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Responsibilities of directors of companies listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited

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Responsibilities of directors of companies listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited

XIV. BOARD MEETINGS

The board should meet regularly and board meetings should be held at least four times a year at approximately quarterly intervals (Code Provision A.1.1).

1. Notice to Exchange in certain circumstances

The issuer must inform the Exchange and publish an announcement on the websites of GEM and the issuer at least seven clear business days before the date of any board meeting to consider the declaration, recommendation or payment of a dividend or at which an announcement of the profits or losses for any period are to be approved for publication (GEM Rule 17.48).

2. Voting at Board Meetings

Subject to certain exceptions, a director of a listed issuer may not vote on, nor be counted in the quorum for, any board resolution approving any contract or arrangement or any other proposal in which he or any of his close associates has a material interest (GEM Rule 17.48A).

3. Notice to Exchange after Meetings

The issuer must inform the Exchange immediately of any decision:

  1. to declare, recommend or pay a dividend or make any other distribution on its listed securities and the rate and amount thereof;
  2. not to declare, recommend or pay a dividend which would otherwise have been expected;
  3. on preliminary announcement of profits or losses for any period; and
  4. on any proposed change in the capital structure, including a redemption of listed securities (GEM Rule 17.49).

XV. SHAREHOLDERS’ MEETINGS

1. Notice of General Meetings

Code Provision E.1.3 in the Corporate Governance Code requires:

  1. at least 20 clear business days’ notice for AGMs; and
  2. at least 10 clear business days’ notice for all other general meetings.

Under the “comply or explain” principle underlying the Code, issuers must explain any failure to comply with these requirements in their interim and annual reports.

Notice of general meetings must be given to all shareholders whether or not their registered address is in Hong Kong (GEM Rule 17.46(1)). An issuer must also ensure that notice of every general meeting is announced (GEM Rule 17.44).

2. Mandatory Voting by Poll on all Resolutions at General Meetings

Voting by poll is mandatory on all resolutions at all general meetings under GEM Rule 17.47(4).

Listed issuers must appoint a scrutineer (who may be the issuer’s auditors or share registrar or external accountants who are qualified to serve as auditors) to oversee the voting procedures. The results of the poll must be announced by the issuer as soon as possible and no later than 30 minutes before the earlier of the commencement of the morning trading session or any pre-opening session on the business day following the general meeting.

The chairman of a general meeting is required to ensure that the detailed procedures for conducting a poll are explained and to answer any questions that are raised (Code Provision E.2.1).

3. Parties Required to Abstain from Voting

Any shareholder that has a “material interest” in a transaction or arrangement to be approved at a general meeting of shareholders is required to abstain from voting on the resolution (GEM Rule 2.26).

Factors relevant to determining whether a shareholder has a “material interest” include:

  • whether the shareholder is a party to the transaction or a close associate of such a party; and
  • whether the transaction confers upon the shareholder or his associate a benefit not otherwise available to other shareholders of the issuer (GEM Rule 2.27).

XVI. ISSUES OF NEW SECURITIES

1. Pre-Emption Rights

One of the primary aims of the Listing Rules’ continuing obligations is to ensure the equal treatment of all shareholders. A key aspect of this is ensuring that members’ shareholdings are not diluted by the issue of new shares to third parties.

Accordingly, GEM Rule 17.39 provides that, except in the case of a pro rata offer to existing shareholders, the directors of a listed issuer must obtain the consent of shareholders in general meeting prior to the allotment, issue or grant of shares, securities convertible into shares, or options, warrants or similar rights to subscribe for shares or such convertible securities.

Alternatively, GEM Rule 17.41(2) allows a general mandate to be obtained from shareholders at a general meeting of shareholders to issue shares, convertible securities or rights to acquire shares. The general mandate must be subject to a restriction that the maximum number of securities which may be allotted may not exceed 20% of the number of the company’s issued shares as at the date of the resolution granting the general mandate. If a share consolidation or subdivision is conducted after the approval of the issue mandate in general meeting, the maximum number of securities that may be issued will be adjusted accordingly. The general mandate can also separately authorise the company to issue shares equivalent to the number of shares repurchased since the date of the mandate (up to a maximum of 10% of the number of the company’s issued shares as at the date of the resolution granting the repurchase mandate). A general mandate granted under these Rules will lapse at the end of the next annual general meeting (“AGM”) unless it is renewed by ordinary resolution passed at that meeting. General mandates can also be revoked or varied by ordinary resolution of the shareholders in general meeting (GEM Rule 17.42).

The restrictions in GEM Rules 17.39 to 17.42B do not apply to pro rata offers provided that the pro rata offer is made to all existing shareholders excluding shareholders resident in a place outside Hong Kong which the directors, after making enquiry as to the legal restrictions under the laws of such place and the requirements of the relevant body or stock exchange, consider it necessary or expedient to exclude because of such restrictions or requirements. The circular or offer document must contain an explanation for the exclusion of such shareholders and must be delivered to shareholders excluded from the offer, subject to compliance with the local laws and regulations (GEM Rule 17.41(1)).

