上海交通大学：《外国法专题（比较公司法）》课程教学资源（Course Materials）Company Law II_Company Law II Lecture 5：Fundraising by Public Issue Part 2

2/8/2010 Company Law Il Lecture 5: Fundraising by Public Issue-Part 2 Understanding SFO:a breakdown ·Parts&Ⅱ ·Part Il川 ·Part IV Parts V to Xll:regulation of licensed financial market players and intermediaries,in terms of risks and business conduct 带 PartV ·Part VI Part VIl Part VIll ·Part IX ·Part X Part XⅪ ·Part XI ·Parts XIll and XIV Part XIV 1

2/8/2010 1 1 Company Law II Lecture 5: Fundraising by Public Issue - Part 2 2 Understanding SFO: a breakdown • Parts I & II • Part III • Part IV • Parts V to XII: regulation of licensed financial market players and intermediaries, in terms of risks and business conduct • Part V • Part VI • Part VII • Part VIII • Part IX • Part X • Part XI • Part XII • Parts XIII and XIV • Part XIV

2/8/2010 Understanding Listing Rules and Codes The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited(Main Board Listing Rules) The Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited(GEM Listing Rules) Hong Kong Code on Takeover and Mergers The Code on Share Repurchase Misstatements-causation and intention Causation:false or misleading statement must have caused loss:Edgington v Fitzmaurice Cf COs 40 and SFO s 108,and ss 277,281. Third party reliance: ·Peek v Gurney ·Al Nakib Investments ·Andrews v Mockford Possfund Custodian v Diamond Cf COs 40 and SFOs 108,and ss 277,281 2

2/8/2010 2 3 Understanding Listing Rules and Codes • The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (Main Board Listing Rules) • The Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (GEM Listing Rules) • Hong Kong Code on Takeover and Mergers • The Code on Share Repurchase 4 Misstatements - causation and intention • Causation: false or misleading statement must have caused loss: Edgington v Fitzmaurice  Cf CO s 40 and SFO s 108, and ss 277, 281. • Third party reliance:  Peek v Gurney  AI Nakib Investments  Andrews v Mockford  Possfund Custodian v Diamond  Cf CO s 40 and SFO s 108, and ss 277, 281

2/8/2010 Fraudulent misstatements Civil liability for compensation: Tort of deceit;MOs 3(1) ·C0s40,SF0ss108,277and281 ·Criminal liability: COs 40A-untrue statements in prospectus where no reasonable grounds for belief SFO s 107-fraudulent or reckless misrepresentations SFO s 298-fraudulent or reckless disclosures of false or misleading information [SFO Pt XIV] Theft Ordinance (Cap 210)s 16A-fraud Common law:conspiracy to defraud Fraudulent misstatements Proving fraud:Derry v Peek Fraud is proved if: Person knows statement to be false; Person did not believe in the truth of the statement;or Person was reckless as to the truth or falsity of the statement. ·CfM0s3(1),C0s40A,SF0ss107,298 3

2/8/2010 3 5 Fraudulent misstatements • Civil liability for compensation:  Tort of deceit; MO s 3(1)  CO s 40, SFO ss 108, 277 and 281 • Criminal liability:  CO s 40A - untrue statements in prospectus where no reasonable grounds for belief  SFO s 107 - fraudulent or reckless misrepresentations  SFO s 298 - fraudulent or reckless disclosures of false or misleading information [SFO Pt XIV]  Theft Ordinance (Cap 210) s 16A - fraud  Common law: conspiracy to defraud 6 Fraudulent misstatements • Proving fraud: Derry v Peek Fraud is proved if:  Person knows statement to be false;  Person did not believe in the truth of the statement; or  Person was reckless as to the truth or falsity of the statement. • Cf MO s 3(1), CO s 40A, SFO ss 107, 298

