The Hong Kong Securities and Futures Commission (the SFC) is consulting on amendments to its Codes on Takeovers and Mergers and Share Buy-backs (the Hong Kong Takeovers Code) which are set out in its Consultation Paper on the proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs published on 19 May 2023. The proposed changes involve codifying various existing practices of the Takeovers Executive;1 cutting the number of paper documents published under the codes and housekeeping amendments; and including amendments to:
- clarify various matters relating to shareholders’ voting and acceptances;
- broaden the definition of “close relatives” that is relevant principally to the categories of persons deemed to be acting in concert;
- provide guidance on the chain principle;
- add a new Rule 3.09 giving the Executive the express power to issue “put up or shut up orders”;
- in the context of independent shareholders’ approvals of delistings following a general offer,2 include an express provision that shares purchased by the offeror and its concert parties count towards meeting the acquisition of 90% of the disinterested shares threshold that is a condition for the Executive’s waiver of the condition that the offeror exercises its compulsory acquisition rights,3 in cases where the offeree’s jurisdiction of incorporation lacks compulsory acquisition rights;
- streamline the requirements for collecting irrevocable commitments by:
- only requiring offerors to consult the Executive if they intend to approach shareholders not having a material interest (5% of voting rights) in the offeree company; and
- restricting offerors to approaching a maximum of six shareholders (whether they hold a material interest or not);
- align the requirements for the return of share certificates with those for the payment of consideration on the lapse or withdrawal of takeover offers;
- clarify the Code’s timing requirements;
- remove the requirement for the Executive’s consent for privatisations by scheme of arrangement where the Rule 15.7 timing requirement (i.e. that the scheme’s effective date must occur within 21 days of the court meeting) cannot be met because of the court’s timetable;
- prohibit the inclusion of indicative share prices in Rule 3.7 “talks announcements”;
- codify the effect of dividends and withholding tax on an offer price by providing that an offeror:
- can only reduce the offer price by the amount of a dividend or other distribution paid or payable to the offeree’s shareholders if it has expressly reserved the right to do so in an announcement; and
- can only deduct the gross amount of the dividend or distribution received or receivable by the offeree’s shareholders;
- clarify that, on partial offers:
- an offeror’s extension of the closing date beyond the 14th day after the first closing date4 is conditional only on satisfaction of the acceptance condition (but not the approval condition under Rule 28.5);
- the first closing date can only be extended for 14 days (to the final closing day) meaning that the offer will lapse if the Rule 28.5 approval condition is not met by the final closing day; and
- introduce a new Rule 28.10 to require that, on offers that could result in the offeror holding 30% or more of the offeree’s voting rights, the offeror must make Rule 13 offers or proposals to the holders of the offeree’s convertible securities, warrants, options or subscription rights;
- clarify that the “tick-box” approval condition under Rule 28.5 (i.e. the requirement that a partial offer which would result in the offeror acquiring 30% of the offeree’s voting rights must be conditional on majority approval by the offeree’s independent shareholders) does not apply to offerors and their concert parties who already hold more than 50% of the offeree’s voting rights;
- clarify that shares held by exempt principal traders cannot be voted in the context of partial offers;
- revise the definition of “on-market share buy-backs” to mean share buy-backs by HKEX-listed companies through the HKEX’s automatic order matching system where the company buying back its shares and its directors are not involved in soliciting, selecting or identifying the sellers of the shares;
- codify the requirement for Rule 3.5 announcements of a firm intention to make an offer to disclose the details of any special deals or provide an appropriate negative statement;
- remove the Rule 3.8 requirement for offerors’ class (6) associates to disclose their dealings in the offeree’s relevant securities during a cash offer;
- revise Rule 4 on frustrating actions to clarify that:
- the events listed are merely non-exhaustive examples of frustrating actions;
- while prior contractual obligations announced by the offeree before the board has reason to believe that a bona fide offer is imminent will not generally be considered to be frustrating actions, any special circumstances must be brought to the Executive’s attention to make a determination as to the application of Rule 4. Special circumstances, such as obligations that will only be triggered when a takeover offer is made for the offeree, e.g. a poison pill, will likely be deemed to be frustrating actions notwithstanding that they are prior contractual obligations; and
- to streamline the operation of Note 1 to Rule 4 to provide that:
- the approval of a frustrating action by the offeree shareholders is not required if the offeror consents to the action to be taken; and
- if there are competing bids, the consent of all offerors is required to waive the requirement for shareholders’ approval.
The text of the proposed revisions to the codes is set out in Appendix 1 to the Consultation Paper.
The consultation will close on 23 June 2023 and comments on the proposals should be submitted on or before then via the SFC website (www.sfc.hk) or by email to [email protected].