Directors' dealings (13.67)
An issuer shall adopt rules governing dealings by directors in listed securities of the issuer on terms no less exacting than those of the Model Code set out in Appendix 10 issued by the Exchange. The Model Code sets out the standard which the Exchange requires the issuer and its directors to meet and any breach of such required standard will be a breach of the Exchange Listing Rules. The issuer may adopt its own code on terms no less exacting than those set out in the Model Code. Any breach of its own code will not be a breach of the Exchange Listing Rules unless it is also a breach of the required standard under the Model Code.
Directors' service contracts (13.68-13.69)
An issuer shall obtain the prior approval of its shareholders of the issuer in a general meeting (at which the relevant director and his associates shall not vote on the matter) for any service contract to be granted by the issuer or any of its subsidiaries to any director or proposed director of the issuer or to any director or proposed director of any of its subsidiaries which:(a) is for a duration that may exceed three years; or(b) in order to entitle the issuer to terminate the contract, expressly requires the issuer to give a period of notice of more than one year or to pay compensation or make other payments equivalent to more than one year's emoluments.
The remuneration committee of the issuer (if any and provided that such committee has a majority of independent non-executive directors) or an independent board committee shall form a view in respect of service contracts that require shareholders' approval and advise shareholders (other than shareholders who are directors with a material interest in the service contracts and their associates) as to whether the terms are fair and reasonable, advise whether such contracts are in the interests of the issuer and its shareholders as a whole and advise shareholders on how to vote. An independent non-executive director who has a material interest in any such contracts shall not sit on the independent board committee.
Note: A contract is relevant whether or not reduced to writing. A service contract is relevant whether granted by the issuer or any of its subsidiaries. A service contract not for a fixed period is to be regarded as running at least until the earliest date on which it can lawfully be determined by the employing company without payment of compensation (other than statutory compensation). Where an arrangement exists under which a director can require the issuer or any of its subsidiaries to enter into a further service contract with him, the arrangement will be regarded as a provision for extending the period of his existing service contract and taken into account in determining its duration.
[Repealed 1 October 2020]
Nomination of directors (13.70)
The issuer shall publish an announcement in accordance with rule 2.07C or issue a supplementary circular upon receipt of a notice from a shareholder to propose a person for election as a director at the general meeting where such notice is received by the issuer after publication of the notice of meeting. The issuer shall include particulars of the proposed director in the announcement or supplementary circular.
Note: The issuer must assess whether or not it is necessary to adjourn the meeting of the election to give shareholders at least 10 business days to consider the relevant information disclosed in the announcement or supplementary circular.
An issuer shall send notices to all holders of its listed securities whether or not their registered address is in Hong Kong.
Any notice to be given by an issuer under this Chapter shall be in writing and any notice to the holder of a bearer security may be given by being published in accordance with rule 2.07C.
In addition to any direction of the court, the issuer shall ensure that notice of every meeting of its shareholders or its creditors concerning the issuer (e.g. for winding up petitions, schemes of arrangement or capital reduction) is published in accordance with rule 2.07C. The issuer shall despatch a circular to its shareholders at the same time as (or before) the issuer gives notice of the general meeting to approve the transaction referred to in the circular. The issuer shall provide its shareholders with any material information on the subject matter to be considered at a general meeting that comes to the directors' attention after the circular is issued. The issuer must provide the information either in a supplementary circular or by way of an announcement in accordance with rule 2.07C not less than 10 business days before the date of the relevant general meeting to consider the subject matter. The meeting must be adjourned before considering the relevant resolution to ensure compliance with this 10 business day requirement by the chairman or, if that is not permitted by the issuer's constitutional documents, by resolution to that effect (see also rule 13.41).
Note: The issuer must assess the scale of revisions or updating required and materiality of the new information, revisions or updating required that has come to its attention since publication of the circular when deciding whether to issue a revised or supplementary circular or to publish an announcement in accordance with rule 2.07C. Where the revisions or updating required are significant, the issuer must consider carefully whether it would be better to publish a revised or supplementary circular rather than provide particulars of the changes in an announcement. The issuer should not overwhelm or confuse investors with lengthy announcements describing changes to information contained in the original circular.
The issuer shall also disclose the details required under rule 13.51(2) of any directors proposed to be re-elected or proposed new director in the notice or accompanying circular to its shareholders of the relevant general meeting, if such re-election or appointment is subject to shareholders' approval at that relevant general meeting (including, but not limited to, an annual general meeting).
Equality of treatment (13.75)
An issuer shall ensure equality of treatment for all holders of securities of the same class who are in the same position (except, in the case of a PRC issuer, to the extent otherwise provided in the PRC issuer's articles of association).
Use of Airmail (13.76)
Where this Chapter requires anything to be sent by any person in Hong Kong to any person outside Hong Kong and vice versa, such thing shall be sent, where practicable, by airmail or an equivalent service that is no slower.
