Public Censure of Enprise Group Limited

1


NZ MARKETS DISCIPLINARY TRIBUNAL NZMDT 7/2019


UNDER the NZ Markets Disciplinary Tribunal Rules


IN THE MATTER OF breach of NZX Listing Rule 3.6.1


BETWEEN NZX LIMITED


AND ENPRISE GROUP LIMITED
Respondent

___________________________________________________________

DETERMINATION OF NZ MARKETS DISCIPLINARY TRIBUNAL
10 JANUARY 2020
____________________________________________________










Rachel Batters
Executive Counsel
NZ Markets Disciplinary Tribunal
Email: rachel.batters@nzmdt.com

2

1. This is a determination of a division of the NZ Markets Disciplinary Tribunal (the
Tribunal) comprising James Ogden (Division Chair), Trevor Janes and Richard
Keys.

2. Capitalised terms that are not defined in this determination have the meanings
given to them in the NZX Listing Rules (the Rules).

Procedural Background
3. On 11 December 2019, NZX Limited (NZX) filed a statement of case (SOC)
alleging that Enprise Group Limited (ENS) had breached Rule 3.6.1 by failing to
deliver its annual report within four months of the end of its financial year.

4. On 17 December 2019, ENS filed a statement of response (SOR).

5. On 19 December 2019, NZX notified the Tribunal that it had decided not to file a
rejoinder.

Factual Background
6. ENS is an Issuer with ordinary shares Quoted on the NZX Main Board and is
subject to the Rules. ENS migrated from the NZAX Market to the NZX Main Board
on 1 April 2019.

7. Rule 3.6.1 requires each Issuer to deliver an annual report to NZX and each
Quoted Financial Product holder within three months after the end of its financial
year. However, Issuers who had migrated from the NZAX Market were given an
additional month to deliver their annual reports if their financial year ended
between 30 September 2018 and 30 June 2019 under the terms of a class waiver
(Class Waiver)
1
.

8. ENS’s financial year end is 31 March. Accordingly, under the terms of the Class
Waiver, ENS’s 2019 annual report (2019 Annual Report) had to be delivered to
NZX and its Quoted Financial Product holders by 31 July 2019.

9. On 29 July 2019, ENS notified NZX that there was likely to be a delay in
releasing its 2019 Annual Report because it was unable to get its auditor’s sign
off by its due date.

10. On 1 August 2019, NZX Product Operations notified the market that ENS had not
issued its 2019 Annual Report by 31 July 2019 and if ENS did not provide its
2019 Annual Report by market close on 7 August 2019, its securities would be
suspended
2
.

11. NZX advises that on 6 August 2019 it sought an up-date on progress from ENS
and that on 7 August 2019 ENS advised that its auditor was working as fast as it
could and that ENS expected completion by 9 August 2019.

12. On 8 August 2019, NZX Product Operations notified the market that ENS had still
not provided its 2019 Annual Report and that effective pre-open the Quotation of
ENS’s securities had been suspended.




1
NZX Regulation Decision – Class waiver and ruling for NZAX and NXT Market Migration dated
19 November 2018.
2
This was in accordance with NZX’s Trading Halts and Suspensions Guidance Note dated 1
January 2019 which states that NZXR will usually suspend the securities of any Issuer that has
not delivered its annual report within 5 business days of the due date.

3

13. At 11.57am on 20 August 2019, ENS released its 2019 Annual Report, 14
business days after it was due. Trading in ENS ordinary shares resumed at
12:39pm on 20 August 2019. NZX advises that following the release of the 2019
Annual Report there was no change in ENS’s share price and that only one trade
occurred on 20 August 2019 for 8 shares valued at $5.28 in aggregate.

14. NZX advises that ENS previously breached NZAX Rule 10.5.1 by releasing its
2016 annual report three business days late following the resignation of its then
auditor in March 2016. However, that breach did not result in the suspension of
ENS’s securities (as it was less than 5 business days in duration) and the breach
was not referred to the Tribunal by NZX
3
.

NZ Markets Disciplinary Tribunal Determination
15. The Tribunal finds that ENS breached Rule 3.6.1 by delivering its 2019 Annual
Report after the required timeframe, as modified by the Class Waiver. ENS
accepts that it breached Rule 3.6.1.

16. The Tribunal must then determine the appropriate penalty to be imposed.

17. NZX submits that the appropriate penalty is a fine of $35,000, the payment by
ENS of NZX and the Tribunal’s costs and a public censure.

18. ENS submits that, as this is its first referral to the Tribunal, the proposed fine be
reduced and applied at the lowest end of the penalty range.

