved to itself the power to cancel the listing of a listed issuer.  It is the first instance decision-maker in respect of all cancellation decisions.

39.  Under Rule 2B.06(2): “… where the Listing Committee endorses, modifies or varies the Listing Division’s decision or makes its own decision, the listed issuer may request the decision be referred to the Listing Review Committee for a further and final review.”

40.  Under Rule 2B.06(3): “… the decision of the Listing Division or the Listing Committee, as the case may be, shall be conclusive and binding on the listed issuer if the listed issuer does not seek review of the decision of the Listing Division or the Listing Committee, as the case may be; otherwise, the decision of the Listing Review Committee shall be conclusive and binding on the listed issuer.”

41.  Under Rule 2A.37A, the Listing Review Committee shall consist of 20 members or such greater number of members as the Board may from time to time agree.  Under Rule 2A.37B, the Listing Review Committee shall comprise:

(1)  at least six individuals who represent the interest of investors; and

(2)  the remaining members who represent a suitable balance of representatives of listed issuers and market practitioners, including lawyers, accountants, corporate finance advisers and Exchange Participants (or their officers), and who have experience and expertise in Listing Rule matters, or are familiar with the work of the Listing Committee.

No current Listing Committee members or representatives of the SFC or Hong Kong Exchanges and Clearing Limited shall be members of the Listing Review Committee.

42.  Rule 2A.37L provides: “The Listing Review Committee shall meet for the despatch of business, adjourn and otherwise regulate its meetings in accordance with the provisions of the rules made by the Board for this purpose, including rules governing members’ conflicts of interest, subject to the provisions of this rule 2A.37L.  The quorum necessary for the transaction of any business of the Listing Review Committee shall be five members present in person.  All review hearings shall be heard de novo.  The Listing Review Committee will rehear the case and decide it afresh, after considering all the relevant evidence and arguments made at the earlier hearings and any additional evidence or information which may be adduced in accordance with the procedures and regulations for review hearings and any directions made by the Listing Review Committee…”

GROUND 1: PROCEDURAL MATTERS

43.  The Resumption Guidance laid down four conditions to be satisfied by the Company for the resumption of trading of its shares.  It is not in dispute that the Company failed to satisfy at least three of the four conditions, namely, RG1, RG3 and RG4, by the resumption deadline (16 March 2020), or the date of the Listing Committee Decision (8 May 2020), or the date of the hearing before the Listing Review Committee (30 September 2020), or the date of the Review Committee Decision (4 November 2020).

44.  The 3 conditions which the Company indisputably failed to satisfy, namely: (i) publishing all outstanding financial results and addressing any audit modifications (RG1); (ii) dismissal or withdrawal of the winding-up order against the Company and discharge of the appointment of the Liquidators (RG3); and (iii) informing the market of all material information for the Company’s shareholders and investors to appraise its position (RG4), are, in my view, substantive requirements, and cannot be described as mere “procedural matters”.

45.  There is a dispute as to whether the Company had complied with RG2, ie demonstrating that it had sufficient operations and assets under Rule 13.24.  Mr John Reading, SC argues that the Listing Division accepted, at the hearing before the Listing Review Committee, that the Company had met the requirements of Rule 13.24[2]. However, the Listing Division Report submitted to the Listing Review Committee dated 4 May 2020 expressly stated that “the Liquidators did not demonstrate to our satisfaction that the intended capital restructuring (if it were to proceed) and the continuation of the Sanitary Ware Business will enable the Company to re-comply with Rule 13.24” (§36), and concluded that “it is questionable whether the intended capital restructuring can proceed as intended … and casts a significant doubt on the prospect of the Company restoring a viable and sustainable business to re-comply with Rule 13.24” (§37).  The transcript of the hearing before the Listing Review Committee also shows that the Listing Division’s acceptance that the Company met the requirements of Rule 13.24 was based on (i) the assumption stated in the Chairman’s question, namely, that “the company could meet the profit forecast as projected in the … draft forecast that they have provided to [the Listing Review Committee]”, and (ii) the further assumption that the Company had “sufficient working capital in order to continue to fund the operation”[3].  It seems clear on the evidence that there was no acceptance, or unqualified acceptance, by the Listing Division that the Company had met the requirements of Rule 13.24. Anyhow, it is not necessary to get to the bottom of the issue of whether the Company had satisfied the requirements of Rule 13.24 (RG2), because it cannot be disputed that it failed to comply with RG1, RG3 and RG4.

