Consultation Paper on Backdoor Listing, Continuing Listing Criteria and Other Rule Amendments

The Stock Exchange of Hong Kong Limited (“SEHK”) on 29 June published (i) a consultation paper on backdoor listing, continuing listing criteria and other rule amendments; and (ii) the guidance letter on listed issuer’s suitability for continued listing (GL96-18).

In recent years, SEHK noted an increase in market activities relating to trading of, and creation of “shell companies”. The shell creation activities involve the listing of new applicants whose sizes and prospects do not appear to justify the cost or purpose associated with a public listing, and listed issuers, who take corporate actions to substantially scale down their original businesses, leaving behind very small operations for the purpose of meeting the continuing listing obligations.

To maintain a quality market and to curb the shell activities, SEHK proposes to tighten the reverse takeover (RTO) Rules and continuing listing criteria to address concerns about backdoor listings and shell activities. It has also published a guidance letter on listed issuer’s suitability for continued listing as above-mentioned.

The Company Law Committee of the Law Society agreed with most of the changes; it also made supplemental suggestions and comments thereto. The Committee considered that where listed issuers may appear as though they have been taking some evasive acts by using the “backdoor”, those issuers have to go through the same procedures as a new listing, i.e., RTO in the Listing Rules.

The submission on the above can be found here: