December 20, 2022
Hong Kong Stock Exchange Proposes to Codify Directors' Obligations as Listing Rules and Expand Paperless Listing Regime
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In a recent consultation paper seeking public feedback on proposals to expand the paperless listing regime (Consultation), the Hong Kong Stock Exchange (Exchange) proposes to 'codify obligations as Listing Rules' to replace individual submission of written undertakings and confirmations.
Such codification proposal extends to obligations set out in approximately 16 separate submission documents, amongst which include the Directors' Undertakings (DU, commonly known as the Form B/H/I, which must be filed before the director's appointment) and the Directors' Confirmation with regards to their biographical information (Form M110).
The proposal, if adopted, would make the original contractual duties part of the new Listing Rule requirements. For instance, the director's obligations so as to ensure the accuracy of their biographical information, to cooperate in the Exchange's investigation, to (and use their best endeavours to procure the issuer to) comply with the Listing Rules and applicable laws and regulations in force in Hong Kong, and to obtain legal advice on Hong Kong law with regards to the director's obligations.
Though framed as part of the paperless initiative, the codification proposal seems more in line with the Exchange's robust enforcement actions in recent years.
To reduce the use of papers, more than 50 different documents are proposed to be removed from the submission requirements. The Exchange also proposes to mandate electronic dissemination of information. A new online issuer platform will be established as a designated channel for two-way communication between issuers and the Exchange.
In addition, listed issuers, to the extent permitted by the laws and regulations applicable to them and their constitutional documents, are mandated to disseminate corporate communications electronically to securities holders; and may rely on implied consent for such dissemination.
However, Hong Kong's current company law does not permit shareholders' consent to be implied for receiving communication by electronic means. It remains to be seen how the proposal may proceed given this constraint.
Given the voluminous changes proposed, listing/listed Issuers are advised to consult their lawyers on the compliance implications of the Consultation proposals. The Consultation ends on 28 February 2023.
Such codification proposal extends to obligations set out in approximately 16 separate submission documents, amongst which include the Directors' Undertakings (DU, commonly known as the Form B/H/I, which must be filed before the director's appointment) and the Directors' Confirmation with regards to their biographical information (Form M110).
The proposal, if adopted, would make the original contractual duties part of the new Listing Rule requirements. For instance, the director's obligations so as to ensure the accuracy of their biographical information, to cooperate in the Exchange's investigation, to (and use their best endeavours to procure the issuer to) comply with the Listing Rules and applicable laws and regulations in force in Hong Kong, and to obtain legal advice on Hong Kong law with regards to the director's obligations.
Though framed as part of the paperless initiative, the codification proposal seems more in line with the Exchange's robust enforcement actions in recent years.
To reduce the use of papers, more than 50 different documents are proposed to be removed from the submission requirements. The Exchange also proposes to mandate electronic dissemination of information. A new online issuer platform will be established as a designated channel for two-way communication between issuers and the Exchange.
In addition, listed issuers, to the extent permitted by the laws and regulations applicable to them and their constitutional documents, are mandated to disseminate corporate communications electronically to securities holders; and may rely on implied consent for such dissemination.
However, Hong Kong's current company law does not permit shareholders' consent to be implied for receiving communication by electronic means. It remains to be seen how the proposal may proceed given this constraint.
Given the voluminous changes proposed, listing/listed Issuers are advised to consult their lawyers on the compliance implications of the Consultation proposals. The Consultation ends on 28 February 2023.
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