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Responsibilities of directors of companies listed on the Main Board of the Stock Exchange of Hong Kong Limited

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Responsibilities of directors of companies listed on the Main Board of the Stock Exchange of Hong Kong Limited

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8. Announcement contents: general requirements

All notifiable transactions require the publication of an announcement containing the following information specified in Main Board Rule 14.58:

  1. a prominent and legible disclaimer at the top of the announcement in the form set out in Main Board Rule 14.88;
  2. a description of the principal business activities carried on by the listed issuer and a general description of the principal business activities of the counterparty, if the counterparty is a company or entity;
  3. the date of the transaction. The listed issuer must also confirm that, to the best of the directors’ knowledge, information and belief having made all reasonable enquiry, the counterparty and the ultimate beneficial owner of the counterparty are third parties independent of the listed issuer and connected persons of the listed issuer;
  4. the aggregate value of the consideration, how it is being or is to be satisfied and details of the terms of any arrangements for payment on a deferred basis. If the consideration includes securities for which listing will be sought, the listed issuer must also include the amounts and details of the securities being issued;
  5. the basis upon which the consideration was determined;
  6. the value (book value and valuation, if any) of the assets which are the subject of the transaction;
  7. where applicable, the net profits (both before and after taxation and extraordinary items) attributable to the assets which are the subject of the transaction for the two financial years immediately preceding the transaction;
  8. the reasons for entering into the transaction, the benefits which are expected to accrue to the listed issuer as a result of the transaction and a statement that the directors believe that the terms of the transaction are fair and reasonable and in the interests of the shareholders as a whole; and
  9. where appropriate, details of any guarantee and/or other security given or required as part of or in connection with the transaction.

Under Main Board Rule 2.07C(3), when submitting an announcement through the e-Submission System, all appropriate headlines must be selected from the list of headlines set out in Appendix 24 to the Listing Rules. In particular, the headline category “Price Sensitive Information” must be among those selected if the subject matter or transaction of the announcement is price sensitive in nature under Main Board Rule 13.09.

Additional requirements for share transaction announcements

Announcements for share transactions must include the following additional information required by Rule Main Board 14.59:

  1. the amount and details of the securities being issued and details of any restrictions on the subsequent sale of such securities;
  2. brief details of the assets being acquired, including the name of any company or business or the assets or properties and, if the assets include securities, the name and general description of the activities of the company in which the securities are held
  3. if the transaction involves an issue of securities by a subsidiary of the listed issuer, a declaration as to whether the subsidiary will continue to be a subsidiary after the transaction
  4. a statement that the announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities
  5. a statement that application has been or will be made to the Exchange for listing and permission to deal in the securities.

Additional requirements for announcements of notifiable transactions (other than share transactions)

All other announcements must include the additional information required by Main Board Rule 14.60:

  1. the general nature of the transaction including, if securities are involved, details of any restrictions applying to subsequent sale of the securities;
  2. brief details of the assets being acquired or disposed of, including the name of the company/business or assets or properties and if the assets include securities, the name and general activities of the company in which the securities are held;
  3. in the case of a disposal:
    • details of the gain or loss expected and the basis of its calculation (the gain or loss should be calculated by reference to the carrying value); and
    • the intended application of the sale proceeds;
  4. for a major transaction to be approved by written shareholders’ approval of a shareholder or a closely allied group of shareholders, the name of the shareholder(s), the number of shares held by each and the relationship between the shareholders;
  5. if the transaction involves the disposal of an interest in a subsidiary, a declaration as to whether the subsidiary will continue to be a subsidiary after the transaction; and
  6. (except for discloseable transactions) the expected date of despatch of the circular to shareholders and, if this is more than 15 days after the announcement date, the reasons why this is so.If there is expected to be delay in despatch of the circular, the listed issuer must as soon as practicable disclose this fact by way of an announcement stating the reason for the delay and the new expected date of despatch of the circular (Main Board Rule 14.36A).

