On 11 March 2021, the Market Misconduct Tribunal (the “MMT”) fined Magic Holdings International Limited (“Magic”) and five of its directors a total of $4 million after they were found to be culpable of late disclosure of inside information on L’Oréal S.A.’s (“L’Oréal”) proposed acquisition of Magic in 2013.
The five directors are (1) chairman, Mr. Stephen Tang Siu Kun; (2) executive directors, Mr. She Yu Yuan, (3) Mr. Luo Yan Wen and (4) Mr. Cheng Wing Hong who was also the company secretary at the material time; and (5) non-executive director, Mr. Sun Yan.
Since early March 2013, Magic and L’Oréal had discussions concerning the latter’s acquisition proposal. In a meeting on 27 April 2013, L’Oréal’s and Magic’s founders agreed that an offer price of not less than $5.5 per share would be considered by Magic’s board of directors.
Mr. Stephen Tang, Mr. She and Mr. Luo indicated to L’Oréal that they would contact Magic’s institutional investors to gauge their interest in the acquisition proposal and they would also support L’Oréal’s request to Magic’s board of directors to carry out due diligence. However, Magic did not disclose the information relating to L’Oréal’s acquisition proposal to the public until August 2013.
In the MMT’s view, the negotiations between Magic and L’Oréal had gone beyond testing the waters and hence the relevant information constituted inside information. Furthermore, Magic’s breach of the disclosure requirements was due to the fact that its directors were not informed in a timely manner of all information relevant to the determination of whether it was necessary to make disclosure about the potential acquisition by L’Oréal to the public.
A key takeaway is that the MMT reiterated the importance of a listed company taking all reasonable measures to monitor the confidentiality of the proposed acquisition and disclosing inside information to the public as soon as reasonably practicable after having knowledge that the confidentiality of such information had not been preserved.
A further important takeaway from this case is that company secretaries of listed companies can have regulatory liability on par with directors for failures to disclose inside information. The MMT found Mr. Cheng liable on the basis that Mr. Cheng, as the company secretary, had been negligent and failed to take all reasonable measures from time to time to ensure that proper safeguards existed to prevent the breach of the disclosure requirement, contrary to section 307G of the Securities and Futures Ordinance (Cap. 571).
For advice on your disclosure requirements in relation to inside information, please contact us for a discussion today.