FAQs Main Board Listing Rules Appendix 14

Transcription

1 FAQs Main Board Listing Rules Appendix 14 What are the requirements for the insurance cover that an issuer should provide in respect of legal action against its directors? Issuers should take out appropriate insurance cover in respect of the possible legal liabilities that directors may face. It is up to the individual issuer to determine the appropriate sum. For example, directors of a large multi-national company may need more comprehensive insurance cover than an issuer with local operations only. It also depends on other factors such as the nature of the issuer's business. The board of each issuer should consider its own risks and take out appropriate directors' liability insurance accordingly. FAQ Series 21, FAQ No. 1 LR reference: Main Board Rules Appendix 14, Code Provision A.1.8 / GEM Rules Appendix 15, Code Provision A.1.8 Released on 27/3/2013 (Updated on 6/5/2016) Under Code Provision A.2.7, the chairman should at least annually hold meetings with the non-executive directors (including independent non-executive directors) without the executive directors present. Is the Code Provision applicable to an issuer if its chairman is an executive director? Yes. The chairman should hold these meetings even if he is an executive director. FAQ Series 20, FAQ No. 29 LR reference: Main Board Rules Appendix 14, Code Provision A.2.7 / GEM Rules Appendix 15, Code Provision A.2.7 Released on 28/2/2013 Code Provision A.3.2 requires publication of an updated list of directors identifying their role and function. Please clarify the information that should be disclosed in this list of directors. 1

2 An issuer should identify whether each director is an executive director, non-executive director or independent non-executive director and, if applicable, specify his role in the company (e.g. chairman of the board, chief executive, chief financial officer, member or chairman of one or more board committee(s), etc.). FAQ Series 17, FAQ No. 20 LR reference: Main Board Rules Appendix 14, Code Provision A.3.2 / GEM Rules Appendix 15, Code Provision A.3.2 Can an issuer publish the terms of reference of its board committees and its list of directors in a single language (i.e. English or Chinese only)? No, these documents must be published in both English and Chinese. FAQ Series 17, FAQ No. 20B LR reference: Main Board Rules Appendix 14, Code Provisions A.3.2, A.5.3, B.1.3 and C.3.4 / GEM Rules Appendix 15, Code Provisions A.3.2, A.5.3, B.1.3 and C.3.4 Released on 19/12/2011 Does an issuer have to publish the terms of reference of its board committees and its list of directors by way of an announcement? No, the terms of reference do not need to be published by way of an announcement. An issuer should select the current Tier 1 Headline Categories for Announcements and Notices, which includes, amongst others, the following Headline Categories: (a) List of Directors and their Role and Function (b) Terms of Reference of the Audit Committee (c) Terms of Reference of the Remuneration Committee 2

3 (d) Terms of Reference of the Nomination Committee FAQ Series 17, FAQ No. 20C LR reference: Main Board Rules Appendix 14, Code Provisions A.3.2, A.5.3, B.1.3 and C.3.4 / GEM Rules Appendix 15, Code Provisions A.3.2, A.5.3, B.1.3 and C.3.4 If an issuer amends the terms of reference of its board committees and/or amends its list of directors from time to time: (a) When is the issuer expected to post the updated documents on the HKEXnews website and on its own website? (b) If an issuer announces on 22 February that a new director will be appointed with effect from 25 April, should it upload the new list of directors on the announcement date or the effective date? (a) Issuers are expected to post the updated documents as soon as reasonably practicable after the announcement, and in any event, no later than the effective date of the changes. (b) In this case, the issuer may upload the new list of directors onto its website and the HKEXnews website on or before 25 April. FAQ Series 17, FAQ No. 20D LR reference: Main Board Rules Appendix 14, Code Provisions A.3.2, A.5.3, B.1.3 and C.3.4 / GEM Rules Appendix 15, Code Provisions A.3.2, A.5.3, B.1.3 and C.3.4 If an independent non-executive director has served an issuer for 9 years or more, should further appointment of the director be subject to re-election every year at the AGM (using a separate AGM resolution), or can he continue to be re-elected on the regular rotation basis (e.g. every 2 or 3 years)? Code Provision A.4.3 is intended to draw attention to the fact that if an independent non-executive director has served on the board for more than 9 years, this fact may be relevant to the determination of his independence. It is not intended to prohibit further appointment of such a director. So, the director s further 3