9. Pre-vetting requirements

Generally, announcements for notifiable transactions do not need to be pre-vetted (that is, reviewed and approved by the Exchange) before publication. However, pursuant to the transitional provisions of Main Board Rule 13.52(2) (which will cease to take effect on a date to be determined by the Exchange), announcements for any very substantial disposal, very substantial acquisition or reverse takeover must be pre-vetted.

Requirements for further announcements

Where a previously announced notifiable transaction is terminated or there is any material variation of its terms or material delay in the completion of the agreement, the listed issuer must as soon as practicable announce this fact by means of an announcement published in accordance with Main Board Rule 2.07C (Main Board Rule 14.36).

10. Shareholders’ Approval Requirements

Major Transactions, Very Substantial Disposals, Very Substantial Acquisitions and Reverse Takeovers must be made conditional on approval by shareholders in general meeting (Main Board Rule 14.40).

Voting at General Meetings on Notifiable Transactions

All voting at general meetings must be taken by poll (Main Board Rule 13.39(4)) and the results of the poll must be announced on the next business day following the meeting. The issuer must appoint its auditor, share registrar or external accountants to act as scrutineer for the vote taking.

Any shareholder that has a material interest in the transaction must abstain from voting. 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 available to other shareholders of the issuer (Main Board Rule 2.16).

On a reverse takeover where there is a change in control and the existing controlling shareholder(s) will dispose of shares to any person, the existing controlling shareholder(s) cannot vote in favour of the acquisition of assets from the incoming controlling shareholder or his associates at the time of the change in control. This prohibition does not apply where the decrease in the outgoing shareholder’s shareholding results solely from a dilution through the new issue of shares to the incoming controlling shareholder rather than a disposal of shares by the outgoing shareholder.

Written Shareholders’ Approval

Under Main Board Rule 14.44, major transactions only may be approved by written shareholders’ approval in lieu of holding a general meeting if:

  1. no shareholder would be required to abstain from voting if the listed issuer were to convene an extraordinary general meeting for the approval of the transaction;
  2. the written shareholders’ approval has been obtained from a shareholder or closely allied group of shareholders (as defined in Main Board Rule 14.45) who together hold more than 50% of the voting rights at the general meeting to approve the transaction; and
  3. the reporting accountants do not give a qualified opinion in their accountants’ report (Main Board Rule 14.86).

11. Circular to Shareholders

Main Board Rule 14.63 requires that a circular for a major transaction, very substantial disposal or very substantial acquisition and a listing document for a reverse takeover sent by a listed issuer to holders of its listed securities must:

  1. provide a clear, concise and adequate explanation of its subject matter;
  2. if voting or shareholders’ approval is required:
    1. contain all information necessary to allow the holders of the securities to make a properly informed decision;
    2. contain a heading emphasising the importance of the document and advising holders of securities, who are in any doubt as to what action to take, to consult appropriate independent advisers;
    3. contain a recommendation from the directors as to the voting action that shareholders should take, indicating whether or not the proposed transaction described in the circular is, in the opinion of the directors, fair and reasonable and in the interests of the shareholders as a whole; and
    4. contain a statement that any shareholder with a material interest in a proposed transaction and his close associates will abstain from voting on resolution(s) approving that transaction; and
  3. contain a confirmation that, to the best of the directors’ knowledge, information and belief having made all reasonable enquiry, the counterparty and the ultimate beneficial owner of the counterparty are third parties independent of the listed issuer and connected persons of the listed issuer.

The circular must be sent to shareholders:

  • in the case of a major transaction to be approved by written shareholders’ approval – within 15 business days after publication of the announcement (Main Board Rule 14.41(a));
  • for major transactions to be approved in general meeting, very substantial acquisitions and very substantial disposals, at the same time as or before the listed issuer gives notice of the general meeting to approve the transaction (Main Board Rules 14.41(b) and 14.51).

The listed issuer must also despatch to its shareholders any revised or supplementary circular and/or provide any material information that has come to the attention of the directors after the issue of the circular (by way of announcement published in accordance with Main Board Rule 2.07C) on the transaction to be considered at a general meeting not less than 10 business days before the date of the relevant general meeting (Main Board Rules 14.42 and 14.52).

