XI. DISCLOSURE OF FINANCIAL INFORMATION
1. Annual Report and Accounts
The requirements in relation to a company’s annual report and accounts are set out in the Companies Ordinance and in Chapter 13 and Appendix 16 of the Main Board Rules.
Timing of Distribution of Annual Report
A Main Board listed issuer must send a copy of its annual report including its annual accounts and, if it prepares consolidated financial statements, its consolidated financial statements, together with a copy of the auditors’ report to every shareholder and every holder of its listed securities not less than 21 days before the date of its AGM and no later than 4 months after the end of the financial year (Main Board Rule 13.46).
The annual accounts, directors’ report and auditors’ report must be laid before the AGM and must be prepared in both English and Chinese.
In the case of overseas shareholders, it is sufficient for the listed issuer to mail the English language version of the relevant documents provided that such documents contain a prominent statement in English and Chinese that a Chinese language version is available from the company on request.
Financial statements must include the disclosures required under the relevant accounting standards adopted as well as the information specified in Appendix 16 to the Main Board Rules (“Appendix 16”), including statement of profit or loss and other comprehensive income, a statement of financial position, and information on the rates of dividend paid or proposed for each class of shares (paragraph 4 of Appendix 16).
Annual financial statements must be prepared in accordance with Hong Kong or International Financial Reporting Standards or, China Accounting Standards for Business Enterprises (“CASBE”) in the case of a Chinese issuer that has adopted CASBE (paragraph 2.1 of Appendix 16 ).
2. Half-year Reports and Accounts
Listed companies are also required to prepare half-year reports and must send these to the company’s shareholders and holders of their listed securities within 3 months of the end of the first 6 months of each financial year (Main Board Rule 13.48(1)).
The contents requirements for half-year reports are set out in Appendix 16 to the Main Board Rules.
The financial statements included in the half-year report will generally be unaudited. If this is the case, this fact must be stated. If the financial statements are audited, the auditors’ report and any qualifications must be included in the half-year report (Paragraph 43 of Appendix 16 of Main Board Rules).
There is a requirement that half-year reports are reviewed by the listed issuer’s audit committee (Paragraph 39 of Appendix 16 of Main Board Rules).
3. Quarterly Reporting
Quarterly reporting is a Recommended Best Practice only under the Corporate Governance Code (Recommended Best Practice C.1.4), rather than a mandatory obligation under the Main Board Rules. If a Main Board listed issuer decides to publish quarterly financial results, it should do so within 45 days of the end of each quarter. If it subsequently decides not to publish the financial results for any particular quarter, the company should publish an announcement disclosing the reason(s) for that decision (Recommended Best Practice C.1.5 of the Corporate Governance Code).
4. Preliminary Announcements of Results
A company listed on the Main Board must publish a preliminary announcement of its annual and half-year results on the websites of the Exchange and the listed issuer as soon as possible and, in any event, not later than 30 minutes before the earlier of the commencement of the morning trading session or any pre-opening session on the business day after their approval by the board.
Preliminary year-end results must be published no later than 3 months after the financial year end and preliminary half-year results must be published no later than 2 months after the half-year end.
5. Consequences of Failure to Publish Financial Information
For Main Board issuers, the Listing Rules provide that the Exchange will normally require trading in a listed issuer’s shares to be suspended if it fails to publish its financial information on time (Main Board Rule 13.50). The suspension will last until the company publishes the required financial information.
6. Additional Information Required in Financial Reports of Mineral Companies
- Mineral Companies are required to include in their half-yearly and annual reports details of their exploration, development and mining production activities and a summary of expenditure incurred on these activities during the period under review. If there has been no exploration, development or production activity, that fact must be stated (Main Board Rule 18.14).
However, to the extent that there are material changes in funding requirements or exploration activity, companies must update shareholders immediately under the general disclosure requirements.
- Mineral Companies must provide an annual update of their resources and/or reserves in their annual reports (Main Board Rule 18.15). Such updates must be prepared in accordance with the accepted reporting standard under which they were previously disclosed or (if none) under one of the accepted reporting standards. The annual updates are not required to be supported by a Competent Person’s Report and thus may be prepared by the company’s own internal experts. Annual updates may also be achieved by way of a no material change statement which can be prepared by companies’ internal management.
- Other (non-Mineral Company) listed issuers that publicly disclose details of resources and/or reserves are also required to provide annual updates of those resources/reserves in their annual reports. Such updates must be prepared in accordance with the reporting standard under which they were previously disclosed or one of the accepted reporting standards. They may also be achieved by way of a no material change statement.
The Exchange has published guidance on the disclosures required in the annual and interim reports of Mineral Companies and other listed issuers which publicly disclose details of their resources and/or reserves. This is set out in Exchange Guidance Letter HKEx-GL47-13 “Continuing Obligations” under Chapter 18.
XII. 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 the Exchange 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 financial results for any period are to be approved (Main Board Rule 13.43).
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 (Main Board Rule 13.44).
3. Notice to Exchange after Meetings
The issuer must inform the Exchange immediately of any decision:
- to declare, recommend or pay a dividend or make any other distribution on its listed securities and the rate and amount thereof;
- not to declare, recommend or pay a dividend which would otherwise have been expected;
- on preliminary announcement of profits or losses for any period;
- on any proposed change in the capital structure, including a redemption of listed securities; and
- on any change to the general character or nature of the business of the issuer or the group (Main Board Rule 13.45).
XIII. SHAREHOLDERS’ MEETINGS
1. Notice of General Meetings
Code Provision E.1.3 in the Corporate Governance Code requires:
- at least 20 clear business days’ notice for AGMs; and
- 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 (Main Board Rule 13.71). Notice of an AGM and of all other general meetings of shareholders must also be published on the websites of the Exchange and the issuer (Main Board Rules 13.37 and 13.73).
2. Mandatory Voting by Poll on all Resolutions at General Meetings
Voting by poll is mandatory on all resolutions at all general meetings under Main Board Rule 13.39(4). A chairman at a general meeting may exempt certain prescribed procedural and administrative matters from a vote by poll. Examples of such procedural and administrative matters include adjourning a meeting by resolution to ensure the orderly conduct of the meeting, maintain the orderliness of the meeting or announce results at the end of the AGM.
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 (Main Board Rule 13.39(5)).
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 (Main Board Rule 2.15)
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 close associate a benefit not otherwise available to other shareholders of the issuer (Main Board Rule 2.16).
XIV. ISSUES OF NEW SECURITIES
1. Pre-Emption Right
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, Main Board Rule 13.36(1) 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, Main Board Rule 13.36(2)(b) 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 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.
The restrictions in Main Board Rule 13.36 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.
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 INEDs) and chief executive and their associates are not allowed to vote in favour of the refreshment. 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.
The restrictions in Main Board Rule 13.36 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:
- the issue of shares, the listing of which has been approved by the Exchange, pursuant to a share option scheme under Chapter 17;
- the exercise of conversion rights attaching to warrants issued as part of the initial public offering;
- any capitalisation issue, capital reduction or consolidation or sub-division of shares; and
- 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 (Main Board Rule 10.08).
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 Main Board Rule 13.28.
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:
- 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
- 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. (Main Board Rule 13.36(5))
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 the commencement of trading on the next business day after the agreement involving the proposed issue is signed (Main Board 13.29A). 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 names of each allottee subscribing 5% or more of the issued securities must be stated and 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.