The recent arrests of senior management of two valuation firms in Hong Kong by government anti-corruption forces has led the Securities and Futures Commission (SFC) to issue a Guidance Note on directors’ duties in the context of valuations in corporate transactions involving listed companies. The SFC also issued a circular to financial advisers regarding valuations in corporate transactions together with a statement on the liability of valuers for disclosure of false or misleading information.
The SFC has become increasingly concerned over some listed companies’ acquisitions of assets at unreasonably high prices or sales of assets that were substantially undervalued. As a result of some ill-advised transactions not in the best interests of shareholders, the Guidance Note reminds directors that they are the guardians of their listed companies’ assets and must ensure that acquisition targets are properly considered and investigated. The SFC also mentioned that valuers are expected to exercise the degree of skill and care ordinarily exercised by reasonably competent members of their profession. They should not knowingly or recklessly accept any assumption that is not reasonable and fair. Valuers may be liable if their valuation reports contain any materially false or misleading information. The SFC will take appropriate actions against those companies, directors, advisers, and valuers who fail to comply with their duties.
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