Hong Kong Corporate Update. News & features for 1 October to 15 Financial Reporting Council 2 The Financial Reporting Council, the Audit Investigation Board and the Financial Review Panel which will have the power to investigate audit irregularities and non-compliance with financial reporting requirements will be established following the commencement on 1 of a number of sections in the Financial Reporting Council Ordinance 2006. SFC to be sole regulator of sponsors and compliance advisers 2 From 1 January 2007, only the SFC will be responsible for the discipline and sanctioning of listing sponsors and compliance advisers. The Listing Rules will be amended to reflect this change. Short-form preliminary results announcements abolished 3 Listed issuers are no longer required to publish short-form preliminary results announcements on the HKEx or GEM website. Australia and British Columbia acceptable home jurisdictions for HKEx listing applicants The Stock Exchange has decided that Australia and British Columbia are acceptable home jurisdictions for applicants for listings on the Main Board. Shareholder approval requirement waived for certain types of acquisition of property or property development projects The SFC and the Stock Exchange have jointly announced a general waiver for certain listed issuers from the obligation to comply with the shareholder approval requirement under the Listing Rules where issuers bid in public auctions for the acquisition of property or property development projects from the Government or Government-controlled entities. The general waiver took effect on 14 and will operate until 31 December 2008. 3 5 CONTACT US We welcome your feedback. If you would like to discuss anything in this or future newsletters, please contact any of the following members of our Corporate Group: Keith Johnson Tel: +852 2842 5123 keith.johnson@linklaters.com Teresa Ma Tel: +852 2842 4174 teresa.ma@linklaters.com Chris Kelly Tel: +852 2842 4184 chris.kelly@linklaters.com David Yun Tel: +852 2842 4161 david.yun@linklaters.com Page 1
Others Competition policy under consultation 6 The Government has launched a public consultation on competition policy. The consultation period will end in February 2007. Company law reform 7 The Companies Registry and the Standing Committee on Company Law Reform are in the process of reviewing the Companies Ordinance. It is expected that a new Companies Bill will be published for public consultation in mid-2009. HKEx policy initiatives 2007 to 2009 9 HKEx has released its strategic plan for the three-year period from 2007 to 2009. Sixteen key policy initiatives will form the objectives of HKEx in the next few years. Linklaters news Linklaters advises Citigroup on the US$3.06 billion consortium acquisition of Guangdong Development Bank. 9 Statutory and regulatory Financial Reporting Council Sections in the Financial Reporting Council Ordinance 2006 which mainly deal with the establishment of the Financial Reporting Council, the Audit Investigation Board and the Financial Review Panel commenced on 1. The commencement date of provisions relating to the Council s power to investigate into auditing irregularities and to conduct enquiries on suspected non-compliance with legal, accounting or regulatory requirements in the financial reports of listed entities has yet to be set. 1 View the Commencement Notice at the Government s website SFC to be sole regulator of sponsors and compliance advisers From 1 January 2007: (i) the Stock Exchange will permit a firm to be appointed as a listing sponsor or a compliance adviser provided that it is appropriately licensed by or registered with the Securities and Futures Commission (the SFC ), i.e. the Stock Exchange will not impose additional initial or ongoing eligibility criteria on sponsors or compliance advisers in the Listing Rules; 1 For details regarding the Financial Reporting Council Ordinance, see the October 2006 issue of Linklaters HK Corporate Update. Page 2
(ii) the Stock Exchange's powers to sanction sponsors and compliance advisers will be removed. The SFC will be the only regulator responsible for bringing disciplinary actions against sponsors and compliance advisers in relation to a failure to comply with the Listing Rules. These changes implement recommended changes made by the SFC in its consultation conclusions on the regulation of sponsors and compliance advisers which introduced the new Guidelines for Sponsors and Companies Advisers. 