The new Guidance Letter on qualification requirements for company secretaries of listed companies
Introduction
On 28 August 2020,
the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) published a new
guidance letter HKEX-GL108-20 (the “Guidance Letter”) in relation to the
qualification and experience requirements of the company secretary of issuers
listed in Hong Kong. This Guidance Letter reiterates the important role played
by a company secretary in supporting the board in achieving good corporate
governance and provides guidance to issuers when appointing a company secretary
whose qualifications and experience does not meet the qualification and
experience requirements set out in the Rule 3.28 (“Rule 3.28“) of the Rules Governing
the Listing of Securities on the Stock Exchange (the “Listing Rules”) (Rule 5.14 of the
Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM Listing Rules”)).
Relevant Listing Rules
Section F of the
Corporate Governance Code and Corporate Governance Report under Appendix 14 to
the Main Board Listing Rules (“Appendix 14”) (Appendix 15 to the GEM
Rules) sets out the importance of the role of the company secretary, as an
employee of the issuer with day-to-day knowledge of the issuer’s affairs, in
ensuring good information flow within the board, compliance with board policies
and procedures and advising the board on corporate governance matters.
Rule 3.28 (GEM
Listing Rule 5.14) requires a company secretary of an issuer to possess:
(1)
certain
academic or professional qualifications (“Acceptable Qualification”), or
(2)
relevant
experience (“Relevant Experience”) to be
considered capable of discharging the functions of company secretary.
The Acceptable
Qualification includes: (i) a member of The Institute of Chartered Secretaries;
(ii) a solicitor or barrister under the Legal Practitioners Ordinance (Chapter
159 of the Laws of Hong Kong); and (iii) a certified public accountant under the
Professional Accountants Ordinance (Chapter 50 of the Laws of Hong Kong).
The Stock Exchange’s
assessment criteria for Relevant Experience includes: (i) length of employment
with the issuer and other issuers and the roles the company secretary has
played; (ii) familiarity with the Listing Rules and other relevant laws and
regulations including the securities and companies laws of Hong Kong and the
Takeovers Code; (iii) relevant training taken and/or to be taken in addition to
the minimum requirement under Rule 3.29 of the Listing Rules (Rule 5.15 of the
GEM Listing Rules) (i.e. 15 hours per financial year); and (iv) professional
qualifications in other jurisdictions.
Background
of the Guidance Letter
Rule 3.28 intends to
ensure issuers appointing individuals qualified to assist them in compliance
with the Listing Rules, relevant laws and regulations in Hong Kong and to
achieve a good corporate governance standard. However, issuers, especially
those with principal business activities outside Hong Kong, tend to appoint
candidates who may not possess the Acceptable Qualification or Relevant
Experience but are familiar with issuers’ business through serving related
roles for a period of time or have special knowledge in local laws or
industry-specific experience as company secretaries.
Therefore, the Stock
Exchange has in the past granted waivers to issuers from strict compliance with
Rule 3.28 in appointing a company secretary who does not possess the Acceptable
Qualification or Relevant Experience (the “Rule 3.28 Waiver”) for a specified
period on the condition that the proposed company secretary must be assisted by
a person whose qualification or experience can fulfil Rule 3.28 (“Qualified Person”).
In August 2019, the
Exchange issued a consultation paper proposing to codify the factors to be
considered when granting the Rule 3.28 Waiver (the “Proposal”). Opposition was received
from the market for reasons such as creating negative impact on corporate governance
standards and investor protection in Hong Kong and the Rule 3.28 Waiver should
only be granted in exceptional cases. As a result, the Stock Exchange did not
proceed with the Proposal and issued the Guidance Letter to provide further
guidance on Rule 3.28 Waiver.
Rule 3.28 Waiver
The Guidance Letter
provides that the Stock Exchange will consider the following factors in
determining whether or not to grant the Rule 3.28 Waiver:
(1)
whether
the issuer has principal business activities primarily outside Hong Kong;
(2)
whether
the issuer was able to demonstrate the need to appoint a person who does not
have the Acceptable Qualification nor Relevant Experience as a company
secretary; and
(3)
why
the directors consider the individual to be suitable to act as the issuer’s
company secretary.
A Rule 3.28 Waiver,
if granted, will be for a fixed period of time (the “Waiver Period”) not more than three
years and on the conditions that the proposed company secretary must be
assisted by a Qualified Person and is appointed as a joint company secretary
throughout the Waiver Period. Compared to the Rule 3.28 Waiver granted prior to
the issuance of the Guidance Letter, the Stock Exchange has also tightened the
condition attached to Rule 3.28 Waiver, as a Rule 3.28 Waiver can be revoked if
there are subsequent material breaches of the Listing Rules by the issuer.
The length of the
Wavier Period is determined on a case-by-case basis, after the following
factors being taken into account: (i) the proposed company secretary’s
experience in handling company secretarial matters and his/her relevant
professional qualifications and/ or academic background; (ii) the measures and
systems in place to facilitate the proposed company secretary in discharging
his/her duties as a company secretary; and (iii) the issuer’s regulatory
compliance and/or material deficiencies/weaknesses in internal controls. The
proposed company secretary is expected to acquire the relevant qualification or
experience required under Rule 3.28 within the Waiver Period.
Applicants for the
Rule 3.28 Waiver are also required to disclose, in case of a new listing
applicant, in the listing document and, in case of an issuer, the announcement
(where applicable) the following information: (i) reasons for making the Rule
3.28 Waiver; (ii) details and conditions of the Rule 3.28 Waiver; and (iii)
qualification and experience of both the proposed company secretary and the
Qualified Person.
Prior to the lapse
of the Waiver Period, the Stock Exchange will not automatically deem the
proposed company secretary to be qualified under Rule 3.28. The issuer is
expected to demonstrate to the Stock Exchange that the proposed company
secretary, having had the benefit of the Qualified Person’s assistance during
the Waiver Period, would have acquired the Relevant Experience under Rule 3.28
so a further Rule 3.28 Waiver would not be necessary. The Stock Exchange will
assess whether the proposed company secretary has attained the Relevant
Experience and is capable of discharging the functions of company secretary by
considering the following factors: (i) compliance history of the listed issuer
during the Waiver Period; and (ii) the relevant training undertaken by the
proposed company secretary during the Waiver Period.
Conclusion
Although the
Guidance Letter sets out clear criteria under which the Stock Exchange will
consider whether or not to grant the 3.28 Waivers, since each application is
determined on a case-by-case basis, issuers or companies seeking for a listing
with the Stock Exchange are therefore advised to seek professional opinion
before appointing any person as the company secretary who does not possess the
Acceptable Qualifications and Relevant Experience.
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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. |