31 Jul 2024

Partner Heidi Chui Moderated a Panel at the “Asia Forum: 4th International Arbitration & Competition Law Summit – Hong Kong”

On 31 July 2024, our Partner and Head of the Litigation and Dispute Resolution Department, Heidi Chui, moderated a panel session at the “Asia Forum: 4th International Arbitration & Competition Law Summit – Hong Kong.”

Legal Plus organised the forum, which received significant support from various organisations, including the China Maritime Arbitration Commission, the Hong Kong Arbitration Centre (CMAC), the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center (CIETAC), and the Hong Kong International Arbitration Center (HKIAC).

From the left: Jon Nicklin, a Director at Accuracy Beijing; Jeremy Bartlett SC, a Barrister at Princes Chambers; James Kwan and our Partner Heidi Chui
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29 Jul 2024

THE STOCK EXCHANGE OF HONG KONG LIMITED PUBLISHED CONSULTATION PAPER ON CORPORATE GOVERNANCE CODE

Introduction
On 14 June 2024, the Stock Exchange of Hong Kong Limited (the “Exchange”) of the Hong Kong Exchanges and Clearing Limited published a consultation paper (the “Consultation Paper”) inviting public feedback on the proposed enhancements to the Corporate Governance Code (the “CG Code”) and related amendments to the Listing Rules by 16 August 2024. It is proposed that the amendments will apply to corporate governance reports (“CG Reports”) and annual reports for financial years commencing on or after 1 January 2025, with a 3-year transition period for specified proposals pertaining to independent non-executive directors (“INEDs”).

The Stock Exchange of Hong Kong Limited …

The main areas of focus in the Consultation Paper are: (i) board effectiveness, (ii) independence of INEDs, (iii) board and workforce diversity, (iv) risk management and internal controls, and (v) dividends.

Board Effectiveness
Enhancing board effectiveness is essential for strengthening corporate governance. This involves ensuring that the board composition reflects a well-balanced blend of skills, experience, and diverse perspectives, enabling it to function effectively in an ever-changing market environment.

Proposals	Details
Designation of a Lead INED	To better facilitate communication between investors and the board; among INEDs; and between INEDs and other directors, the Exchange propose to state that issuers should designate one INED as a Lead INED. For issuers with an independent board chair (i.e. a board chair who is an independent director) – the board chair will fulfil the role of the Lead INED, unless the issuer designates another INED as the Lead INED. For issuers without an independent board chair (i.e. a board chair who is not an independent director, including board chairs who is also the chief executive) – designate one INED as the Lead INED. Where an issuer does not designate a Lead INED, it may provide reasons to explain, for example, the issuer already has in place alternative shareholder communication channels. Roles and responsibilities of a Lead INED: With regards to the roles and responsibilities of the Lead INED, the Lead INED: · is primarily responsible for strengthening communication between INEDs, the board, and shareholders, to enable shareholders to better understand the decisions made by INEDs; · is expected to attend the issuer’s AGM with the board committee chairs; and · is subject the same fiduciary duties and responsibilities as all directors in respect of the issuer on whose board they serve.
Mandatory director training and disclosure	For all directors of issuers listed on the Exchange	Mandatory continuous professional training: All such directors must participate in mandatory continuous director training on specific topics. There is no specified minimum training hours or training format requirement.For directors appointed to fill a casual vacancy, the proposed training requirements will apply from the issuer’s full financial year following the appointment.Disclosure requirement: Issuers must confirm that directors have participated in the required training, and disclose the following:· the number of hours; · the topics of the training attended; · the format of the training (e.g. by physical attendance or remotely); and · the names of relevant training providers (if external).
	For first-time directors (i.e. directors who are appointed as a director of an issuer listed on the Exchange for the first time, or have not served as a director of an issuer listed on the exchange for a period of 3 years or more prior to their appointment) (with a 3-year transition period)	Mandatory 24-hour training requirement: First-time directors must undergo a minimum of 24 hours of training, to be completed within the first 18 months of the date of appointment.If a first-time director leaves the issuer before completing the 24-hour training, the requirement resets for the subsequent appointment.Additional Disclosure requirement: Issuers must confirm that first-time directors have completed the minimum of 24 training hours within 18 months following their appointment.
Board performance review and disclosure	A board performance review must be conducted at least once every 2 years, with specific disclosures in the CG Report, on a “comply and explain” basis. Format: Issuers has discretion to determine the format of the review, including whether it is conducted internally or through external providers. Content: The review should focus on the board’s performance as a whole, rather than assessing each director individually.
Board skills matrix and disclosure	Issuers must maintain a board skills matrix in the CG Report, with enhanced disclosures on the following information: (i) the existing skills mix of their boards; (ii) how the combination of skills, experience and diversity of their directors serves the purpose, values, strategy and desired culture of the company; and (iii) details and plans to acquire further skills.
Overboarding INED and directors’ time commitment (with a 3-year transition period)	A hard cap will be imposed on INEDs such that INEDs can only take up a maximum of six Hong Kong-listed issuer directorships. The nomination committee must annually assess and disclose each director’s time commitment and contribution to the board, taking into account their listed issuer directorships and other significant external time commitments.

