Directors’ Duties in a “Desperate” IPO Market

Directors’ Duties in a “Desperate” IPO Market

By Frederick Chann
July 25, 2022
After a very quiet Q4 2021 and Q1 2022, and in spite of a continually weak and volatile market, 21 IPOs were launched in Q2 2022.  All but five were announced in the last 10 days of the quarter, just before the requirement for the inclusion of H1 2022 financial data kicked in. 

In this article, we look at the anatomy and consequences of a “desperate” IPO market.  We also review directors’ duties to shareholders and investors.  Those are the same in any market environment, but take on much greater significance in challenging times, especially for independent non-executive directors (“INEDs”).  
Anatomy of a “Desperate” IPO Market

Broad Market Weakened Significantly – Fast!

  • The Hang Seng Index (“HSI”) declined close to 30% since June 30, 2021.

Underwriting Revenues Dried Up

  • IPO funds raised dropped in Q1 2022 by two-thirds from Q4 2021 and close to 90% from the year prior (source: HKEx).
  • Underwriters needed to close deals to bring in much needed revenue …. and keep their jobs!

Significant Backlog Built Up

  • By the end of Q1 2022, there were over 150 active IPO applicants (source: HKEx).
  • These companies needed capital to fund their growth and / or extend their cash runways (i.e. survival).
  • If they waited till after June 30, they would have had to refresh their financials which would take 6-8 weeks.
What Transpired?  Disasters!

   During Q2 2022, 21 IPOs were launched.

  • All but two were announced during or after the second week of June. Traffic jam!
  • 16 provided a pricing range – three quarters of those were eventually priced at or very near to the bottom.
  • In spite of that, only 5 (i.e. less than a quarter) are trading above issue (see Appendix).
  • Only 8 (i.e. just 38%) are outperforming the benchmark HSI.
  • GOGOX, which launched its IPO relatively early, saw its share price dive 22% on the first day and 42% by the end of the first week!
  • That first trade took place on June 24 – 5 days before the next deal was priced. Way to set the tone for the 17 that followed!
  • In merely weeks, three companies lost 26% (Yoho 2347.HK), 45% (Lushang Life Science 2376.HK) and 64% (GOGOX 2246.HK) of their respective market values!
Directors' Duties


   Should directors of these companies have anticipated this?

  • Absolutely! 
  • Perhaps not the exact magnitude, but they certainly should have had a good sense of the overall market and importantly, what the reasonable ranges of valuation would have been for their respective companies.
  • Besides having conducted their own due diligence, they should (and would) have consulted with the lead underwriters.

   What are directors’ duties to existing shareholders and prospective investors?


  • Directors – executive, non-executive and INEDs – all have fiduciary responsibilities to all shareholders.  It is a balancing act!
  • Fiduciary” has both a legal and ethical element. “Trust” and “prudence” are often included in its definition.
  • In the cases cited above, it is hard to argue that their directors had fulfilled their fiduciary duties.

   Why is the role of INEDs unique and so critical in a “desperate” market environment?

  •         As discussed earlier, in such instances, companies are racing against the clock, desperate to raise funds.  Underwriters are desperate to close deals and bring in much needed revenue.
  •      So who are there to act for and protect the minority shareholders, including new investors? INEDs!

   What should INEDs be doing?

  1. Do your own due diligence.
  2. Seek and document professional advice.
  3. Apply independent judgement.
  4. Speak up at board meetings.
  5. Last resort – resign! 

Final Thoughts


   ·       If this had taken place in a more litigious market like the US,

o   class action lawsuits would have been filed left, right and centre, against not just the companies, but individual board directors and underwriters as well!

o   the Securities & Exchange Commission would be breathing down their necks. 

   ·    I would be most disappointed if the Securities & Futures Commission does not at least launch preliminary investigations into the more notable disasters.  It does not bode well for the Hong Kong market.

   ·       Individual investors who should often wonder if they will be represented well,

o   do your own homework – read the prospectus, starting with the “Risk Factors” section

o   due diligence the directors, especially the INEDs

   ·       Board directors of IPO companies which have seen quick and significant de-valuations,

o   going forward, how much higher will the premiums for your companies’ directors’ and officers’ liability insurance be?

o   how long will it take before your companies can return to the market and raise capital? 

o  how long will it take for you to recover your personal reputation?

