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(中文) 本所欣然宣布，我们的合伙人、诉讼及争议解决部主管徐凯怡律师获苏州仲裁委员会委任为新一届仲裁员，任期自2023年3月31日起。
苏州仲裁委员会（英文简称“SZAC”，下称“苏仲”）于1996年正式成立，是苏州市人民政府依照《中华人民共和国仲裁法》组建的民商事仲裁机构，致力于为当事人的民商事争议解决提供优质高效的仲裁法律服务。
苏仲的仲裁员队伍由来自商业金融、建设工程、知识产权、国际贸易等领域的知名教授和高级律师，以及在仲裁、审判、经济贸易等工作中经验丰富的专业人士组成。
图片来源：第六届苏州仲裁委员会仲裁员名册
(中文) 前言
2023年5月17日，香港高等法院原讼法庭陈静芬法官在Re Guangdong Overseas Construction Corporation [2023] HKCFI 1340一案中对广州市中级人民法院 (下称“广州中院”) 委任的广东海外建设总公司破产管理人予以认可，同意为其跨境破产事宜提供协助。这是香港高等法院第三次根据普通法 (common law) 对内地法院委任的管理人予以认可。
案件背景
建筑材料零售商广东海外建设总公司 (下称“公司”) 于2022年5月17日被裁定破产。应债权人请求，广州中院指定广州金股企业清算有限公司为破产管理人 (下称“管理人”)。公司名下在香港的财产涉及广东海外建设发展有限公司 (香港) 超四分之一的股份。在《内地与香港特别行政区法院相互认可和协助破产程序合作机制》(下称“合作协议”) 指导下，广州中院在2022年11月15日向香港法院递交请求认可破产清算程序及管理人身份、协助破产程序的申请书 (下称“申请书”)。
高等法院判决
(1) 合作协议适用范围
陈静芬法官在判决中指出，虽然广州不在合作协议三个试点地区 (即上海市、福建省厦门市、广东省深圳市) 之列，但法院的地理位置并不是香港法院提供认可及协助的决定性因素，因为互惠 (reciprocity) 并不是在香港法院根据普通法认可和协助境外破产程序的必要条件。广州法院不承认香港破产或清盘程序的可能性并不妨碍香港法院应广州法院的要求认可广州命令。陈静芬法官同意2021年9月中国海航集团重组案中夏利士法官的标志性判决，即法院是否可以向香港申请协助应由最高人民法院决定，而非香港法院。尽管申请书并未提及最高人民法院有否授予广州中院提出申请的权力，但鉴于迄今为止向香港法院提出的申请数量相对较少，故有理由相信最高人民法院在申请书发出之前已得知申请书的内容。因此，陈静芬法官裁定香港法院有权认可广州法院指定的境外管理人。
陈静芬法官亦在本案中重申了夏利士法官在Provisional Liquidator of Global Brands Group Holding Ltd v Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789一案中提及的普通法体系下向法院申请认可和协助的条件，即若境外管理人请求香港法院予以认可和协助，境外破产程序须于有关公司的主要利益中心 (centre of main interest) 境内进行。
(2) 命令申请内容
本案中，管理人的代表律师曾采用香港法院常用的“标准格式命令(standard form recognition order)”申请认可破产程序和管理人身份，但是陈静芬法官提醒该模式不适合作为申请所有命令的依据。管理人及其顾问应该根据各自公司的情况递交命令申请，尤其是在管理人已经确定了其寻求控制的资产情况下。
本案例的意义及启示
尽管广州并非合作协议的缔约方，但广州法院指定的破产管理人能够获得香港法院认可的事实不仅表明了香港公司法庭的务实性和灵活性，也体现了香港促进加强跨境破产合作机制的一贯努力。随着两地司法合作的不断增加及完善，相信跨境破产中的债权债务问题能够在破产程序、破产管理人互认及协助程序中得到更快速更优化的解决。
本文由本所合伙人，诉讼及争议解决部主管徐凯怡律师﹑黄晊晄高级律师﹑蔡皓贤实习律师﹑杨鸿煜律师助理和实习生程阳共同撰写。若阁下想了解更多详情，请联络本所徐凯怡律师。
Introduction
On 23 May 2023, the Securities and Futures Commission (the “SFC”) issued the consultation conclusions on the proposed regulatory requirements for virtual asset trading platform operators licensed by the SFC (the “Consultation Conclusions”) setting out the finalised changes on the regulatory requirements and proposed transitional arrangements under the new licensing regime (the “AMLO VASP regime”) for centralised virtual asset trading platforms (the “VA Trading Platforms”). The Consultation Conclusions were issued in response to the consultation paper (the “Consultation Paper”) published on 20 February 2023 (see our news update here).
