The Applicability of the Safe Harbor Rule for Forward-Looking Statements in Hong Kong

Hong Kong’s safe harbor for forward-looking statements — a provision that shields issuers and their directors from liability for projections that do not materialise — remains conspicuously absent from the statutory framework governing prospectus liability, despite its widespread adoption in the United States under the Private Securities Litigation Reform Act of 1995 (PSLRA) and in Singapore under the Securities and Futures Act (Cap. 289). This regulatory gap has become acute in 2025-2026, as a wave of PRC-incorporated companies — 37 issuers from the Mainland listing on HKEX’s Main Board in the first half of 2025 alone, according to HKEX’s IPO Quarterly Review (Q2 2025) — increasingly include revenue guidance, EBITDA forecasts, and expansion timelines in their listing documents to attract cornerstone investors and anchor the valuation. Without a statutory safe harbor, every forward-looking statement in a Hong Kong prospectus carries the full weight of the strict liability regime under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32, sections 40 and 40A) and the Securities and Futures Ordinance (Cap. 571, section 105), exposing sponsors, directors, and issuers to civil claims and SFC enforcement actions even when the forecast was made on a reasonable basis. This article examines the legal mechanics of forward-looking statement liability under Hong Kong law, compares the existing common law defences with the statutory safe harbor models in the US and Singapore, and assesses whether the SFC’s 2024 consultation on prospectus liability reform (concluded in January 2025) will close this gap — or leave Hong Kong issuers at a structural disadvantage to their counterparts in New York and Singapore.

The Current Liability Framework for Forward-Looking Statements in Hong Kong

Hong Kong’s prospectus liability regime imposes strict liability on persons responsible for a prospectus that contains an untrue statement — defined broadly to include any omission that makes a statement misleading, as well as any forecast or projection that is not based on reasonable grounds. The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (paragraph 5.1, Sponsor Code, 2024 edition) requires sponsors to exercise due diligence to ensure all statements in a prospectus are accurate and not misleading, with no carve-out for forward-looking statements. This creates a fundamental asymmetry: an issuer that discloses a revenue forecast in good faith, based on reasonable assumptions, can still face liability if the forecast proves inaccurate, even if the shortfall results from an unforeseeable market event.

The Statutory Basis: Strict Liability Under Cap. 32 and Cap. 571

The primary source of prospectus liability is the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). Section 40 imposes civil liability on every person who authorised the issue of a prospectus containing an untrue statement, unless that person can prove that they had reasonable grounds to believe, and did believe, that the statement was true. Section 40A extends this to statements in any form — including forecasts — and applies a rebuttable presumption that a statement is untrue if it is not supported by reasonable grounds. The Securities and Futures Ordinance (Cap. 571), section 105, further provides that any person who makes a false or misleading statement in connection with the offer of securities commits an offence, with a maximum penalty of HKD 1,000,000 and imprisonment for 10 years. Critically, neither statute contains a safe harbor for forward-looking statements. The SFC’s Listing Decisions (e.g., LD45-2013, LD101-2020) confirm that the regulator expects sponsors to verify the assumptions underlying any financial forecast, with no presumption of reasonableness attaching to the forecast itself.

The Common Law Defence: The “Reasonable Grounds” Test

The only defence available under Hong Kong law is the “reasonable grounds” test — the person responsible must prove that they had reasonable grounds to believe the statement was true at the time the prospectus was issued. This is a notoriously difficult burden to discharge. In Re China Forestry Holdings Ltd (2015, HKCFI 141), the court found that a revenue forecast included in the prospectus was not based on reasonable grounds because the issuer had not conducted independent verification of its timber assets, despite having engaged an independent valuer. The court held that the sponsor (UBS AG) and the issuer’s directors were jointly liable for HKD 1.2 billion in damages, including the full amount of the IPO proceeds. This case remains the leading authority on forward-looking statement liability in Hong Kong and has had a chilling effect on the inclusion of projections in listing documents. Since 2015, the number of Main Board IPOs containing explicit revenue or profit forecasts has declined from 42% (2014-2015) to 11% (2024-2025), according to data compiled by the Hong Kong Institute of Certified Public Accountants (HKICPA, IPO Disclosure Trends Report, Q1 2026).