4 appointment may be carried out by re-election on the regular rotation basis (e.g. every 2 or 3 years). FAQ Series 17, FAQ No. 21 LR reference: Main Board Rules Appendix 14, Code Provision A.4.3 / GEM Rules Appendix 15, Code Provision A.4.3 If an issuer's nomination committee is not chaired by an independent non-executive director or the chairman of the board, what might the Exchange consider an acceptable explanation for this deviation from Code Provision A.5.1? Issuers vary significantly in their individual characteristics, size and complexity of operations, and the risks and challenges they face. No single set of corporate governance standards fits all issuers, just as no single set of explanations for deviations from a Code Provision is applicable to all. Issuers should give meaningful explanations on why they choose to deviate from the Code Provision based on their own circumstances. FAQ Series 21, FAQ No. 2 LR reference: Main Board Rules Appendix 14, Code Provision A.5.1 / GEM Rules Appendix 15, Code Provision A.5.1 Released on 27/3/2013 (Updated on 6/5/2016) Will the Exchange provide samples of the board diversity policy? The Exchange will not provide samples of the policy because each company has a unique business model and specific needs. Each company should therefore develop a policy according to its own circumstances. Providing samples may encourage box-ticking compliance. The issuer should develop a policy that has been debated at the board level, having taken into account the board's business strategy and existing composition in terms of balance of skills, experience and diversity of perspectives. FAQ Series 19, FAQ No. 3 LR reference: Main Board Rules Appendix 14, Code Provision A.5.6, Paragraph L(d)(ii) / GEM Rules Appendix 4

5 15, Code Provision A.5.6, Paragraph L(d)(ii) Released on 13/12/2012 Would the seminars organised by the Exchange be considered acceptable training for directors and company secretaries? Yes, they would normally count towards directors' and company secretaries' training. FAQ Series 17, FAQ No. 13C LR reference: Main Board Rules 3.29, Appendix 14 (Code Provision A.6.5 and Paragraph I(i)) / GEM Rules 5.15, Appendix 15 (Code Provision A.6.5 and Paragraph I(i)) Released on 19/12/2011 Are there any Exchange accredited training courses for the purposes of Code Provision A.6.5? No. Directors should attend training relevant to their duties and responsibilities that they consider appropriate. FAQ Series 17, FAQ No. 22 LR reference: Main Board Rules Appendix 14, Code Provision A.6.5 / GEM Rules Appendix 15, Code Provision A.6.5 Released on 19/12/2011 What are directors duties and what is appropriate directors training? Under Main Board Rule 3.08 / GEM Rule 5.01, directors must fulfil fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law. Delegating their functions is permissible but does not absolve them from their responsibilities or from 5

6 applying the required levels of skill, care and diligence. Directors do not satisfy these required levels if they pay attention to the issuer's affairs only at formal meetings. At a minimum, they must take an active interest in the issuer's affairs and obtain a general understanding of its business. They must follow up anything untoward that comes to their attention. The Corporate Governance Code (Principle A.6) emphasises that executive and non-executive directors have the same duties of care and skill and fiduciary duties. Code Provision A.6.5 on directors training can be satisfied in a number of ways, e.g. by attending in-house briefings, by attending training relevant to the issuer s business including those conducted by lawyers, and even by reading materials relevant to directors duties and responsibilities. Pursuant to Main Board Rules Appendix 5 / GEM Rules Appendix 6, every director has undertaken to: comply to the best of his ability with the Rules; use his best endeavours to procure that the issuer shall comply; and use his best endeavours to procure that any alternate of his so comply. The Listing Rules change and evolve over time. It is the responsibility of all directors to ensure that they participate in sufficient training provided by suitably qualified professional individuals and bodies to refresh and update their knowledge and skills so as to enable them to discharge their duties and responsibilities for the benefit of the company. FAQ Series 17, FAQ No. 22A LR reference: Main Board Rules 3.08, Appendix 5, Appendix 14, Principle A.6, Code Provision A.6.5 and Paragraph I(i) / GEM Rules 5.01, Appendix 6, Appendix 15, Principle A.6, Code Provision A.6.5 and Paragraph I(i) If a director sits on the boards of several issuers, can the same training record be provided to each issuer in order to comply with Code Provision A.6.5 and the Mandatory Disclosure Requirement under Paragraph I(i)? Yes, he can provide the same training record to all the issuers. 6

