Hong Kong SFC amends codes to protect minority shareholders

On 13 July 2018, the Securities and Futures Commission (SFC) of Hong Kong released its consultation conclusions on proposed amendments to the codes on takeovers and mergers and share buybacks. The amendments to the codes took immediate effect. It is indicated in the conclusions that, where this timing might produce major difficulties, for example, in cases of transactions in progress, the executive should be consulted and would endeavour to reach a solution that was fair to all parties. The amendments to the codes aim to enhance shareholder protection and align the treatment of all companies that are subject to the codes. Certain amendments represent a shift in the SFC’s previous practice.

WHAT’S CHANGED?

The major amendments to the codes are summarized below.

(1) Separate voting thresholds for whitewash waivers and underlying transactions.

The SFC has decided to:

1. Increase the independent shareholders’ approval requirement for a whitewash waiver from a simple majority to at least 75%; and
2. Introduce an explicit requirement for the underlying transaction to be separately approved by the independent shareholders by more than 50%.

The SFC takes the view that a whitewash waiver should be subject to a more stringent approval requirement as shareholders are deprived of the opportunity to receive a general offer to buy their shares following a change of control of the offeree company. To avoid a possible anomaly between the voting requirements in the Hong Kong Listing Rules (simple majority) and the codes, the SFC decided that the underlying transaction should be subject to a simple majority vote.