Implementation of the Guidelines
The SFC will implement the Guidelines for Virtual Asset Trading Platform Operators (the “VATP Guidelines”), the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC-licensed Virtual Asset Service Providers) and Prevention of Money Laundering and Terrorist Financing Guideline for Associated Entities of Licensed Corporations and SFC-licensed Virtual Asset Service Providers (the “AML Guidelines”, together with the VATP Guidelines, the “Guidelines”)) with some modifications and clarifications as set out and discussed in the Consultation Paper. The Guidelines will be published in the Gazette and become effective on 1 June 2023. The Guidelines set out, among others, safe custody of assets, segregation of client assets, avoidance of conflicts of interest and cybersecurity standards and requirements expected of licensed trading platforms. The SFC will provide additional guidance on the new regulatory requirements, other implementation details including licence application procedures, as well as more information about the transitional arrangements.
Part I: Amendments to the proposed regulatory requirements for licensed VA trading platform operators
A: Allow retail access to licensed VA Trading Platforms
Retail access
Most of the respondents showed their strong support for allowing licensed VA Trading Platforms to provide their services to retail investors. Apart from permitting retail access, the SFC agreed that the licensed VA Trading Platforms should comply with a range of robust investor protection measures covering onboarding, governance, disclosure and token due diligence and admission, before providing trading services to retail investors. The SFC expressed that it will continue its efforts with the Investor and Financial Education Council to educate investors about all aspects of virtual assets and their trading, including risks of trading on unregulated platforms to ensure investor protection.
Onboarding requirements
Many of the respondents agreed to the imposition of onboarding requirements for retail clients, but they also indicated their concerns on whether retail clients have sufficient knowledge of virtual assets before trading. A few of the respondents also requested that individual professional investors be exempt from the onboarding requirements entirely.
In response, the SFC considered that the terms, features and risks of virtual assets are generally not likely to be understood by a retail investor, and the implementation of the full scope of proposed onboarding requirements is necessary. The SFC is also of the view individual professional investors should be subject to similar protections as retail investors.
The SFC indicated that platform operators should conduct a holistic assessment of an investor’s understanding of the nature and risks of virtual assets, which could include an assessment of virtual asset training or courses that the investor has previously attended, the investor’s current or previous work experience related to virtual assets and the investor’s prior trading experience in virtual assets.
Governance
The respondents showed strong support for requiring a licensed VA Trading Platform to establish a token admission and review committee to enhance its governance. The SFC is of the view that the members “principally responsible for” different areas of the platform will at least include the corresponding managers-in-charge of the platform operator and it would not be necessary to require platform operators to appoint independent external members to the committee.
Disclosure obligation
The majority of the respondents agreed that the imposition of disclosure obligations for each admitted virtual asset is important for the protection of investors. To address the concern of some respondents on the difficulty to obtain and verify information from an issuer of an admitted virtual asset, the SFC proposed requiring licensed VA Trading Platforms to act with due skill, care and diligence when disclosing information. The disclosure obligations in the VATP Guidelines are also further refined to require platform operators to take all reasonable steps to ensure the product specific information they disclose is not false, biased, misleading or deceptive.
General token admission criteria
The majority of respondents agreed that licensed VA Trading Platforms should have regard to general token admission criteria prior to admitting any virtual asset for trading, while some asked for exemptions for virtual assets with large market capitalisations, for virtual assets which have already been admitted for trading on a licensed VA Trading Platform or for unsolicited execution-only transactions. In response, the SFC believed that it is not appropriate to provide any exemption from conducting due diligence. Also, regarding the issue on token’s regulatory status in each jurisdiction, the SFC expressed that it will only require the platform operator to consider the regulatory status of the virtual asset in Hong Kong. Nevertheless, platform operations are reminded to ensure their operations are in compliance with local laws and regulations in all jurisdictions where they operate.