46.  Mr Reading also argues that the Listing Review Committee should have placed more weight on the Company’s compliance with Rule 13.24 and the serious effect of the COVID-19 pandemic which delayed the completion of the audit of the Company’s accounts.  I shall consider the issue of COVID-19 later in this judgment, but fail to see why the Listing Review Committee should place more weight on any one or more of the four resumption conditions.  Subject to issue of extension, it should have been clear to the Company that it was required to comply with all four conditions before the suspension of trading of its shares would be lifted.

GROUND 2: COVID-19 AS AN EXCEPTIONAL CIRCUMSTANCE

47.  This ground of judicial review cannot get off the ground because, as mentioned in the Listing Committee Decision, the Company failed to demonstrate how the COVID-19 pandemic had actually affected the audit work (including the specific aspect(s) of the audit work that was/were delayed and the extent of the delay caused by the COVID-19 pandemic), or that it would have been able to fulfil the Resumption Guidance by the resumption deadline, or indeed by the time of the hearing before the Listing Review Committee, but for the COVID-19 pandemic.  In this regard, it is of note that the suspension of trading of the Company’s shares commenced on 17 September 2018, and the resumption deadline fell on 16 March 2020.  The Resumption Guidance was issued by the Exchange in October 2018 (and supplemented in April 2019).  The COVID-19 pandemic did not, however, begin to affect China or Hong Kong until late 2019/early 2000.  There was, prima facie, time for the necessary audit work to be carried out prior to the outbreak of the COVID-19 pandemic.  Under §12 of the Guidance Letter, the Company was required to resolve the issues causing the suspension and successfully resume trading of its shares by the resumption deadline.  As a matter of fact, the Company only appointed Crowe (HK) CPA Limited as the incoming auditor with effect from 8 June 2020 in order to, inter alia, conduct the audit work and assist the Company to publish all outstanding financial results and address any audit modifications as required by the Resumption Guidance[4]. It is obvious that, regardless of the COVID-19 pandemic, the Company would fail to comply with RG1 by the resumption deadline.  Even by the time of the hearing before the Listing Review Committee, the Company’s outstanding financial results had not yet been published.  At that hearing, Mr Glen Ho, one of the Liquidators, informed the Listing Review Committee that it was expected that the outstanding financial results would be published by the end of December 2020[5].  That expectation did not, however, materialise.  At the hearing before this court on 2 February 2021, Mr Reading informed the court that the relevant accounts were only signed by the newly appointed directors of the Company on 1 February 2021, and publication of the accounts would take place within 2 weeks.

48.  In my view, the claim that the COVID-19 pandemic constituted an exceptional circumstance justifying an extension of time for the Company to comply with the Resumption Guidance has no substance whatsoever. There was no duty on the Listing Review Committee to expressly reject it in the Review Committee Decision, which ought to be read together with the Listing Committee Decision.  In any event, even if the Listing Review Committee ought to have expressly addressed this argument in its decision and the matter is now remitted to the Listing Review Committee for reconsideration, I consider it to be inevitable that the Listing Review Committee would reject the contention that the COVID-19 pandemic constitutes an exceptional circumstance for the purpose of §19 of the Guidance Letter.

GROUND 3: CREDITORS APPROVAL

49.  It is not in dispute that the Proposed Restructuring of the Company required, inter alia, the agreement of a majority in number representing at least 75% in value of the creditors of the Company present and voting (in person or by proxy) at a meeting ordered by the court to consider the proposed scheme of arrangement (see s 674(1)(a) of the Companies Ordinance, Cap 622).

