After delisting

Trading suspension

For shareholders, delisting could be more horrifying than trading suspension since it removes a company’s listing status and rules out the possibility of its trading resumption.

Under the existing delisting framework, once a company becomes suspended, it has to rectify matters related to its listing, such as insufficient public float, insufficient operations or affairs deemed inappropriate for listing. The Hong Kong Exchanges and Clearing Limited (HKEX) may specify a period within which an issuer must have remedied those matters, and in extreme circumstances, may also delist an issuer immediately.

This framework sets a deadline for resumption of trading. Generally speaking, Main Board and GEM Board issuers may be delisted after a 18 and 12 month-long suspension respectively.

To know more about trading suspension.

What’s next for shareholders?

Shareholders of a delisted company would likely feel frustrated and helpless.

The shares of delisted issuers cannot be traded at the Stock Exchange of Hong Kong (SEHK), and without an over-the-counter (OTC) market for delisted stocks, it is almost impossible for minority shareholders to sell or determine the price of their holdings.

In the event of delisting, it is best for minority shareholders to assume that they may lose all of their money, unless:

  • Someone, such as the controlling shareholder, is willing to buy back their shares. But do note that this is not an obligation for the controlling or substantial shareholders. Even if the controlling shareholder is willing to do so, without an open market, the offer price to minority shareholders may be at a discount.
  • Some issuers in suspension are forced to wind up due to financial distress or operational difficulties. Their assets will be liquidated and the funds will be distributed among creditors and shareholders. However, these companies are often insolvent, and the creditors will be the first in line to get compensated, followed by shareholders, who may only end up receiving a small amount or nothing at all.
  • If the listed companies violate market regulations, such as falsification of account, SFC may request a court order pursuant to Section 213 of the Securities and Futures Ordinance to demand the issuers to “reverse the transaction” and indemnify the shareholders. However, this clause is rarely cited and the legal proceedings may take a long time.

Some may think that delisting takes away shareholders’ hope of trading resumption after the company sorts through its problems, compare with waiting infinitely for the company to resume trading, delisting can be regarded as the more sensible way out.

2 Jul 2020