If you are wondering why your IPO lawyers ask so many questions whenever they detect potential legal non-compliance by your company which intends to undertake an IPO (even if it may not be a major issue), it is probably because of the following.

The Prospectus Guidelines require any relevant laws, rules or requirements governing the group’s business and environmental issue which may materially affect the group’s business or operations to be disclosed in prospectus. If there has been a non-compliance, the guidelines prescribe the details to be set out in prospectus.

If there is any legal non-compliance, the relevant company should rectify or take steps to rectify the non-compliance. The company should settle the penalty imposed before its listing. If no penalty is imposed but the authorities may still impose penalty later, the IPO due diligence working group should assess the potential maximum penalty which may be imposed.

The DDWG should deliberate whether the non-compliance may materially affect the group’s business or operations, whether the non-compliance will pose risk to investors of the company and whether disclosure of the non-compliance in the prospectus is required.

There should be a written record of the DDWG’s deliberation process.

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This post was first posted on 18 March 2021.