SFC Succeeds in Obtaining Orders Requiring Hontex to Buy Back IPO Shares

On 20 June 2012 the Court of First Instance granted orders for Fujian-based textile company Hontex International Holdings Co. ("Hontex") to repurchase shares from investors that subscribed for shares in Hontex's IPO or purchased them in the secondary market. The proceedings were brought by the Securities and Futures Commission ("SFC"), which accused Hontex of misleading investors with false and misleading information in its IPO prospectus.

Under the orders, Hontex will offer a total of HK$1.03 billion to minority shareholders in the buyback scheme, which needs to be approved by shareholders. If approved, shareholders may accept or reject the repurchase offer.

This is the first time that the SFC has negotiated a share buyback by a listed company to compensate IPO investors. This result confirms that the SFC can successfully pursue enforcement action directly in the High Court.

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