The Listing Rules set out additional requirements for shareholders’ circulars involving an acquisition or disposal of any business, company or companies or revenue-generating assets with an identifiable income stream or asset valuation. Depending on the type of transaction, the listed issuer may be required to include in the circular an accountants’ report, profit/loss statement or pro forma financial statement.

Additional Requirements for Circulars for Major Transactions involving an acquisition of any business or company(ies)

The issuer is also required to include the following in a shareholders’ circular in relation to a notifiable transaction which involves an acquisition of a business or one or more companies:

  • an accountants’ report on the business or company(ies) being acquired (although the Exchange may relax this requirement if the company will not become a subsidiary of the issuer);
  • a pro forma statement of the assets and liabilities of the listed issuer’s group combined with those of the business or company(ies) being acquired on the same accounting basis (Main Board Rule 14.67(6)); and
  • a discussion and analysis of the results of the business or company(ies) being acquired (Main Board Rule 14.67(7)).

Additional Requirements for Circulars for Major Transactions involving an acquisition of any revenue generating assets (other than a business or company)

The additional requirements for a shareholders’ circular in relation to a notifiable transaction which involves an acquisition of any revenue generating assets (other than a business or company) with an identifiable income stream include:

  • a profit and loss statement and valuation for the 3 preceding financial years (or less if the asset has been held by the vendor for a shorter period) on the identifiable net income stream and valuation in relation to such assets, reviewed by the auditors or reporting accountants;
  • a pro forma statement of the assets and liabilities of the listed issuer’s group combined with the assets being acquired on the same accounting basis (Main Board Rule 14.67(6)(b)); and
  • a discussion and analysis of the results of the business or company(ies) being acquired (Main Board Rule 14.67(7)).

Additional Requirements for Circulars for VSAs and Reverse Takeovers (“RTOs“) involving an acquisition of any business or company(ies) (Main Board Rule 14.69(4)(a))

The additional requirements for a VSA or RTO circular in relation to an acquisition of a business or one or more companies include:

  • an accountants’ report on the business or company(ies) being acquired;
  • a pro forma income statement, balance sheet and cash flow statement of the enlarged group on the same accounting basis; and
  • in relation to a VSA, a separate discussion and analysis of the performance of each of the existing group and any business or company(ies) acquired or to be acquired for the relevant period referred to in Main Board Rule 4.06(1)(a).

Additional Requirements for Circulars for VSAs and RTOs involving an acquisition of any revenue generating assets

The additional requirements for a circular to shareholders for a VSA or RTO relating to an acquisition of any revenue generating assets (other than a business or company) with an identifiable income stream or assets valuation include:

  • a profit and loss statement and valuation for the 3 preceding financial years (or less if, other than in the case of an RTO, the asset has been held by the vendor for a shorter period) on the identifiable net income stream and asset valuation, reviewed by the auditors or reporting accountants;
  • a pro forma profit and loss statement and net assets statement on the enlarged group on the same accounting basis (Main Board Rule 14.69(4)(b)); and
  • in relation to a VSA, a separate discussion and analysis of the performance of each of the group and any business or company acquired for the period referred to in Main Board Rule 4.06(1)(a) (Main Board Rule 14.69(7)).

Additional Requirements for Circulars for VSDs involving a disposal of any business or company(ies) (Main Board Rule 14.68(2)(a))

The additional requirements for a VSD circular involving a business or company being disposed of include:

  • financial information on either: (a) the business or company(ies) being disposed of; or (b) the issuer’s group with the business or company(ies) being disposed of shown separately as a disposal group(s) or a discontinuing operation(s) for the relevant period described in Main Board Rule 4.06(1)(a);
  • the financial information must include at least the income statement, balance sheet, cash flow statement and statement of changes in equity and must be reviewed by the issuer’s auditors or reporting accountants; and
  • a pro forma income statement, balance sheet and cash flow statement of the remaining group on the same accounting basis (Main Board Rule 14.68(2)(a))..