Directors' contact information (13.77-13.78)
An issuer shall inform the Exchange as soon as reasonably practicable of any change(s) in the contact information, including the information set out in rule 3.20(1), of its directors (and, in the case of a PRC issuer, supervisors).
If and when requested by the Exchange, an issuer shall use its best endeavours to assist the Exchange to locate the whereabouts of any director (or, in the case of a PRC issuer, supervisor) who has since resigned from his directorship in the issuer.
Communication with the Exchange (13.79)
Independent financial advisers (13.80-13.87)
13.80(1) it has a reasonable basis for making the statements required by rule 14A.45; and(2) without limiting the generality of paragraph (1) above, there is no reason to believe any of the following information is not true or omits a material fact:(a) any information relied on by the independent financial adviser in forming its opinion; or(b) any information relied on by any third party expert on whose opinion or advice the independent financial adviser relies in forming its opinion.
Notes:1. For the purposes of this rule, the Exchange expects that the reasonable steps an independent financial adviser will typically perform will include the following:(a) obtaining all information and documents of the issuer relevant to an assessment of the fairness and reasonableness of the terms of the transaction, for example, if the transaction involves the purchase or sale of products or services, information and documents showing the prices at which the issuer buys and sells such products and services to independent third parties;(b) researching the relevant market and other conditions and trends relevant to the pricing of the transaction;(c) reviewing the fairness, reasonableness and completeness of any assumptions or projections relevant to the transaction;(d) without limiting the generality of paragraph (c) above, in relation to any third party expert providing an opinion or valuation relevant to the transaction:(i) interviewing the expert including as to its expertise and any current or prior relationships with the issuer, other parties to the transaction, and core connected persons of either the issuer or another party to the transaction;(ii) reviewing the terms of engagement (having particular regard to the scope of work, whether the scope of work is appropriate to the opinion required to be given and any limitations on the scope of work which might adversely impact on the degree of assurance given by the expert's report, opinion or statement); and(iii) where the independent financial adviser is aware the issuer or another party to the transaction has made formal or informal representations to the expert, assessing whether the representations are in accordance with the independent financial adviser's knowledge; and(e) if there have been any relevant alternative offers made (for example, offers made recently for the same asset), then reviewing and assessing such alternative offers and the reasons given, if any, by the management for rejecting these offers.2. The Exchange expects the independent financial adviser will ensure the letter referred to at rule 14A.45 takes account of the following principles:(a) the source for any fact which is material to an argument should be clearly stated, including sufficient detail to enable the significance of the fact to be assessed; however, if the fact has been included in a document recently sent to shareholders, an appropriate cross reference may instead be made;(b) a quotation (for example, from a newspaper or a stockbroker circular) should not be used out of context and details of the origin should be included. Since quotations will necessarily carry the implication that they are endorsed by the independent financial adviser, quotations should not be used unless the independent financial adviser has corroborated or substantiated them;(c) pictorial representations, charts, graphs and diagrams should be presented without distortion and, when relevant, should be to scale; and(d) any comparables referred to in a document must be a fair and representative sample. The bases for compiling such comparables must be clearly stated in the document.
The issuer must:(1) afford any independent financial adviser it appoints pursuant to rule 13.39(6)(b), rule 14A.44 or rule 19.05(6)(a)(iii) full access at all times to all persons, premises and documents relevant to the independent financial adviser's performance of its duties as set out in the Exchange Listing Rules. In particular, terms of engagement with experts retained to perform services related to the transaction should contain clauses entitling the independent financial adviser access to:(a) any such expert;(b) the expert's reports, draft reports (both written and oral), and terms of engagement;(c) information provided to or relied on by the expert;(d) information provided by the expert to the Exchange or Commission; and(e) all other correspondence exchanged between the issuer or its agents and the expert or between the expert, the issuer and the Exchange or Commission;Note: The Exchange expects that access to documents for the purposes of this rule would include the right to take copies of the documents without charge.(2) keep the independent financial adviser it appoints informed of any material change to any information previously given to or accessed by the independent financial adviser pursuant to paragraph (1) above; and(3) provide to or procure for the independent financial adviser all necessary consents to the provision of the information referred to in paragraphs (1) and (2) above to the independent financial adviser.
An independent financial adviser must be appropriately licensed by the Commission and must discharge its responsibilities with due care and skill.
An independent financial adviser must perform its duties with impartiality.
