On 4 January 2022 the Stock Exchange of Hong Kong Limited (“Exchange“) issued a Statement of Disciplinary Action against China Properties Investment Holdings Limited (the “Company“) and five of its current and former directors (the “Directors“).

The Company’s wholly owned subsidiary made two disposals of listed shares on the Company’s behalf in 2019 (the “Two Disposals“). Each of the Two Disposals constituted a disclosable transaction, but the Company failed to announce the Two Disposals within the required time. Thus, the Listing Committee found that the Company had breached Listing Rule 14.34. This was, in fact, a repeated breach – in 2018, the Company had already been warned by the Exchange after a similar incident. The Listing Committee also found that the Directors had failed to discharge their duties to ensure that the Company had adequate and effective internal controls for the purpose of complying with the notifiable transaction requirements. As a result, the Exchange directed the Company to conduct an internal control review for procuring compliance with Chapter 14 of the Listing Rules and each of the Directors to undergo training on regulatory and legal topics and Listing Rule compliance.

The Exchange is more likely to take disciplinary actions and impose public sanctions on those responsible where the breach is a repeated one after a warning or guidance has been given by the Exchange, as in this case. To avoid disciplinary actions of this nature, directors should provide timely responses when breaches or deficiencies have been discovered.

The Insurance Authority (IA) appointed managers to take full control of the affairs and property of Target Insurance Company Limited (Target) on 7 January 2022.  Pursuant to the IA’s press release, the IA took this action to maintain market stability and protect policy holders’ interests, on the grounds of (1) Target’s potential breaches of statutory requirements relating to its investment activities and asset allocation and (2) potential deficiencies in Target’s corporate governance.  The management of Target denies these allegations, according to news reports.

The IA’s power to appoint managers is provided under section 35(2)(b) of the Insurance Ordinance (Cap.41) (IO).  Under the IO, the IA may only invoke such powers when, among others:

• it considers it desirable for protecting policy holders against the risk that the insurer may be unable to meet its liabilities or to fulfil the reasonable expectations of policy holders (sections 26(1A) and 26(1)(a)); and
• it considers its actions under sections 24 to 34 (see below) would not be sufficient to appropriately safeguard the interests of policy holders (section 26(5)).

The IA’s regulatory powers over insurers under the IO also include:

• imposing restrictions on new business, investments, and premium income (sections 27, 28 and 31);
• requiring insurers to maintain certain value of assets in specific ways and to have such assets held by the IA’s approved trustee(s) (section 29);
• mandating actuarial investigations (section 32);
• requiring insurers to provide specific information and documents in specific manners (section 34); and
• directing insurers to take steps which the IA considers appropriate (section 35).

It is the first time that the IA exercises its power to appoint managers since its establishment in 2015.  Insurers should pay close attention to developments in this case as this may set a precedent for IA’s approach to exercise such powers in future.

On 1 January 2022, the proposed amendments to the Hong Kong Listing Rules relating to the new listing regime for special purpose acquisition companies (SPAC) have become effective. The Stock Exchange of Hong Kong Limited (SEHK) also issued a guidance letter on SPACs to assist applicants and issuers to understand and comply with the amended Listing Rules.

The new SPAC listing regime reflects the SEHK’s commitment to make Hong Kong’s capital-raising markets internationally attractive, competitive and diversified.

The Court of First Instance (“CFI“) has recently reaffirmed an employer’s right to terminate a contract of employment and agency without cause in the cases of Lam Siu Wai v Equal Opportunities Commission [2021] HKCFI 3092 and Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784.

In Lam Siu Wai, the dismissed employee claimed wrongful dismissal in breach of the employer’s implied duty of mutual trust and confidence. The CFI ruled that such duty involves the maintenance of the employer-employee relationship, but is not applicable in the context of termination. Further, the employer’s contractual or statutory termination right can be exercised unreasonably or capriciously, so long as it is exercised in accordance with contractual and statutory rights.

In Cheung Li On, where a breach of the implied duty of good faith in the exercise of the contractual right was argued, the CFI similarly ruled that the very nature of the power to terminate a contract without cause is that its exercise does not have to be justified, and it cannot be overridden by the implied duty of good faith. A duty of good faith is implied to restrict an unqualified discretion only if the termination power may prevent a proper exercise of contractual discretion, but not to limit a right to terminate.

To avoid a dispute, employers must pay attention when deciding whether to give or stay silent on the reasons for termination.

On 2 December 2021 Hong Kong Exchanges and Clearing (HKEX) announced the publication of a Net-Zero Guide to sustainability and achieving net zero carbon for Hong Kong listed issuers, and other businesses looking for guidance and insight, and a partnership with leading environmental, social and governance data providers to display HKEX-listed companies’ ESG metrics.

This is important guidance for Hong Kong listed companies which now have enhanced ESG reporting obligations under the Listing Rules.