Deconstructing Sponsor Prospectus Liability (HKLJ)

"Deconstructing Sponsor Prospectus Liability"
Syren Johnstone, Antonio Da Roza and Nigel Davis
Hong Kong Law Journal
2016, Vol. 46, Part 1, pp. 255-286

Abstract: The question of whether a sponsor of an initial public offering (IPO) is subject to the criminal and civil liability provisions of Hong Kong’s prospectus law has been debated for over 15 years and remains untested in court. The interpretation of the law provided by the Securities and Futures Commission (SFC) in August 2014 is that sponsors are subject to prospectus liability because they are persons who authorize the issue of the prospectus, an interpretation based on certain non-statutory considerations to which sponsors are subject. To examine whether the SFC’s position is supported in law, this article considers three possible routes by which legal liability might be established: through the relationship between non-statutory regulations and law, the law on authority, and the legal, regulatory and commercial context of sponsor work. However, none of these routes provide clear support. An unexpected finding was that elements underlying the SFC’s position could potentially apply to underwriters of an IPO. While the SFC has significant powers over sponsors outside the scope of prospectus law, the position under prospectus law of private civil litigants vis-à-vis sponsors remains uncertain. The options for resolving the current disjunct between prospectus provisions originally introduced in the context of a largely unregulated market and expectations under current regulatory architecture are considered.

AIIFL Report on IPO Liability Featured in Global Capital Asia

"HK IPO sponsors could escape the prospectus noose"
Philippe Espinasse
Global Capital Asia
29 September 2015

As Hong Kong IPOs start to make a timid comeback after a long summer lull, I unearthed an interesting working paper entitled “IPO sponsors and prospectus liability: the bridge too far?”, published in August by the Asian Institute of International Financial Law (AIIFL) of the University of Hong Kong.

     Its authors, Syren Johnstone (in the interest of full disclosure, co-author with me of the study manual for IPO sponsor examinations published by the Hong Kong Securities and Investment Institute), Antonio da Roza and Nigel Davis (who runs a course at HKU where I teach as a honorary lecturer), are all members of the university’s faculty of law.

     They argue at some length that, contrary to the conclusions reached by the Securities and Futures Commission (SFC) in August 2014, there appear to be no clear legal grounds supporting the SFC’s view that sponsors are subject to statutory civil and criminal liabilities in respect of material mis-statements made in Hong Kong IPO prospectuses.

     "Criminal liability is as serious as it gets, but the SFC's two-page conclusion falls well short of explaining to sponsors on what basis they should fear criminal penalties" said the authors, in an interview with Clawback.

     Their findings could prove to be ground-breaking, and help to topple the SFC’s position. In such a case, it would then be up to the courts to determine the responsibility of sponsors on a case by case basis, a much more palatable outcome for brokers and investment banks accused of having been involved in sponsoring work of sub-standard quality... Click here to read the full article.  Click here to download the IPO report from the AIIFL website.

Congratulations to RGC Research Grant Awardees (Faculty of Law)

Congratulations to Shahla Ali, Antonio Da Roza, Peter Chau, Hualing Fu, Marco Wan and Richard Wu on their successful 2015-2016 General Research Fund grants awarded by Hong Kong's Research Grants Council.  A range of interesting projects are funded including projects on civil mediation reform, unrepresented civil litigants, criminal punishment philosophy, Chinese public interest lawyers, law and film in Hong Kong, and a comparative study in Asia of law students' perception of values.  This year's excellent results represent a success rate of 55 per cent and a total amount of funding of more than HK$3.6 million.

$1.1M in New Small Project Research Funding

Congratulations to the Faculty members who were awarded HKU Small Project Research Grants up to $80,000 each. The projects cover a wide range of topics and are listed as follows (in no particular order):

