Stock exchanges issue codes of conduct for controlling shareholders and de facto controllers

0
204
LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link

The Shanghai Stock Exchange and the Shenzhen Stock Exchange each published guidelines in late July to further regulate the acts of controlling shareholders and de facto controllers of listed companies.

Shanghai Stock Exchange

The Shanghai Stock Exchange Conduct of Controlling Shareholders and De Facto Controllers of Listed Companies Guidelines (the Shanghai Guidelines) became effective on 26 July to regulate the acts of controlling shareholders and de facto controllers of listed companies on the Shanghai Stock Exchange in corporate governance, information disclosure, trading of shares, transfer of the rights of control and other respects.

Corporate governance

The Shanghai Guidelines provide that the controlling shareholders and de facto controllers of listed companies bear the responsibility to safeguarding the independence of listed companies, and elaborate on their obligations in five specific areas: asset integrity, staff independence, financial independence, institutional independence, and operational independence.

Controlling shareholders or de facto controllers should enter into a written agreement for conducting any connected transactions with their listed companies, and make sure such an agreement is made at arm’s length. Any transfer of benefits is strictly prohibited. The Shanghai Guidelines encourage controlling shareholders and de facto controllers of listed companies to minimize connected transactions with listed companies.

The Shanghai Guidelines further refine the requirements for the conduct for controlling shareholders in the Corporate Governance Standards for Listed Companies implemented in 2002, and expand to regulate de facto controllers based on the stipulations of the PRC Company Law.

Information disclosures

The Shanghai Guidelines provide that controlling shareholders and de facto controllers should formulate a standardized information disclosure policy to govern various areas such as the scope, reporting process and registration of informed parties having access to insider information in connection with major information of listed companies.

The Shanghai Guidelines specify that controlling shareholders and de facto controllers are obliged to work with listed companies in their information disclosures, and to register informed parties that have access to insider information. For instance, controlling shareholders and de facto controllers should promptly inform listed companies of any change in their rights of control, any restructuring of the major assets or debts of listed companies, any deterioration of operating conditions that may lead listed companies into bankruptcy or dissolution procedures, or any other events that could have a major impact on the transaction prices of the securities and their derivatives of listed companies. They should work with the listed companies to make information disclosures. Prior to the disclosure of the above events, if it proves difficult to keep the events confidential, or if the events have been leaked, or if there have been rumours on the market, or if there is exceptional trading in the securities and their derivatives of the listed securities, the controlling shareholders and de facto controllers should immediately notify the listed companies in writing and make an announcement. Moreover, when having access to any undisclosed information about listed companies, the controlling shareholders and de facto controllers must carry out registration and filing of any informed parties having access to insider information, and assume an obligation of confidentiality.

The Shanghai Guidelines contain detailed requirements for the supply of information by controlling shareholders and de facto controllers to listed companies, their interviews with the media and other matters related to communications with the public to ensure information disclosures are made in a timely, fair, truthful, accurate and complete manner.

Share trading and transfer of control rights

The Shanghai Guidelines have elaborated on the requirements of the Acquisitions by Listed Companies Administrative Measures, the Transfer of Reserved Shares of Listed Companies not Subject to Sales Restrictions Guiding Opinion and Increasing Shareholding by Shareholders of Listed Companies and Persons Acting in Concert Guidelines and other regulations regarding the increase of the shareholding or transfer of the shares of listed companies by controlling shareholders or de facto controllers, by specifying the obligations of controlling shareholders and de facto controllers to report to the regulatory bodies, the restrictions on increasing shareholding, the transfer of reserved shares not subject to sales restrictions, and the obligations to be performed during the transfer of rights of control by agreement.

Applicability

The acts carried out by controlling shareholders and de facto controllers in relation to the subsidiaries of listed companies are also governed by the Shanghai Guidelines. Moreover, the acts of four types of principal party are regarded as the acts of controlling shareholders and de facto controllers, and are governed by reference to the relevant requirements of the guidelines. These four types of principal party are: the legal persons controlled, whether directly or indirectly, by controlling shareholders or de facto controllers; other organizations (other than listed companies and their subsidiaries); parents, spouses and children of controlling shareholders who are natural persons and de facto controllers; the first majority shareholder; and other principal parties approved by the Shanghai Stock Exchange.

Shenzhen Stock Exchange

The Regulation of the Operation of Listed Companies on the Main Board of the Shenzhen Stock Exchange Guidelines and the Regulation of the Operation of Listed Companies on the SME Board of the Shenzhen Stock Exchange Guidelines (collectively, the Shenzhen Guidelines) came into force on 1 September.

The Shenzhen Guidelines are comprehensive guiding documents regulating the operation of listed companies on the Main Board and SME Board of the Shenzhen Stock Exchange in eight major areas: corporate governance; the administration of directors, supervisors and senior management staff; the code of conduct of shareholders, controlling shareholders and de facto controllers; information disclosure; the management of fund-raising; internal control; investor relations management; and social responsibility. Following the implementation of the Shenzhen Guidelines, the guiding documents related to listed companies previously published by the Shenzhen Stock Exchange will be repealed.

With respect to the code of conduct of controlling shareholders and de facto controllers, the Shenzhen Guidelines contain basically the same requirements as the Shanghai Guidelines, which elaborate on the obligations of controlling shareholders and de facto controllers in maintaining the independence of listed companies in five major areas (asset integrity, staff independence, financial independence, institutional independence and operational independence), as well as on their responsibilities in connected transactions, information disclosure, trading of shares subject to sales restrictions and increase in shareholding. In addition, the Shenzhen Guidelines also set forth the particulars and text formats of the Declarations and Undertakings by Controlling Shareholders and De Facto Controllers submitted by controlling shareholders and de facto controllers to the Shenzhen Stock Exchange, and devote a special section to dealing with the commitments controlling shareholders and de facto controllers may make to China Securities Regulatory Commission, listed companies or other shareholders, as well as the particulars, fulfilment and disclosure of such commitments.


Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.

LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link