Financial Penalty

19. The Tribunal considers that a breach of the periodic reporting requirements is a
breach of a fundamental obligation under the Rules. Compliance by Issuers with
the periodic reporting requirements is essential in maintaining market integrity
and investor confidence.

20. The Tribunal acknowledges ENS’s submission that the delay in releasing its 2019
Annual Report was due to “protracted discussions” with its auditor, Baker Tilly
Staples Rodway, which arose late in the process of finalising the audit and that
ENS had believed it was on target to file its 2019 Annual Report on time, up until
shortly before the date it expected its auditor would sign-off on the financial
statements.

21. However, as previously stated by the Tribunal, all Issuers must manage the audit
process to ensure deadlines are met. As the onus of complying with the Rules
falls on ENS, it needed to ensure there was sufficient time to engage with its
auditors, particularly given that ENS was aware that issues were likely to arise
with the adoption of new IFRS accounting standards and the treatment of ENS’s
investments. The auditor’s Planning Report clearly set out pre-audit their
requirements and areas of audit focus.

22. The Tribunal considers any breach of the periodic reporting requirements to be
serious and to fall within Penalty Band 3 of Procedure 9 of the Tribunal
Procedures (the Procedures). Under Penalty Band 3, a penalty of between $0
and $500,000 may be imposed.




3
NZX advises that the breach of NZAX Rule 10.5.1 in 2016 was also coupled with a failure by
ENS to notify the market of a change in its auditor as required under NZAX Rule 10.7.1(d). NZX
issued ENS with an Obligations Letter for its breach of NZAX Rule 10.7.1(d).

4

23. To determine the appropriate level of penalty, the Tribunal must consider the
overall conduct of the respondent and take into account the factors set out in the
Procedures. These factors provide guidance on whether the penalty should fall at
the lower or higher end of the applicable penalty band.

24. The Tribunal considered that the following aggravating factors were likely to
increase the penalty in this case:

a. trading in ENS’s securities was suspended for eight and a half business
days, adversely impacting on investors;

b. ENS was in breach for 14 business days; and

c. ENS has breached the periodic reporting requirements on one previous
occasion in 2016 (although that breach did not result in a suspension of
ENS’s securities and was not referred to the Tribunal by NZX).

25. The Tribunal considered that the following mitigating factors were likely to reduce
the penalty in this case:

a. ENS notified NZX in advance that it was unlikely to release its 2019 Annual
Report when due
4
;

b. ENS appears to have taken steps to expedite the resolution of the issues
which arose during its audit process including the ENS Chair meeting its
auditors on 25 July 2019 and the engagement of a third party (BDO New
Zealand) to assist ENS with outstanding audit issues;

c. ENS advises in its SOR that it has adopted new processes to ensure non-
compliance does not occur in the future (although it has not elaborated on
what those are) and will engage with its auditor earlier in future;

d. ENS appears to have cooperated fully with NZX Regulation’s investigation
into the breach;

e. no financial benefit or commercial advantage for ENS appears to have
resulted from the breach; and

f. this is the first occasion ENS has been referred to the Tribunal.

Previous Tribunal determinations
26. The Tribunal has made a number of previous decisions regarding breaches of the
periodic reporting requirements, as outlined by NZX in its SOC. Following its
guidance to the market and the amendments made to the Procedures in 2016,
the Tribunal has in recent years markedly increased the penalties it imposes for
breaches of the periodic reporting requirements and matters involving repeated
breaches of the Rules. Accordingly, the Tribunal considers that its most recent
decisions provide the best precedent guidance.

27. In its most recent determination in NZMDT 3/2018 NZX v Windflow Technology
Limited (WTL), WTL was fined $25,000 for releasing its 2017 annual report two
business days late due to “eleventh hour audit issues”. The Tribunal was greatly
concerned that it was the third consecutive breach of the periodic reporting
requirements by WTL and in the Tribunal’s view WTL’s conduct over the previous
24-month period formed a pattern of poor compliance with these requirements.
However, the Tribunal considered that there were a number of factors in that

4
The Tribunal notes, however, that ENS did not provide prior notice to the market that there
would be a delay and the reasons for that delay.

5

case which reduced the penalty that would otherwise have been imposed for a
repeated breach of this nature, including the short duration of the breach, that
trading in WTL’s securities was not suspended and that it was WTL’s first referral
to the Tribunal (given the previous two breaches were also of short duration NZX
had not referred them to the Tribunal). Accordingly, the Tribunal considered that
the breach in this instance fell at the low end of Penalty Band 3.

