Reed Smith Client Alerts

The Hong Kong courts have recently considered a number of judicial review applications involving listed companies seeking to challenge the delisting decisions made by the Hong Kong Stock Exchange on a variety of grounds as a last-ditch effort to delay or avoid delisting. However, the courts have generally been unsympathetic to the applicants. In this client alert, we review recent court decisions and set out some practical guidance and considerations for listed companies that may find themselves in similar situations.

Hong Kong delisting regime

The Hong Kong Stock Exchange (HKEX) has been progressively tightening the rules governing the delisting of issuers and the delisting regime has changed markedly over the past few years as prolonged suspensions of trading have become a significant concern. Since August 2018, the HKEX has adopted a more streamlined approach to enable the delisting of issuers that were suspended for the full 18 month remedial period (Remedial Period)1 but failed to resume trading upon expiry of the Remedial Period.

In implementing a hard deadline for resumption of trading, the HKEX has set a much higher bar for suspended listed companies to preserve their listing status. Time is now of the essence when it comes to taking proactive steps to remedy the relevant issues and achieve resumption within the Remedial Period, as opposed to submission of a resumption proposal based on the previous regime. The HKEX has made it clear that the current delisting framework was not intended to promote or facilitate resumption of trading. Instead, it was intended to enable the HKEX to delist issuers that fail to meet the continuing listing criteria in a timely manner and incentivise suspended issuers to act promptly with a view towards resumption.2

In this regard, the statistics are telling. The number of listing cancellations for Main Board and GEM Board listed companies increased by over 60% from 19 companies in 2019 to 31 companies in 2020. Up to July 2021, there were 18 listing cancellations but it is expected that more may follow during the remainder of the year. This surge has notably run parallel with an increase in applications made to the Listing Review Committee (LRC) for review of the delisting-related decisions made by the Listing Committee (LC), and further applications to the Hong Kong courts for judicial review of the said decisions. However, time and again, these applications have been firmly rejected on the grounds that the companies failed to demonstrate exceptional circumstances that would justify overturning the HKEX’s decisions or necessitating an extension of the Remedial Period.