Fred is a Director & Senior Advisor at Armor Capital. He advises C-suite executives and boards of directors on strategy development and planning, corporate governance, equity & debt financings, IPO preparation and M&A due diligence. In his consultancy practice, he draws upon two decades of experience in investment banking, fund management and entrepreneurship. Fred has also served on the boards of listed and private companies as well as NGOs, in capacities including Chair, Governance Committee & CFO. For 10 years, he was a Fellow of the Hong Kong Institute of Directors. He received both his BA (Hons.) & MBA (Dean’s Honour List) from the Ivey Business School (Canada). / +852 9686 5928



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Tracking the Progress of Artificial Reefs’ Construction in Brittany, Northwest France

Tracking the Progress of Artificial Reefs’ Construction in Brittany, Northwest France

Récifs Goëlo, a non-profit environmental association based in Côtes-d’Armor, one of Brittany’s coastal cities, has been dedicated to protecting the maritime ecosystem via artificial reefs in the northwest coast area of France since its establishment in 2016. Like French Mediterranean coast cities, Côtes-d’Armor chose to develop artificial reefs with the long-term objective of increasing biological production in impoverished marine areas and promoting the recovery of the natural environment degraded by human activities. “We had to be tenacious, but we are happy to reach the finish line,” said Michel Rickauer and Michel Brulard, respectively, President and Secretary of Récifs Goëlo.

The artificial reefs, which have been placed on three different sites on the coast of Bilfot, Côtes-d’Armor, are the concretization of several years of discussion and reflection. The idea behind this project was triggered by a group of local sailors who were preoccupied with the deteriorating state of maritime biodiversity in Côtes-d’Armor.

An artificial reef is a human-made and biomimetic submerged structure deliberately placed on the seabed to mimic some functions of a natural reef, such as protecting, regenerating, and concentrating populations of living marine resources. It provides shelter for various species; for instance, it serves as a crucial spawning and foraging habitat for many commercially and recreationally fish species. Furthermore, due to the threat of climate change, both global warming and ocean acidification are affecting marine life, leading to natural coral reefs being bleached and algae being expelled. To avoid the degradation of these marine ecosystems and at the same time encourage their reconstruction, initiatives related to the creation of artificial reefs have emerged globally. Nevertheless, a close and timely monitoring and evaluation of the ecological impacts of artificial reefs are essential to avoid any misplacement or becoming the habitat for invasive species such as the orange-cup coral. 

The roadmap of artificial reefs was initially sketched by Récifs Goëlo to enhance the biodiversity in Bilfot by concentrating as many species as possible around the specifically produced concrete blocks and to see the evolution of the ecosystem and the impact on the surrounding areas. The move caught the attention of the National Museum of Natural History of Dinard (MNHN), which was working on a similar study. The museum then decided to join the environmental protection forces in order to gain more public attention and momentum.

This allowed Récifs Goëlo to raise 100,000 euros in financing to support the project. The Sea and Coastline Commission, which oversees the regional subsidies and the European fund for Maritime and Fishing Affairs (FEAMP), ruled a favorable verdict in May 2021. Three years after application, Récifs Goëlo received a subvention of 80% of the total amount (40% from the region and 40% from FEAMP), while the rest was provided by individual donators and companies that support the movement.

The artificial reefs are locally made and assembled in Caen, a commune in north-western France, by a French engineering college called Ecole Supérieure d’ingénieurs des Travaux de la Construction (ESITC), according to one of MNHN’s scientists. With a diameter of 1.6 meters and height of 1.30m, each artificial reef weighs 3.3 tonnes and has three circular parts, among which two contain shell waste. The artificial habitat will facilitate the proliferation and development of algae, which are key species for the area.

In the meantime, the museum and Récifs Goëlo would cooperate in training twenty divers: ten from Paimpol diving club (ASSSUB) and ten from Saint-quay-Portrieux (Narco Club), with a scientific approach to enable them with the capabilities to monitor the site for the following two years. MNHN is responsible for data collection and analysis as well as study reports. In return, they send their findings to Récifs Goëlo, which will publish the data to the public and media. Récifs Goëlo plans to involve the public with the reef experimentation for more awareness of maritime challenges. “The first thing is to learn about local biodiversity, and then we shall be able to see the evolution across time,” said Michel Rickauer.

However, time and patience are needed to observe concrete achievements. “In our region, for reefs like this to reach an equilibrium state, they will need five to seven years before we can see actual changes. That is why we spent one year for scientific monitoring before, which set the core and basis of the program. Later, the diving club will check the evolution and colonization of the reefs over time,” added Michel Rickauer. “We often say that reefs are the witnesses of climate change, and Récifs Goëlo will be able to certify that. We should also keep in mind that people tend to care more about environmental issues in places they know than big discussions at the global level.”

Armor Capital is proud to be a sponsor of Récifs Goëlo since its founding and is delighted to see the progress and achievement made so far. Armor Capital wishes Récifs Goëlo the best for the future.

About Armor Capital

Armor Capital has supported business owners in capital financing, M&A advisory, and valuation since 2009. We are served by a core team of experienced professionals and a global network of expert sources. Our partners, Guillaume Caillet, Jean Giorgis, and Fabrice Govin, combine 60 years of experience in the US, Europe, and Asia-Pacific, and lead a team of over ten M&A professionals based in Paris, Hong Kong, and mainland China. Enhanced by practical knowledge and motivated by the success of our clients, our team has a commitment to ethics, integrity, and performance. We boast expertise in corporate finance, private equity, cross-border business development, and entrepreneurship.