1. Competition Law Enforcement against Abuses of Market Power in Hong Kong (36 months), Kelvin Kwok

2. Fiduciary Obligations: Justifying and Limiting Loyalty (24 months), Rebecca Lee

3. Reforming Anti-Dilution Law in China (24 months), Haochen Sun

4. Path Dependence and Interconnected Institutions: Implications for Legal Transplantation (24 months), Guanghua Yu

5. Implications of the New Round of Legal and Market Reform in China (30 months), Xian Chu Zhang

6. Eastern Values in International Arbitration: An Initial Exploration (36 months), Shahla Ali

7. Exercise of Legislative Power by the Executive (36 months), Jianlin Chen

8. A Comparative Legal Study on Tackling Cyberbullying and Protecting Children's Rights (24 months), Anne Cheung

9. Financial Planning for Mental Incapacity: A Tale of Two Confucian Cities (24 months), Lusina Ho

10. Survey of Public Opinion Toward Lesbian, Gay, Bisexual and Transgender People in Hong Kong (24 months), Kelley Loper

11. Minority Shareholder Remedes in Hong Kong: Evolving Dispute Resolution Approaches (24 months), Katherine Lynch

12. The Interrelation between Case Law and Legislation in Aspects of Commercial Law (36 months), Ji Lian Yap

13. A statistical study of Constitutional and Administrative Law judgments from 1997 - 2012 (24 months), Antonio Da Roza

14. The Tightening of Transparency Requirements in the International Tax Regime and its Impact on Mainland China and Hong Kong (15 months), Doreen Qiu

15. Freedom of information and privacy protection in China: resolving conflicts and promoting accountability (18 months), Clement Chen

16. The Delicate Art of Med-Arb and Its Future Institutionalisation in China (18 months), Weixia Gu.

CCPL Submission for the EOC's Discrimination Law Review

The Centre for Comparative and Public Law (CCPL) has made a written submission for the Equal Opportunities Commission's Public Consultation on the Discrimination Law Review.  CCPL broadly supported the EOC's proposals for modernisation, harmonisation and simplification of the existing legal framework.  It also highlighted the need to comply with international human rights standards, promote substantive equality and provide an effective remedy for all forms of unjustifiable discrimination.  Antonio Da Roza (Research Assistant Professor) deals with the issue of consolidation and harmonisation based on his study of the structure and content of the four existing anti-discrimination statutes.  From his original empirical study of discrimination litigants, he emphasises the need to ensure free and fair access to the judicial system when making discrimination claims.  Farzana Aslam (Principal Lecturer and Associate Director, CCPL) outlines shortcomings in promoting equality and non-discrimination and highlighted concerns with the EOC's conciliation mechanism.  She advocates for a consolidated human rights body that complies with the Paris Principles.  Kelley Loper (Assistant Professor and Deputy Director, CCPL) explains the need to comply with Hong Kong's international human rights obligations, which include duties to promote substantive and formal equality and to address all forms of unjustifiable discrimination.  She proposes amending the definition of 'indirect discrimination', strengthening the reasonable accommodation requirement, expanding the list of prohibited grounds to include sexual orientation, gender identity, age, religion and immigrant status, and minimising or removing broad exceptions.  Click here to download the full report.

New Book: Companies (Winding-Up and Miscellaneous Provisions) Ordinance

Companies (Winding-Up and Miscellaneous Provisions) Ordinance: Commentary and Annotations

Sweet & Maxwell

December 2014

Editors: Antonio Da Roza and Kevin Tang

Description: The new Companies Ordinance (Cap. 622) came into effect on 3 March 2014. While Cap. 32 has not been completely repealed except those provisions relating to winding-up and insolvency of companies and prospectuses. The Cap. 32 has now been re-titled as “Companies (Winding-Up and Miscellaneous Provisions) Ordinance”. This title is a must-have publication to examine each and every section of the remaining law, highlighting the key changes incorporated and amended as a result of the enactment of the new Companies Ordinance. The main focus of this Companies (Winding-Up and Miscellaneous Provisions) Ordinance: Commentary and Annotations including: 1. Prospectives of Companies registered here in Hong Kong; 2. Winding-Up of a Company; 3. Insolvency of a Company; 4. Director duties of care and disqualification; 5. Appointment of receivers and managers of insolvent companies; 6. Restrictions on the sale of shares; 7. Restrictions on the offers of shares for sale; 8. Prevention of evasion of the societies; and 9. For any other incidental and connected matters. Notable highlights for these commentary & annotations are: • Insightful commentary and annotations of all those 244 Sections of Cap. 32 which remain in force; • Select list of specified forms for use under Cap 32 regarding the Winding-Up and Insolvency of a Company; and • Briefing and consultation notes on the recommended improvements to the clarity and application of the Corporate insolvency and Winding-Up provisions.