7 FAQ Series 17, FAQ No. 22B LR reference: Main Board Rules Appendix 14, Code Provision A.6.5 and Paragraph I(i) / GEM Rules Appendix 15, Code Provision A.6.5 and Paragraph I(i) Code Provision A.6.7 states that the independent non-executive directors and other non-executive directors "should also attend general meetings and develop a balanced understanding of the views of shareholders". Is it a deviation from the Code Provision if one or more of an issuer's independent non-executive directors or other non-executive directors do not attend a general meeting? We would not consider the absence of one or more of an issuer's independent non-executive directors or other non-executive directors from a general meeting to be a deviation from Code Provision A.6.7. However, non-executive directors attendance at general meetings is important. An independent non-executive director is often the chairman or a member of board committees and as such, he should be accountable to shareholders by being available to respond to questions and enquiries in relation to their work. Without attending general meetings, the director will not be able to develop a balanced understanding of the views of shareholders. For these reasons, the Mandatory Disclosure Requirement under Paragraph I(c) serves the regulatory objective of encouraging all directors (not just independent non-executive directors and other non-executive directors) to attend general meetings. FAQ Series 21, FAQ No. 3 LR reference: Main Board Rules Appendix 14, Code Provision A.6.7 and Paragraph I(c) / GEM Rules Appendix 15, Code Provision A.6.7 and Paragraph I(c) Released on 27/3/2013 (Updated on 6/5/2016) Are there any particular criteria for defining "senior management"? The Corporate Governance Code states that senior management is the same category of persons referred to in the issuer s annual report and required to be disclosed under paragraph 12 of Main Board Rules Appendix 16 / GEM Rule

8 FAQ Series 17, FAQ No. 23 LR reference: Main Board Rules Appendix 14, Code Provisions A.7.2, B.1.2, B.1.5, B.1.8, C.3.3 and D.3.1, Paragraph Q, Appendix 16 Paragraph 12 / GEM Rules Appendix 15, Code Provisions A.7.2, B.1.2, B.1.5, B.1.8, C.3.3 and D.3.1, Paragraph Q, If the monthly management accounts have been reviewed by directors, is there any change to the blackout period for directors regarding their dealings in the issuers' shares? The Rules prohibit a director from dealing in any of the securities of the issuer at any time when he possesses inside information in relation to those securities (see Rule A.1 of Main Board Rules Appendix 10 / GEM Rule 5.54). The blackout period for directors refers to the period immediately preceding the publication of the issuers annual results and half-year results (and quarterly results, if applicable); or the period from the end of the relevant financial year or half-year period (or quarterly period, if applicable) up to the publication date of the results (see Rule A.3(a) of Main Board Rules Appendix 10 / GEM Rule 5.56(a)). Monthly management accounts may or may not contain inside information. If they do not, then directors would not be precluded from dealing in the issuer s securities by reviewing the monthly management accounts. If they do, however, then directors are prohibited from dealing, in accordance with Rule A.1 of Main Board Rules Appendix 10 / GEM Rule The blackout period remains unchanged regardless of whether or not the monthly management accounts contain inside information. FAQ Series 17, FAQ No. 24 LR reference: Main Board Rules Appendix 10, Rules A.1 and A.3(a), Appendix 14, Code Provision C.1.2 / GEM Rules 5.54, 5.56(a), Appendix 15, Code Provision C.1.2 Should the issuer send the monthly management accounts / management updates to directors 60 days after the month-end? Is there a deadline? 8