Additional Requirements for Circulars for VSDs involving a disposal of revenue-generating assets (other than a business or company(ies) (Main Board Rule 14.68(2)(b))

The additional requirements for a VSD circular in relation to a disposal of revenue generating assets (other than a business or company) with an identifiable income stream or assets valuation include:

  • a profit and loss statement and valuation for the 3 preceding financial years (or less where the asset has been held by the issuer for a shorter period) on the identifiable net income stream and valuation in relation to such assets which must be reviewed by the auditors or reporting accountants; and
  • a pro forma profit and loss statement and net assets statement on the remaining group on the same accounting basis (Main Board Rule 14.68(2)(b)).

Summary of historical financial information requirements applicable to acquisitions of any business, company, companies or revenue-generating asset with an identifiable income stream or asset valuation

Where the target is a business/company Where the target is a revenue-generating asset with an identifiable income stream or asset valuation
Major disposal Not required Not required
Major acquisition Accountants’ report on the target Profit/loss statement and (where available) valuation of the target
Very substantial disposal Financial information of either the target or the listed issuer group with the target shown separately Profit/loss statement and (where available) valuation of the target
Very substantial acquisition or reverse takeover Accountants’ report on the target Profit/loss statement and (where available) valuation of the target

Source:the Hong Kong Stock Exchange

Summary of pro forma financial information requirements applicable to acquisitions of any business, company, companies or revenue-generating asset with an identifiable income stream or asset valuation

Where the target is a business/company Where the target is a revenue-generating asset with an identifiable income stream or asset valuation
Major disposal Not required Not required
Major acquisition Pro forma statement of assets and liabilities of the enlarged group Pro forma statement of assets and liabilities of the enlarged group
Very substantial disposal Pro forma income statement, balance sheet and cash flow statement of the remaining group Pro forma income statement, balance sheet and cash flow statement of the remaining group
Very substantial acquisition or reverse takeover Pro forma income statement, balance sheet and cash flow statement of the enlarged group Pro forma income statement, balance sheet and cash flow statement of the enlarged group

Source:the Hong Kong Stock Exchange

12. Requirements for Reverse Takeovers (Main Board Rule 14.54)

The Exchange will treat a listed issuer proposing a reverse takeover as a new listing applicant. The enlarged group or the assets to be acquired must be able to meet one of the financial tests in Main Board Rule 8.05 and the enlarged group must be able to meet all other listing criteria of Chapter 8 of the Listing Rules.

The listed issuer must comply with the procedures and requirements for new listing applicants set out in Chapter 9 of the Listing Rules and must issue a listing document and pay the initial listing fee. A reverse takeover listing document is required to include virtually all the information required by Part A of Appendix 1 to the Listing Rules in addition to the information required under Main Board Rules 14.63 and 14.69. The listing document must be sent to shareholders at the same time as or before the listed issuer gives notice of the general meeting to approve the transaction. The announcement of the reverse takeover must state the expected date of despatch of the listing document and if this is more than 15 business days after the publication of the announcement, reasons for this must be given.

The Definition of Reverse Takeover

The preamble to Main Board Rule 14.06 defines a reverse takeover as an acquisition or series of acquisitions by a listed issuer which, in the opinion of the Exchange, constitutes, or is part of a transaction or arrangement or series of transactions or arrangements which constitute, an attempt to achieve a listing of the assets to be acquired and a means to circumvent the requirements for new listing applicants under Chapter 8 of the Listing Rules (the “Principle Based Test”).