Specific token admission criteria for “eligible large-cap virtual assets”
The SFC clarified that the tokens must be eligible large-cap virtual assets included in at least two acceptable indices issued by two independent index providers. It further requires that the index provider with experience in publishing indices for the conventional securities market to comply with the IOSCO Principles for Financial Benchmarks such that it has proper internal arrangements in place to protect the integrity and ensure the quality of its indices. In addition to being independent of each other, the SFC will also require that the two index providers should be independent of the issuer of the virtual asset and also of the VA Trading Platform operator.
The SFC also expressed that as the admissibility and continued eligibility of a token for trading depends on the due diligence conducted by a platform operator, it would not be appropriate for the SFC to publish lists of virtual assets eligible for retail trading, acceptable indices or index providers.
Stablecoins will be of no avail prior to implementation of stablecoin regulatory regime
The possible inability to maintain its peg, and susceptibility to run, are reasons the SFC considered that stablecoins should not be admitted for retail trading at this stage prior to being subject to regulation in Hong Kong. It is noted that the Hong Kong Monetary Authority published the conclusion on its discussion paper on crypto-assets and stablecoins in January 2023 (see our news update here) and the regulatory arrangements for stablecoins are expected to be implemented in 2023/24.
B. Maintain an insurance or compensation arrangement
Lowered coverage ratio from 95% to 50% for cold storage of client virtual assets
With regard to the comments provided by the respondents, the SFC is of the view that as risks to client virtual asset held in hot and other storages are not typically associated with the custody of client assets in the traditional financial markets, these client virtual assets should be fully covered by the compensation arrangement of a licensed VA Trading Platform. On the other hand, for client virtual assets held in cold storage, the SFC is prepared to lower the coverage threshold to 50%, on the basis that 98% of client virtual assets will be required to be held in cold storage.
Regarding the types of assets that could form part of a compensation arrangement, the SFC accepts (a) bank guarantees; (b) funds held in the form of demand deposits or fixed deposits with a maturity of six months or less; and (c) virtual assets which are of the same type of the client virtual assets being covered.
Other than an escrow arrangement put in place for the compensation arrangement, VA Trading Platforms are allowed to hold the funds set aside, provided that such funds are segregated from the assets of the VA Trading Platform operator and its group companies, and are set aside on trust and designated for such purpose. Funds held by the platform operator or its associated entity should be held in a segregated account with an authorised financial institution.
C. Trading in virtual asset derivatives
The respondents generally support the idea of allowing licensed VA Trading Platforms to provide trading services in virtual asset derivatives. The SFC will take the comments into consideration and conduct a separate review in due course.
D. Other adaptations to existing requirements
After considering the comments of the respondents, the SFC remains its view that the cold to hot storage ratio should not be lowered and the bulk of client virtual assets should be held in cold storage, so as to ensure the safe custody of client assets. Regarding proprietary trading, the SFC has revised the requirements in the VATP Guidelines to allow trading by affiliates other than trading through the licensed VA Trading Platform. However, licensed VA Trading Platforms are not allowed to provide services commonly seen in the virtual asset market such as earning, deposit-taking, lending and borrowing.
E. AML/CFT matters
Virtual asset transfers
Travel Rule
The SFC considers that any delay in the implementation of the Travel Rule in Hong Kong would affect the competitiveness of the Hong Kong-licensed VA Trading Platforms. Where the required information cannot be submitted to the beneficiary institution immediately, the SFC considers the submission of the required information as soon as practicable after the virtual asset transfer to be acceptable as an interim measure until 1 January 2024.
Virtual asset transfer counterparty due diligence
To address the concern of the respondents, the SFC believed the relevant guidance, including the factors that should be considered and the measures to be taken, are in line with the Financial Action Task Force (FATF)’s standards and guidance and should be applied using a risk-based approach. The due diligence measures should be applied to the entity which a licensed VA Trading Platform conducts virtual asset transfers with.
Risk-based policies and procedures for handling incoming virtual asset transfers lacking the required information
The SFC clarified that a licensed VA Trading Platform should only return virtual assets where appropriate and when there is no suspicion of money laundering or terrorist financing (“ML/TF”), and the returns should be made to the account of the ordering institution rather than the originator’s account.
