Disclosure of interests
Charltons has wide experience advising listed companies, directors and substantial shareholders on disclosure of interests obligations under Part XV of the Securities and Futures Ordinance (Hong Kong SFO).
We advise as to what constitutes an “interest” in shares under the Hong Kong SFO, and what are “deemed interests” (such as those held by family members, controlled corporations or trusts), “derivative interests” and “underlying shares”. We provide guidance in calculating the percentage figure of an interest in shares. We advise on what constitutes a “notifiable interest” under the Hong Kong SFO and what events will trigger a disclosure obligation to make a disclosure of interest, and how and when to give notice of an interest to the Hong Kong Stock Exchange and the listed corporation concerned. We also assist with preparation and filing of disclosure of interest forms. We also advise on applicable exemptions. In addition to advising on the relevant disclosure and filing requirements, Charltons can also assist clients who are subject to SFC investigations and enforcement proceedings in respect of breaches of the disclosure rules.
Our lawyers have considerable experience in dealing with the SFC, the Hong Kong Stock Exchange and other regulatory and governmental bodies in Hong Kong, and can provide an insightful and highly personalised service to clients to guide them through a complex and onerous securities disclosure of interests regime.
In addition to disclosure of interests issues under the Hong Kong SFO, we advise on other significant regulatory issues relating to the acquisition or disposals of shares, such as the rules relating to a disclosure obligation during offer periods for takeovers of listed companies in Hong Kong, and notifications and / or approvals for changes in shareholdings for companies operating in regulated sectors, such as banking, securities, insurance, broadcasting or telecommunications.
Under the Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (Hong Kong SFO), substantial shareholders and directors of a listed corporation are required to make disclosure filings to the Hong Kong Stock Exchange and notify the listed corporation in connection with interests held by them. The overriding objective of Part XV of the Hong Kong SFO is to enable those investing in listed corporations to obtain relevant information on a timely basis so they can make informed investment decisions. The regime requires corporate insiders to give notice to both the Hong Kong Stock Exchange and the listed corporation concerned on the occurrence of certain events, referred to as “relevant events” (explained further later in this article) under Part XV of the Hong Kong SFO. Disclosure obligation of substantial shareholders in relation to interests held by them in the listed corporation Individuals and corporations who are interested in 5% or more of any class of voting shares (which carries a right to vote in all circumstances at general meetings) in a listed corporation are regarded as “substantial shareholder” and they have a duty to disclose their interests, and short positions, in voting shares of the listed corporation (section 310(2)(a) of the SFO). What constitutes an “interest”
- a person shall have an “interest” in shares for the purpose of Part XV of the Hong Kong SFO if s/he has an interest of any kind whatsoever in the shares of the listed corporation (Section 322(2) of the Hong Kong SFO) (including interests in any underlying shares of equity derivatives and “deemed interests”, and even if rights to the shares are conditional)
- reference to “deemed interests” refers to any interests in the shares of the listed corporation held by such persons as spouse and child under the age of 18 (natural or adopted) (section 316(1) of the Hong Kong SFO), a controlled corporation, a trust or persons who have agreed to act in concert to acquire interests in shares of the listed corporation (concert party agreements)
- “controlled corporation” refers to any corporation of which one-third or more of the voting power at general meeting of the corporation is being controlled by a person, directly or indirectly, or whose directors are accustomed to act in accordance to that person’s directions (section 316(2) of the Hong Kong SFO)
- “trust” includes any trust to which a person is a trustee (other than as bare trustee) or a beneficiary (excluding discretionary trust, unless the person is a “founder’ of the trust)
- “concert party agreements” are often referred to as section 317 agreements, and refers to agreements between persons to acquire shares in a target company which dictates the manner which any one or more of the parties may exercise their rights attached to those shares.
- reference to “equity derivatives” include, inter alia, contract giving a person rights, options or interests, or in respect of, the underlying shares of a listed corporation (including, without limitation, warrants, convertible bonds, ADRs and stock futures
- a substantial shareholder is also has a duty to disclose “short positions” (of at least 1%) held by it (section 313(4) of the Hong Kong SFO). Such interests in short positions cannot be netted off against long positions (i.e. your other discloseable interests) in the disclosures and percentage figures for short and long positions must be calculated and notified separately
- reference to “short positions” include, inter alia, the holding, writing or issuing of financial instruments giving rights to take or deliver underlying shares at specified dates / periods (e.g. call and put options) or the borrowing of shares under a securities borrowing and lending agreement
When and how to disclose
- Part XV of the Hong Kong SFO requires the filing of structured notification forms to facilitate disclosure. The relevant forms (“SDI Forms”) to be filed by substantial shareholders are:
- Form 1 – Individual Substantial Shareholder Notice
- Form 2 – Corporate Substantial Shareholder Notice
- Form 3A – Director’s/ Chief Executive’s Notice of Interests in Shares of a Listed Company (to be filed if a director / chief executive is also a substantial shareholder).
These forms can be downloaded from the website of the Securities and Futures Commission at: http://www.sfc.hk/web/EN/rule-book/sfo-part-xv-disclosure-of-interests/di-notices.html The SDI forms are required to be filed with the electronic filing system operated by the Hong Kong Stock Exchange which will then publish the disclosed information filed with it on its website.
- A disclosure obligation arises on the occurrence of “relevant events” as defined under section 308 of the Hong Kong SFO. Relevant events include:
- coming to have or ceasing to have a “notifiable interest” (i.e. 5% or more interest in the relevant share capital of a listed corporation)
- a change in the percentage level (rounded down to the nearest whole percentage number) of a person’s continuing notifiable interest, subject to a “de minimis” exemption:
- change in nature of a person’s continuing notifiable interest (including change in title or interests (whether legal or equitable) to the relevant shares). Some examples are:
- the declaration of a trust over shares in favour of a third party beneficiary
- the creation of security over the relevant shares
- the creation or exercise of rights under derivatives
- while having a continuing notifiable interest, an increase or decrease in the percentage figure of short position that results in the short position crossing a whole percentage level which is above 1%
- holding of interest in 5% or more of shares of a corporation that is being listed or shares of a class that is being listed
- Disclosures generally have to be made within 3 business days after the relevant event or, if later, a person coming to know of the relevant event. Initial disclosures (e.g. on the listing of the relevant company’s shares) generally have to be made within 10 business days from the date of listing. A “business day” is defined to mean a day other than a public holiday and a day on which a black rainstorm warning or a gale warning is in force, and Saturdays and Sundays.
- the relevant SDI Forms must be filed with:
- the Hong Kong Stock Exchange Limited either by post, by hand, by fax or electronically through its website
- the registered office or principal place of business in Hong Kong of the listed corporation
We have conducted and completed one of the largest Part XV of SFO disclosure of interests filing exercises to date for one of our clients at the IPO stage.