Key amendments of the Listing Rules
Exemptions for connected persons at the subsidiary level
Further, all the persons connected with the issuer’s insignificant subsidiaries will be excluded from the definition of connected person. An insignificant subsidiary means a subsidiary whose total assets, profits and revenue compared to that of the issuer group are less than (i) 10% under the percentage ratios for each of the latest three financial years (or if less, the period since the incorporation or establishment of the subsidiary); or (ii) 5% under the percentage ratios for the latest financial years. However, such changes are only applicable to the Main Board Listing Rules.
Refine the scope of associates
The current definition of “associate” under the Listing Rules includes an entity in which a connected person has 30% or more direct or indirect interest. According to the current note 1 to Rule 14A.11(4) of the Main Board Listing Rules (Rule 20.11 of the GEM Listing Rules), an entity will be exempted from the definition of associate if the connected person holds an interest in the entity only through his/its shareholding in the issuer. Under the amended Listing Rules, the exemption will further apply if the interests of the connected person and his associates in the entity (other than the interests held through the issuer) are together less than 10%.
Refine the scope of connected transactions
1. any disposal of interests in the target company to a third party where a controller (i.e. director, chief executive or controlling shareholder of the issuer or any of its subsidiaries) at the issuer level is the target company’s substantial shareholder;
2. any acquisition or disposal of interests in the target company from or to a third party where a controller at the subsidiary level is the target company’s substantial shareholder; and
3. transactions with third parties set out in the current Rule 14A.13(1)(b)(ii) to (iv)) of the Main Board Listing Rules (Rule 20.13(1)(b)(ii) to (iv)) of the GEM Listing Rules).
Exemptions from the connected transaction requirements
For provision or receipt of consumer goods or services to or from a connected person, the 1% cap on transaction value, which is one of the current conditions for exemption, will be removed.
Further, indemnities provided to, or purchase of insurance for, directors against liabilities incurred in the course of performing their duties, which do not contravene any laws in Hong Kong and the place of incorporation of the issuer, will be exempted from connected transaction requirements.
Refinement or clarification of the connected transaction requirements
Regarding the auditors’ confirmation on continuing connected transactions, it will be aligned with Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants.
The independent board committee’s opinion on a connected transaction must cover whether the transaction is on normal commercial terms and in the issuer’s ordinary and usual course of business.
Alignment of the definitions of connected person and associate
1. reverse takeovers;
2. significant corporate actions/ spin-offs/ directors’ service contracts;
3. grant of share options to connected persons;
4. independence confirmation from a sponsor;
5. independence confirmation from an independent financial adviser; and
6. other parts where the use of the Chapter 14A of the Main Board Listing Rules (Chapter 20 of the GEM Listing Rules) definitions of connected person and associate are corollary to the connected transactions requirements.
The law and procedure on this subject are very specialized and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
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Published by ONC Lawyers © 2014