Virtual asset transfers to or from unhosted wallets
Many respondents supported the requirements imposed for virtual asset transfers to or from unhosted wallets. The SFC indicated that it is mandatory for licensed VA Trading Platforms to take reasonable measures on a risk-sensitive basis to mitigate and manage the ML/TF risks associated with virtual asset transfers to or from an unhosted wallet.
Other virtual asset-specific AML/CFT requirements
Occasional transactions
The SFC clarified that the licensed VA Trading Platforms should not carry out occasional transactions as they are required to establish a business relationship with all customers pursuant to the VATP Guidelines.
Cross-border correspondent relationships
Some respondents had asked the SFC to clarify the scope of application of cross-border correspondent relationships in the context of virtual assets. The SFC stated that the requirements for cross-border correspondent relationships apply to a licensed VA Trading Platform when it provides services in the course of providing a virtual asset service to a virtual asset service provider or financial institution located in a place outside Hong Kong.
Screening of virtual asset transactions and the associated wallet addresses
The SFC has clarified that screening of virtual asset transactions and their associated wallet addresses should be performed before conducting a virtual asset transfer, or before making the transferred virtual assets available to the customer; and after conducting a virtual asset transfer on a risk-sensitive basis.
F. Disciplinary Fining Guidelines
Responding to the concerns regarding the fining criteria, the SFC agreed that the same set of fining criteria should be applied to both Securities and Futures Ordinance (“SFO”)-licensed and Anti-Money Laundering Ordinance and Counter-Terrorist Financing Ordinance (“AMLO”)-licensed VA Trading Platforms, where both of them will be subject to the same fining criteria irrespective of the ordinance under which they are licensed.
The SFC believed the proposed Disciplinary Fining Guidelines already provide sufficient information regarding the factors being considered in determining whether to impose a fine as well as the appropriate fine. The SFC stipulated that it will not follow a rigid framework in applying a specific amount or numerical value to any of the factors.
In deciding whether disciplinary action should be taken against individuals, corporations or both, the SFC will take a holistic approach, in which it will consider all the circumstances including the conduct of the corporation and individual in question. And for those involved in the management of a corporation, the SFC will consider whether there is any consent, connivance or negligence on their part, any failure in supervision, or the management of business.
Part II: Key measures of the transitional arrangements and implementation details of the new regulatory regime
License application related matters
The SFC clarified the scope of “providing a virtual asset service”, where the AMLO regime will cover VA Trading Platforms which are centralised and operate in a manner similar to traditional automated trading venues licensed under the SFO. The provision of virtual asset services without an automated trading engine and ancillary custody services would not fall under the scope of the AMLO regime.
Regarding the dual-licensing issue, the SFC suggested that it would be prudent for VA Trading Platforms to apply for approvals under both the existing SFO and AMLO regime to avoid contravention of the licensing regimes, given the ever-changing nature and classification of tokens. It also acknowledged that withdrawing a token previously admitted for trading when the token evolved into a security token may not be in the best interests of clients and should be a measure of last resort. The dual-licenses application process will be streamlined to allow applicants to submit only one single consolidated application.
The SFC also emphasised that the Phase 1 external assessment report shall be submitted together with the license application, given that an external assessor is expected to be involved in the early preparation stages of applying for a license.
Transitional arrangement-related matters
The SFC explained that the VATP Guidelines will supersede the Terms and Conditions for VA Trading Platform Operators previously issued by the SFC and be imposed as a licensing condition. For existing SFO-licensed VA Trading Platforms, the SFC will not remove the corresponding licensing conditions on compliance with the Terms and Conditions for VA Trading Platforms from their licenses until the VA Trading Platform can fully comply with the VATP Guidelines or by the deadline of the 12-month transitional period, whichever is earlier.
Analysis and Takeaways
We believe that the clarifications and amendments proposed by the SFC are mostly sensible, as they represent the collective wisdom and practitioners’ experience accumulated over the years. The discussion on gathering of irrevocable commitments, the closing of “offer period” and partial offers are indeed helpful and timely. The proposal to include green initiatives is also commendable, especially when bulk-printing of documents for compliance with the despatch requirements may in practice hinder actions where time is of essence.
