CHINA TRENDS HOLDINGS LTD v. THE STOCK EXCHANGE OF HONG KONG LTD

CACV 652/2020

[2021] HKCA 980

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 652 OF 2020

(ON APPEAL FROM HCAL 818/2020)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

Introduction

1.  The Applicant appeals against Chow J’s (as he then was) judgment of 8 December 2020 dismissing its application for judicial review of the decision of the Respondent’s GEM Listing (Review) Committee (“the Review Committee”) on 10 March 2020 (“the Review Decision”).  By the Review Decision, the earlier decisions of the Listing Division and the Listing Committee to suspend the trading of the Applicant’s shares at the Stock Exchange was upheld.

2.  That decision was made initially on 10 June 2019 by the Respondent’s Listing Division (and subsequently affirmed by the Listing Committee on 13 November 2019) under the GEM Listing Rules 9.04 and 17.26 (as in force prior to 1 October 2019) which provided as follows:

“ 9.04 Under rule 9.01, the Exchange may direct a trading halt or suspend dealings in an issuer’s securities regardless of whether or not the issuer has requested the same and may do so in any circumstances, including: ^__

…

(3) where the Exchange considers that the issuer does not carry on a business as required under rule 17.26 …

…

17.26   An issuer shall carry out, directly or indirectly, a sufficient level of operations or have tangible assets of sufficient value and/or intangible assets for which a sufficient potential value can be demonstrated to the Exchange to warrant the continued listing of the issuer’s securities.[1]”

3.  By way of a note to Rule 17.26, it was also stated in the GEM Listing Rules:

“ Note: Characteristics of issuers which are unable to comply with rule 17.26 include:

(i) financial difficulties to an extent which seriously impairs an issuer’s ability to continue its business or which has led to the suspension of some or all of its operations; and/or

(ii) issuers which have net liabilities as at their balance sheet date i.e. issuers whose liabilities exceed their assets.”

4.  In the appeal, Mr Mok SC and Mr Ng represented the Applicant which was represented by another team of counsel below.  Mr Pao SC and Mr Ho represented the Respondent both here and below.  After hearing oral submissions from counsel on 29 April 2021, we reserved our judgment.  We now give our judgment in the appeal.

Factual background

5.  The Applicant had been listed on the Growth Enterprise Market (“GEM”) Board of the Respondent since 31 July 2002.  After the disposal of its original business in sales of mobile phone appliances and related application solutions in 2009, the Applicant’s business operations consisted of two principal lines of business: (i) trading in electronic technology and related products; and (ii) provision of digital solutions, media and e-commerce platforms.

6.  Since then, the trading business of the Applicant only recorded minimal profit or loss and no revenue had been generated from the media business.  The level of its business operations had continuously been low for several years.  For the financial years from 2014 to 2018, it had been operating at net losses with negative operating cash flow.

7.  On 24 January 2019, the Respondent’s Listing Division issued a letter to the Applicant noting that the Applicant’s share price had been trading at HK$0.01 since mid-September 2018 and maintained at that level.  The highest trading price in the past year was not more than HK$0.018.  In that letter the Respondent requested the Applicant to provide a proposal to resolve the issue as the Respondent had concerns under GEM Rule 17.76 when the market price of the shares approached the extremities of HK$0.01. 

8.  Further, on 20 March 2019 the Respondent’s Listing Division issued a letter to the Applicant setting out detailed analysis on the financial results of the Applicant and its businesses supporting its tentative view that the Applicant might have failed to maintain sufficient operations or assets as required under GEM Rule 17.26 to warrant the continued listing of the Applicant’s shares.  The Listing Division invited the Applicant to provide written submissions as to why the Respondent should not suspend trading in the Applicant’s shares.  As stated at [13] of the letter, the suspension of trading would be followed by delisting procedure which gives 12 months to an issuer to re-comply with GEM Rule 17.26, failing that the listing of the shares would be cancelled.