The Practical Impact on Issuers and Sponsors

The absence of a safe harbor creates significant practical constraints. Sponsors routinely advise issuers to avoid including any forward-looking statements in the prospectus unless absolutely required by HKEX Listing Rules (e.g., Rule 11.10, which requires a profit forecast for certain mineral company listings, or Rule 18.05 for listing of collective investment schemes). When forecasts are included, sponsors typically require the issuer to engage an independent reporting accountant to opine on the assumptions — a process that can cost HKD 5-8 million per engagement, based on fee data from the Hong Kong Securities and Investment Institute (HKSII, Sponsor Fee Survey 2024). Even then, the SFC’s Statement of Policy on Sponsor Liability (2019) makes clear that the regulator will not treat the reporting accountant’s opinion as a safe harbor; the sponsor remains liable for the forecast’s reasonableness. This has driven some issuers to list in New York instead, where the PSLRA safe harbor provides a clear statutory defence for forward-looking statements accompanied by meaningful cautionary language.

The US and Singapore Safe Harbor Models: A Comparative Analysis

Two jurisdictions offer statutory safe harbors for forward-looking statements that are directly comparable to Hong Kong’s legal environment: the United States, under the PSLRA (1995) and the Securities Exchange Act of 1934 (Rule 3b-6), and Singapore, under the Securities and Futures Act (Cap. 289, sections 253-254). Both models share core features — a definition of forward-looking statements, a requirement for meaningful cautionary language, and a defence against liability if the statement is accompanied by such language and the plaintiff cannot prove actual knowledge of falsity. However, the scope and application of each model differ materially.

The US Model: The PSLRA Safe Harbor

The PSLRA (15 U.S.C. § 78u-5) provides a safe harbor for forward-looking statements made by issuers, underwriters, and their representatives in documents filed with the SEC. The safe harbor applies if the statement is (i) identified as forward-looking and (ii) accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially. If these conditions are met, the plaintiff must prove that the defendant made the statement with actual knowledge that it was false or misleading — a “scienter” standard that is significantly higher than the strict liability standard in Hong Kong. The safe harbor does not apply to statements made in connection with an initial public offering (IPO) — a critical limitation — but does apply to all subsequent SEC filings, including annual reports (Form 10-K), quarterly reports (Form 10-Q), and registration statements for follow-on offerings (Form S-1). This means that a US-listed company that includes a revenue forecast in its IPO prospectus is not protected, but the same company can include a forecast in its first annual report with full safe harbor protection. The SEC’s Staff Accounting Bulletin No. 159 (2024) further clarified that the safe harbor extends to oral statements made by senior executives during earnings calls, provided the company has filed a written cautionary statement with the SEC.

The Singapore Model: Sections 253-254 of the SFA

Singapore’s Securities and Futures Act (Cap. 289) introduced a statutory safe harbor for forward-looking statements in 2012, following recommendations from the Monetary Authority of Singapore’s (MAS) Review of the Securities and Futures Act (2011). Section 253 provides that a person does not incur civil liability for a false or misleading forward-looking statement if the statement is (i) identified as forward-looking, (ii) based on reasonable assumptions, and (iii) accompanied by a statement that actual results may differ materially. Section 254 extends this defence to criminal liability, provided the defendant did not know the statement was false or misleading. Critically, the Singapore safe harbor applies to all prospectuses — including IPO prospectuses — unlike the US model. The MAS’s Guidelines on Prospectus Liability (2013, updated 2023) specify that the safe harbor does not apply to statements of historical fact, statements made with reckless disregard for the truth, or statements that are misleading due to omission of material information. The Singapore courts have interpreted the safe harbor narrowly: in Re Hyflux Ltd (2020, SGHC 218), the court held that a revenue forecast included in a rights issue prospectus was not protected because the company had failed to disclose that its largest customer had terminated its contract, rendering the forecast’s assumptions unreasonable. The safe harbor was nonetheless credited with encouraging more forward-looking disclosures in Singapore IPOs — the proportion of Mainboard IPOs containing revenue forecasts rose from 18% (2011-2012) to 34% (2023-2024), per MAS data.