9 Monthly updates should be provided to directors as soon as practicable after the month-end. Although Code Provision C.1.2 does not specify a deadline, it is unhelpful to directors if they receive the information two months after the month-end. Directors will not be able to monitor the issuer's financial affairs and inside information disclosure unless the information is timely. FAQ Series 17, FAQ No. 24A LR reference: Main Board Rules Appendix 14, Code Provision C.1.2 / GEM Rules Appendix 15, Code Provision C.1.2 Released on 19/12/2011 (Updated on 2/1/2013) The board is required to oversee the issuer's risk management and internal control systems "on an ongoing basis". Is this a day-to-day responsibility of the board? It is the role of management to implement and take day-to-day responsibility for board policies on risk management and internal control. However, the board needs to satisfy itself that management has understood the risks, has implemented and is monitoring appropriate policies and controls, and is providing the board with timely information so that it can discharge its own responsibilities. FAQ Series 30, FAQ No. 4 LR reference: Main Board Rules Appendix 14, Code Provision C.2.1 / GEM Rules Appendix 15, Code Provision C.2.1 Released on 19/12/2014 Under Code Provision C.2.2, can a PRC qualified accountant be appointed to be in charge of an H-share issuer's accounting, internal audit and financial reporting functions? Would a person who is not a member of a professional accounting body but who has other qualifications (for example an MBA (Finance) Degree from a USA graduate school of business, with over 20 years' financial management experience) be considered a person who possesses adequate qualifications and experience to be employed to oversee an issuer's accounting, internal audit and financial reporting functions? 9

10 A listed issuer can decide which accounting qualifications are suitable for the personnel appointed to oversee the issuer s accounting, internal audit and financial reporting functions. The board of directors has the responsibility to ensure the adequacy of resources, staff qualifications and experience, training programmes and budget of the issuer's accounting, internal audit and financial reporting functions. FAQ Series 8, FAQ No. 12. Issue 3 LR reference: Main Board Rules Appendix 14, Code Provision C.2.2 / GEM Rules Appendix 15, Code Provision C.2.2 Released on 28/11/2008 (Updated on 6/5/2016) Code Provision C.2.5 states that the issuer should have an internal audit function. Is it a deviation from the Code Provision if an issuer outsources the internal audit function? We understand that in practice it is common for issuers to engage external service providers to perform the internal audit function. We would not consider outsourcing the internal audit function to competent persons as a deviation from Code Provision C.2.5. FAQ Series 30, FAQ No. 5 LR reference: Main Board Rules Appendix 14, Code Provision C.2.5 / GEM Rules Appendix 15, Code Provision C.2.5 Released on 19/12/2014 What does the Exchange expect of an issuer's internal audit function? While the Exchange does not intend to prescribe the manner in which issuers carry out their internal audit function, we note that it may be helpful for issuers to refer to the Institute of Internal Auditors' International Professional Practices Framework ("IAIPPF") for guidance. The IAIPPF defines "internal auditing" as "an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its 10

11 objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes". FAQ Series 30, FAQ No. 6 LR reference: Main Board Rules Appendix 14, Code Provision C.2.5 / GEM Rules Appendix 15, Code Provision C.2.5 Released on 19/12/2014 Note 2 to Code Provision C.2.5 states that a group with multiple listed issuers may share group resources to carry out the internal audit function for members of the group. Which of the listed issuers in the group should carry out the internal audit function? We consider that a group should have the flexibility to decide which of its group companies, holding or subsidiaries, is best equipped to carry out the internal audit function for other members of the group, based on expertise and resources planning and allocation. However, it is not the case that a group should always share resources to carry out the internal audit function. In some cases, it may be more appropriate for issuers within a group to carry out the internal audit function separately. This is a matter for each issuer, or group of issuers, to consider and decide upon in the light of their individual circumstances. FAQ Series 30, FAQ No. 7 LR reference: Main Board Rules Appendix 14, Code Provision C.2.5 / GEM Rules Appendix 15, Code Provision C.2.5 Released on 19/12/2014 Does Code Provision D.1.4 (which states that directors should clearly understand delegation arrangements in place and issuers should have formal letters of appointment for directors setting out the key terms and conditions of their appointment) apply to newly appointed directors as well as to existing directors? What are the key terms and conditions that need to be included in the letter of appointment? There should be a letter of appointment for existing as well as newly appointed directors. We will not prescribe the terms and conditions of the letter of appointment and will leave it to issuers to decide. 11