Main Board Rules 14.06(6)(a) and (b) set out bright line tests (“Bright Line Tests”) which apply to two specific forms of reverse takeover. These are:

  1. an acquisition or a series of acquisitions of assets (aggregated under Main Board Rules 14.22 and 14.23) by a listed issuer which constitute a very substantial acquisition (“VSA”) where there is, or which will result in, a change of control (as defined in the Takeovers Code (i.e. 30%)) of the listed issuer (other than at the level of its subsidiaries); or
  2. an acquisition or a series of acquisitions of assets (aggregated under Main Board Rules 14.22 and 14.23) by a listed issuer which constitute a VSA from a person or group (or their associates) under any agreement or arrangement entered into by the listed issuer within 24 months of that person or group gaining control of the listed issuer (where the original transaction did not constitute an RTO). In determining whether one or more transactions constitute a VSA, the denominator in the percentage ratio calculation is measured at the time of the change of control or the acquisition(s), whichever produces the lower figure.

To fall within the Bright Line Tests, there must be a change in control of the listed issuer and a VSA by the incoming controlling shareholder at the time of the change in control or within the following 24 months. A VSA which is within the Bright Line Tests will be a reverse takeover and the listed issuer proposing the VSA will be treated as a new listing applicant.

If a VSA falls outside the Bright Line Tests, the Exchange will apply the Principle Based Test to assess whether the acquisition(s) are an attempt to list the assets acquired and circumvent the new listing requirements).

Exchange Guidance Letter HKEx-GL78-14

Where there is no change in control, the Exchange will treat a VSA which attempts to list the assets acquired and circumvent the new listing requirements as an RTO only if it considers the VSA to be an “extreme case”.2

In determining whether the VSA is an extreme case, the Exchange takes the following factors into account:

  • the size of the acquisition relative to the size of the issuer;
  • the quality of the acquired business – whether it can meet the trading record requirements for new listings, or whether it is unsuitable for listing (e.g. an early stage mineral exploration company);
  • the nature and scale of the issuer’s business before the acquisition (a key question is whether it is a listed shell);
  • any fundamental alteration to the issuer’s principal business (e.g. the existing business would be discontinued or very immaterial to the enlarged group’s operations post acquisition);
  • any other events and transactions, whether they be historical, proposed or intended, which, when considered alongside the acquisition, constitute a sequence of arrangements designed to circumvent the reverse takeover rules (“RTO Rules“) (e.g. a disposal of the issuer’s original business simultaneous with a very substantial acquisition); and
  • any issue to the vendor of Restricted Convertible Securities which would provide it with de facto control of the issuer. Restricted Convertible Securities are highly dilutive convertible securities with a conversion restriction mechanism (e.g. restriction from conversion that would cause the securities holder to hold 30% interest or higher) which avoids triggering a change of control under the Code on Takeovers and Mergers.

Non-extreme Cases

The Exchange will not apply the RTO Rules to a VSA within the Principle Based Test which it does not consider to be extreme. The Exchange may nevertheless require the issuer to prepare a transaction circular under an enhanced disclosure and vetting approach.

Extreme VSAs

Where the Exchange considers a VSA to be extreme, but the acquired assets or enlarged group are unable to meet the requirements for new listing, the RTO Rules will be applied and the transaction will not be able to proceed.

The Exchange’s Guidance Letter HKEx-GL78-14 describes “extreme VSAs” as VSAs which are considered extreme, but the acquired assets meet the minimum profit requirement under Rule 8.05 and circumvention of the requirements for new listings is not a material concern.

The Exchange refers extreme VSAs to the Listing Committee for its decision.

Where the Listing Committee determines that the RTO Rules will apply, the issuer will be treated as a new listing applicant and will be subject to the requirements applicable to new listing applicants.3

Where the Listing Committee determines that the RTO Rules will not apply to an extreme VSA, the issuer will be required to:

  1. prepare a transaction circular under an enhanced disclosure and vetting approach; and
  2. appoint a financial adviser to conduct due diligence on the acquisition.4

In cases involving the acquisition of new businesses or assets, enhanced disclosure is likely to be of limited use, as the business or assets in question will have little in the way of operating history or track record. Such cases are therefore more likely to be regarded as new listings.

Reverse Takeovers and the Restriction on Disposals after a Change of Control (Main Board Rules 14.92 and 14.93)

The Listing Rules prohibit a listed issuer from disposing of its existing business within 24 months after a change in control unless assets acquired by the listed issuer after the change in control can meet the trading record requirement of Main Board Rule 8.05. If not, on a disposal by a listed issuer of its existing business within 24 months of a change in control, the issuer will be treated as a new listing applicant.