It is expected that the SFC would continue to review the rules to provide better guidance and efficiency to the market participants while balancing the core value to maintain market order and defend the market integrity of Hong Kong.
Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.
This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.
Introduction
On 19 May 2023, the Securities and Futures Commission (the “SFC”) published the consultation paper (the “Consultation Paper”) seeking written comments on proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs (the “Codes”).
The proposed amendments include codification of existing practices of the Executive Director of the Corporate Finance Division of the SFC (the “Executive”), clarifications on the Codes and housekeeping matters. The Executive also proposes amendments to various provisions of the Codes together with reasons for such changes. The public consultation period will end on 23 June 2023.
Part 1: Voting, Acceptances and Concert Party Issues
Definitions
Definition of “close relatives”
The SFC proposes to amend the definition of “close relatives” under the Codes. The current definition refers only to a person’s spouse, de facto spouse, children, parents and siblings, which does not cover the existing practice of the SFC. In order to codify the existing practice and expand the definition of “close relatives”, it is proposed to delete Note 8 to the definition of acting in concert and introduce a new definition of “close relatives” as follows:
“Close relatives: A person’s close relatives means:
(1) the person’s spouse or de facto spouse, parents, children, grandparents and grandchildren;
(2) the person’s siblings, their spouse or de facto spouse and their children; and
(3) the parents and siblings of the person’s spouse or de facto spouse.”
This new definition will result in a larger group of individuals presumed to be acting in concert with a person.
Definition of “voting rights”
Voting rights is currently defined as “… voting rights currently exercisable at a general meeting of a company whether or not attributable to the share capital of the company”. This definition leads to confusions on whether shares that are subject to voting restrictions and, hence their voting rights are not currently exercisable, would be treated as voting rights for the purpose of the Codes. This may also create undesirable situations where voting rights would disappear or re-appear due to the imposition or lifting of voting restrictions.
Therefore, the SFC proposes to amend the definition of “voting rights” by deleting the word “currently”. A Note to the definition of voting rights is also added to the Codes for clarification:
“For the purposes of the Codes, voting rights that are subject to any restrictions to their exercise by agreement, by operation of law and regulations or pursuant to a court order will still be regarded as voting rights exercisable at a general meeting except for the voting rights attached to treasury shares (if any) which will not be treated as voting rights for the purpose of this definition.”
Shareholders’ approval and acceptance
Note to Rule 2.2(c) of the Takeovers Code
In current practice, condition (iii) to the Note to Rule 2.2 is silent as to whether purchases will also be included when determining the equivalent threshold of acquiring 90% of the disinterested shares as compared to Rule 2.11, which has expressly included the purchases. As a matter of practice, the SFC has allowed purchases to be included in determining whether the threshold under condition (iii) to the Note to Rule 2.2 has been met.
Hence, to clarify the rules, it is proposed to amend condition (iii) in the following:
“(iii) the resolution to approve the delisting is subject to the offeror having received valid acceptances of the offer together with purchases (in each case of the disinterested shares) made by the offeror and persons acting in concert with it from the date of the announcement of a firm intention to make an offer amounting to 90% of the disinterested shares.”
Rule 2.11 of the Takeovers Code
The current Rule 2.11 indicates that only purchases made by an offeror and its concert parties during the period of 4 months after the posting of the initial offer document, together with acceptances, would count towards the 90% threshold. As the SFC considers it unnecessary to distinguish between an offer which does not involve a delisting and an offer which involves a delisting in deciding whether an acceptance condition has been met, it is proposed that the treatment of an acquisition pursuant to an acceptance of an offer or via an on-market acquisition should be the same.
The Rule 2.11 is proposed to be amended as follows:
“Except with the consent of the Executive, where any person seeks to acquire or privatise an company by means of an offer and the use of compulsory acquisition rights, such rights may only be exercised if, in addition to satisfying any requirements imposed by law, acceptances of the offer and purchases (in each case of the disinterested shares) made by the offeror and persons acting in concert with it during the period from the date of the announcement of a firm intention to make an offer to the expiry of the 4-month period after posting the initial offer document total 90% of the disinterested shares.”
