The shares in Sanyuan Group Limited have recently been delisted from the Hong Kong Stock Exchange after a suspension of over five years and seven months. Sanyuan's delisting follows the company's unsuccessful application to Hong Kong's highest court (Sanyuan Group Limited v The Stock Exchange of Hong Kong Limited, FAMV 52/2009) for leave to appeal the Court of Appeal's decision that the Stock Exchange is not required to provide an objective benchmark for determining the requisite level of operations or assets under Listing Rule 13.24 in a relisting application.
The underlying action was an application by Sanyuan for judicial review of the Listing Appeals Committee ("LAC")'s decision refusing to relist its shares on the basis that the company did not have a sufficient level of operations or assets as required under Listing Rule 13.24. The Court of First Instance held that the Stock Exchange should have informed Sanyuan as to what quantum of turnover, profit or assets was considered sufficient for compliance. The court quashed the LAC's decision and ordered that the relisting be re-considered by a differently constituted LAC. For a discussion of the first instance decision, please see oure-bulletin of 12 June 2008.
Court of Appeal decision
On appeal (Sanyuan Group Limited v The Stock Exchange of Hong Kong Limited, CACV 191/2008), the Stock Exchange argued that the judgment below "imposed an impractical and undesirable requirement" on the regulator. As each company had to be considered individually, it was impossible to set a benchmark applicable to all issuers. The Court of Appeal unanimously agreed.
The Court of Appeal held that there was a great deal of flexibility in the application of Listing Rule 13.24. In the absence of procedural unfairness, it was for the various Stock Exchange committees, being experienced market professionals, to exercise their judgment on whether to sanction a relisting. A benchmark was not necessary as a company's operations criteria would remain the same irrelevant of any benchmark. In any event, guidance to a company seeking relisting may be found in Chapter 8 of the Listing Rules which sets out the basic conditions which have to be met before a company is considered to be suitable for listing. Although the Stock Exchange does not require a relisting applicant to comply with the levels set out in Chapter 8, it can provide an indication of the appropriate levels for the purposes of Listing Rule 13.24.
The appeal court found that Sanyuan had been given adequate opportunity to make representations, its case had been properly heard, and there had been no bias on the part of the Stock Exchange committees. Therefore, the LAC had been entitled to make the qualitative decision that Sanyuan had not put forward a credible proposal.
Sanyuan's application for leave to appeal the Court of Appeal decision was rejected by both the Court of Appeal and the Court of Final Appeal. As such, the Court of Appeal decision remains unchallenged. On 24 December 2009, the shares in Sanyuan were delisted from the Stock Exchange.
The Court of Appeal judgment confirms the regulator's power to apply a flexible approach to Listing Rule 13.24 in a relisting application. The decision is consistent with the function of the Stock Exchange to protect investors and maintain a fair, orderly and efficient market. Applicants seeking to overturn the decision of a regulator should ensure that they have a sound basis for challenge. As Stone J cautioned in the Court of Appeal decision, in the absence of lack of due process or procedural unfairness, "any court should hesitate long and hard before moving to interfere with the decision of a market regulator".