2 Amendments to the Listing Rules of the Main Board and the Growth Enterprise Market ( GEM ), to reflect these changes, will become effective on 1 January 2007, the same day as the coming into effect of the new Guidelines for Sponsors and Compliance Advisers, which will be incorporated into the SFC's Fit and Proper Guidelines. View the Listing Rules Amendments at the Stock Exchange s website Short-form preliminary results announcements abolished Listed issuers are no longer required to publish short-form preliminary results announcements on the HKEx or GEM website. Under the revised arrangement (which took effect on 1 ): (i) (ii) (iii) a listed issuer has to submit the English and Chinese versions of its preliminary results announcement (i.e. full version results announcement) for posting on the HKEx website by no later than 9:00 p.m. on the day the board approves the results; Main Board issuers should, as before, publish the full version results announcements in two newspapers on the following business day; and when a results announcement has been posted on its website, the Stock Exchange will publish a short message on the AMS/3 trading device and the Market Datafeed Service, the real-time information feed for the cash market. View the letter to market practitioners on the Stock Exchange website Australia and British Columbia acceptable home jurisdictions for HKEx listing applicants In two new listing decisions, the Stock Exchange has accepted as suitable for listing applicants from two other overseas jurisdictions for proposed listings on the Main Board. 2 This was reported in the October 2006 issue of Linklaters HK Corporate Update. Page 3
The first decision, Listing Decision Series 57, accepted: (i) (ii) Australia as an approved jurisdiction for the purpose of a proposed secondary listing on the Main Board of the Stock Exchange; and the Australian Stock Exchange (the ASE ) as an exchange where the standards of shareholder protection are at least equivalent to those provided in Hong Kong. Where a secondary listing on the Stock Exchange is sought but the applicant s primary regulator is not the ASE, the Stock Exchange would still require the applicant to demonstrate that the regulatory oversight offered by the primary listing regulator is of a standard that is at least comparable to that of the Stock Exchange. The Stock Exchange further indicated that in principle, Australia could also be accepted as an approved jurisdiction for the purpose of primary listing on the Exchange in appropriate future circumstances. The second decision, Listing Decision Series 58, accepted British Columbia in Canada: (i) (ii) as an approved jurisdiction for the purpose of a proposed primary listing on the Main Board of the Stock Exchange where the listing applicant concerned had already maintained a listing on the Frankfurt Stock Exchange and the NASDAQ National Market; and in principle, as an approved jurisdiction under Chapter 19 of the Listing Rules for the purpose of primary and secondary listings on the Exchange in future circumstances where the listing applicants would be prepared to amend their constitutional documents to ensure that shareholders would be afforded equivalent protection as that provided under Hong Kong law. The areas requiring amendments would likely include provisions regarding prohibition of financial assistance, variation of class rights, rights of shareholders to demand voting by poll, and consent of shareholders for subscription for shares. In the given case, the Stock Exchange s decision was made on the basis of, among others, a comparison of relevant shareholder protection measures between Hong Kong and British Columbia covering the Hong Kong Companies Ordinance, the British Columbia Business Corporations Act and the British Columbia Securities Act. The Stock Exchange also indicated that with respect to an application by an overseas applicant 3 for a primary listing on the Exchange, the following would be required: (a) In assessing whether the issuer is incorporated or otherwise established in a jurisdiction where the standards of shareholder protection are at least equivalent to those provided in Hong Kong, the Exchange would use the shareholder protection safeguards under the 3 Overseas applicant other than UK, PRC, Cayman Islands, and Bermuda incorporated companies. Page 4
(b) (c) Hong Kong Companies Ordinance as the principal benchmark for comparison. The Exchange would request the potential applicant to make a submission providing an analysis of the listing applicant s constitutional documents in light of the Listing Rules requirements on articles of association; an overview of the regulatory regime of the overseas jurisdiction concerned including its securities laws and stock exchange rules (if applicable); and a comparative analysis of the laws governing investor protection in Hong Kong and the overseas jurisdiction. Based on the comparisons and the analysis provided, major differences in investor protection safeguards between Hong Kong and the overseas jurisdiction should be highlighted and addressed by, for example, the applicant taking steps to amend its constitutional documents. As part of the documents required to support the listing application, the Exchange would also require a legal opinion from the applicant s adviser and a confirmation from its listing sponsor that the applicant s constitutional documents would be in full compliance with the Listing Rules. With respect to an application for secondary listing, the Stock Exchange has indicated that in addition to the above, it must also be satisfied that the regulatory oversight offered by the regulator of the overseas issuer s primary listing venue is of a standard comparable to that of the Exchange. Visit the Stock Exchange website to download the Listing Decisions Series 57 Series 58 Shareholder approval requirement waived for certain types of acquisition of property or property development projects On 14, the SFC and the Stock Exchange jointly announced a general waiver from listed issuers obligation to comply with the shareholder approval and other related requirements under Chapters 14 and 14A of the Listing Rules and Chapters 19 and 20 of the GEM Listing Rules where issuers bid through public auctions or tenders for the acquisition of property or property development projects from the Hong Kong Government or Government-controlled entities. The waiver only applies to listed issuers whose principal business involves property development and certain specified types of property joint ventures formed by such issuers on the basis that the conditions set out in the joint announcement are fully complied with. The general waiver will have effect until 31 December 2008. Visit the SFC website to download the Joint Announcement Page 5
