Exploring the legal procedures for listing of enterprise reorganisations

Enterprise reorganisations are divided into reorganisations in the broad sense and listing reorganisations in the narrow sense. The term “listing reorganisation” means the conversion of an enterprise in accordance with the law to the joint stock system, with the objective of making an initial public offering (IPO) of A shares to the public and listing the enterprise; and also refers to the reorganisation and restructuring effected by an enterprise to satisfy offering and listing conditions as specified in laws and regulations.

The main legal procedures involved in an enterprise reorganisation and establishment of a joint stock limited company include:

• the enterprise first determining the various professional intermediary firms (e.g. underwriters, lawyers, accountants and appraisers) that engage in securities-related business for the reorganisation and listing;
• the intermediary firms conducting comprehensive due diligence of the enterprise based on their respective professional field;
• such intermediary firms as the lawyers, underwriters and others assisting the enterprise in jointly formulating the overall plan for the reorganisation and listing, determining the size of the proposed joint stock limited company, determining the asset, personnel and business spin-off issue, determining the debt restructuring issue, etc.;
• the underwriters, lawyers, accountants and appraisers (for assets and land) beginning to co-ordinate and initiate the work revolving around the reorganisation and listing plan;
• determination of the sponsors and their capital contribution percentages;
• holding of the sponsors’ meeting, execution of the Sponsorship Agreement and drafting of the company’s articles of association;
• carrying out with the administration for industry and commerce the procedure for the preliminary approval of the company’s name;
• the lawyers assisting the enterprise in formulating all of the application documents to be submitted to the relevant government authorities for approval of the establishment of the company (applicable to foreign-invested enterprises [FIEs]);
• the relevant government authorities approving the establishment of the company and issuing the approval documents (applicable to FIEs);
• each of the sponsors paying its capital contribution in full and completing the procedures for transfer of title to relevant assets; the accountants carrying out a capital verification and issuing a capital verification report;
• holding of the joint stock limited company’s inaugural meeting;
• carrying out business registration procedures with the administration for industry and commerce and collection of the licence of an enterprise with legal personality. With this, the joint stock limited company is formally established.

Listing and offering

Once the joint stock limited company has been established, the guidance procedure begins. A sound corporate governance mechanism is to be established to ensure independent operation and sustainable development and cause the directors, supervisors and senior management personnel to comprehensively understand laws and regulations governing offerings and listings and the requirements regarding compliance and disclosure. Details of the guidance need to be reported to the local agency of the China Securities Regulatory Commission (CSRC) for the record, which will expressly give its assessment opinion and issue a guidance oversight report.

The main legal procedures for a listing and offering include:

Submission of materials: the company prepares the application documents in accordance with relevant CSRC regulations, and it is recommended by the sponsor, which submits the application documents to the CSRC.

Acceptance of application: the CSRC receives and records the application materials, issues a receipt to the applicant and renders a decision on whether or not to accept the application, or informs the applicant of missing application materials it is required to provide.

Feedback and reply: the CSRC prepares a feedback opinion on issues that the company needs to further disclose and explain, and those that the intermediary firms need to further verify and implement. The sponsor then arranges for the company and the relevant intermediary firms to effect implementation as required, and gives a reply.

Advance disclosure: where implementation of the feedback opinion has been completed, the opinions of the relevant government authorities are all in order and the period of validity of the financial information has not expired, advance disclosure of the prospectus (submission draft) on the CSRC’s website is arranged.

Preliminary review meeting: the reviewers report on the basic circumstances of the company, the major issues discovered in the course of the preliminary review and the results of implementation, and prepare a preliminary review report.

Review by the Offering Review Committee (ORC): the ORC votes by a casting of ballots and prepares its review opinion. Each meeting is attended by seven members and a proposal is adopted if there are at least five assenting votes.

Sealing of file: once the company’s application has passed the ORC review, the file sealing work needs to be carried out, that is to say, after re-collating the originals of the application documents, they are placed on file for future reference.

Review of post-meeting events: such an event is one that occurs after the offer applicant’s IPO application has passed the ORC review and before the publication of the prospectus, and that requires disclosure because it could have an impact on the contemplated offering or a material impact on the investment decision-making of the investors. Relevant materials are placed on file for future reference upon completion of this review.

Approval of offering: after completion of file sealing and carrying out of the procedure for applying for an official reply, and once the offer applicant has collected its approval document, the arrangements for the subsequent offering work are made.

Listing application: price inquiry, setting of price, offering of stocks and submission of listing application to the stock exchange. Once the stock exchange has approved its listing application, the issuer is required to publish a listing announcement in at least one newspaper designated by the CSRC for the disclosure of information by listed companies, and the internet website designated by the CSRC, and publish the company’s articles of association on the designated website. During the listing application period, the issuer may not disclose relevant information without the consent of the stock exchange.