Rule 2.2 and 2.10 of the Takeovers Code
Given the different interpretations of Rule 2.10 among the Hong Kong courts, the SFC proposes to amend Rule 2.10 to remove any ambiguity in the interpretation of the rule. This applies to Rule 2.2 as well as the same issue exists in Rule 2.2 equally. The amendments proposed by the SFC are as follows:
Rule 2.10:
“(a) the scheme or the capital reorganization is approved by at least 75% of the votes attaching to the disinterested shares that are cast either in person or by proxy at a duly convened meeting of the holders of the disinterested shares shareholders ; and…”
Rule 2.2:
“(a) approval by at least 75% of the votes attaching to the disinterested shares that are cast either in person or by proxy at a duly convened meeting of the holders of the disinterested shares shareholders ;…”
A Note 8 to Rule 2 is added as well:
“8. Shareholders’ meetings held for the purpose of Rules 2.2 and 2.10
Reference to “duly convened meeting of shareholders” under Rules 2.2 and 2.10 refers to shareholders’ meetings which are duly convened in accordance with an offeree company’s constitutional documents and the company law of its place of incorporation. Offeree companies and their advisers are encouraged to seek legal advice and, where applicable, guidance and directions from the relevant courts in respect of the meetings held for the purpose of considering a scheme of arrangement or a capital reorganisation.”
Irrevocable commitments
The SFC proposes to amend Note 4 to Rules 3.1, 3.2 and 3.3 in order to revise the existing framework on the gathering of irrevocable commitments and adopt the following:
(a) Consultation with the Executive is not required where an offeror approaches a shareholder with a material interest in an offeree company. A shareholder has a material interest when he and his concert parties control(s) directly or indirectly 5% or more of the voting rights of an offeree company.
(b) The Executive must be consulted where an offeror intends to approach shareholders other than those with a material interest in an offeree company.
(c) The maximum number of shareholders an offeror can approach in an offer is six. This number includes approaches made to both: (a) shareholders who have a material interest; and (b) shareholders who do not have a material interest.
Part 2: The Chain Principle
In order to address the difficulties faced by practitioners in the application of the Substantiality Test (as set out in Note 8(a) to Rule 26.1) in assessing whether a “chain principle offer” is required, Note 8 to Rule 26.1 is amended to provide more guidance according to the follows:
(a) to add market capitalisation as one of the parameters for comparison when determining the Substantiality Test and amend Note 8(a) to Rule 26.1.
(b) to add further language to codify the Executive’s practice to “look-back” at least the three most recent financial periods when calculations of the Substantiality Test produce an anomalous result; and
(c) to update Practice Note 19 to provide further guidance on the Executive’s approach to the Substantiality Test as set out in this section.
Part 3: Offer Period and Timetable
Certain enhancements were introduced to streamline and improve efficiency during an offer.
Definition of “offer period”
Under the current rules, once an offer period has commenced, it will not end until one of the situations under the current definition of “offer period” is met. The Executive is not given the express power to end an offer period by the Codes either. This may be problematic as the offeree company may be subject to an unnecessarily prolonged offer period when the offeror is not proactive in relation to an offer or ending an offer.
Hence, the SFC proposes to give the Executive an express power to end an offer period. It is suggested that when the Executive exercise this power, an Executive statement will be published on the SFC’s website under the section headed “Executive decisions and statements”, while the offer period table will be updated to set out the reasons for the close of the relevant offer period.
Last possible day for Day 60 in privatisations and take-private transactions
The current Rule 15.5(ii) allows the extension of the last day on which an offer must be declared unconditional as to acceptances beyond the 60th day after the posting of the composite document (Day 60) if the offeree board consents.
In order to balance an offeror’s desire to extend an offer period to meet the acceptance condition and the interest of shareholders of an offeree company, as well as to ensure an offeree company will not be subject to an unnecessarily prolonged offer period, the SFC proposes to codify the practice where the Executive would give its consent to extend Day 60 given that any extension of Day 60 would not exceed four months after the despatch of the offer document.
Put up or shut up (PUSU) orders
A PUSU order requires a potential offeror to announce its firm intention to make an offer within a set period of time (put up), or to announce that it will no longer proceed with an offer (shut up). Under the current rules, there is no express provision under the Codes for the Executive to issue a PUSU order. Hence, the SFC proposes to add Rule 3.9 to codify the existing practice with respect to PUSU orders and to expressly empower the Executive to impose such orders in exceptional circumstances.