28. In NZMDT 2/2016 NZX v Pyne Gould Corporation (PGC) (upheld on appeal) the
Tribunal noted a number of serious aggravating factors, including PGC’s
concerning compliance history (having been referred to the Tribunal on four
separate occasions), that the matter being referred involved the breach of three
consecutive reporting requirements and that the duration of the breaches was
particularly long resulting in trading of PGC’s securities being suspended for 154
business days. Given PGC's serious and repeat offending the Tribunal considered
that the breach fell at the high end of Penalty Band 3. However, after having
regard to the submissions made by both parties the Tribunal imposed a penalty
of $275,000.

29. PGC had earlier been fined $50,000 by the Tribunal in NZMDT 16/2014 NZX v
PGC for releasing its 2014 annual report 23 business days late and having had its
securities suspended for 17 business days – twice as long as ENS. It was also
PGC’s second referral to the Tribunal for a breach of the Rules that year.

30. The Tribunal considers that ENS’s breach in this instance is more serious than the
breach by WTL (given that the duration of ENS’s breach was longer and resulted
in the suspension of its securities and despite WTL’s slightly poorer compliance
history). The Tribunal also considers that ENS’s breach is less serious than PGC’s
breach in 2014 (given the shorter duration of ENS’s breach) and significantly less
serious than PGC’s breach in 2016 (which had a substantial impact on investors
and the market).

31. Having regard to both the mitigating and aggravating factors in this matter and
its previous decisions, the Tribunal considers that the breach by ENS falls at the
low end of Penalty Band 3. Accordingly, having regard to all the circumstances
of this case the Tribunal considers that a penalty of $35,000 is appropriate.

32. The Tribunal notes that should ENS breach the periodic reporting requirements
again, the Tribunal is likely to impose a significantly higher penalty in accordance
with its previous statements to the market.

Public censure
33. NZX has sought a penalty of public censure. ENS did not make submissions on
this point in its SOR.

34. The Tribunal has considered the guidance set out in Procedure 9.3. In particular,
that the name of a respondent is likely to be published when:

a. The impact of the breach has caused the public to be harmed and/or has
damaged public confidence in the sector or the breach had the potential to
cause harm to the public or the potential to damage public confidence in
the sector; and/or

b. The respondent has been involved in repeated breaches and shown
disregard for the Rules; and/or

c. The respondent committed a breach that falls within Penalty Band 2 or
Penalty Band 3 of Procedure 9.

6

35. The Tribunal considers that the breach by ENS had the potential to damage
public confidence in the market and adversely affect investors given the
suspension of its securities. The Tribunal also notes that ENS has previously
breached the periodic reporting requirements and that its breach falls within
Penalty Band 3. Accordingly, the Tribunal considers that a public censure in this
case is appropriate.

36. The Tribunal also notes that the market is already aware that ENS breached Rule
3.6.1 by virtue of the announcements made by NZX Product Operations on 1 and
8 August 2019.

Orders

37. The Tribunal orders that ENS:

a. be publicly censured in the form of the announcement attached to this
decision (which will include a full copy of this decision);

b. pay $35,000 to the NZX Discipline Fund;

c. pay the costs and expenses incurred by the Tribunal in considering this
matter; and

d. pay the costs and expenses incurred by NZX in considering this matter
being $3,800 (excluding GST, if any).


DATED 10 JANUARY 2020


James Ogden, Division Chair, NZ Markets Disciplinary Tribunal

---

1




17 January 2020

ANNOUNCEMENT OF NZ MARKETS DISCIPLINARY TRIBUNAL
PUBLIC CENSURE OF ENPRISE GROUP LIMITED FOR BREACH OF NZX LISTING
RULE 3.6.1
In a determination of the NZ Markets Disciplinary Tribunal (the Tribunal) dated
10 January 2020, the Tribunal found that Enprise Group Limited (ENS) breached NZX
Listing Rule 3.6.1 by filing its 2019 Annual Report 14 business days late.

The Tribunal noted that a breach of the periodic reporting requirements is a breach of
a fundamental obligation under the Rules. Compliance by Issuers with the periodic
reporting requirements is essential in maintaining market integrity and investor
confidence.

The Tribunal was concerned that the securities of ENS were suspended from trading for
eight and a half business days and that, while ENS had not previously been referred to
the Tribunal, this was its second breach of the periodic reporting requirements.
However, the Tribunal noted that ENS had notified NZX in advance that it was unlikely
to release its 2019 Annual Report when due, that ENS had taken steps to expedite the
resolution of the issues which arose during its audit process and that it has adopted
new processes to ensure future compliance.
The Tribunal ordered that ENS pay a financial penalty of $35,000, pay the costs of NZX
and the Tribunal, and be publicly censured.

The full decision of the Tribunal is attached to this release.