The Hong Kong Securities & Futures Commission (SFC) recently published a Consultation Paper1 proposing a wide range of amendments to the Codes on Takeovers and Mergers and Share Buy-backs (Codes). Amongst them is the proposal to end the controversy surrounding the shareholders' meeting held to consider a privatisation scheme. As we discussed in our earlier Legal Update2, there existed two schools of thoughts on the form of the scheme meeting leading to the controversy.
Scheme of arrangement is by far the most popular mechanics adopted by companies listed in Hong Kong for privatisation, where the court will be asked to sanction the proposal. Before a 2021 High Court judgement on a Hong Kong-incorporated company, the conventional practice was to allow the offeror and its concert parties to vote at the scheme meeting but that their votes would not be counted (Non-Prohibition View).
However, in the 2021 decision, the court adopted the "Prohibition View" (i.e. the concert party group of the offeror is not allowed to vote at the scheme meeting), whereby concert parties need to give undertakings not to attend and vote at the meeting or the meeting should be structured to exclude them from attending (which can be problematic).
Yet from a practical perspective, the Non-Prohibition View should be preferred as it provides the flexibility needed in order for the Codes to operate alongside the company law of different jurisdictions. It is thus a welcome move that the Consultation Paper proposes to change the language of the rule to clarify SFC's intention - the related scheme meeting should be a meeting of shareholders (not that of the holders of the disinterested shares only as the current wordings may suggest), duly convened in accordance with the company's constitutional documents and the company law of its place of incorporation.
OTHER major amendment proposals set out in the Consultation Paper include:
- Codification of existing practices on issue of 'put up or shut up' order, statements relating to offer price, deduction of dividends for offer price, offers for convertibles, etc.
- Review of the timing requirements on the final day rule, acceptor's right to withdraw and resignation of directors, etc.
- Introduction of various 'green' initiatives such as cessation of printed copies of the Codes, etc.
The consultation ends on 23 June 2023.
Footnotes
1. The Consultation Paper on proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs could be viewed here.
2. See our Legal Update: Latest Legal Development in Hong Kong Privatisation Scheme
Visit us at mayerbrown.com
Mayer Brown is a global services provider comprising associated legal practices that are separate entities, including Mayer Brown LLP (Illinois, USA), Mayer Brown International LLP (England & Wales), Mayer Brown (a Hong Kong partnership) and Tauil & Chequer Advogados (a Brazilian law partnership) and non-legal service providers, which provide consultancy services (collectively, the "Mayer Brown Practices"). The Mayer Brown Practices are established in various jurisdictions and may be a legal person or a partnership. PK Wong & Nair LLC ("PKWN") is the constituent Singapore law practice of our licensed joint law venture in Singapore, Mayer Brown PK Wong & Nair Pte. Ltd. Details of the individual Mayer Brown Practices and PKWN can be found in the Legal Notices section of our website. "Mayer Brown" and the Mayer Brown logo are the trademarks of Mayer Brown.
© Copyright 2023. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