9.  The Applicant provided its written submissions on 10 April 2019.  After considering the same, the Respondent’s Listing Division issued its written decision on 10 June 2019 to suspend trading in the Applicant’s shares pursuant to GEM Rule 9.04. 

10.  On 14 June 2019, the Applicant requested a review of the Listing Division’s decision by the GEM Listing Committee.  After receiving written submissions from the Applicant, the review was heard by the Listing Committee on 29 October 2019. 

11.  The GEM Listing Committee issued its written decision on 13 November 2019.  The Listing Committee was of the view that the Applicant had failed to comply with GEM Rule 17.26 and upheld the Listing Division’s decision to suspend trading in the Applicant’s shares and proceed with the delisting process under GEM Rule 9.14A.  The Applicant had 12 months to re-comply with GEM Rule 17.26.

12.  The Applicant then applied to the Review Committee on 21 November 2019 for a review of the GEM Listing Committee’s decision.  After receiving written submissions from the Applicant, the hearing before the Review Committee took place on 25 February 2020.

13.  On 10 March 2020, the Review Committee issued the Review Decision.  The Review Committee was of the view that the Applicant had failed to comply with GEM Rule 17.26 and upheld the decision to suspend trading in the Applicant’s shares pursuant to GEM Rule 9.04. In the reasons set out in the Review Decision, the Review Committee examined both the scale of operations of the Applicant (in respect of both the trading business and the media business) as well as its level of assets.

14.  On the scale of operations, the Review Committee noted that the Applicant had only generated revenue from the trading business and the scale of operation was limited with recorded net losses or limited profit (excluding non-recurring expenses) over the years.  The situation did not appear to be a temporary downturn or decline.  The Review Committee was concerned that, notwithstanding the submissions of the Applicant, the trading business and the media business were of no substance and they were not viable and not sustainable.

15.  On the level of assets, noting the nature of the assets of the Applicant (mainly consisting of trade receivables, cash and bank balances), the Review Committee was concerned that the operations of these assets might not enable the Applicant to carry out businesses with sufficient level of operations to justify the continued listing of its shares.

16.  The Review Committee also considered the submission of the Applicant that it had conducted its trading business for more than 10 years and no issue had been raised by the Respondent in the past.  The Applicant also said it had outperformed many GEM listed issuers and it had been operating without any debt.  The Review Committee rejected these submissions at [8] of the Review Decision:

“ The Review Committee noted that the Exchange has issued guidance materials on its application of the Rules on sufficiency of operations of issuers in light of issues identified in backdoor listing and shell activities since 2016. The Review Committee further noted that GEM Rule 17.26 is a qualitative test and is to be assessed based on specific facts and circumstances of individual cases. Taking into account the specific facts and circumstances of [the Applicant] (notwithstanding that [the Applicant] had no debt for the years 2018 and 2019), the Review Committee considered that [the Applicant] failed to demonstrate that it had a viable and sustainable business or sufficient assets that enabled it to have a viable and sustainable business.”

17.  As a result of the Review Decision, trading in the Applicant’s shares was suspended on 11 March 2020.  At the hearing, we were told that after the expiry of the 12-month’s period, on 16 April 2021 the Respondent decided to cancel the listing of the Applicant’s shares.

Relevant legislation and Listing Rules

18.  The Respondent operates the Hong Kong Stock Exchange pursuant to the Securities and Futures Ordinance, Cap 571 (“the SFO”).  Under Section 21(1) of the SFO, the Respondent has a duty to ensure, so far as reasonably practicable, an “orderly, informed and fair market”.  Further, as provided by section 21(2) of the SFO, the Respondent should act in the interest of the public, having particular regard to the interest of the investing public in the discharge of its duty.

