The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) recently published the conclusions to its consultation on the Stock Exchange’s proposals to enhance and streamline the listing regime for overseas issuers[i].
Unified Core Shareholder Protection Standard
One major reform under the enhanced regime is the unification of one common set of core shareholder protection standards that will apply to all listed issuers, providing the same level of protection to all investors (the “Core Standards”) as set out in Appendix 3 of the Listing Rules. The requirement that shareholders of non-Hong Kong issuers must be afforded shareholder protection at least “equivalent to” that provided in Hong Kong, known as the Equivalence Requirement, and the distinction between Recognised Jurisdictions (being the Cayman Islands, Bermuda, the PRC and Hong Kong) and Acceptable Jurisdictions (being a jurisdiction other than the Recognised Jurisdictions that the Stock Exchange has accepted as an issuer’s place of incorporation eligible for listing in Hong Kong) is removed.
These Core Standards relate to:
- Notice and conduct of general meetings (Core Standards 3 and 4);
- Members’ right to remove directors, vote, speak and requisition a meeting, and appoint proxies or corporate representatives (Core Standards 1, 5, 7, 11 and 12);
- Reserving (i) approval of appointment, removal and remuneration of auditors to a majority of the members or other body independent of the board; and (ii) other material matters to super-majority votes by shareholders (Core Standards 8, 9, 10 and 14);
- Restrictions on the term of a director appointed to fill a casual vacancy (Core Standard 2);
- Availability of the shareholders’ register for inspection (Core Standard 13); and
- Restrictions on shareholder voting on certain matters required by the Listing Rules (Core Standard 6).
How does it affect existing overseas incorporated listed issuers?
As a result of such reform, existing listed issuers should assess whether they need to (1) amend their constitutional documents to conform to the core shareholder protection standards; and (2) publish a Company Information Sheet under the Listing Rules.
1. Amendment of Constitutional Documents
The amended Listing Rules set out a uniform set of 14 “Core Standards” for issuers regardless of their place of incorporation. Under the amended Listing Rules, if the laws and regulations of the issuer’s place of incorporation do not provide such shareholder protections, nor is it provided in the issuer’s constitutional documents, the issuer should amend its constitutional documents to conform to the Core Standards.
Previously Recognised Jurisdictions
For issuers incorporated in the Cayman Islands and Bermuda, certain Core Standards were not provided for under the Listing Rules before the rule amendments or the respective laws, rules and regulations.
In particular:
- Cayman Islands
- Core Standard 5: an issuer is required to provide its members the right to speak at a general meeting.
- Core Standard 7: minority shareholder of an issuer should be entitled to convene an extraordinary general meeting and propose resolution. The threshold for such minority stake should not be higher than 10% of the voting rights in the share capital of the issuer.
- Core Standard 10: an issuer is required to approve the appointment, removal and remuneration of auditors by a majority of its members or other body that is independent of the board of directors.
- Core Standard 14: an issuer is required to approve its voluntary winding up by a super-majority vote of its members in a general meeting.
- Bermuda
- Core Standards 5 and 14: see above.
These issuers should assess whether their constitutional documents provide for the required protections.
Other jurisdictions under the JPS
- For issuers incorporated in the jurisdictions accepted under the Joint Policy Statement Regarding the Listing of Overseas Companies (the “JPS”), certain Core Standards were not provided for under the Listing Rules before the rule amendments or the JPS:
- Core Standard 11: every member of an issuer is entitled to appoint a proxy who need not be a member of the issuer; and every shareholder being a corporation is entitled to appoint a representative to attend and vote at any general meeting.
- Core Standard 13: The branch register of members in Hong Kong of an issuer shall be open for inspection by members. Issuers incorporated in the above jurisdictions should make necessary amendments to their constitutional documents to address any shortfalls identified.
These issuers should assess whether the respective overseas laws, rules and regulations, or their constitutional documents provide for the required protections.