The proposed factors for the Executive to consider when deciding whether or not to impose a PUSU order:
(1) The current duration of the offer period;
(2) The reason(s) for the delay in issuing a firm intention announcement by the offeror;
(3) The proposed offer timetable (if any);
(4) Any adverse effects that the offer period has had on the offeree company; and
(5) The conduct of the parties to the offer.
Settlement of consideration and return of share certificates
Under the current Rule 20.1, 20.2 and Rule 17, there are no rules that set out the timing expected for new share certificates that are required to be issued to accepting shareholders following a successful offer. Hence, the SFC proposes to amend Rule 20.2 and Rule 17 in order to clarify that, in successful offers, share certificates for untaken or untendered shares in an offer (including partial offers) or share buy-back by way of general offer must be posted to or be made ready for collection by the accepting shareholder at the same time as the payment of consideration, and in any event no later than 7 business days after the later of: (i) the date of offer becomes, or is declared, unconditional; and (ii) the date of receipt of a duly completed acceptance.
Other amendments
Timing Requirements
Currently, different variations of the timing requirements have been used throughout the Codes. This causes confusion.
Thus, the SFC proposes to make a number of housekeeping amendments to provisions where time periods are relevant. The changes are extracted in Appendix 2 of the Consultation Paper.
Apart from that, in relation to Rule 7, there had been some confusion in the market as to the exact permitted time as to when directors’ resignations may take effect.
Hence, the SFC proposes to clarify Rule 7 as follows:
“Once a bona fide offer has been communicated to the board of the offeree company or the board of the offeree company has reason to believe that a bona fide offer is imminent, except with the consent of the Executive, the directors resignation of any directors of an offeree company should not resign take effect until after the publication of the closing announcement on the first closing date of the offer, or the date when publication of the announcement that the offer becomes has become or is been declared unconditional, or shareholders have voted on whichever is later. In the case of a transaction involving a whitewash waiver, the resignation of any director of an offeree company should not take effect until after the publication of the results announcement relating to the shareholders’ meeting to approve the waiver of a general offer obligation under Note 1 on dispensations from Rule 26, whichever is the later. ”
Rule 15.7 of the Takeovers Code
Rule 15.7 provides that all conditions must be fulfilled or the offer must lapse within 21 days of the later of the first closing date or the date when the offer becomes or is declared unconditional as to acceptances, unless the Executive consents otherwise.
The SFC proposes to add a note to Rule 15.7 to the effect that no consent from the Executive will be required in cases where the time delay between the court meeting and the effective date of a scheme is due to the court’s timetable. In other words, applications for consent will no longer be required. The amendment will also streamline the vetting and approval process for a privatisation by way of a scheme of arrangement.
Part 4: Offer Requirements
Disclosure of offer price in talk announcement
Under the current regime in Issue 37 (June 2016) of the Takeovers Bulletin, the Executive advised parties to maintain confidentiality and take all necessary steps to ensure there is no leakage of information prior to the announcement of a firm intention to make an offer.
That said, the SFC indeed acknowledges that parties should be given the flexibility to disclose a price in a Rule 3.7 announcement and there could be situations where this would be desirable. Notwithstanding the Executive’s strict approach to the disclosure of an offer price in a Rule 3.7 announcement, in practice, the SFC has been flexible in its supervision having regard to the specific circumstances of the case.
As such, the SFC now proposes to codify this practice by introducing a new note to give effect that the disclosure of an indicative offer price is not normally permitted before an announcement of a firm intention to make an offer unless there are exceptional circumstances.
Deduction of dividends from offer price
In the 2019 decision relating to Dalian Port (PDA) Company Limited (“Dalian Port”), the Panel ruled that the offeror will not be allowed to deduct the final dividend approved by the shareholders of Dalian Port from its offer price in a possible mandatory general offer.
Following the decision, the SFC proposes to codify the effect of dividends and withholding tax on an offer price. The proposed Note 11 to Rule 23.1 is as follows:
“An offeror will not be permitted to reduce from the offer consideration any amount equivalent to a dividend (or other distribution) which is subsequently paid or becomes payable by the offeree company to offeree company shareholders, unless it has specifically reserved in an announcement the right to do so. Where a dividend (or other distribution) is subject to withholding or other deductions, the offer consideration should be reduced by the gross amount received or receivable by the offeree company shareholders.”