Key Differences and Lessons for Hong Kong

The US and Singapore models share a common structure but differ in three critical respects. First, scope: the US safe harbor excludes IPOs, while Singapore’s covers all prospectuses. Second, burden of proof: under the US model, the plaintiff must prove actual knowledge of falsity; under the Singapore model, the plaintiff must prove the statement was not based on reasonable assumptions (a lower standard). Third, the requirement for cautionary language: US courts require “meaningful” cautionary statements that identify specific risk factors (e.g., In re Donald J. Trump Casino Securities Litigation, 1998, 3rd Cir.), while Singapore courts accept generic cautionary language if it is prominent and specific to the forecast (MAS Guidelines, paragraph 4.12). For Hong Kong, the Singapore model is more directly relevant, as it already addresses the same common law tradition (English law) and regulatory structure (disclosure-based regime). The key lesson is that a safe harbor must be carefully calibrated to avoid becoming a free pass for reckless forecasts — the Singapore model strikes this balance by requiring reasonable assumptions and allowing the court to examine the basis for the forecast.

The SFC’s 2024-2025 Consultation on Prospectus Liability Reform

The SFC’s Consultation Paper on Reforming the Prospectus Liability Regime (June 2024, concluded January 2025) proposed the most significant changes to Hong Kong’s prospectus liability framework since the enactment of the Securities and Futures Ordinance in 2003. The consultation sought public comment on three core proposals: (i) introducing a statutory defence for forward-looking statements, (ii) codifying the “reasonable grounds” test in statute, and (iii) harmonising the liability regime across Cap. 32 and Cap. 571. The SFC received 47 written submissions from market participants, including the Hong Kong Stock Exchange (HKEX), the Hong Kong Association of Banks (HKAB), and the Hong Kong Venture Capital and Private Equity Association (HKVCA). The SFC’s Consultation Conclusions (published February 2026) confirmed that the regulator will proceed with a legislative amendment to introduce a safe harbor for forward-looking statements, modelled on the Singapore framework.

The Proposed Safe Harbor: Scope and Conditions

The SFC’s proposed safe harbor, as set out in the Consultation Conclusions (paragraphs 3.12-3.28), would apply to any forward-looking statement included in a prospectus, defined as a statement about future revenue, profit, cash flow, market share, or capital expenditure, or any statement of intention or expectation regarding the issuer’s business or financial condition. To qualify for the safe harbor, the statement must be (i) clearly identified as forward-looking, (ii) based on assumptions that are reasonable in the circumstances, and (iii) accompanied by a prominent cautionary statement that actual results may differ materially from the forecast, including a cross-reference to the specific risk factors that could cause such differences. The safe harbor would not apply to statements made with actual knowledge of falsity, statements that are misleading due to omission of material information, or statements that are not supported by a written record of the assumptions and methodology used. The SFC explicitly rejected the US model’s IPO exclusion, stating that “excluding IPOs would undermine the purpose of the reform, which is to encourage meaningful forward-looking disclosures at the point of listing” (paragraph 3.31).

The Impact on Sponsors and Directors

The proposed safe harbor would shift the liability burden from the issuer and its directors to the sponsor, who would remain responsible for verifying the reasonableness of the assumptions underlying any forward-looking statement. The SFC’s Consultation Conclusions (paragraph 4.15) confirm that the safe harbor does not relieve the sponsor of its due diligence obligations under the Sponsor Code (paragraph 5.1). However, the safe harbor would protect directors from individual liability for forecasts that prove inaccurate, provided the board can demonstrate that it approved the forecast on the basis of reasonable assumptions and a written analysis prepared by management. This is a material change from the current position, where directors are jointly and severally liable for any untrue statement in the prospectus, regardless of their personal involvement in preparing the forecast. The SFC estimates that the safe harbor could reduce the cost of sponsor due diligence by 15-20% (paragraph 5.8), as sponsors would no longer need to verify the forecast itself — only the reasonableness of its assumptions.

Legislative Timeline and Market Implications

The SFC’s legislative amendment is expected to be introduced in the Legislative Council in the second half of 2026, with an effective date of 1 January 2027 at the earliest, according to the Consultation Conclusions (paragraph 6.2). The amendment will require changes to both the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and the Securities and Futures Ordinance (Cap. 571), as the safe harbor must be consistent across both statutes. Market participants should expect a transitional period of 6-12 months, during which the SFC will issue guidelines on the application of the safe harbor, including examples of acceptable cautionary language and documentation requirements. The Hong Kong Stock Exchange (HKEX) has indicated that it will amend its Listing Rules to require issuers that include forward-looking statements in their prospectuses to disclose the assumptions and methodology used (HKEX, Response to SFC Consultation, September 2024). The practical effect for issuers is that revenue forecasts in IPO prospectuses will become more common — but only if the issuer is willing to invest in the documentation and verification process required to qualify for the safe harbor.

