Amendments to constitutional documents to reflect core shareholder protection standards under the amended Listing Rules
Introduction
The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) published the conclusions to its consultation regarding proposals to enhance and streamline the listing regime for overseas issuers on 19 November 2021 (the “Consultation Conclusions”). Amongst the various proposals to be adopted, the Consultation Conclusions announced a list of shareholder protection requirements which all issuers are expected to incorporate in their constitutional document. This article will focus on the new requirements in Appendix 3 to the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) (or Appendix 3 to the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM Listing Rules”)) the introduced by the Stock Exchange.
Core shareholder protection standards
The Stock Exchange has consolidated the shareholder protection standards that issuers must include in their constitutional documents into a set of core standards (“Core Standards”). Existing listed issuers are given the transitional period to make the necessary amendments to their constitutional documents by their second annual general meeting (“AGM”) held after 1 January 2022.
Other than those Core Standards which reproduce the provisions previously set out in other parts of the Listing Rules (or GEM Listing Rules), we highlight the new Core Standards as compared to the previous requirements under the pre-amended Appendix 3 of the Listing Rules (or GEM Listing Rules) as follows:
| Core Shareholder Protection Standard | Paragraph No. of Appendix 3 to Main Board Listing Rules and GEM Listing Rules |
GENERAL MEETING | ||
Timing of annual general meeting | An issuer must hold a general meeting for each financial year as its AGM, generally six months after the end of its financial period.
| 14(1) |
Notice of AGM | An issuer must give its members reasonable written notice of its general meetings, which usually means at least 21 days for an AGM and at least 14 days for other general meetings
| 14(2)
|
Right to speak and vote at general meetings | Members must be given the right to speak at a general meeting and vote at a general meeting, except where a member is required by the Listing Rules to abstain from voting to approve the matter under consideration. For example, a member may be required to abstain from voting on a transaction in which he has a material interest.
| 14(3) |
Right to convene an extraordinary general meeting | Members holding a minority stake in the total number of issued shares must be able to convene an extraordinary general meeting and add resolutions to a meeting agenda. The minimum stake required must not exceed 10% of the voting rights in the share capital of the issuer on a one vote per share basis.
| 14(5) |
OTHER SHAREHOLDER RIGHTS | ||
Variation of class rights | Any change to rights attached to a particular class must be approved by a super-majority vote of the shareholders, which means at least three-fourths (75%) of votes by the shareholders in that class with a quorum of at least one third of the issued shares of the class, unless it can be demonstrated that shareholder protection will not be compromised by a lower voting threshold
| 15
|
Amendment of constitutional documents | It must be approved by a super-majority vote of shareholders, which means at least three-fourths (75%) of vote by the shareholders, unless it can be demonstrated that shareholder protection will not be compromised by a lower voting threshold.
| 16
|
Appointment, removal and remuneration of auditors | The appointment, removal and remuneration of auditors must be approved by a majority of the issuer’s members or other body that is independent of the board of directors.
| 17
|
The above table is not an exhaustive list of the Core Standards but is a highlight of the changes made to the Appendix 3 of the Listing Rules. For full text of the Core Standards, please refer to the amended Appendix 3 of the Listing Rules (or Appendix 3 of the GEM Listing Rules) effective on 1 January 2022.
Conclusion
The Stock Exchange has issued letters to issuers asking for their assessment on whether the applicable laws and regulations of their place of incorporation in combination with their constitutional documents offer the shareholder protections required by the Core Standards, as well as the proposed action plan and timeline for issuers to conform to the Core Standards. Issuers are therefore reminded to review their constitutional documents and seek professional advices in order to review and amend their own constitutional documents for complying with the Core Standards before the lapse of the transitional period.
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Important: The law and procedure on this subject are very specialised 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. |
Published by ONC Lawyers © 2022 |