In view of the Listing Rules’ restrictions, notices of AGMs generally include a resolution granting a general mandate to the directors to issue shares, other than on a pro rata basis, up to the permitted maximum amount, i.e. 20% of the number of issued shares plus a number equivalent to the number of shares repurchased subject to a cap of 10% of the number of issued shares at the date of the repurchase mandate.

Listed companies can also call an extraordinary general meeting (EGM) to approve an issue of shares for a specific purpose. A company which has obtained a general mandate may also refresh the general mandate at any time before the next AGM. However the company’s controlling shareholders (i.e. holders of 30% or more) and their associates or, if there are no controlling shareholders, the company’s directors (other than independent non-executive directors) and chief executive and their associates are not allowed to vote in favour of the refreshment (GEM Rule 17.42A(2)). In addition the circular to shareholders in relation to the proposed refreshment of the general mandate must set out (i) the company’s history of refreshments of the mandate since the last AGM; (ii) the amount of proceeds raised from the resolution of such mandate; (iii) the use of such proceeds; and (iv) the intended use of any amount not yet utilised and how the issuer has dealt with that amount (GEM Rule 17.42A(4)).

The restrictions in GEM Rules 17.39 to 17.42B apply equally to listed companies incorporated in Hong Kong and those incorporated overseas. They do not however apply to an overseas listed issuer whose primary listing is on another stock exchange which is not subject to any other statutory or other requirement giving shareholders pre-emptive rights to shareholders over further issues of shares.

2. Restrictions on Issues of Securities in 6 months after Listing

A listed issuer is prohibited from issuing (or entering into any agreement to issue) any further shares or securities convertible into its equity securities within 6 months of the commencement of dealing in its securities on the Exchange (whether or not the issue will be completed within 6 months from commencement of dealing) except for:

  1. the issue of shares, the listing of which has been approved by the Exchange, pursuant to a share option scheme under Chapter 23;
  2. the exercise of conversion rights attaching to warrants issued as part of the initial public offering;
  3. any capitalisation issue, capital reduction or consolidation or sub-division of shares;
  4. the issue of shares or securities under an agreement entered into before the commencement of dealing, the material terms of which were disclosed in the listing document issued on the initial public offering; and
  5. the issue of any shares or securities convertible into equity securities which:
    1. is for the purpose of acquiring assets that would complement the issuer’s business;
    2. does not result in any controlling shareholder ceasing to be a controlling shareholder or result in a change of control of the issuer;
    3. is subject to approval from shareholders that do not have a material interest in the related transaction and are not connected persons (or their associates); and
    4. is set out in a circular that meets the requirements of Chapter 19 of the GEM Rules and contains sufficient information for independent shareholders to make an informed judgement on the issue and related transaction (GEM Rule 17.29).

3. Issues of Securities for Cash

Where a company’s directors agree to issue securities for cash (whether under a general mandate or not), the company must publish an announcement as soon as possible and no later than 30 minutes before the earlier of the start of the morning trading session or any pre-opening session on the next business day. The announcement must contain the information set out in GEM Rule 17.30.

In the case of a placing of securities for cash consideration under the company’s general mandate, the issue must not be at a discount of 20% or more to the benchmarked price of the securities. For this purpose, the benchmarked price is the higher of:

  1. the closing price on the date of the relevant placing agreement or other agreement involving the proposed issue of securities under the general mandate; and
  2. the average closing price in the 5 trading days immediately prior to the earlier of:
    • the date of announcement of the placing or the proposed transaction or arrangement involving the proposed issue of securities under the general mandate;
    • the date of the placing agreement or other agreement involving the proposed issue of securities under the general mandate; and
    • the date on which the placing or subscription price is fixed. (GEM Rule 17.42B)

The exception to this rule is where the company can satisfy the Exchange that it is in a serious financial position and that the only way it can be saved is by an urgent rescue operation involving the issue of new securities at a price which is at a discount of 20% or more to the securities’ benchmarked price, or that there are other exceptional circumstances.

Where securities are issued for cash under a general mandate at a discount of 20% or more, the company must publish an announcement giving details of the allottees no later than 30 minutes before the earler of the commencement of trading or any pre-opening session on the next business day after the agreement involving the proposed issue is signed (GEM Rule 17.30A). If there are less than ten allottees, the announcement must include the name of each allottee (or its beneficial owner) and confirmation of its independence from the issuer. If there are more than ten allottees, the name of each allottee (or its beneficial owner) subscribing 5% or more of the issued securities must be stated along with a general description of all other allottees together with confirmation of their independence from the issuer. In calculating the 5% limit, the number of securities subscribed by the allottee, its holding company and their subsidiaries must be aggregated.

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Posted on

2016-01-29