2/8/2010 Typical process for public issues ·Preparatory steps Qualifications for admission Profit test:LR 8.05(1) Market capitalization/revenue/cash flow test:LR 8.05(2) Market capitalization/revenue test:LR 8.05(3) ·SEHK's power to waive 。Other requirements Public market and shareholding Non-Hong Kong issuers (inter alia,PRC issuers) Shareholder protection Localization requirements ·Accounting matters Typical process for public issues Must be public company:see s 29. Private co converting to public:see s 30 ·Appoint sponsor Sponsor to engage in due diligence and drafting of the prospectus Apply for listing on stock exchange;submit prospectus(listing document)to stock exchange for review:see LR Ch 9 At the same time,lead underwriter(usually the brokerage arm of the sponsor)will begin process of syndication(obtaining other underwriters Following approval by the stock exchange,register prospectus with Companies Registry:s 38D Issue application forms and prospectuses Open and close subscription lists Allot and issue the shares 8 4

2/8/2010 4 7 Typical process for public issues • Preparatory steps • Qualifications for admission  Profit test: LR 8.05(1)  Market capitalization/revenue/cash flow test: LR 8.05(2)  Market capitalization/revenue test: LR 8.05(3) • SEHK’s power to waive • Other requirements • Public market and shareholding • Non-Hong Kong issuers (inter alia, PRC issuers)  Shareholder protection  Localization requirements  Accounting matters 8 Typical process for public issues • Must be public company: see s 29.  Private co converting to public: see s 30 • Appoint sponsor • Sponsor to engage in due diligence and drafting of the prospectus • Apply for listing on stock exchange; submit prospectus (listing document) to stock exchange for review: see LR Ch 9 • At the same time, lead underwriter (usually the brokerage arm of the sponsor) will begin process of syndication (obtaining other underwriters ) • Following approval by the stock exchange, register prospectus with Companies Registry: s 38D • Issue application forms and prospectuses • Open and close subscription lists • Allot and issue the shares

2/8/2010 Advertising restrictions Restrictions under s 38B Exceptions:see s 38B(2)and 19th Schedule Restrictions arising from definition of prospectus:ss 2,38(1),(1A),38D .Restrictions under SFO ss 103,105 Restrictions under Stock Exchange Listing Rules,rule 9.08 Sales in secondary market Prospectus provisions prima facie do not apply to sales of shares But anti-avoidance provision in s 41:prohibits the offer of shares for the purposes of on-sale 10 5

2/8/2010 5 9 Advertising restrictions • Restrictions under s 38B  Exceptions: see s 38B(2) and 19th Schedule • Restrictions arising from definition of prospectus: ss 2, 38(1), (1A), 38D • Restrictions under SFO ss 103, 105 • Restrictions under Stock Exchange Listing Rules, rule 9.08 10 Sales in secondary market • Prospectus provisions prima facie do not apply to sales of shares • But anti-avoidance provision in s 41: prohibits the offer of shares for the purposes of on-sale

2/8/2010 Official listing Hong Kong Exchanges and Clearing Ltd (HKEx) Methods of listing:LRs Ch 7.Egs: Offers for subscription Rights issues Open offers Placements ■Offers for sale 11 Qualifications for listing ·LRs Ch8:egs ·Public company Profit test or market capitalisation tests ·Size of offer ·Adequate market ·Open market Qualifications of directors and co secretary 12 6

2/8/2010 6 11 Official listing • Hong Kong Exchanges and Clearing Ltd (HKEx) • Methods of listing: LRs Ch 7. Egs:  Offers for subscription  Rights issues  Open offers  Placements  Offers for sale 12 Qualifications for listing • LRs Ch 8: egs • Public company • Profit test or market capitalisation tests • Size of offer • Adequate market • Open market • Qualifications of directors and co secretary

2/8/2010 Listing procedures Applications to Listing Division:LR 2A.05,Ch 9. Listing documents:Ch 11 and Appendix 1 Vetting of prospectuses:Ch 11A Publication of listing document:Ch 12 Restrictions on certain persons from acquiring shares:Ch 10 13 Continuing disclosure obligations LRs Ch 13-application and rationale General disclosure obligation:LR 13.09: Information necessary to enable the public to appraise the position of the group;or Information necessary to avoid the establishment of a false market in the securities;or Information that might be reasonably expected to materially affect the market activity in and the price of the securities 14 个