Independence of INEDs
The proposed amendments aim to promote periodic board refreshment and strengthen independent voices on issuers’ board. This is intended to bring in fresh perspectives and maintain the objectivity of INEDs.

Proposals	Details
Cap on Long Serving INED (“INED who has served for more than nine years on the board of a listed issuer”)	It is proposed to impose a hard cap of nine years on the tenure of INEDs.
Two-year cooling off period	An INED will be allowed to serve as an INED of the same issuer again after a 2-year cooling off period. During this cooling-off period, such individual must not serve as a director of the issuer, its holding company, any of their subsidiaries, or any core connected persons of the issuer.
Three-year transition period	The proposed rule will apply from 1 January 2028 onwards. A three-year transition period is proposed for the implementation of this regulation to ensure board continuity and provide sufficient time for affected issuers to conduct proper succession planning and adjust their board composition.

Board and Workforce Diversity
In order to facilitate unique perspectives, robust discussions and resilient decision-making, the Exchange focuses on improving diversity and inclusion in the boardroom as well as all levels of the company.

Proposals	Details
Nomination Committee Composition	The nomination committee must comprise directors of different genders.
Diversity Policies	Issuers are required to establish and disclose a diversity policy for their workforce (including senior management). Issuers are required to make separate disclosure of the gender ratio of senior management and the workforce (excluding senior management).
Arrangements during temporary deviations from board gender composition requirements	if an issuer fails at any time to have directors of different genders on the board (e.g. where the only female director resigns), it would be required to immediately publish an announcement containing the relevant details and reasons.

Risk Management and Internal Controls
The proposed amendments aim to improve market quality and corporate governance through continuous monitoring, periodic reviews and reporting on risk management and internal controls (“RMIC”).

Proposals

Details

Annual review of RMIC systems

The requirement to conduct (at least) an annual review of RMIC systems of the issuer and its subsidiaries will be upgraded to a mandatory requirement. It will be the responsibility of the board to ensure that the necessary reviews are conducted, and for management to confirm to the board the effectiveness of these systems.

Detailed disclosures

The board is required to make detailed disclosures on the following:

(a) the RMIC systems in place (including any significant changes made to the RMIC Systems);

(b) the process through which the review of the RMIC Systems was conducted;

(c) a confirmation from the board on the appropriateness and effectiveness of the RMIC Systems, as well as information supporting the board’s conclusion (including confirmations received (as applicable) from management, the relevant board committee(s) with responsibility for the issuer’s RMIC Systems, any other internal departments, the issuer’s independent auditors and/or other external providers); and

(d) details of any significant control failings or weaknesses identified during the review and/or previously reported but unresolved, and any remedial steps taken or proposed.

Dividends
The Exchange proposes imposing an enhanced disclosure requirement in the CG Report on an issuer’s dividend policy (or an explanation as to the reasons for not having such policy) and its board’s dividend decisions, in order to promote transparency and facilitate shareholders and investors in making informed investment decisions.

Proposals	Details
For issuers with a dividend policy	It is required to (i) disclose the aim/objective of the policy and the key considerations in deciding whether to declare, recommend or pay any dividend; and (ii) confirm board adherence to the dividend policy (or otherwise, explanation for any deviations).
For issuers without a dividend policy	A statement of the absence of a dividend policy and the reasons.
In relation to the board’s dividend decisions	Disclosure is required of (i) an explanation for any material variations in dividend rates during the reporting period as compared to the previous corresponding period; and (ii) the reasons for non-declaration of dividend and the planned measures to enhance investors’ return (if any).