Other developments Competition policy under consultation The Government has published a discussion document entitled Promoting Competition Maintaining Our Economic Drive (the Discussion Paper ) with a view to consulting the market on the way forward for Hong Kong s competition policy. The consultation period will end in February 2007. The Competition Policy Review Committee, in its Report of Hong Kong s Competition Policy in June 2006, recommended that a new piece of legislation should be introduced to guard against anti-competitive conduct that would have an adverse effect on economic efficiency and free trade in Hong Kong, and the establishment of a Competition Commission with powers to investigate suspected anti-competitive conduct prohibited under the new legislation. The Discussion Paper is to seek public views on whether there is a need for a cross-sector competition law in Hong Kong, and if so, what would be the appropriate institutions to enforce such a law. The Discussion Document summarises developments in Hong Kong s competition policy over the past decade, looks at how other jurisdictions have tackled the issue of competition and sets out the various considerations that Hong Kong may take into account when charting a course for its future policy. The Discussion Document poses 20 key questions for consideration including the following: Does Hong Kong need a new competition law? Should any new competition law extend to all sectors of the economy, or should it only target a limited number of sectors, leaving the remaining sectors purely to administrative oversight? Should the scope of any new competition law cover only specific types of anti-competitive conduct, or should it also include the regulation of market structures, including monopolies and mergers and acquisitions? Should a new competition law define in detail the specific types of anti-competitive conduct to be covered, or should it simply set out a general prohibition against anti-competitive conduct with examples of such conduct? Which would be the most suitable of the three principal options for a regulatory framework for the enforcement of any new competition law for Hong Kong: (i) a single authority with power to investigate and adjudicate; or (ii) separation of enforcement and adjudication; or (iii) adjudication by a specialist tribunal? Visit the Government s website to download the Discussion Document Page 6
Company law reform The following key changes to the Companies Ordinance are envisaged to be implemented or discussed in 2007 4 : (i) (ii) (iii) (iv) Commencement date of Schedule 2 to the Companies (Amendment) Ordinance 2004: Schedule 2 to the Companies (Amendment) Ordinance 2004 (the Amendment Ordinance ) contains amendments to modernise the registration regime for non-hong Kong incorporated companies. It is intended that Schedule 2 will be implemented in 2007 after modifications to the Companies Registry s Integrated Companies Registry Information System ( ICRIS ) have been completed. 5 Review of specified forms for Part XI companies: The Companies Registry has prepared a set of 14 new specified forms required by the legislative amendments to Part XI of the Companies Ordinance under the Amendment Ordinance 2004. It is expected that these new forms will be introduced upon the implementation of Schedule 2 to the Amendment Ordinance. Companies Ordinance (Amendment of Eighth Schedule) Order: The Order, which contains amendments to restructure the filing fees for non-hong Kong incorporated companies pursuant to the Amendment Ordinance, will be tabled before the Legislative Council in 2007 with a view to it being brought into operation simultaneously with Schedule 2 to the Amendment Ordinance (see paragraph (i) above). Re-write of the Companies Ordinance: The Companies Registry believes that there should be an overall rewrite and restructuring of the Companies Ordinance for a number of reasons: Implementation of most of the remaining recommendations of the Standing Committee on Company Law Reform (the SCCLR ) (e.g. re-classification of companies, reform of the capital maintenance provisions, reorganisation of parts and sections, simplification of language) can only be dealt with in the context of a fundamental overhaul of the Ordinance. Hong Kong needs to resolve problems inherent in the existing Companies Ordinance such as structure and accessibility (e.g. over-extensive scope and confusing sequences), and antiquated concepts and unclear provisions (e.g. assuming that communications between a company and its members always takes the form of paper as opposed to electronic communications). 4 5 According to the Company Registry s 2005/06 Annual Report released in October 2006 Schedules 1 and 3 to the Amendment Ordinance were enacted on 22 July 2004 and came into effect on 3 December 2004 and 15 July 2005 respectively. Schedule 1 dealt with amendments to the Companies Ordinance relating to prospectuses and Schedule 3 dealt with amendments to shareholders remedies. Page 7