An independent financial adviser must be independent from any issuer for whom it acts. An independent financial adviser is not independent if any of the following circumstances exist as at the time of making the declaration required by rule 13.85(1):(1) the IFA group and any director or close associate of a director of the independent financial adviser holds, directly or indirectly, in aggregate more than 5% of the number of issued shares of the issuer, another party to the transaction, or a close associate or core connected person of the issuer or another party to the transaction;(1A) in the case of a connected transaction, the independent financial adviser holds more than 5% of the number of issued shares of an associate of another party to the transaction;(2) any member of the IFA group or any director or close associate of a director of the independent financial adviser is a close associate or core connected person of the issuer or another party to the transaction;(2A) in the case of a connected transaction, the independent financial adviser is an associate of another party to the transaction;(3) any of the following exceeds 10% of the total assets shown in the latest consolidated financial statements of the independent financial adviser's ultimate holding company or, where there is no ultimate holding company, the independent financial adviser:(a) the aggregate of:(i) amounts due to the IFA group from:(A) the issuer;(B) its subsidiaries;(C) its controlling shareholder; and(D) any close associates of its controlling shareholder; and(ii) all guarantees given by the IFA group on behalf of:(A) the issuer;(B) its subsidiaries;(C) its controlling shareholder; and(D) any close associates of its controlling shareholder;(b) the aggregate of:(i) amounts due from the IFA group to:(A) the issuer;(B) its subsidiaries; and(C) its controlling shareholder; and(ii) all guarantees given on behalf of the IFA group by:(A) the issuer;(B) its subsidiaries; and(C) its controlling shareholder;(c) the aggregate of:(i) amounts due from the IFA group to any of the following (referred to in this rule as "the Other Parties"):(A) another party to the transaction;(B) any holding company of another party to the transaction;(C) any subsidiary of any holding company of another party to the transaction;(D) any controlling shareholder of:(1) another party to the transaction; or(2) any holding company of another party to the transaction; and(E) any close associate of any controlling shareholder referred to in paragraph (D) above; and(ii) all guarantees given by any of the Other Parties on behalf of the IFA group; and(d) the aggregate of:(i) amounts due to the IFA group from any of the Other Parties; and(ii) all guarantees given by the IFA group on behalf of any of the Other Parties;(4) any of the following has a current business relationship with the issuer or another party to the transaction, or a director, subsidiary, holding company or substantial shareholder of the issuer or another party to the transaction, which would be reasonably considered to affect the independent financial adviser's independence in performing its duties as set out in the Exchange Listing Rules, or might reasonably give rise to a perception that the independent financial adviser's independence would be so affected, except where that relationship arises under the independent financial adviser's appointment to provide the advice:(a) any member of the IFA group;(b) an employee of the independent financial adviser who is directly engaged in providing the advice to the issuer;(c) a close associate of an employee of the independent financial adviser who is directly engaged in providing the advice to the issuer;(d) a director of any member of the IFA group; or(e) a close associate of a director of any member of the IFA group;(5) within 2 years prior to making the declaration pursuant to rule 13.85(1):(a) a member of the IFA group has served as a financial adviser to:(i) the issuer or its subsidiaries;(ii) another party to the transaction or its subsidiaries; or(iii) a core connected person of the issuer or another party to the transaction; or(b) without limiting paragraph (a), an employee or a director of the independent financial adviser who is directly engaged in providing the subject advice to the issuer:(i) was employed by or was a director of another firm that served as a financial adviser to any of the entities referred to at paragraphs (a)(i) to (a) (iii) above; and(ii) in that capacity, was directly engaged in the provision of financial advice to the issuer or another party to the transaction;(6) the independent financial adviser or a member of the IFA group is the issuer's auditor or reporting accountant.
Notes:1. In addition to it being a breach of the Exchange Listing Rules, if it comes to the Exchange's attention that an independent financial adviser is not independent, the Exchange will not accept documents produced by that independent financial adviser for any purpose required under the Exchange Listing Rules in relation to the subject transaction.2. In calculating the percentage figure of shares that it holds or will hold for the purposes of sub-paragraphs (1), (2) and (4), an entity is not required to include an interest:(a) held by an investment entity on behalf of its discretionary clients;(b) held by a fund manager on a non-discretionary basis such as a managed account or managed fund;(c) held in a market-making capacity;(d) held in a custodial capacity;(e) in shares that would be disregarded for the purposes of Divisions 2 to 4 of Part XV of the Securities and Futures Ordinance under section 323 of that Ordinance; or(f) in shares held by a member of the entity's group that is an investment manager whose interest would not be aggregated with its holding company under section 316(2) of the Securities and Futures Ordinance by reason of the operation of section 316(5) of that Ordinance.For these purposes "investment manager" has the meaning given to it in section 316(7) of the Securities and Futures Ordinance.3. For the purposes of this rule, ultimate holding company means a holding company that itself does not have a holding company.