19.  The GEM Listing Rules are made by the Respondent pursuant to Section 23 of the SFO which empowers the Respondent to make rules for such matters as are necessary or desirable for the proper regulation and efficient operation of the stock market.  Section 23(2)(c) of the SFO specifically authorizes the Respondent to make rules for the cancellation and withdrawal of the listing of, and the suspension and resumption of dealings in, securities.  In addition to the rules cited at [2] and [3] above, the following rules are also relevant for the purposes of this appeal:

“ 9.01 Listing is always granted subject to the condition that, where the Exchange considers it necessary for the protection of investors or the maintenance of an orderly market, it may, at any time, halt, suspend or direct the resumption of 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.

…

9.14 Pursuant to rule 9.01, the Exchange may cancel the listing of an issuer at any time and may do so in any circumstance including (but not limited to) those set out in rule 9.04 and in circumstances where the securities of an issuer have been continuously suspended for a prolonged period without the issuer taking adequate action to obtain a restoration of the listing.

…

9.14A  (1) Without prejudice to its power under rule 9.14, the Exchange may cancel the listing of any securities that have been suspended from dealings for a continuous period of 12 months.”

20.  As held by Chow J at [22] of the judgment below:

“ …The GEM Listing Rules impose requirements on listed companies and their directors to ensure that investors have and can maintain confidence in the market. The requirements are intended, amongst other things, to ensure that listed companies are suitable for listing.”

21.  GEM Rule 17.26 is the equivalent to Rule 13.24 in the Main Board Listing Rules.  As mentioned by the Review Committee, the purpose of these rules and guidance on their application had been discussed in some previous decisions of the Listing Committee and Listing Division.  The relevant principles (which were not disputed by Mr Mok) were summarized by Chow J at [34] of the judgment:

“ (1) Rule 17.26 requires issuers to maintain a sufficient level of operations or assets of sufficient value to warrant the continued listing of their securities. Without quantitative criteria for sufficiency, this rule calls for a qualitative test and is assessed based on the specific facts and circumstances of individual cases.

(2) Rule 17.26 is intended to maintain overall market quality. Issuers that fail to meet this rule may be ‘blue sky companies’ that would attract speculation on their possible acquisitions in the future and lead to opportunities for market manipulation, insider trading and unnecessary volatility in the market which are not in the interest of the investing public.

(3) To balance public shareholders’ ability to access the market to trade in the securities with the need to maintain market quality, the Exchange will only suspend trading in an extreme case. When making the assessment, the Exchange takes into account the current regulatory concerns and acceptable standards in the market.

(4) Cases with the following characteristics are treated as extreme cases warranting suspension -

(a) a very low level of operating activities and revenue; for example the issuer’s business does not generate sufficient revenue to cover its corporate expenses, resulting in net losses and negative operating cashflow;

(b) the current operation does not represent a temporary downturn, and the issuer has been operating at a very small scale and incurring losses for years;

(c) the assets do not generate sufficient revenue and profits to support a continued listing.

In these cases, the issuers are not operating substantive businesses, and the value of the businesses (excluding the listing status) is minimal, if any. It is questionable whether the requirement to carry on a sufficient level of operations or have assets of sufficient value is met.

(5) Rule 17.26 does not merely involve a ‘counting exercise’ under which the assets and revenue of the issuer are measured against a quantitative or comparative benchmark. Instead, the touchstone is whether the issuer can demonstrate, by reference to its level of operations or assets, that it has a viable and sustainable business so as to warrant continued listing. This is a qualitative assessment which must be carried out based on the specific facts and circumstances of each issuer.

(6) The fact that an issuer’s assets exceed its liabilities does not mean that an issuer automatically complies with Rule 17.26. Likewise, the fact that the issuer’s business (or part of its business) turned a net profit is also not necessarily sufficient.

(7) Once suspended, the issuer would be given a remedial period to submit a resumption proposal to demonstrate that it has a viable and sustainable business to re-comply with Rule 17.26 (or the equivalent Main Board Listing Rule 13.24).  If the issuer fails to do so, it may be delisted according to the delisting procedures under Rules 9.14 and 9.14A.”

