On 24 May 2019, The Stock Exchange of Hong Kong Limited (Exchange) released its conclusions on the consultation paper published last September on the proposal to introduce a specific suspension requirement applicable to listed issuers with disclaimer or adverse audit opinion on their financial statements (see our previous client alert).

The Exchange decided to implement the proposal, but with modifications taking into account some of the market’s concerns.

New specific suspension requirement

Under the new Main Board Rule 13.50A (GEM Rule 17.49B):

  • the Exchange would normally require suspension of trading in an issuer’s securities if the issuer publishes a preliminary results announcement for a financial year and the auditor has issued, or has indicated that it will issue, a disclaimer of opinion or an adverse opinion on the issuer’s financial statements; and
  • the suspension will normally remain in force until the issuer has addressed the issues giving rise to the disclaimer or adverse opinion, provided comfort (see examples in the note below) that a disclaimer or adverse opinion in respect of such issues would no longer be required, and disclosed sufficient information to enable investors to make an informed assessment of its financial position.

Note: Examples on how an issuer could provide comfort that a disclaimer or adverse opinion in respect of the relevant issues would no longer be required include:

  • a full financial year audit or a special interim audit of the issuer’s financial statements; or
  • a special engagement of the auditor to perform audit on a single financial statement of the issuer or a specific element, account or item of a financial statement under HKSA805 (Revised).

However, the suspension requirement will not apply where:

  • the disclaimer of opinion relates to the going concern issue only; or
  • the underlying issue giving rise to the audit modification has been resolved before the issuer publishes the preliminary results announcement.

Effective date

The new Main Board Rule 13.50A (GEM Rule 17.49B) will apply to issuers’ preliminary annual results announcements for financial years commencing on or after 1 September 2019.

Transitional arrangement

Under the current delisting rules, issuers may be delisted after their continuous suspension for 18 months for a Main Board issuer (or 12 months for a GEM issuer) (prescribed remedial period).

As a transitional arrangement, the prescribed remedial period will be extended to 24 months for both Main Board and GEM issuers that are suspended solely due to a disclaimer or adverse opinion being issued in the first two financial years after the implementation of the new rule. That means, the 24 months’ remedial period will apply to issuers suspended solely due to disclaimer or adverse opinions on their financial statements for the financial years commencing on or after 1 September 2019 and up to and including 31 August 2021.

Remedial period for circumstances outside issuer’s control

The Exchange has also updated Guidance letter HKEX-GL95-18 on long suspension and delisting to clarify that where an issuer suspended under Main Board Rule 13.50A (GEM Rule 17.49B) has satisfied the Exchange that it has made all reasonable efforts to resolve the issues but, due to reasons outside its control (see examples in the note below), such underlying issues remain unresolved upon expiry of the prescribed remedial period, the Exchange would consider allowing a longer remedial period, with the duration of the period to be determined case by case. Such extension would be brought to the Listing Committee for consideration. The Listing Committee would not normally allow a further extension of the remedial period.

Note: Examples of circumstances that may be considered to be outside the issuer's control include:

  • delay in government granting a requisite approval due to change in government policies, where due applications and filings had been made by the issuer, and where it has no influence on the outcome and timing of the grant;
  • a temporary suspension of business upon the request of a regulatory or government authority due to a change in the regulatory requirements; and
  • the audit issue can only be fully resolved upon a court order or a final arbitral awards with respect to outstanding proceedings is obtained or granted.