Hong Kong Market Misconduct Update: Repurchase Order and Other Relief: Application of Section 213 of the Securities and Futures Ordinance and Implications of the Hontex and Tiger Asia Cases

Sullivan & Cromwell LLP - July 12, 2012

On June 20, 2012, the Court of First Instance (the “CFI”) granted orders under section 213 of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) requiring Hontex International Holdings Company Limited (“Hontex”) to make a repurchase offer at HK$2.06 per share (totaling approximately HK$1 billion) to its current public shareholders as a result of Hontex’s false and misleading prospectus.

This is the first time a share repurchase order was made against a Hong Kong-listed corporation as a result of market misconduct. Similarly in the Tiger Asia case which is on appeal to the Court of Final Appeal (the “CFA”), the Securities and Futures Commission (the “SFC”) sought, among other orders, final remedial orders to restore the counterparties to their pre-transaction position and to prohibit the offending parties from trading on the Stock Exchange of Hong Kong Limited (the “SEHK”).

In this update, we look at the application of section 213 of the SFO and the implications that the Hontex and the Tiger Asia cases may have on the SFC and the CFI in seeking and granting final remedial orders in market misconduct cases.