50.  By the time of the hearing before the Listing Review Committee, the Company had secured the support of only approximately 65% in value of its creditors for the proposed scheme of arrangement.  In his Skeleton Argument dated 27 January 2021, Mr Reading informed the court that the requisite level of support (75%) had “now been achieved” (ie nearly 4 months after the date of the hearing before the Listing Review Committee).  Quite apart from the absence of evidence to support this claim, in relation to the present application for leave to apply for the judicial review of the Review Committee Decision, the court should look at the position as at the time when the Listing Review Committee made its decision.  Whether all the creditors of the Company would attend the meeting (in person or by proxy) convened for the purpose of considering the proposed scheme of arrangement was a matter beyond the control of the Company and the Liquidators.  The Listing Review Committee was, I consider, entitled to take the view that there still existed “a lot of uncertainties” and the Company had not demonstrated “with sufficient certainty that it could fulfil all the outstanding resumption guidance within a short period of time or at all”.  This view of the Listing Review Committee is in accordance with the relevant legal requirement and reasonable.

GROUND 4: INCONSISTENCY WITH PREVIOUS DECISIONS

51.  Mr Reading refers to and relies upon some previous cases, in particular “Asian Citrus Holdings Limited” and “National United Resources Holdings Limited”, and argues that the Listing Review Committee allowed extensions of time in situations similar to, or worse than, the Company and where the conditions set out in the resumption guidance work prescribed by the Listing Committee had also not been fully completed by the time of the relevant resumption deadlines.

52.  The question of whether an issuer should be granted an extension of time to comply with the relevant resumption conditions in any given case depends on the facts and circumstances of that case.  The decision in any particular case represents an exercise of judgment by the Listing Review Committee, and should not be treated as setting any binding precedent for future cases.  At the end of each of the decisions concerning Asian Citrus and National United dated 27 March 2020 and 16 September 2020 respectively, the following was expressly stated:

“Please note that decisions of the Listing Review Committee do not represent binding precedents, and do not constrain the discretion of or otherwise bind the Exchange or other committees (including without limitation the Listing Review Committee in respect of other matters).”

53.  In any event, the present case is substantially different from the two cases relied upon by Mr Reading.  In particular: (i) Asian Citrus and National United did not involve failure to address multiple resumptions conditions as in the present case – in each of the two cases mentioned, the company had published all outstanding financial results and taken steps to address the audit qualifications by the time of the Listing Review Committee hearing, (ii) neither Asian Citrus nor National United was subject a winding order by the court, and (iii) no scheme of arrangement was required or involved in those 2 cases[6]. These matters were relevant to the question of whether the issuer had substantially implemented the steps required for resumption of trading and whether there was sufficient certainty that only a short extension of time would be required for the outstanding steps to be completed (see §25 of the Consultation Conclusions and §19 of the Guidance Letter).  In my view, it is not meaningful to compare the Company’s case with either of the two cases referred to by Mr Reading.

GROUND 5: IRRATIONALITY

54.  It is trite that a high hurdle has to be overcome to successfully mount a public law challenge based on the irrationality ground, particularly in respect of a decision made by the Listing Review Committee concerning the question of whether a company should be permitted to retain its listing status notwithstanding a prolonged period of suspension.  The Listing Review Committee is far better placed than the court to determine the deleterious effect, in terms of the quality and reputation of, and investors’ confidence in, the market, of allowing such companies to continue to be listed on the Exchange.  The Listing Review Committee’s decision to cancel the listing of the Company in the circumstances of the present case is, in my view, lawful and reasonable.  I do not see how it can be said that the decision is one which no reasonable person acting reasonably could have made.

55.  In all, all 5 grounds of judicial review are not reasonably arguable, and have no realistic prospect of success.

DISPOSITION

56.  The application for leave to apply for judicial review is dismissed.

57.  The principles governing an award of costs in an unsuccessful application for leave to apply for judicial review are well settled (see Leung Kwok Hung v President of the Legislative Council (No 2) (2014) 17 HKCFAR 841, at paragraph 17), and do not have to be repeated here.  I consider that the Company should pay the costs of the Exchange in this case, because (i) the Exchange attended the oral hearing upon the court’s direction, (ii) the Exchange filed evidence, and provided substantial and helpful assistance to the court; and (iii) the Company has effectively had a hearing on the merits of its intended application for judicial review.  I do not, however, consider the circumstances of the present case would justify the Exchange’s costs being taxed on an indemnity basis.  I therefore make an order that the Company shall pay the Exchange’s costs of this application, including the costs of the hearing on 2 February 2021, to be taxed if not agreed, with certificate for 2 counsel.