Approximately 1,000 companies are listed on the Stock Exchange of Hong Kong Limited (the "Stock Exchange") now and many of these companies are family controlled or government/state owned enterprises. In line with global trend towards a higher standard of corporate governance based on the principles of integrity, transparency and accountability, the duties and liabilities of the directors of the listed companies in Hong Kong (the "Directors") have therefore become more stringent over the past few years.
Even before a Director is appointed, he must satisfy to the Stock Exchange that he has the character, experience and integrity and is able to demonstrate a standard of competence commensurate with his position as the Director.
The obligations of the Directors can mainly be found in the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules"), the Companies Ordinance ("CO") and the Securities and Futures Ordinance ("SFO"). The general duties of directors under common law such as acting honestly and in good faith in the interests of the company as a whole, acting for proper purpose, avoiding conflicts of interest, applying such degree of skill, care and diligence as may reasonably be expected of a person of his knowledge and experience etc are expressly incorporated into the Listing Rules.
1. Corporate Governance
The Listing Rules contain a Code on Corporate Governance Practices in Appendix 14 (the "CG Code"), which is a set of guidelines for the Directors.
The CG Code has five sections which cover topics relating to Directors, remuneration of Directors and senior management, accountability and audit, delegation by the board and communication with shareholders.
The CG Code sets out the principles of good corporate governance and two levels of recommendations : (a) code provisions; and (b) recommended best practices. All listed companies are expected to comply with, but may deviate from, the code provisions. The recommended best practices are for guidance only. The companies may also devise their own code on corporate governance practices on such terms as they may consider appropriate.
The companies are required to stipulate in their interim and annual reports whether they have complied with the CG Code and if not, the areas of non-compliance and the reasons therefor.
Although compliance of the CG code is voluntary, more companies have chosen to comply with the CG Code as they believe that this will indicate to institutional investors that the company is being run efficiently.
2. Dealings In The Securities Of The Company
Directors should familiarize themselves with the restrictions and rules on securities transactions by Directors. Dealings in securities by Directors are governed by the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") in Appendix 10 of the Listing Rules and Parts XIII and XIV of the SFO. The Model Code sets out a required standard against which the Directors must measure their conduct regarding dealing in securities of their listed companies. The company may adopt its own code on terms no less exacting than those set out in the Model Code. Any breach of such required standard will be regarded as a breach of the Listing Rules.
The Directors must ensure that neither they nor the company nor its employees contravene the insider dealing and market misconduct provisions of Parts XIII and XIV of the SFO. These provisions establish the offences of insider dealing, price rigging, stock market manipulation and other offences.
The Directors who are aware of or privy to any negotiations or agreements related to intended acquisitions or disposals which are notifiable transactions under Chapter 14 of the Listing Rules or connected transactions under Chapter 14A of the Listing Rules or any price-sensitive information must refrain from dealing in the securities of their companies as soon as they become aware of them or privy to them until proper disclosure is made in accordance with the Listing Rules.
During the period commencing one month immediately preceding the earlier of the date of the board meeting for the approval of the company's results for any year, half-year, quarterly or any other interim period and the deadline for the company to publish an announcement of its results for any year, half-year, quarterly or any other interim period, and ending on the date of the results announcements, a Director must not deal in any securities of the company.
Moreover, the company is required to establish a notification procedure for the proposed dealings in shares by the Directors.
The companies must disclose in their interim and annual reports (a) whether they have adopted a code of conduct regarding securities transactions by their Directors on terms no less exacting than the required standard set out in the Model Code; (b) whether their Directors have complied with, or whether there has been any non-compliance with the required standard; and (c) in the event of any non-compliance, details of such non-compliance and an explanation of the remedial steps to address such non-compliance.
3. Disclosure Of Interests Under The SFO
Part XV of the SFO sets out disclosure obligations for substantial shareholders, Directors and chief executives on the occurrence of certain specified events. The purpose of Part XV is to improve the transparency of shareholdings in all listed companies by providing the investors with information on details of substantial shareholdings and holdings of directors and chief executives in such companies to enable them to make informed investment decisions.
The Directors must disclose their interests, and short positions, in any shares in a listed company or any of its associated companies and their interests in any debentures of the listed company or any of its associated companies. Notification to the company and the Stock Exchange of changes in interests must be made within three business days of the relevant dealing. Failure to make proper and timely disclosure as requires by Part XV is a criminal offence which carries a maximum penalty of a fine of HK$100,000 and imprisonment for two years.
Besides, the company is under a duty to maintain the registers of interests notified by the substantial shareholders, Directors and chief executives.
4. General Obligations Of Disclosure By The Company
The Directors must ensure that the company complies with its disclosure obligations under the Listing Rules. These disclosure obligations include general disclosure for price sensitive information as well as certain specific disclosure obligations.
Furthermore, the Directors are responsible for any listing documents issued by the company and for any circular issued in connection with any notifiable transactions and a statement to this effect must be included in the listing document or circular. The Stock Exchange may also require a responsibility statement by the Directors to be included in the announcements of the company. The responsibility statement must state that the Directors collectively and individually accept full responsibility for the accuracy of the information contained in the document and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement in the document misleading.
The Directors are also required to ensure that the Stock Exchange is notified upon the occurrence of certain events or the making of certain decision in relation to the company within the time specified in the Listing Rules.
5. Our Services
Experienced lawyers in our Corporate Finance and Securities Department regularly advise listed companies on regulatory compliance, capital and private fund raising and transactional matters. If you have any question on the above eNews or any part of the Listing Rules, please do not hesitate to contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.