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Legal Update

New FAQ on Model Code for Securities Transactions by Directors of Listed Issuers

9 June 2011
Mayer Brown JSM Legal Update

Speed Read

Hong Kong Exchanges and Clearing Limited (HKEx) published a new Frequently Asked Questions Series 14 (FAQ) on 31 May 2011 mainly to assist listed issuers to understand and comply with Appendix 10 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, namely the Model Code for Securities Transactions by Directors of Listed Issuers (Model Code) and the corresponding relevant provisions under the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

Situations Explained in the FAQ

Under the Model Code, a listed issuer’s director must not deal in the listed issuer’s securities when he is in possession of unpublished price sensitive information relating to those securities and during a black out period. Dealing includes an offer to acquire the listed issuer’s securities.

The different scenarios mentioned in the FAQ are summarised as follows:

Scenario 1:

Mr. A (a director of Listco A) plans to make an offer for Listco A’s shares
under the Code on Takeovers and Mergers (Takeovers Code). In this connection, whether the following situations would be regarded as a dealing in Listco A’s shares under the Model Code: (a) when the offer document is despatched; and (b) if during the black out period, Mr. A announces his firm intention to make the offer (with terms)?

Response: (a) In a takeover transaction, the despatch of the offer document is a dealing by
Mr. A under the Model Code because he has made an offer to acquire Listco A’s shares under the offer document; and (b) as an offer has not been made at the time of the announcement, it is not considered as a dealing under the Model Code.

Scenario 2:

Prior to the commencement of the black out period, Mr. A announced his firm intention to make an offer for Listco A’s shares (with terms) under the Takeovers Code. If the offer document is to be despatched during the black out period and the offer terms have not been amended, would the dealing restrictions under the Model Code apply?

Response: Yes, the dealing restrictions under the Model Code would apply.

Scenario 3:

If Mr. A requests and obtains irrevocable undertakings from Listco A’s shareholders to tender their shares under the offer during the black out period, would the undertakings fall within the ambit of dealings under the Model Code?

Response: The undertakings alone would not be regarded as dealings by Mr. A under the Model Code.

Scenario 4:

Under the Model Code, do the dealing restrictions apply to a takeover of a listed issuer by way of scheme of arrangement pursuant to which the listed issuer’s shares would be cancelled or transferred in exchange for cash or securities?

Response: The dealing restrictions under the Model Code are also applicable to schemes of arrangement as the effect is similar to takeovers by way of general offer.

Scenario 5:

An entity makes an offer to acquire Listco A’s shares under the Takeovers Code.
Mr. B is a director of both Listco A and the offeror. The offer is not a dealing in
which Mr. B would be regarded as interested under Part XV of the Securities and Futures Ordinance. Would the offer be considered as dealing by Mr. B in Listco A’s shares under the Model Code by virtue of his directorship in the offeror?

Response: No. Having said that, Mr. B should be aware that under the Model Code he must not make any unauthorised disclosure of confidential information of Listco A to any person (even those to whom he owes a fiduciary duty).

Copies of the FAQ can be downloaded via the link below:

http://www.hkex.com.hk/eng/rulesreg/listrules/listrulesfaq/Documents/FAQ_14.pdf

For inquiries related to this Legal Update, please contact:

Jeckle Chiu ( )

Juliana Lee ( )

Learn more about our Hong Kong office and Corporate & Securities practice.

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