10. PENALTIES FOR FAILURE TO DISCLOSE
Failure to make disclosure within the required time frame or the making of false or misleading statements constitute a criminal offence liable to the same fines and periods of imprisonment as for substantial shareholders (Section 351).
C. Registration of the Interests and Short Positions of Substantial Shareholders, Chief Executives and Directors
Listed companies are required to maintain registers of interests and short positions disclosed to them (Sections 336 and 352). Details must be entered on the register within 3 business days following the day of receipt of information by the listed company and the index must be updated within 10 business days of a name being entered on the register. In addition, the register must disclose details of any party holding shares pursuant to a concert party agreement (see paragraph 9.5 above).
If the register is not kept at the company’s registered office, a listed company must inform the Registrar of Companies of its whereabouts using the prescribed form of notice now available on the SFC website. Directors and chief executives who are also substantial shareholders will give notice of their interests using Form 3A. The information given in these notices must be registered on both the register of interests and short positions of directors and chief executives and also the register of interests of substantial shareholders.
In addition, under Section 352(3) a listed company is required to record certain information when it grants to a director or chief executive a right to subscribe for shares or debentures of the company. The information required to be recorded against the person’s name is as follows: the date on which the right is granted; the period during which, or the time at which, it is exercisable; the consideration for the grant (or if none, that fact); and a description of the shares or debentures involved, the number of shares or the amount of debentures and the price to be paid (or consideration to be given, if not in money). When any such right is exercised by a director or chief executive, the listed company is required to record specified information about that exercise in the register (Section 352(4)). The time limit for recording information relating to the grant and exercise of such rights is 3 business days from the date the obligation to record arises.
Further, under Section 352(4) when any such right is exercised by a director or chief executive, the listed company must record the following information against his name in the register:
- the fact of the exercise (identifying the right);
- the number of shares or amount of debentures in respect of which it has been exercised; and
- if –
- they were registered in his name, that fact; or
- they were not registered in his name, the name or names in which they were registered and the number of shares or amount of debentures registered in each name, if applicable.
The time limits for the listed company to record the above information in the register are 3 business days after the date of the grant of the right to subscribe for shares or debentures and 3 business days after the exercise of any such right.
D. INVESTIGATIONS OF SHAREHOLDERS BY A LISTED COMPANY
Under Section 329 a listed company has the power to investigate the identity of holders of interests and short positions in its shares and also the ownership of equity derivatives where the underlying shares of such derivatives are shares in that listed company. As under the previous legislation, a listed company may be required to exercise its powers of investigation on the request of members.
The listed company is then under a duty to inform the Stock Exchange, the SFC and, in the case of authorised financial institutions only, the Hong Kong Monetary Authority of any information received. This notification must be given before the end of the business day after the day on which the duty arises. The listed company must prepare a report of the information received pursuant to any such investigation and make that report available at its registered office within 10 business days of the end of the investigation and must deliver a copy of the report to the SFC and the Stock Exchange. Information received following an investigation must also be recorded in its register of interests and short positions.
Offences (Section 334)
It is an offence for anyone to fail, without reasonable excuse, to comply with an investigation made by a listed company or to make a false or misleading statement in response to such investigation.
Further, a listed company and every officer who is in default commit an offence if they fail to prepare a report and deliver it to the SFC and the Stock Exchange within the specified periods.
EXAMPLES OF WHAT CONSTITUTES AN “INTEREST” IN SHARES
(i) If a person’s name is listed in the register of members maintained by a listed company.
(ii) If the shares are held for a person by another person such as his stockbroker, a custodian, a trustee or a nominee (e.g. in the Central Clearing and Settlement System (“CCASS”) or with HKSCC Nominees Limited, the CCASS depository).
(iii) If a person is deemed by Part XV to be interested in the shares.
(iv) If a person enters into a contract (for example if he holds, writes or issues financial instruments including equity derivatives) that give him a right to shares, or to a payment in the event of a change in the price of shares.
(v) If a person holds shares as security.
(vi) If a person is entitled to exercise rights attaching to the shares or control their exercise e.g. voting rights.
This note is provided for information purposes only and does not constitute legal advice. Specific advice should be sought in relation to any particular situation. This note has been prepared based on the laws and regulations in force at the date of this note which may be subsequently amended, modified, re-enacted, restated or replaced.