Deacons
  July 20, 2005 - Hong Kong

Hong Kong: Companies (Amendment) Ordinance 2004

The Companies (Amendment) Ordinance 2004 (the “Amendment Ordinance”) introduces, amongst other things, major relaxations to the prospectus regime in Hong Kong to facilitate market development. This bulletin summarises some of these changes brought by the Amendment Ordinance (The changes regarding prospectuses brought by the Amendment Ordinance as summarised in this bulletin came into operation on 3 December, 2004). Safe Harbours The Amendment Ordinance introduces various safe harbours by exempting certain offers from the prospectus requirement. The exempted offers include the following: • an offer in respect of which the total consideration payable not exceeding HK$5 million; • an offer in respect of which the minimum denomination of, or the minimum consideration for, the shares or, the minimum principal amount to be subscribed or purchased for debentures, is not less than HK$500,000; • an offer to not more than 50 persons; • an offer to “professional investors” as defined in Section 1 of Part 1 of Schedule 1 to the SFO, including banks, financial institutions, insurance companies and high net worth individuals; • an offer made in connection with an invitation to enter into an underwriting agreement; • an offer in connection with a takeover or merger or a share repurchase in compliance with the Codes on Takeovers and Mergers and Share Repurchases; • an offer of shares in a company to any or all of the shareholders for no consideration or as an alternative to a dividend or other distribution to all shareholders of a particular class; • an offer of shares in or debentures of a company to “qualifying persons” which include bona fide current and former directors, employees, consultants of the company and their respective dependents; • an offer for an exchange of shares in or debentures of the same company not resulting in an increase of the issued share capital of the company or the total principal amount outstanding under the debentures; and • an offer in connection with a collective investment scheme authorised under the SFO. Apart from the first two examples above, all the other exemptions may be combined so that if part of an offer satisfies one condition and the rest of the same offer satisfies another, the entire offer will be exempted. The exemptions above apply to documents offering shares in or debentures of companies incorporated in or outside Hong Kong. The Amendment Ordinance requires the first three types of offers set out above to contain, in a prominent position, the following warning statement: "WARNING The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice." Awareness Advertisement The Amendment Ordinance expands the range of extracts from or abridged versions of prospectuses which may be lawfully published by way of advertisement. For instance, it is permissible to publish an “awareness advertisement” which must contain the following particulars: • a statement that the advertisement is issued by the company to which the advertisement relates; • a warning statement that potential investors should read the prospectus before deciding whether or not to invest in the shares or debentures; and • a statement that the advertisement does not constitute an offer or an invitation to induce an offer by any person to acquire, subscribe for or purchase the shares or debentures. Apart from the above mandatory particulars, the “awareness advertisement” may contain the following discretionary particulars: • the name and the place of incorporation of the company; • a description of the shares or debentures to be offered; • the dates on which and the places at which the prospectus is or will be available to the public; • details of the administrative procedures that are likely to assist investors in their participation in the offer; • a statement that the company is seeking the listing of, and the permission to deal in, the shares or debentures (if listing is being applied for); and • legends which are designed to clarify the legal nature of the advertisement. “Dual Prospectus” Structure The new law permits successive offers of securities made by the same issuer or group of issuers on substantially the same basic information, terms and conditions. Under the Amendment Ordinance, a prospectus may consist of more than one document, i.e. a programme prospectus and an issue prospectus, each of which may be updated and amended by an addendum. The “programme prospectus” contains such relevant information as the issuer of the document thinks fit (but excluding the price, or any formula for calculating the price, of the shares or debentures to which the prospectus relates). The “issue prospectus” contains relevant information as is not already contained in the “programme prospectus”. The programme prospectus is valid for 12 months from the date of issue or until the publication of the next annual report and accounts of the issuer, whichever is the earlier. The Expanded Exemption Powers of the SFC In addition to the two existing grounds of “irrelevance” and “undue burden”, the SFC may exempt compliance with the prospectus-related requirements under the Amendment Ordinance on the ground that such compliance is “unnecessary” or “inappropriate”. The Amendment Ordinance further provides that no matter what the ground of exemption is, the SFC must be satisfied that the exemption would not prejudice the interest of the investing public. Prospectus Civil and Criminal Liability Under the Amendment Ordinance, a material omission from the prospectus is deemed to be an “untrue statement” and might attract civil and criminal liabilities. The “awareness advertisements” are treated as if they were prospectus for the purpose of the prospectus liabilities. In addition to investors who subscribe the shares and debentures directly from the issuers, investors who acquire shares or debentures through an agent or an intermediary may also claim compensation under the Amendment Ordinance. Removal of Regulatory Discrepancies A number of regulatory discrepancies between Hong Kong companies and overseas companies are removed by the Amendment Ordinance. These amendments include: • a Hong Kong company whose shares are listed on the Hong Kong Stock Exchange is no longer required to send a copy of a prospectus to all its shareholders; and • the prospectus of overseas companies offering securities for sale or subscription are subject to the requirements that are substantially the same as that applicable to Hong Kong companies.