The Securities and Futures Commission (SFC) responds to questions raised during the Institute’s latest Annual Corporate and Regulatory Update seminar, held in June this year.
How does the SFC identify cases of misleading information disclosure? What standards should issuers be aware of regarding this issue?
‘The SFC considers disclosed material versus other publicly available material and material it gathers in its investigations to determine whether information is false or misleading.
To avoid being accused of issuing false or misleading information, an issuer should not tell lies. It should also make sure information is complete and no material information is omitted. It should ensure that it has systems to bring all material and relevant information under its disclosure obligations to the attention of its board of directors and relevant officers who decide to disclose information on behalf of the issuer.’
Electronic filing of Disclosure of Interests (DI) notifications became compulsory in July 2017. Will there be any industry training, and if so, when?
‘Training for members of The Hong Kong Institute of Chartered Secretaries was conducted by the SFC on 23 June. Hong Kong Exchanges and Clearing Ltd (HKEX) has uploaded training materials (including an interactive learning programme, video tutorials, user guide and FAQ) to the HKEXnews website (http://www.hkexnews.hk/di/dions.htm).’
In recent years, there have been cases where the SFC directed suspension of trading and these companies remain suspended today. How is the SFC going to handle these cases? Will the SFC consider adopting a similar procedure as HKEX (for example, submission of a resumption proposal) to allow trading to resume in order to protect shareholders?
‘The SFC does not comment on individual cases. The SFC suspends trading for the reasons set out in Section 8 of the Securities and Futures (Stock Market Listing) Rules, for example, when:
- there is false, incomplete or misleading information in any public disclosure
- it is necessary or expedient in the interest of maintaining an orderly and fair market
- it is in the interest of the investing public or in the public interest, or
- it is appropriate for the protection of investors.
Companies must apply to the SFC board for permission to resume trading or to resume trading subject to conditions, or else risk possible delisting. They must address the SFC’s concerns that led to the suspension so that investors are trading in the company’s shares with true, complete and not misleading information. The SFC will continue its investigations or other inquiries and, when they are complete, decide on whether enforcement or other regulatory action is warranted based on the evidence gathered and the public interest.’
Eugène Goyne, Senior Director, Enforcement, SFC, mentioned that INEDs or non-controlling directors should resign and disclose problems involving the controlling directors in their resignation announcements. How can they realistically do so given that the listed company controls the content of announcements and there is a real risk of the listed company or controlling directors making defamation claims?
‘The SFC is realistic about a resigning director’s ability to control the content of a corporate announcement. Responsible directors should not abandon ship by resigning and claiming personal reasons, as this may amount to a dereliction of their directors’ duties if they were aware of crime or misconduct or any warning signs of crime or misconduct. A more responsible course would be to report their suspicions to the auditor, audit committee and the authorities.’
Dissenting directors often have their duties suspended by the board and they no longer have access to the company’s business or information. Is it better for them to resign, or to try to resume their duties so as to have a chance to be involved and rectify the problems?
‘Directors should seek to do what is reasonable and in the best interests of the company as a whole, as required by their directors’ duties. This is highly dependent on the circumstances and there is no one-purpose-fits-all advice. If they are the sole director of their view, or outnumbered by other directors who they know will vote down any measures they propose to take, their options are limited. They should consider reporting their suspicions to the auditor, audit committee and authorities.’
Regarding Rule 7 of the Takeovers Code, when a director seeks re-election, but subsequently his reappointment is voted down, is the company required to obtain a waiver from the Takeovers Executive?
‘Once an offer period has commenced, the parties to the offer will be in frequent dialogue with the Takeovers Executive. Parties should consult the Executive in this regard.’
Is it a breach of the Takeovers Code if a monthly announcement is published slightly more than one calendar month after the last one? Are monthly announcements for a whitewash transaction always considered as ‘documents’ and do they have to be reviewed by the Takeovers Executive? For example, there may be other announcements under the listing rules.
‘Apart from documents on the Post-Vet List (http://www.sfc.hk/web/EN/regulatory-functions/listings-and-takeovers/takeovers-and-mergers/post-vet-list.html), all documents (as defined in the Codes on Takeovers and Mergers and Share Buy-backs) must be filed with the Takeovers Executive for comment prior to publication and must not be published until the Executive has confirmed it has no further comments on them. Update announcements should be issued on a monthly basis. If this is not possible, the parties should consult the Executive as early as possible to agree on the timing.’
A recent DI notice filed by a substantial shareholder indicates that its previous minority shareholder has become its 100% shareholder. Will this trigger a general offer obligation? And will the SFC surveillance team discover whether there is a general offer obligation?
‘We do not comment on specific cases. In determining whether a mandatory general offer has been triggered, the Takeovers Executive needs to consider all the circumstances of the case, the Takeovers Code, and in particular Notes 1, 6 and 7 to Rule 26.1 of the Takeovers Code.’
How does the SFC know if a seller and a buyer have worked out the sequence of events under a private talk?
‘If there are ‘talks’ taking place, an announcement is required to be issued in the situations set out in Rule 3 of the Takeovers Code. Parties should consult the Executive in case of doubt.’
If an H-share issuer also has unlisted domestic shares, is a PRC shareholder holding domestic shares subject to the takeovers obligations under the Takeovers Code? If yes, should this shareholders’ voting rights be calculated based only on the number of domestic shares, or on the aggregate number of domestic shares and H shares?
‘Shareholdings should be calculated as a percentage of the total issued shares of a company (that is, the aggregate of H shares and domestic shares).’
The Institute’s 18th Annual Corporate and Regulatory Update seminar took place in the Hong Kong Convention and Exhibition Centre on 2 June 2017. ACRU provides an opportunity for participants to put questions to Hong Kong’s major regulatory bodies. Questions from participants which are not answered during the Q&A discussion at the end of each session are sent to the relevant regulator and the responses are published in this journal.