Analysis and takeaways
The Consultation Paper reflects the Exchange’s dedication to fortifying corporate governance practices across multiple key areas. The focus on board effectiveness, INED independence, and diversity indicates a strong commitment to enhancing governance structures. Furthermore, the proposals on the review of RMIC systems and the enhanced disclosures in relation to RMIC and dividend policies signal a move towards greater transparency in these vital areas, underscoring the importance of investor and shareholder protection and market quality.

Overall, these proposed amendments demonstrate a proactive approach to promoting robust corporate governance practices that prioritize transparency, accountability, diversity, and sustainability in Hong Kong’s listed companies.

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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26 Jul 2024

Partner Calvin Lo Invited as Speaker at Qingdao Lawyers Association Seminar on Family Law and Trusts

On 12 July 2024, our Partner, Calvin Lo, was a speaker at the Qingdao Lawyers Association’s 104th seminar titled “Marriage and Trusts”. The event, moderated by Xiao Xuejing, Director of the Marriage, Family, and Wealth Inheritance Committee of the Municipal Lawyers Association, attracted over 300 legal professionals

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24 Jul 2024

THE SECURITIES AND FUTURES COMMISSION PUBLISHED CONSULTATION PAPER ON PROPOSED REGIMES FOR REITS AND LISTED CIS

Introduction

On 28 March 2024, The Securities and Futures Commission of Hong Kong (the “SFC”) published a consultation paper (the “Consultation Paper”) inviting public feedback on its proposals to (i) introduce a statutory scheme of arrangement and compulsory acquisition mechanism for real estate investment trusts (“REITs”), and (ii) enhance the Securities and Futures Ordinance (the “SFO”) market conduct regime (“Market Conduct Regime”) for listed collective investment schemes (“CIS”). The consultation period concluded on 27 May 2024, with the SFC expected to issue consultation conclusive papers soon, aiming to finalize the legislative process by December 2025.

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Part I: Proposal to introduce a statutory scheme of arrangement and compulsory acquisition mechanism for REITs

Currently, REITs are not subject to the statutory procedures outlined in the Companies Ordinance (“CO”). Recognizing the industry’s need for a more direct exit strategy akin to the CO, the SFC proposes the addition of a new section in the SFO to establish a fair and equitable statutory framework for schemes of arrangement and compulsory acquisitions to facilitate the corporate restructuring and privatization of REITs. This proposal draws reference from Part 13 of the CO with tailored adjustments to suit the nature and features of REITs, their management companies, trustees, and unitholders.

1.1. Scheme of arrangement

The proposed new sections under the SFO are broadly in line with the existing provisions in the CO, with similar requirements in respect of due disclosure, approval thresholds and court sanction, as outlined below:

Proposals	Details
Steps to establish a REIT scheme	Step 1: Approval by unitholders or creditors at a meeting (“Meeting”), subject to the following voting thresholds: i. For a scheme entered into with creditors – Requires a majority in number representing at least 75% in value of the creditors present and voting. ii.For a scheme entered into with unitholders – · For arrangements involving a takeover or general offer, requires: (1) at least 75% of the voting rights of the unitholders present and voting; and (2) the votes against the arrangement do not exceed 10% of the total voting rights attached to all disinterested unitholders. · For other arrangements, requires: (1) at least 75% of the voting rights of the unitholders present and voting; and (2) unless the court orders otherwise, a majority in number of the unitholders present and voting. Step 2: Upon obtaining the necessary approval, apply for a court sanction for the scheme.
Application to the court to convene a Meeting	The REIT’s management company, trustee, unitholders or creditors may apply to the court to convene a Meeting of the unitholders or creditors, or both, to deliberate on the proposed arrangement or compromise and to seek the court’s approval.
Disclosure of material interests to unitholders / creditors	The REIT’s management company, trustee. and each director must disclose any material interests related to the arrangement or compromise in an explanatory statement that will be distributed to the unitholders or creditors.
Legal binding effect	A court-sanctioned arrangement or compromise is legally binding on all relevant parties, including the REIT’s management company, trustee, unitholders and creditors.
SFC filing of court order	The effectiveness of the court-sanctioned arrangement or compromise is conditioned upon the delivery of a copy of the court order to the SFC for filing.

1.2. Compulsory acquisition

The proposed compulsory acquisition provisions which apply to REITs closely resemble those in Part 13 of the CO, i.e. a takeover offer by an offeror (“offeror”) and a general offer to buy back shares by the repurchasing company (“repurchaser”) which may be completed by way of a “squeeze-out” or a “sell-out”, subject to modifications to allow a management company or trustee of an offeror or repurchaser to perform certain functions on behalf of the REIT during a compulsory acquisition.

