On 26 May 2021, the Listing Committee of The Stock Exchange of Hong Kong Limited (the “HKEx”) censured Tech Pro Technology Development Limited (Delisted, Previous Stock Code: 3823) (the “Company”) and seven of its former directors.
The Company acquired a 50% interest in a joint venture from its owner (“JV Partner”) in 2014. Two former executive directors were appointed as the Company’s representatives in the joint venture. The directors however failed to implement effective risk management and internal control procedures to monitor the operations of the joint venture or safeguard its assets. HKEx considered that the inaction by the directors created an environment for irregularities, which eventually resulted in the joint venture’s loss of a substantial asset.
Although the independent non-executive directors (“INEDs”) were not responsible for the initial investment in the joint venture, this did not absolve them from their failure to take steps to ensure the adequacy of the relevant risk management and internal control procedures. Amongst other things, the INEDs were members of the audit committee, and were responsible for the review and supervision of the financial reporting process and internal controls of the Company. The INEDs had considerable relevant experience and knowledge which should have enable them to assess the affairs of the Company reasonably accurately.
A key takeaway that the HKEx reiterated in their regulatory announcement was that directors, including INEDs, have clear duties and responsibilities to safeguard the interests and assets of a listed issuer. Directors, both executive and non-executive, must ensure the effective risk management and internal control systems are established, maintained and implemented.
A copy of the Statement of Disciplinary Action is available on the HKEx website.
Contact us today for advice on your obligations under the Listing Rules as a director or assistance with risk management and internal control systems.