In its 2008 and 2009 reports, the Listing Committee clarified that the aim of Main Board Rules 14.92 and 14.93 was to prevent circumvention of the reverse takeover rules by a new controlling shareholder deferring the sale of an existing business until after the asset injection, thereby avoiding classification as a VSA.

A waiver of Main Board Rule 14.92 can therefore be sought for a legitimate sale of an existing business within 24 months of a change of control provided that:

  • the incoming controlling shareholder has not injected assets into the listed issuer; and
  • after factoring in the disposal(s) of the issuer’s existing business, the asset injection(s) before and after the change in control would not have constituted a VSA.

(See Listing Committee’s Annual Reports of 2008 and 2009 and Listing Decision HKEx-LD7-2011)

13. Additional requirements for transactions involving mineral assets

A Mineral Company which proposes to acquire or dispose of assets which are solely or mainly mineral or petroleum assets as part of a major transaction (i.e. 25% or more of existing activities) or above (a Relevant Notifiable Transaction) must:

  1. Comply with the requirements for notifiable transactions of Main Board Chapter 14 and, if relevant, the requirements for connected transactions of Main Board Chapter 14A;
  2. Prepare a Competent Person’s Report, which must form part of the circular to shareholders, on the resources and/or reserves being acquired or disposed of as part of the relevant transaction;
  3. In the case of a major (or above) acquisition, produce a Valuation Report, which must form part of the circular to shareholders, on the mineral or petroleum assets being acquired. The Valuation Report must be prepared by a Competent Evaluator being someone who (a) meets the independence test under Main Board Rule 18.22; (b) has at least 10 years’ relevant and recent general mining/petroleum experience; (c) has at least 5 years’ relevant and recent experience in assessment and/or valuation of mineral or petroleum assets; and (d) has all necessary licences (Main Board Rule 18.23). Valuation Reports must be prepared under the VALMIN Code, SAMVAL Code or CIMVAL (Main Board Rule 18.34); and
  4. Comply with the requirements of Main Board Rules 18.05(2) to 18.05(6) in relation to the assets being acquired (Main Board Rule 18.09).

Other listed issuers (i.e. non-Mineral Companies) that propose to acquire assets which are solely or mainly mineral or petroleum assets as part of a Relevant Notifiable Transaction must also comply with the above requirements. On completion of the transaction, the listed issuer will be treated as a Mineral Company, unless the Exchange decides otherwise.

It should be noted that the Exchange may dispense with the requirement to produce a new Competent Person’s Report or a Valuation Report (Main Board Rules 18.05(1), 18.09(2) or 18.09(3), if the issuer already has a Competent Person’s Report or Valuation Report (or equivalent) that complies with Main Board Rules 18.18 to 18.34 (where applicable) and is not more than six months old (Main Board Rule 18.12).

Prior written consent must be obtained from the Competent Person(s) or Competent Evaluator before an issuer may include their reports in the listing document or circular for a Relevant Notifiable Transaction, regardless of whether the person or firm is retained by the listing applicant or issuer (Main Board Rule 18.13).

14. Pre-vetting requirements

Main Board Rule 13.52(1) requires that circulars or listing documents in respect of notifiable transactions must be pre-vetted (that is, reviewed and approved by the Exchange) before publication, including listing documents and prospectuses (e.g. for notifiable transactions, such as reverse takeovers, that are treated as new listings).


2 Exchange Guidance Letter HKEx-GL78-14.

3 Exchange Guidance Letter HKEx-GL78-14 at paragraphs 9 and 30.

4 Exchange Guidance Letter HKEx-GL78-14 at paragraph 9. Where the acquisition in involves natural resources and a competent person’s report and valuation report are prepared under Chapter 18 of the Rules (Chapter 18A of the GEM Rules), the Listing Committee may not apply additional due diligence requirements.

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Posted on

2016-01-29