Proposals	Details
“Squeeze-out” provisions	An offeror or repurchaser, having acquired or bought back at least 90% in number of the units in connection with the offer, is entitled to give notice to the minority unitholders of its intention to acquire or repurchase the remaining units.
“Sell-out” provisions	Minority unitholders are entitled to require an offeror or repurchaser to acquire or buy back the remaining units if the offeror or repurchaser has acquired at least 90% in number of the units.
REIT-specific modifications in relation to compulsory acquisition	Issuance of acquisition notice by the offeror or repurchaser of REIT	The management company or trustee of the offeror or repurchaser can perform the following functions on behalf of the REIT during a compulsory acquisition: · Apply to the court for an order authorising the issuance of an acquisition notice to buy out the remaining units; and · Apply to the SFC for directions regarding the delivery of acquisition notice when a unitholder’s Hong Kong address is absent from the register of holders. The proposed manner and timing for an offeror or repurchaser to give an acquisition notice, set out below, aligns with the CO: · In a “squeeze-out”: · Notice to minority unitholders – The offeror or repurchaser must notify minority unitholders to buy out their units within the earlier of (i) 3 months beginning on the day after the end of the offer period of the takeover offer or general offer; or (ii) 6 months beginning on the date of the takeover offer or general offer. · Rights of dissenting unitholders – Dissenting unitholders can apply to the court to determine whether the offeror or repurchaser is entitled and bound to acquire or buy back the units. · In a “sell-out”: · Notice to minority unitholders – The offeror or repurchaser must give notice to the minority unitholders of their rights to be bought out within 1 month after the first day on which they are entitled to a sell-out. If the notice is given before the end of the offer period of the takeover offer or general offer, it must state that the offer is still open. · Minority unitholders in exercising their rights – Minority unitholders have 3 months to exercise their rights in a sell-out after the later of (i) the end of the offer period; or (ii) the notice date by the offeror or repurchaser.
	Roles and responsibilities of a trustee in a compulsory acquisition	Due to the REIT’s lack of legal personality, the trustee is responsible for the following: · Holding and handling the consideration paid by the offeror or repurchaser on trust for the entitled unitholders; and · In a takeover offer and compulsory acquisition – Registering the offeror as the holder of the acquired units; or · In a general offer for a unit buy-back – Cancelling the relevant units

1.3. Other REIT-specific interpretation and modifications in the new Part of the SFO

Definitions and interpretations

It is proposed that the interpretation section should adopt the definitions used in the CO with appropriate modifications and include additional terms (e.g. “management company” and “REIT”) to cater to the operation of a scheme in the context of a REIT.

The concept of “responsible person” of a company under section 3 of the CO will be extended to cover those of the management company to ensure accountability for contravention of or failure to comply with the new Parts of the SFO.

Deeming provisions

The proposed deeming provisions aim to empower a REIT, lacking a legal personality, to act through its trustee and/or management company (or its directors). This includes attributing actions, powers, voting rights, property, undertakings, liabilities, associated rights, and creditor relationships of the trustee and/or management company (or its directors) to the REIT.

Part II: Proposal to enhance the SFO market conduct regime for listed CIS

The SFC’s proposed amendments seek to enhance market integrity and investor protection, with a focus on the obligations of the management company of the listed CIS (and CIS directors for corporate CIS), while streamlining the regulatory framework by not extending certain provisions in Part XV of the SFO to listed CIS and not including trustees and custodians of listed CIS into the various definitions in Parts XIII to XV of the SFO.

2.1. Extending certain Parts of the SFO to cover listed CIS

With reference to previous consultations, the SFC proposes expanding the scope of the following Parts of the SFO to explicitly cover only listed CIS and their management companies:

Market Conduct Regime:
1. Market Misconduct Tribunal (Part XIII) for the civil regime;
2. Offences Relating to Dealings in Securities and Futures Contracts, etc. (Part XIV) for the parallel criminal regime;
Disclosure of inside information regime (Part XIVA);
Disclosure of interests regime (Part XV);
SFC’s powers of supervision and investigations (Part VIII); and
SFC’s powers of intervention and proceedings (Part X).