22.  In light of the statutory framework under which the GEM Listing Rules were issued, the power to suspend trading of listed securities must be exercised for the maintenance of an orderly, informed and fair market and the protection of the investing public. These were precisely the objectives as stated in Rule 9.01.  Rules 9.04 and 17.26 should be read and construed with such objectives in mind.  In particular, as highlighted by Chow J at [22] of the judgment, the overriding criterion of Rule 17.26 is that the continued listing of the issuer’s securities is warranted.

23.  As explained in the guidance set out at [34] of Chow J’s judgment, the continued listing of a company without a viable and sustainable business of substance would attract speculation on their possible acquisitions in the future and lead to opportunities for market manipulation, insider trading and unnecessary volatility in the market which are not in the interest of the investing public.  This is obviously a different consideration from the financial health of the company in terms of its solvency since a ‘blue sky company’ can be financially stable and solvent.

24.  Such reading of the rules is, in our judgment, important when we consider whether in the present context the Applicant had demonstrated that it had a viable and sustainable business or sufficient assets that enabled it to have a viable and sustainable business.  We shall have to elaborate on this aspect of the case at greater length below in addressing Mr Mok’s submissions.  In short, we are of the view that in the context of Rules 9.04 and 17.26, viability and sustainability has to be examined from the prism of the continued listing of the shares being warranted.  We would emphasize that such examination is different from reviewing the viability and sustainability in terms of the solvency of the company.

Application for judicial review

25.  On 29 April 2020, the Applicant applied for judicial review of the Review Decision.  In the Amended Form 86 dated 28 August 2020, two grounds of review were advanced, as summarized by Chow J at [18] of his judgment:

(1)  the Review Decision was unreasonable/irrational, and the Review Committee failed to take into account relevant considerations in reaching the Review Decision; and

(2)  the history and process by which the GEM Listing (Review) Committee reached the Review Decision were deficient in applicable standards of procedural fairness including a want of adequate reasons for the decision.

26.  The judicial review application was heard by Chow J.  By his judgment on 8 December 2020, the learned judge dismissed the Applicant’s application for judicial review.  Chow J addressed the Applicant’s first ground of review at [38] to [46] of the judgment.  His Lordship held that the two requirements under Rule 17.26, though disjunctive, are tied to the ultimate question of whether the continued listing of the issuer’s securities is warranted.

27.  After alluding to the fact that the Review Committee had taken account of: (a) the scale of operations of the Applicant’s trading business and media business; and (b) the level of assets of the Applicant before coming to the conclusion that the Applicant failed to demonstrate that it had a viable and sustainable business or sufficient assets that enable it to have a viable and sustainable business, the judge held that the Review Committee had considered the two requirements under Rule 17.26 disjunctively and was of the view that the Applicant failed to satisfy either requirement.

28.  As it is inappropriate to permit a company’s shares to be listed on a stock exchange if the company does not in fact have operations or assets to enable a viable and sustainable business to be carried out, the judge held that the Review Committee was entitled to regard the sufficiency of a company’s level of operations or assets to enable the carrying out of a viable and sustainable business as the criterion for determining whether the continued listing of the company’s shares was warranted. 

29.  The judge rejected the submission that the decision of the Review Committee was unreasonable/irrational in light of the following:

(a)  The trading business was the sole source of the Applicant’s revenue;

(b)  That business was operated on an indent basis which, over the years from 2014 to 2019, recorded either a loss or only minimal profit;

(c)  While there was improvement in terms of revenue in 2019, the costs of sales also increased commensurately;

(d)  The trading business continued to rely on a very limited number of customers or suppliers (with only 3 customers and 2 suppliers as at 30 June 2019);

(e)  The Applicant had not demonstrated how its plans to expand its customer base and increase funding could secure a significant number of new customers, increase the scale of operations or improve the overall profitability of the trading business;

(f)    Although the Applicant had entered into two master sale agreements and a framework agreement, the payment amounts from the buyers under those agreements were subject to actual purchase orders and were not guaranteed; and

(g)  As for the media business, it had never materialized into a revenue-generating business since its inception in 2009.

