The Hong Kong Securities & Futures Commission (SFC) recently published a Consultation Paperi 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 Updateii, 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.
i The Consultation Paper on proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs could be viewed here.