It is necessary for Hong Kong company law to keep pace with international developments particularly in light of recent company law reform in the UK, Australia, New Zealand and Singapore. The Companies Registry plans to publish a new Companies Bill (in the form of a White Bill) for public consultation by mid-2009 and to introduce the Bill into the Legislative Council in the third quarter of 2010. Before the publication of the White Bill, public consultation on certain key proposals such as those relating to accounting and audit, capital maintenance and registration of charges will be conducted. The SCCLR will play a key role in the review, rewriting and consultation exercise. A joint working group comprising government representatives and members of the Hong Kong Institute of Certified Public Accountants has proposed certain amendments to the auditing and accounting provisions in the Companies Ordinance, likely to cover the following areas 6 : changing the word accounts in the Companies Ordinance to financial statement ; including a new provision to require that every set of annual financial statements to be laid before a company in general meeting should be accompanied by a directors declaration stating whether in their opinion (a) the financial statements give a true and fair view of the financial position and financial performance of the company; and (b) there are reasonable grounds to believe that the company would be able to pay its debts as and when they fall due. The new provision would make clear that the primary responsibility in relation to the preparation of financial statements is on the board of directors as a whole, with the exception of dissenting directors. Information with regard to dissenting votes against the resolution to make the required declaration should be disclosed to shareholders and criminal and civil liability for non-compliance with the declaration requirement may be imposed on directors; and introduction of a new provision to empower the court to grant an inspection order to an authorised person (such as an accountant) to inspect the financial records and accounts of a company on behalf of a director. Visit the Government s website to download the Companies Registry's Annual Report and the SCCLR's Annual Report 6 For details, see the SCCLR s 2005-06 Annual Report released in November 2006. Page 8
HKEx policy initiatives 2007 to 2009 Hong Kong Exchanges and Clearing Limited ( HKEx ), the parent company of the Stock Exchange, has released its strategic plan for the three-year period from 2007 to 2009. Sixteen key policy initiatives have been identified and will form the objectives of HKEx in the next few years. With respect to listing, the policy initiatives include: completing the review of the GEM and related market development; providing statutory backing to the Listing Rules. This will involve transferring certain key provisions in the Listing Rules to the Securities and Futures Ordinance, a possible realignment of the listing function between the SFC and the Stock Exchange and modification of the existing operational arrangements of the Stock Exchange; and facilitating the listing of securities on the Stock Exchange by a broader range of overseas issuers. Visit HKEx s website to view its Strategic Plan Linklaters news Linklaters advisers Citigroup on the US$3.06 billion consortium acquisition of Guangdong Development Bank Linklaters has advised Citigroup, which led the consortium bidding and negotiation process, on the landmark consortium acquisition of an 85.6% stake in Guangdong Development Bank (GDB) for US$3.06 billion. This deal is significant in that it is the first time a major international financial services company, leading a consortium of co-investors, has been permitted to assume a significant management role in a Chinese financial institution. GDB has one of the largest branch networks amongst China's joint stock banks with 27 branches nationwide and 502 outlets, and it has assets of US$47.9 billion with 12 million consumer customers. Zili Shao, Linklaters managing partner for Greater China, said: This deal will have a profound impact on the Chinese banking industry as well as the M&A market and it brings a wealth of international expertise to domestic banking in China. I also am pleased to see our deal teams continuing their record of success in bringing deals to a close in this sector. Linklaters fielded a large partner team on this deal. Zili Shao, based in Shanghai, led the team with assistance from partners Paul McNicholl (Shanghai), Betty Yap, Paul Chow and Keith Johnson (Hong Kong), Nick Rees (London) and Andrew Mackie (New York). Page 9
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