2. Company Information Sheet
The purpose of the Company Information Sheet is to enable investors to easily locate specific information on the differences between the overseas requirements to which an overseas issuer is subject and the Hong Kong requirements.
Such Company Information Sheet should be published separately on the Stock Exchange’s website and the overseas issuer’s website.
Prior to the reform, the JPS requires all primary listed Overseas Issuers incorporated in Acceptable Jurisdictions and all secondary listed issuers to prepare and maintain an updated Company Information Sheet.
Under the reformed regime, an overseas issuer with a primary listing or dual primary listing that meets any of the following criteria should publish a Company Information Sheet as soon as possible on the relevant information:
- there are novel waiver(s) granted to the issuer (for example, where an overseas issuer is allowed to take alternative measures to meet any Core Standard without providing such standards in its constitutional documents);
- the laws and regulations in its place of incorporation and primary market are materially different from those required by Hong Kong laws regarding:
- the rights of holders of its securities and how they can exercise their rights;
- directors’ powers and investor protection; and
- the circumstances under which its minority shareholders may be bought out or may be required to be bought out after a successful takeover or share repurchase;
- it is subject to any withholding tax on distributable entitlements or any other tax that is payable by shareholders (e.g. capital gains tax, inheritance or gift taxes); or
- it is listing depositary receipts.
The Stock Exchange may also, at its discretion, require a primary listed or dual-primary listed overseas issuer to publish a Company Information Sheet where it believes the publication would be helpful to investors.
When would the amendments need to be in place?
Amendment of constitutional documents:
Existing listed issuers have until their second annual general meeting following 1 January 2022 to make the necessary changes to their constitutional documents to conform to the Core Standards.
Publishing Company Information Sheet:
An existing listed issuer listed on the Stock Exchange’s markets as at 31 December 2021 and falling under the relevant criteria mentioned above should publish the Company Information Sheet within three months but no later than six months after 1 January 2022 on both the Stock Exchange’s website and the company’s website.
A listed overseas issuer required to issue a Company Information Sheet at the Stock Exchange’s request should do so within 3 months from the time of such request.
Latest updates to Corporate Governance Code and related rules
The Stock Exchange has also recently published conclusions to its consultation on Review of the Corporate Governance Code and Related Rules Governing the Listing of Securities on the Stock Exchange and the Rules Governing the Listing of Securities on GEM[ii]. The new measures are aimed at further enhancing corporate governance standards among listed issuers in Hong Kong, specifically in the areas of corporate culture, director independence, diversity, and in ESG disclosures and standards.
Pursuant to the amended rules, apart from compliance with board composition requirements, existing listed issuers should also review their existing internal policies and ensure all mandatory policies (e.g. anti-corruption policy and whistleblowing policy) and mandatory committees (e.g. nomination committee) are prepared and set up.
Please refer to our article titled “Latest Updates to Hong Kong Corporate Governance Practices”[iii] for more details.
Contact us
Our team is currently working with multiple listed issuers on compliance with the new requirements.
Please contact us if you have any questions.
Any reference to "Hong Kong" or "Hong Kong SAR" shall be construed as a reference to "Hong Kong Special Administrative Region of the People's Republic of China".
References
[i] Consultation Conclusions on Listing Regime for Overseas Issuers, November 2021, https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/March-2021-Listing-Regime/Conclusions-(Nov-2021)/cp202103cc.pdf?la=en . The Consultation Paper on Listing Regime for Overseas Issuers was published in March 2021 https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/March-2021-Listing-Regime/Consultation-Paper/cp202103.pdf
[ii] Conclusions to its consultation on Review of the Corporate Governance Code and Related Listing Rules, December 2021 https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/April-2021-Review-of-CG-Code-and-LR/Conclusions-(Dec-2021)/cp202104cc.pdf?la=en.
[iii] https://www.kwm.com/hk/en/insights/latest-thinking/corporate-governance-in-hong-kong--a-new-era.html
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