2/8/2010 7 13 Listing procedures • Applications to Listing Division: LR 2A.05, Ch 9. • Listing documents: Ch 11 and Appendix 1 • Vetting of prospectuses: Ch 11 A • Publication of listing document: Ch 12 • Restrictions on certain persons from acquiring shares: Ch 10 14 Continuing disclosure obligations • LRs Ch 13 - application and rationale • General disclosure obligation: LR 13.09:  Information necessary to enable the public to appraise the position of the group; or  Information necessary to avoid the establishment of a false market in the securities; or  Information that might be reasonably expected to materially affect the market activity in and the price of the securities

2/8/2010 Test of materiality TSC Industries v Northway: whether there is substantial likelihood that,under all the circumstances,the omitted fact would have assumed actual significance in the deliberations of a reasonable shareholder in deciding whether or not to acquire shares in the company ·Examples: Need negotiations at the pre-contractual stage be disclosed?See Basic v Levinson See generally HKEx,Guide on Disclosure of Price Sensitive Information,Jan 2002 See further specific disclosure circumstances in LRs 13.12-13.19 15 Notifiable and connected transactions Notifiable transactions:Disclosure specifically required under LR 13.23 and Ch 14 See in particular LR 14.33 Egs:major disposals and acquisitions of assets Connected transactions:Disclosure required under LR 13.23 and Ch 14A What is a connected transaction?See LR 14A.13 Connected persons:see LR 14A.11 8

2/8/2010 8 15 Test of materiality • TSC Industries v Northway: whether there is substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of a reasonable shareholder in deciding whether or not to acquire shares in the company • Examples:  Need negotiations at the pre-contractual stage be disclosed? See Basic v Levinson  See generally HKEx, Guide on Disclosure of Price Sensitive Information, Jan 2002  See further specific disclosure circumstances in LRs 13.12-13.19 16 Notifiable and connected transactions • Notifiable transactions: Disclosure specifically required under LR 13.23 and Ch 14  See in particular LR 14.33  Egs: major disposals and acquisitions of assets • Connected transactions: Disclosure required under LR 13.23 and Ch 14A  What is a connected transaction? See LR 14A.13  Connected persons: see LR 14A.11

2/8/2010 Status and enforcement of LRs Status of LRs:see LR 13.01 Sanctions for breach:see LR 2A.09;LR 6.01 ·Reform: Financial Services and the Treasury Bureau's Consultation Paper on Proposals to Enhance the Regulation of Listing(2004) Financial Services and the Treasury Bureau's Consultation Paper on Proposed Amendments to the Securities and Futures Ordinance to Give Statutory Backing to Major Listing Requirements(Jan 2005) SFC's Consultation Paper on Proposed Amendments to the Securities and Futures(Stock Market Listing)Rules (Jan 2005) SFC's Consultation Conclusions on Proposed Amendments to the Securities and Futures(Stock Market Listing)Rules(Feb 2007) 17 9

2/8/2010 9 17 Status and enforcement of LRs • Status of LRs: see LR 13.01 • Sanctions for breach: see LR 2A.09; LR 6.01 • Reform:  Financial Services and the Treasury Bureau’s Consultation Paper on Proposals to Enhance the Regulation of Listing (2004)  Financial Services and the Treasury Bureau’s Consultation Paper on Proposed Amendments to the Securities and Futures Ordinance to Give Statutory Backing to Major Listing Requirements (Jan 2005)  SFC’s Consultation Paper on Proposed Amendments to the Securities and Futures (Stock Market Listing) Rules (Jan 2005)  SFC’s Consultation Conclusions on Proposed Amendments to the Securities and Futures (Stock Market Listing) Rules (Feb 2007)