Part 5: Partial Offers
Proposed amendments to the Codes aim to clarify certain procedural matters in partial offers and requirements for comparable offers.
Offer periods relating to partial offers
The current Rule 28.4 provides that for partial offers, once acceptances exceed the number of shares stated and the offeror declares the partial offer unconditional, the final closing date must be the 14th day thereafter and cannot be further extended. The rationale for that is any extension of the offer period will (i) dilute the number of shares accepted from an accepting shareholder; and (ii) delay the receipt of consideration which would only be settled after the close of offer.
Yet, in response to the misconception that an offer must be unconditional on both acceptances and approval before the restriction on extension of offer periods under Rule 28.4 kicks in, the SFC proposes to make amendments to clarify that the acceptance and approval conditions are in fact two separate conditions. The SFC does not consider it appropriate to allow an offer period in a partial offer to remain open for a prolonged period of time when an acceptance condition has already been met in order to facilitate the satisfaction of the approval condition under Rule 28.5.
Comparable offer for convertible securities, warrants, etc.
Currently, there is no explicit requirement to make appropriate Rule 13 offers for convertible, options, warrants etc. during a partial offer.
However, upon review, the SFC notes that all partial offers made since 2011 have included comparable offers for options or convertible securities, typically offering the same percentage as that under the partial offer for shares. Given that the market has accepted that appropriate Rule 13 offers apply to partial offers for more than a decade, the SFC proposes to add a new Rule 28.10 to make the requirement explicit.
Tick-box approval
The current Rule 28.5 imposes a “tick-box” approval condition requiring a partial offer to be conditional on, in addition to acceptances, majority approval from independent shareholders if an offer may result in an offeror holding 30% or more of a company. Under the rule, the tick-box requirement may be waived if one independent shareholder holding over 50% of the independent voting rights has indicated approval of the partial offer.
In response to enquiries on whether the tick-box approval applies to partial offers falling under Rule 28.1 (a) or (b), the SFC proposes to make amendments to clarify that the tick-box approval does not apply to an offer “(a) which could not result in the offeror and persons acting in concert with it holding 30% or more of the voting rights of a company; or (b) where the offeror and persons acting in concert with it hold more than 50% of the voting rights of a company.”
Acceptance and approval of partial offer by exempt principal traders
The current Rule 35.4 provides that shares held by exempt principal traders connected with an offeror or an offeree company must not be voted in the context of an offer.
In response to enquiries on whether Rule 35.4 applies to partial offers (as the rule does not specify whether an exempt principal trader can approve a partial offer under Rule 28.5), the SFC believes there is no reason that the discipline under Rule 35.4 that applies to general offers should not apply equally to partial offers, which are subject to more stringent rules than general offers. Hence, the SFC proposes to add a new Note 3 to Rule 28 to clarify that Rule 35.4 indeed applies to partial offers.
Part 6: Going Green
The SFC proposes several green initiatives to reduce the environmental impact associated with the documents published under the Codes, including introduction of electronic dissemination under the Codes and the related Code amendments.
Analysis and Takeaways
Some provisions of the current Codes are ambiguous and may cause confusion to companies and relevant stakeholders in complying with the Codes. It is believed the proposed amendments by the SFC would clarify current issues of the Codes and provide better guidance to companies on interpretation of the rules, as well as to reduce the number of disputes arising from such ambiguity. Codification of certain market practice undertaken by the SFC would also provide certainty to companies when conducting their business or any corporate actions which involves interpretation of the Codes, as well as greater convenience by reducing the need to conduct separate consultation with the SFC. The proposal to include green initiatives is also a commendable action as the dispatch of physical copies of documents required under the Codes can be cumbersome and, in particular, bulk-printing of documents for meeting the despatching requirements under the Codes may in practice hinder actions of some companies where time is of essence and compelling.
In the future, it is expected that the SFC would continue to review the rules to provide better guidance and efficiency to the market participants while balancing the core value to maintain market order and defend the market integrity of Hong Kong.
Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.
This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.
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