Obligation to disclose inside information arising from an ongoing M&A negotiation – a recent MMT decision

The Market Misconduct Tribunal (MMT) found Magic Magic Holdings International Limited and five of its directors in breach of the inside information disclosure requirement under Part XIVA of the Securities and Futures Ordinance (SFO) in the context of commercial negotiations and incomplete proposals. This decision concerned the then proposed acquisition by L’Oreal S.A., in 2013, of the entire issued share capital of Magic, a then Hong Kong listed company in the beauty sector. The MMT addressed the following issues in the decision:

• the timing as to when inside information arose during the negotiation of the deal;
• the timing as to when Magic acquired knowledge of the inside information;
• the application of the safe harbour under the SFO; and
• the individual liability of the directors.

The decisions is a useful reminder on the importance for directors and senior management to ensure proper safeguards exist for the listed company to comply with its Part XIVA obligations, in order to avoid protracted investigations and legal proceedings, as well as hefty fines and other penalties.