30.  The judge further held that it was a matter of professional judgment for the Review Committee to assess if the Applicant’s level of operations, or assets, were sufficient to enable a viable and sustainable business to be carried out.  In the present case, there was no valid or sufficient basis for the court to interfere with such assessment.

31.  As regards the adequacy of the reasons given by the Review Committee, Chow J had this to say at [53] of his judgment:

“ 53. In my view, the GEM Listing (Review) Committee’s letter dated 10 March 2020 informed the Company of the essential reasons for the Review Decision in a clear and intelligible manner. The two substantive questions which required determination, namely, (i) whether the Company carried out a sufficient level of operations, and (ii) whether the Company had tangible assets of sufficient value and/or intangible assets for which a sufficient potential value can be demonstrated to the Exchange, to warrant the continued listing of the issuer’s securities, were succinctly addressed. The reasons given were sufficient to allow the Company to understand why the GEM Listing (Review) Committee reached the conclusion that the Company failed to satisfied the obligation under Rule 17.26. It is not necessary for the GEM Listing (Review) Committee to deal with each and every point of detail raised by the Company. Neither would that be practical or helpful, bearing in mind the composition and functions of that committee. The giving of reasons for a decision on only the essential issues to be determined by a domestic tribunal like the GEM Listing (Review) Committee in a brief and succinct manner has, I consider, much to recommend. Overall, I am of the view that the reasons given by the GEM Listing (Review) Committee are adequate in the circumstances of the present case.”

Appeal to this Court

32.  In its Notice of Appeal dated 29 December 2020, the Applicant raised three grounds of appeal as follows:

(1)  the Review Decision was irrational and Wednesbury unreasonable, and both Chow J and the Respondent erred in essentially applying the amended GEM Listing Rule 17.26 as of 1 October 2019[2], instead of GEM Listing Rule 17.26 as it existed in June 2019 when the Respondent suspended trading of the Applicant’s shares;

(2)  Chow J erred in holding that adequate and intelligible reasons were given in the Review Decision; and

(3)  Chow J erred in giving deference to the Review Committee’s professional judgment on whether the Applicant’s level of operations or assets were sufficient to enable a viable and sustainable business to be carried out.

33.  By a Respondent’s Notice dated 12 January 2021, the Respondent contended that Chow J’s judgment should be affirmed on the additional or alternative ground that:

“ The Applicant did not allege in the Amended Form 86 that the decision of the GEM Listing (Review) Committee dated 10 March 2020 was challenged on the ground of review that there was an error of law or that the decision involved a misinterpretation of GEM Listing Rule 17.26”

34.  At the oral hearing before us, Mr Mok intimated that he need not rely on the argument that the Review Committee did not consider the two requirements under Rule 17.26 disjunctively.  For the purpose of this appeal, counsel was contented to focus on challenging the conclusion of the Review Committee that the Applicant failed to demonstrate that its business was viable and sustainable to warrant the continued listing of its shares.

35.  Mr Mok referred to [9] of the Listing Decision 118‑2018 and submitted that Rule 17.26 should be applied in a manner which struck a balance between the existing shareholders’ interest (in having access to the market at the Stock Exchange) and the need to maintain market quality.  Hence, the Respondent should only exercise the power to suspend and delist in extreme cases.

36.  Counsel submitted that one must have regard to the overall financial position of a company and a loss-making company is still sustainable and viable when its asset position is sufficient to support the business operation.  If a company is solvent and could therefore be carried on in the foreseeable future, it is sustainable and viable despite that it has been operating at a loss.

37.  Amongst companies listed on the GEM Board, Mr Mok said it was not infrequent to have companies which were not operating at a profit.  In this connection, Mr Mok referred to the submission of the Applicant before the Review Committee on 13 January 2020 in which comparison was made between the Applicant and other GEM listed companies.  In that document, it was said that the financial results of the Applicant in 2019 outperformed 143 GEM listed companies (in terms of total assets), 233 GEM listed companies (in terms of revenue) and 232 GEM listed companies (in terms of net profit). 

