SSE Further Refines Disclosure Rules for Companies at Risk of Delisting, Enhancing Targeted Disclosure of Delisting Risk

In order to enhance the pertinence and effectiveness of delisting risk alert while setting investor expectations upfront, the Shanghai Stock Exchange (SSE) introduced the Disclosure Guidelines for Companies at Risk of Delisting on December 29, 2023, and simultaneously optimized the format of related public announcements, collectively stipulating the requirements of information disclosure related to delisting risks, thereby streamlining the rule system and making it easier for listed companies and other market participants to consult and implement.

The newly introduced Disclosure Guidelines for Companies at Risk of Delisting outline the requirements of information disclosure on delisting risks, building upon implementation effects of the previously released Notice on Enhancing Information Disclosure of 2022 Annual Reports for Companies at Risk of Delisting. The core content can be broken down into four key areas: I. The Guidelines lay out a comprehensive framework of information disclosure requirements for various scenarios of delisting. The Disclosure Guidelines for Companies at Risk of Delisting clearly state that companies at risk of delisting should be vigilant of potential risk factors, assess the legality and rationality of major transactions, disclose delisting risks transparently, and safeguard the legal rights and interests of investors. II. The Guidelines establish specific requirements of information disclosure for major categories of delisting in recent years. Firstly, the Guidelines clarify the timing and frequency of disclosure for financial delisting risks, enhance the disclosure of annual report preparation and audit progress, and mandate the verification of pivotal issues such as business income deductions, non-recurring profit and loss recognition, and major transactions. Secondly, for companies at risk of delisting with a closing stock price below RMB 1, the Guidelines introduce strict requirements on the disclosure of matters that could considerably impact stock prices, such as shareholding increases and repurchase, and clarify the necessary disclosure conditions to prevent disruption of investor expectation. Thirdly, for companies that might face compulsory delisting due to major illegal conduct, the Guidelines demand timely disclosure of the specific violations that may trigger compulsory delisting. III. The Guidelines call on the "critical few" to diligently perform their duties. The directors, supervisors, and senior management members of companies at risk of delisting should attach great importance to the preparation and disclosure of annual reports, promptly point out risks associated with significant uncertainties, cautiously release information concerning the company's listing status, focus particularly on the authenticity, accuracy, and completeness of information disclosure, and prudently exercise their right of objection. IV. The Guidelines mandate intermediary institutions to accomplish their duties effectively. Accounting firms should take into consideration the characteristics of companies at risk of delisting, heighten awareness of risk compliance, strengthen the quality control of audit practice, pay close attention to significant misreporting risks related to delisting risks, express suitable audit opinions, and prudently provide specific verification opinions on operating income deductions and non-recurring profit and loss recognition.

The release of the Disclosure Guidelines for Companies at Risk of Delisting aims to shed light on various compulsory delisting scenarios and further enhance the effect of delisting risk disclosure. Moving forward, the SSE will persist in following the unified deployment of the China Securities Regulatory Commission, focus on comprehensively strengthening supervision, urge companies at risk of delisting to fulfill their information disclosure obligations, advance various delisting supervision tasks in accordance with laws and regulations, firmly carry out delisting according to rules, encourage survival of the fittest in the market, and ensure the stable operation of the capital market.