2.2. Complementary changes

Additional changes will be implemented to support the aforementioned scope of various Parts of the SFO. These further revisions aim to clarify that all listed CIS (including those structured in corporate form) are subject to the Market Conduct Regime specific to listed CIS, as distinct from those for listed corporations, in order to avoid confusion and regulatory overlap. Moreover, adjustments will be made to the existing definitions under Part 1 of Schedule 1 to the SFO to cater for the unique nature of CIS.

Analysis and takeaway

As reflected in the Consultation Paper, the SFC has embarked on a major initiative to enhance the regulatory framework for REITs and CIS. The proposed reforms represent a comprehensive effort by the SFC to bring about an overall improvement in market conduct, integrity, and investor protection in the financial sector in 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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24 Jul 2024

The Securities and Futures Commission statement on the End of Non-Contravention Period for Virtual Asset Trading Platforms

The Securities and Futures Commission (the “SFC”) issued a statement reminding the public that the non-contravention period for virtual asset trading platforms (VATPs) operating under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (“AMLO”) will come to an end on 1 June 2024. Operating a VATP in Hong Kong in breach of the AMLO would be a criminal offence and the SFC will take all appropriate actions against such breach.

Virtual Asset Trading Platforms …

Background

The SFC introduced a new licensing regime under the AMLO, effective from 1 June 2023. This regime mandates that all VATPs operating in Hong Kong must either obtain a license or be deemed-to-be-licensed during a non-contravention period under the transitional arrangements. The non-contravention period was established to provide pre-existing VATPs sufficient time to align their operations with the new regulatory standards without breaching the law. During this period, pre-existing VATPs could continue their activities while working towards full compliance with the SFC’s licensing requirements. The transitional arrangements aimed to balance the need for stringent regulatory oversight with the practicalities of transitioning existing market players to the new framework. Please see our news update on the circular on transitional arrangements of the new licensing regime for VATPs by the SFC on 31 May 2023 here.

Reminder for Investors

As the non-contravention period will come to an end on 1 June 2024, the SFC urges investors to conduct virtual asset transactions exclusively on the SFC-licensed VATPs only. Investors should verify the licensing status of VATPs via the “List of licensed virtual asset trading platforms” on the SFC’s website. It is crucial to note that deemed-to-be-licensed VATP applicants are not licensed by the SFC and may not eventually be granted formal licenses. If an application is returned or refused, the VATPs concerned will be required to close down their businesses in Hong Kong. The public can check the “List of applicants whose licence applications have been returned, refused or withdrawn” and the “List of closing-down virtual asset trading platforms” for updated information.

Reminder for Deemed-to-be-Licensed VATP Applicants

Deemed-to-be-licensed VATP applicants and their ultimate owners must fully meet the SFC’s regulatory requirements and licensing conditions. The SFC advises these applicants not to actively market their services or onboard new retail clients until they have demonstrated effective implementation of their policies, procedures, systems, and controls, which should be assessed by sufficiently qualified external assessor(s), to the SFC’s satisfaction and have been formally licensed. All VATPs and their ultimate owners must also adhere to relevant laws and regulations, including preventing Mainland Chinese residents from using their virtual asset services.

Deemed-to-be-licensed VATP applicants are subject to SFC’s supervisory, disciplinary, intervention and other applicable powers. In the coming months, the SFC will conduct on-site inspections of deemed-to-be-licensed VATP applicants to ascertain their compliance, with a focus on client assets safeguarding measures and know-your-client processes. Any non-compliance observed will result in swift refusal of their license applications and other regulatory actions as necessary.

Analysis and Takeaways

The SFC reminds the public that the non-contravention period for VATPs will end on 1 June 2024 and investors shall use only the SFC-licensed platforms. Investors should verify the licensing status of VATPs via the SFC’s website to avoid the risks associated with deemed-to-be-licensed applicants, who may not secure formal licenses and could be forced to close down their businesses. The SFC also stresses strict compliance with the regulatory requirements and licensing conditions for deemed-to-be-licensed VATP applicants.

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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22 Jul 2024

Stevenson, Wong & Co. advised QMMM Holdings Limited (NASDAQ: QMMM) on its successful listing on the Nasdaq Capital Market

Stevenson, Wong & Co. acted as the Hong Kong legal adviser to QMMM Holdings Limited (NASDAQ: QMMM) (“QMMM”) in the successful listing on the Nasdaq Capital Market on 19 July 2024 (the “Nasdaq Listing”). QMMM offered a total of 2,125,000 ordinary shares, priced at US$4.00 per share (the “Offering”). The aggregate gross proceeds from the offering was US$8.5 million.

NASDAQ …

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