12 FAQ Series 17, FAQ No. 25 LR reference: Main Board Rules Appendix 14, Code Provision D.1.4 / GEM Rules Appendix 15, Code Provision D.1.4 Please give an example of "bundling" resolutions. Would the amendment of several articles included in one special resolution be considered "bundling"? If an amendment to the issuer's articles of association is likely to be controversial, the resolution in respect of the amendment should not be "bundled" with the less controversial resolutions. This is so even if the other resolutions are related to the controversial resolution. FAQ Series 17, FAQ No. 26 LR reference: Main Board Rules Appendix 14, Code Provision E.1.1 / GEM Rules Appendix 15, Code Provision E.1.1 Released on 19/12/2011 Code Provision E.1.3 provides that an issuer should give a minimum of 20 clear business days notice before an AGM. What if an issuer plans to convene its AGM 20 clear business days after the despatch of the AGM notice, but the stock market closes for one day during the notice period due to a typhoon? Would the issuer be considered to have deviated from the Code Provision if it convenes the AGM as planned? The issuer has complied with Code Provision E.1.3 at the time of despatch of the AGM notice. Subject to its articles of association, the issuer may convene the AGM as planned. It would not be considered to have deviated from the Code Provision in the circumstances described. FAQ Series 9, FAQ No. 26 LR reference: Main Board Rules Appendix 14, Code Provision E.1.3 / GEM Rules Appendix 15, Code Provision E

13 Released on 14/12/2009 (Updated on 6/5/2016) If a shareholder proposes a person for election as a director at the forthcoming AGM after the issuer has issued the AGM notice, the issuer will issue a supplemental notice for the nomination of the director. Is the issuer required to comply with the minimum 20 clear business days notice period under Code Provision E.1.3 for the despatch of this supplemental notice? For nomination of directors in the circumstances described, Main Board Rule / GEM Rule 17.46B specifically requires the issuer to assess whether it is necessary to adjourn the general meeting to give shareholders at least 10 business days to consider the information disclosed in the supplemental notice. It would normally be acceptable for the issuer to issue the supplemental notice 10 business days before the AGM or the adjourned AGM. FAQ Series 9, FAQ No. 27 LR reference: Main Board Rules Appendix 14, Code Provision E.1.3, / GEM Rules Appendix 15, Code Provision E.1.3, 17.46B Released on 14/12/2009 (Updated on 6/5/2016) Can issuers hold a meeting at two or more places using technology that enables members to listen, speak and vote, as provided for under the Companies Ordinance (Cap. 622 of the Laws of Hong Kong, s. 584(1))? Yes. The Guide on General Meetings (issued 24 September 2010) (last updated 1 April 2015) provides that issuers may use (and should consider using) technology (e.g. webcasts or video conferencing) in order to maximise shareholder participation. FAQ Series 26, FAQ No. 16 LR reference: Main Board Rules Appendix 14, Principle E.1 and Guide on General Meetings, General Principle 2.3 / GEM Rules Appendix 15, Principle E.1 and Guide on General Meetings, General Principle 2.3 Released on 21/2/2014 (Updated on 6/5/2016) 13

14 If a company secretary serves a group of issuers, but is an employee of only one of these issuers, would this be considered a deviation from Code Provision F.1.1? No, it would not be considered a deviation from Code Provision F.1.1. FAQ Series 17, FAQ No. 27 LR reference: Main Board Rules Appendix 14, Code Provision F.1.1 / GEM Rules Appendix 15, Code Provision F.1.1 Released on 19/12/2011 Code Provision F.1.3 states that the company secretary should report to the chairman and/or the chief executive. Is this requirement applicable to an external service provider acting as company secretary? Code Provision F.1.3 does not apply to an external service provider acting as company secretary. However, as stated in Code Provision F.1.1, where an issuer engages an external service provider as its company secretary, it should disclose the identity of a person with sufficient seniority (e.g. chief legal counsel or chief financial officer) at the issuer whom the external provider can contact. FAQ Series 17, FAQ No. 28 LR reference: Main Board Rules Appendix 14, Code Provisions F.1.1 and F.1.3 / GEM Rules Appendix 15, Code Provisions F.1.1 and F.1.3 Under Paragraph L(a), it is a Mandatory Disclosure Requirement for an issuer to disclose in its Corporate Governance Report the role and function of its board committees. Could the issuer refer to its board committees terms of reference published on its website rather than reproducing the information in the Corporate Governance Report? 14