38.  In respect of the Applicant, Mr Mok submitted that the matters set out by Chow J at [42] of the judgment[3] could not reasonably show that the Applicant’s business was not sustainable and viable.  Counsel submitted that the Applicant was far from being an extreme case because, among other things, in 2018 and 2019 it had significant assets exceeding its liabilities and its business operation had been continuing in the same model for 10 years and was sustainable despite these matters.

39.  Bearing in mind the policy of confining the power to suspend to extreme cases and the Note to Rule 17.26, Mr Mok submitted it should only be used where a company would cease business or where a company is in a financially dire position viz insolvent or nearly insolvent or its level of assets is so low that its existing business will no longer be viable.

40.  Though the Applicant advanced submissions based on the protection of private property under Article 105 of the Basic Law, this is a new point raised by the Applicant for the first time. This point had not been put forward in either the Form 86 or the Notice of Appeal.  After this Court referred counsel to the recent authority of K v Commissioner of Police [2021] HKCA 523 on the practice of this Court regarding raising new point on appeal in judicial review, Mr Mok did not pursue this argument further at the oral hearing.

Discussion

41.  In light of the focus of Mr Mok’s submissions at the oral hearing, we need not discuss in great length if the Review Committee and Chow J had applied the two requirements in Rule 17.26 disjunctively.  It is clear from the reasons of the Review Committee that they had considered the matter from the angles of the scale of operations as well as the level of assets.

42.  As held by Chow J, the two requirements are tied to the ultimate question of whether the continued listing of the issuer’s securities is warranted.  This must be correct in light of our analysis on the correct approach to the construction and application of Rule 17.26 at [22] to [24] above.  It seems to us this was exactly the approach adopted by the Review Committee in giving considerations to these requirements in the Review Decision. 

43.  There is no merit in the contention that the Review Committee erred in law in their approach to Rule 17.26 and that Chow J erred in rejecting such argument in the court below.

44.  Turning to the submissions of Mr Mok that the Review Decision’s conclusion that the Applicant had failed to maintain a sufficient level of operations or have assets of sufficient value to warrant the continued listing of its shares is irrational or Wednesbury unreasonable, we are of the view that the main difference between Mr Mok and Mr Pao as to what is meant by the business was not “viable and sustainable” as opined by the Review Committee in its conclusion at [8]:

“ Taking into account the specific facts and circumstances of [the Applicant] (notwithstanding that [the Applicant] had no debt for the years 2018 and 2019), the Review Committee considered that [the Applicant] failed to demonstrate that it had a viable and sustainable business or sufficient assets that enabled it to have a viable and sustainable business.”

45.  As mentioned above, Mr Mok submitted that a company should only be regarded as not viable and sustainable when it would cease business or where a company is in a financially dire position viz insolvent or nearly insolvent or its level of assets is so low that its existing business will no longer be viable.  In short, according to Mr Mok, viability and sustainability is to be tested by reference to the solvency of a business.

46.  We have already highlighted at [22] to [24] above that this is not the right approach in view of the objects and purposes of Rule 17.26.  We do not find the Note to Rule 17.26 to be of much assistance in this regard as it only provides for some instances (without stating the same to be exhaustive) where non-compliance could be established.

47.  It is also clear to us that the Review Committee did not adopt such restrictive meaning on viability and sustainability since they alluded to the fact that the Applicant had no debt for 2018 and 2019.

48.  In the context of the application of Rule 17.26, the expression “viable and sustainable” is derived from paragraph (5) of the guidance extracted from earlier Listing decisions and summarized by Chow J at [34] of the judgment.  That paragraph reads:

“ Rule 17.26 does not merely involve a ‘counting exercise’ under which the assets and revenue of the issuer are measured against a quantitative or comparative benchmark. Instead, the touchstone is whether the issuer can demonstrate, by reference to its level of operations or assets, that it has a viable and sustainable business so as to warrant continued listing. This is a qualitative assessment which must be carried out based on the specific facts and circumstances of each issuer.” (Our emphasis)