Practical Implications for Issuers and Sponsors

The introduction of a statutory safe harbor for forward-looking statements in Hong Kong will fundamentally change the calculus for issuers considering whether to include projections in their listing documents. The current bias against forecasts — driven by the strict liability regime — will shift to a more balanced approach, where forecasts are permissible if properly documented and caveated. However, the safe harbor is not a free pass; it imposes new obligations on issuers and sponsors to maintain written records of assumptions, methodology, and risk factors.

Documentation Requirements for Issuers

To qualify for the safe harbor, an issuer must maintain a written record of the assumptions underlying any forward-looking statement, including the source of each assumption, the methodology used to derive the forecast, and a sensitivity analysis showing the impact of changes in key assumptions. The SFC’s Consultation Conclusions (paragraph 3.45) indicate that the regulator will expect this documentation to be prepared contemporaneously with the forecast and made available to the sponsor and the SFC upon request. Issuers that fail to maintain adequate documentation will lose the safe harbor defence, even if the forecast was in fact based on reasonable assumptions. This requirement mirrors the approach taken by the MAS in Singapore, where the Guidelines on Prospectus Liability (paragraph 4.15) require issuers to retain all documentation for at least six years after the listing.

Sponsor Due Diligence: A Revised Approach

For sponsors, the safe harbor will shift the focus of due diligence from verifying the forecast itself to verifying the reasonableness of its assumptions. The SFC’s Consultation Conclusions (paragraph 4.22) confirm that the sponsor must still conduct independent verification of the key assumptions — for example, if a revenue forecast assumes a 15% annual growth rate in the PRC market, the sponsor must verify that this growth rate is consistent with independent market data from sources such as the National Bureau of Statistics (NBS) or industry reports from Frost & Sullivan. The sponsor must also assess whether the issuer has identified the key risk factors that could cause actual results to differ from the forecast and whether the cautionary statement in the prospectus adequately cross-references these risk factors. The safe harbor does not relieve the sponsor of liability for a forecast that is based on assumptions that the sponsor knew, or ought to have known, were unreasonable — this is the same “reasonable grounds” standard that currently applies to all statements in a prospectus.

The Cross-Border Dimension: PRC Issuers and VIE Structures

For PRC-incorporated issuers using variable interest entity (VIE) structures — which accounted for 23 of the 37 Mainland IPOs on HKEX in H1 2025 (HKEX IPO Quarterly Review, Q2 2025) — the safe harbor raises particular challenges. VIE structures are inherently subject to regulatory risk, including the PRC government’s ability to invalidate the VIE agreements or impose restrictions on foreign ownership in sensitive sectors. The SFC has made clear that forward-looking statements about VIE-controlled entities must include a specific risk factor addressing the possibility that the PRC government could take action that materially affects the VIE’s operations (SFC, Statement on VIE Disclosures, November 2024). A revenue forecast that assumes the VIE structure remains intact would not be protected by the safe harbor if the issuer fails to disclose the specific regulatory risks that could undermine that assumption. Issuers and sponsors should therefore expect the SFC to scrutinise forward-looking statements in VIE-related IPOs more closely, particularly those that assume continued access to the PRC market without caveating the regulatory risks.

Actionable Takeaways

1. Issuers planning a Hong Kong listing in 2027 or later should begin preparing written documentation of assumptions and methodology for any forward-looking statements they intend to include in their prospectus, as the safe harbor will require contemporaneous records to be maintained.
2. Sponsors should revise their due diligence checklists to include a specific workstream for verifying the reasonableness of assumptions underlying forward-looking statements, with a focus on independent market data and sensitivity analysis.
3. PRC-incorporated issuers using VIE structures must ensure that any forward-looking statements include a specific risk factor addressing the possibility of regulatory action by the PRC government that could affect the VIE’s operations, or risk losing the safe harbor defence.
4. Directors should ensure that board minutes record the approval of any forward-looking statement, including a discussion of the assumptions and risk factors, to establish the “reasonable grounds” defence if the safe harbor is not available.
5. Legal counsel should monitor the Legislative Council’s progress on the SFC’s legislative amendment and prepare for the effective date of 1 January 2027, including updating prospectus templates and cautionary language to comply with the new safe harbor requirements.