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In brief

There has been a rise in cases in which The Stock Exchange of Hong Kong Limited (“Stock Exchange“) suspends trading in issuers’ shares because they have failed to comply with Rule 13.24 of the Main Board Listing Rules (“Rule 13.24“). Rule 13.24 requires an issuer to maintain a sufficient level of operations and assets of sufficient value to support its operations to warrant the continued listing of the issuer’s securities. 

Recently, some issuers have resorted to applying to the court for judicial review against the Stock Exchange’s decisions. These applications are often uphill battles.

Earlier this month, the Court of Appeal in China Trends Holdings Limited v The Stock Exchange of Hong Kong Limited [2021] HKCA 980 again upheld the Stock Exchange’s decision to suspend trading in an issuer’s shares pursuant to the equivalent of Rule 13.24 under the GEM Listing Rules. The Court of Appeal highlighted the court’s reluctance to interfere with the market regulators’ application of Rule 13.24 and clarified the application of this rule.

Key takeaways

It is difficult to successfully challenge the Stock Exchange’s assessment of an issuer’s compliance with Rule 13.24 in court. An issuer may only apply for judicial review on limited grounds.

Issuers receiving a letter to show cause on their compliance with Rule 13.24 should act promptly. This will include putting together a case explaining the issuer’s business model and prospects, with details on the scale of operations, customer base and management expertise.

In depth

China Trends Holdings Limited v The Stock Exchange of Hong Kong Limited

  1. China Trends Holdings Limited (“China Trends“) is listed on the GEM Board of the Stock Exchange. The level of its business operations was continuously low for several years. From 2014 to 2018, China Trends was operating its trading and media business at net losses with negative operating cash flow.
  2. The Listing Division suspended trading in China Trends’ shares because it failed to maintain sufficient operations or assets as required under Rule 17.26 of the GEM Listing Rules, the equivalent of Rule 13.24. The GEM Listing Committee and the GEM Listing (Review) Committee upheld the Listing Division’s decision. 
  3. China Trends applied for judicial review against the GEM Listing (Review) Committee’s decision. China Trends argued that the decision was irrational and Wednesbury unreasonable, primarily because China Trends was a solvent company and had sufficient assets. Further, the GEM Listing (Review) Committee failed to give adequate reasons for the decision.
  4. The Court of First Instance dismissed the application for judicial review, and the dismissal was upheld by the Court of Appeal. This is the second case before the Court of Appeal in which an issuer sought to challenge the Stock Exchange’s finding on Rule 13.24, following the case of Sanyuan Group Ltd v The Stock Exchange of Hong Kong Limited [2009] 5 HKC where the challenge was likewise unsuccessful.

Application of Rule 13.24 clarified

  1. The Court of Appeal emphasized that the application of Rule 13.24 is a qualitative, not quantitative, assessment that is fact and company specific. There can be no universal benchmark applicable to all companies. It is not helpful for an issuer to compare its financials with other issuers on two or three isolated factors (such as the issuer’s total assets, revenue and net profits).
  2. Further, the Stock Exchange does not look at the level of operations and the level of assets in isolation from the issuer’s actual business. The Stock Exchange is entitled to examine how the assets have actually been deployed in the past and the likely use of those assets in the future in connection with the actual business. Equally, the Stock Exchange is entitled to consider the issuer’s financials, such as its net losses and negative operating cash flows for several consecutive years.
  3. More importantly, the Court of Appeal confirmed that Rule 13.24 is not to be tested by reference to the solvency of a company. A solvent issuer may well be a dormant issuer or one with negligible business activity having assets that have not been, and will not be, meaningfully deployed in the course of business. This may lead to the risk to market speculation and manipulation, insider trading and unnecessary volatility.

The court’s approach in reviewing the Stock Exchange’s ruling on Rule 13.24

  1. Seeking judicial review against the Stock Exchange’s decision is not an opportunity to reargue the case that has been rejected by the Stock Exchange. Common grounds relied on by issuers to seek judicial review include the following:
    • An issuer may challenge that the Stock Exchange has taken into account irrelevant considerations or failed to take into account relevant considerations. It may also argue that the Stock Exchange’s decision is irrational or Wednesbury unreasonable, i.e., that it is so unreasonable that no authority properly directing itself on the relevant law and acting reasonably could have reached the decision. Nevertheless, the Court of Appeal in China Trends confirmed that the court would not lightly interfere with the Stock Exchange’s professional judgment.
    • An issuer may also challenge that there is procedural impropriety in the Stock Exchange’s decision-making process. The Court of Appeal in China Trends sided with the Stock Exchange in finding that the succinct reasons given were adequate from a public law point of view.
  2. In summary, it would appear that the court is reluctant to interfere with the Stock Exchange’s decision on an issuer’s compliance with Rule 13.24. It is prudent for issuers to act promptly when first receiving the letter to show cause on their compliance with Rule 13.24. This will include putting together a case explaining the issuer’s business model and prospects, with details on the scale of operations, customer base and management expertise. Judicial review of the Stock Exchange’s decision is an available remedy. Precedents show that it is difficult to succeed in such applications. The court’s focus is on whether the decision of the Stock Exchange is proper under the usual test and not on the underlying merits of the matter.

Cynthia Tang is the head of the Dispute Resolution Group for the Firm’s Hong Kong and China offices. She has over 25 years of experience in Hong Kong and Asia. Chambers Asia Pacific, PLC Which Lawyer? and Asia Pacific Legal 500 have ranked her as one of the leading lawyers in the Financial Services/Regulatory field for 5 consecutive years. She previously served on a number of committees in the Securities and Futures Commission and is currently appointed by the Hong Kong Government as a Member of the Standing Committee on Company Law Reform and Disciplinary Panel A of the Hong Kong Institute of Certified Public Accountants. She is also a China-Appointed Attesting Officer.


Bryan Ng is a partner in Baker McKenzie's Hong Kong office and a member of the Firm's Dispute Resolution Group. He has written articles and delivered trainings and seminars on topical issues including regulatory enforcement matters. Mr. Ng’s practice focuses on disputes related to financial services, regulatory investigations, commercial disputes, and insolvency-related matters. He advises and represents clients from the financial industry in regulatory investigations and disciplinary proceedings. Mr. Ng also represents clients in arbitration and court proceedings, including shareholders' disputes and judicial review.


Jannice Lau is a partner in the Dispute Resolution Group. Her practice focuses on regulatory matters and complex commercial disputes. She has been mentioned by Legal 500 as being “very diligent in her analysis.”


Angel Cheng is an Associate in Baker McKenzie Hong Kong office.

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