49.  Viability and sustainability is to be examined in the context of a qualitative assessment as to whether an issuer has a viable and sustainable business which warrants the continued listing of its shares.  Under the statutory framework and the GEM Listing Rules, whether the threshold of viability and sustainability warranting continued listing has been met is a matter of professional judgment for the members of the Listing Division, the Listing Committee and the Review Committee, see Sanyuan Group Ltd v The Stock Exchange of Hong Kong CACV 191/2008 (21 July 2009).  In the absence of any error of law or failure in taking account of relevant matters or taking irrelevant matters into account, the court should not intervene with such professional judgments.

50.  Though the Court of Appeal in that case was concerned with a specific question as to whether the Stock Exchange should have informed the applicant of the quantum of turnover, profit or assets which would be sufficient to satisfy Rule 13.24 of the Main Board Listing Rule, we do not accept Mr Mok’s submission that the rationale was only confined to the determination of that specific issue.

51.  In this regard, we agree with Chow J’s summary at [37] of the judgment of the relevant principles that can be extracted from that case.  These principles are also applicable in the present context:

“ (1) There is a great deal of flexibility in the application of Main Board Listing Rule 13.24 or its equivalent, GEM Listing Rule 17.26.

(2) The question of whether the obligation under Main Board Listing Rule 13.24 has been satisfied involves a qualitative, not quantitative, assessment which is fact and company specific. No universal benchmark applicable to all companies can be set.

(3) The assessment of whether the obligation under of Main Board Listing Rule 13.24 has been satisfied is primarily a matter for the relevant committees of the Exchange, which comprise experienced professionals in various aspects relevant to the operations of the Exchange.  This approach is in line with the general principle that the court should accord a wide margin of discretion to the decision of a professional body where the decision in question is based on an exercise of professional judgment and expertise, and should not interfere in such decision save in a compelling case.”

52.  We also agree with Mr Pao that there is no justification to read in a “proximity to insolvency” requirement in the application of Rule 17.26.  Such requirement would lead to the absurd result that notwithstanding the risk to market speculation and manipulation, insider trading and unnecessary volatility, the Respondent would not be entitled to suspend the listing of a dormant issuer or one with negligible business activity so long as it has assets which have not been, and will not be, meaningfully deployed in the course of business.

53.  Also, such requirement does not accord with past practices.  Previously, the Respondent had found issuers to be in breach of Rule 17.26 or its equivalent after such issuers had disposed of their principal businesses even though they were solvent and the remaining businesses still generated minimal profits.

54.  Paragraph (6) of the guidance set out in the earlier listing decisions also negated such “proximity to insolvency” approach:

“ (6) The fact that an issuer’s assets exceed its liabilities does not mean that an issuer automatically complies with Rule 17.26. Likewise, the fact that the issuer’s business (or part of its business) turned a net profit is also not necessarily sufficient.”

55.  Further, the flexible qualitative assessment by the Respondent on whether an issuer maintains a viable and sustainable business that warrants the continued listing of its shares should also be a holistic exercise.  Thus, we agree with Mr Pao that the level of operations and the level of assets should not be looked at in isolation from the Applicant’s actual business.   The Respondent was entitled to examine how the assets have actually been deployed in the past and the likely use of those assets in the future in connection with the actual business.  Equally, it was relevant to consider, as the Listing Division, the Listing Committee and the Review Committee did, the Applicant’s net losses and negative operating cash flows for several consecutive years from 2012 to 2019.

56.  For these reasons, a comparison of the Applicant with other GEM listed companies on two or three isolated factors cannot be of any avail.