15 Where the board committees terms of reference have been published on the issuer s website, the issuer may refer to them in its Corporate Governance Report in satisfaction of Paragraph L(a). However, if a board committee s terms of reference are not published on the issuer s website (e.g. for a risk committee or ESG committee), then the issuer would need to set out the committee s role and function in its Corporate Governance Report. FAQ Series 21, FAQ No. 4 LR reference: Main Board Rules Appendix 14, Paragraph L(a) / GEM Rules Appendix 15, Paragraph L(a) Released on 27/3/2013 (Updated on 6/5/2016) What is the implementation date of the amendments to the Corporate Governance Code and Corporate Governance Report ("revised Code") in relation to internal controls? The revised Code applies to accounting periods beginning on or after 1 January An issuer must state in its first interim or annual report covering a period beginning on or after 1 January 2016 whether it has, for that period, complied with the new Code Provisions in the revised Code. Example A: An issuer with a 31 December financial year-end must implement and report on the revised Code from 1 January Example B: An issuer with a 30 June financial year-end must report on the old Code up to 30 June 2016, and implement and report on the revised Code from 1 July Example C: An issuer with a 30 September financial year-end must report on the old Code up to 30 September 2016, and implement and report on the revised Code from 1 October FAQ Series 30, FAQ No. 1 LR reference: Main Board Rules Appendix 14, Sections C.2 and C.3, Paragraphs L and Q / GEM Rules Appendix 15, Sections C.2 and C.3, Paragraphs L and Q 15

16 Released on 19/12/2014 (Updated on 6/5/2016) Principle C.2 states that the management should provide a confirmation to the board on the effectiveness of the risk management and internal control systems. Is there a definition for the term "management"? "Management" is a commonly understood term; each company may have its own definition of "management". We consider the "management" of an issuer should be determined by the issuer. FAQ Series 30, FAQ No. 2 LR reference: Main Board Rules Appendix 14, Principle C.2 / GEM Rules Appendix 15, Principle C.2 Released on 19/12/2014 For the management to provide a confirmation to the board on the effectiveness of the issuer's risk management and internal control systems, is it necessary for the management to first obtain a confirmation from an independent third party? We intended the term "confirmation" to mean that the management should inspire confidence in the board on the effectiveness of the systems, as opposed to requiring assurance given by independent third parties. FAQ Series 30, FAQ No. 3 LR reference: Main Board Rules Appendix 14, Principle C.2 and Code Provision C.2.6 / GEM Rules Appendix 15, Principle C.2 and Code Provision C.2.6 Released on 19/12/2014 Regarding the disclosure of directors' attendance at committee meetings, does the Exchange expect that such disclosure should cover the directors' attendance at all board committee meetings (not merely those of the remuneration, nomination, audit and risk committees, and corporate governance functions of the board which are mentioned in Paragraph L(c))? 16

17 Paragraph I(d) requires disclosure of directors attendance at all board committee meetings including, but not limited to, their attendance at meetings of the board committees mentioned in Paragraph L(c). Paragraph L(c) only relates to the remuneration committee, nomination committee, audit committee, risk committee (if any, from 1 January 2016) and corporate governance functions of the board (or a committee delegated by the board responsible for corporate governance matters). FAQ Series 17, FAQ No. 29 LR reference: Main Board Rules Appendix 14, Paragraphs I(d) and L(c) / GEM Rules Appendix 15, Paragraphs I(d) and L(c) Is a Note under a Code Provision subject to "comply or explain"? No, it is not. A Note is normally to clarify the meaning or illustrate the practical application of the Code Provision. FAQ Series 17, FAQ No. 30 LR reference: Main Board Rules Appendix 14 / GEM Rules Appendix 15 Released on 19/12/