57.  Likewise, there is no merit in Mr Mok’s submission that the application of Rule 17.26 in this manner failed to give a single meaning to the rule and instead wrongly ascribed an unfettered discretion to the Review Committee.  Placing reliance on Shiu Wing Steel Ltd v Director of Environmental Protection & Airport Authority (No 2) (2006) 9 HKCFAR 478 at [23], Mr Mok submitted that the power under Rule 17.26 is circumscribed by the guidance published by the Respondent.  Counsel said that there should be a single meaning for “viable and sustainable business” and the meaning he contended for (tied in exclusively with the solvency of the business) was the one rejected by us at [45] and [46] above (as further explained at [52] to [54]).  The single meaning for that expression is the one we stated at [49] above.  Bearing in mind the nature of the exercise and its object and purpose, we respectfully concur with the analysis of Rogers VP in Sanyuan Group Ltd v The Stock Exchange of Hong Kong, supra, that the assessment has to be conducted qualitatively by reference to the circumstances of a particular company individually.  It is inherent in such exercise that it is inappropriate to single out one or two aspects pertaining to the finance of the company and rigidly apply some quantitative benchmarks as conclusive.  

58.  With the meaning of viability and sustainability of a business properly understood in the context of Rule 17.26, Mr Mok’s argument based on solvency and the lack of complaint as to the Applicant’s existing business model in the past loses much of its force.

59.  Given the holistic nature of the assessment, we cannot accept Mr Mok’s submission that the matters set out at [42] of the judgment below are irrelevant to that assessment.  There is no merit in the submission that the Review Committee took account of irrelevant matters.

60.  In respect of Mr Mok’s submission that the Review Committee erred in exercising the power of suspension when the Applicant’s case did not fit the profile of extreme cases at paragraph (4) of the guidance set out [34] of the judgment below, counsel advanced this submission by making comparison with other GEM listed companies on some selected factors.  As we have held, such comparison was unhelpful.

61.  Further, the extreme cases are those with these characteristics:

(a)  a very low level of operating activities and revenue; for example the issuer’s business does not generate sufficient revenue to cover its corporate expenses, resulting in net losses and negative operating cashflow;

(b)  the current operation does not represent a temporary downturn, the issuer had been operating at a very small scale and incurring losses for years; and

(c)  the assets do not generate sufficient revenue and profits to support a continued listing.

62.  The Review Committee plainly regarded the Applicant as fulfilling (a) and (b) in its discussion on the scale of operations.  In respect of (c), given the nature of the assets as alluded by the Review Committee, its conclusion that the operations of the assets might not enable the Applicant to carry out businesses with sufficient level of operation to justify the continued listing is tantamount to a finding that (c) is established.

63.  Thus, according to the assessment of the Review Committee, the Applicant’s situation did fit the profile of extreme cases warranting suspension.

64.  We do not see any basis for the court to intervene with this assessment as being Wednesbury unreasonable.

65.  We therefore reject the first ground of appeal which was the main ground argued by Mr Mok.

66.  Regarding the other grounds, Mr Mok only relied on them as supportive of the main ground: see [17] of his skeleton submissions.  We can dispose of them shortly.

67.  In respect of the duty to give reasons, Mr Mok’s only submission before us is, as set out at [17(1)] of the skeleton submissions, that the Review Committee failed to set out its understanding or interpretation with reference to the guidance published by the Respondent of the criterion of level of assets sufficient to enable the Applicant to carry out businesses with sufficient level of operation. 

68.  We have explained above the correct approach in light of the statutory framework, the object and the purpose of the rules and the guidance.  In our judgment, the Review Committee acted in accordance with such approach.  We agree with Chow J at [51] and [53] of the judgment below that the Review Committee had given adequate reasons from a public law point of view based on the test discussed by Au J (as Au JA then was) in Ng Shek Wai v Hong Kong Institute of Certified Public Accountants [2019] HKCFI 2439, at [41].

69.  As regards the ground concerning deference to the professional judgment of the Review Committee, the only point made by Mr Mok at [17(2)] of the skeleton submission hark back at his argument on single meaning.  We have already addressed the same in the discussion at [57].

70.  Notwithstanding the valiant efforts of Mr Mok, the Applicant failed to persuade us that there is any ground for reversing the judgment of Chow J.

71.  We dismiss the appeal with costs, with certificate for two counsel.