No later than the earlier of the independent financial adviser agreeing its terms of engagement with the issuer and the independent financial adviser commencing work as independent financial adviser to the issuer, the independent financial adviser must submit to the Exchange:(1) a declaration in the prescribed form set out in Appendix 21 to the effect that the independent financial adviser is independent, including a statement addressing each of the circumstances set out in rule 13.84; and(2) an undertaking, in the terms set out in Appendix 22 to:(a) comply with the Listing Rules; and(b) co-operate in any investigation conducted by the Listing Division and/or the Listing Committee of the Exchange, including answering promptly and openly any questions addressed to the independent financial adviser, promptly producing the originals or copies of any relevant documents and attending before any meeting or hearing at which the independent financial adviser is requested to appear.
Where an independent financial adviser or issuer becomes aware of a change in the circumstances set out in the declaration required by rule 13.85(1) during the period the independent financial adviser is engaged by the issuer, the independent financial adviser or issuer must notify the Exchange as soon as possible upon that change occurring.
Insofar as the Exchange Listing Rules impose a higher standard of conduct on independent financial advisers than that set out in the Commission's Corporate Finance Adviser Code of Conduct, the Code of Conduct, the Takeovers Code, the Share Buy-backs Code and all other relevant codes and guidelines applicable to them, the Exchange Listing Rules will prevail.
Note: The Exchange also reminds independent financial advisers of their other statutory obligations including but not limited to those under the Securities and Futures Ordinance.
Financial advisers appointed in relation to extreme transactions (13.87A - 13.87C )
A financial adviser appointed by a listed issuer under rule 14.53A(2) in relation to an extreme transaction must conduct reasonable due diligence on the assets acquired and/or to be acquired under the extreme transaction to put itself in a position to be able to make the declaration in Appendix 29. The extent of its work and scope of due diligence shall be referenced to Practice Note 21 to the Listing Rules.
The financial adviser must be a person licensed or registered under the SFO for Type 6 regulated activity and permitted under its license or certificate of registration to undertake the work of a sponsor. The financial adviser must submit to the Exchange an undertaking in the prescribed form set out in Appendix 30 to:(a) comply with the Listing Rules; and(b) co-operate in any investigation conducted by the Listing Division and/or the Listing Committee of the Exchange, including answering promptly and openly any questions addressed to the financial adviser, promptly producing the originals or copies of any relevant documents and attending before any meeting or hearing at which the financial adviser is requested to appear.
The issuer must assist the financial adviser to perform its duties. The requirements under rule 13.81 shall apply mutatis mutandis as if all references to “independent financial adviser” were references to “financial adviser”.
Appointment and removal of auditor prior to expiration of his term of office (13.88)
The issuer must at each annual general meeting appoint an auditor to hold office from the conclusion of that meeting until the next annual general meeting. The issuer must not remove its auditor before the end of the auditor's term of office without first obtaining shareholders' approval at a general meeting. An issuer must send a circular proposing the removal of the auditor to shareholders with any written representations from the auditor, not less than 10 business days before the general meeting. An issuer must allow the auditor to attend the general meeting and make written and/or verbal representations to shareholders at the general meeting.
Corporate Governance Code (13.89)
13.89(1) The Corporate Governance Code in Appendix 14 sets out the principles of good corporate governance and two levels of recommendations: (a) code provisions; and (b) recommended best practices. Issuers are expected to comply with, but may choose to deviate from, the code provisions. The recommended best practices are for guidance only.
Note: Issuers may also devise their own code on corporate governance practices on such terms as they may consider appropriate.(2) Issuers must state whether they have complied with the code provisions set out in the Corporate Governance Code for the relevant accounting period in their interim reports (and summary interim reports, if any) and annual reports (and summary financial reports, if any).
Note: For the requirements governing preliminary results announcements, see paragraphs 45 and 46 of Appendix 16.(3) Where the issuer deviates from the code provisions, it must give considered reasons:(a) for annual reports (and summary financial reports), in the Corporate Governance Report under Appendix 14; and(b) for interim reports (and summary interim reports), either:(i) by giving considered reasons for each deviation; or(ii) to the extent that it is reasonable and appropriate, by referring to the Corporate Governance Report in the immediately preceding annual report, and providing details of any changes together with considered reasons for any deviation not reported in that annual report. The references must be clear and unambiguous and the interim report (or summary interim report) must not contain only a cross-reference without any discussion of the matter.(4) For the recommended best practices, issuers are encouraged, but are not required, to state whether they have complied with them and give considered reasons for any deviation.
Publication of issuers' constitutional documents (13.90)
An issuer must publish on its own website and on the Exchange's website, an up to date consolidated version of its memorandum and articles of association or equivalent constitutional document.
Environmental and Social Matters (13.91-13.92)
(1) The Environmental, Social and Governance (“ESG”) Reporting Guide in Appendix 27 comprises two levels of disclosure obligations: (a) mandatory disclosure requirements; and (b) “comply or explain” provisions.
(2) For the relevant financial year in their annual reports or in separate ESG reports, issuers must:
(a) disclose the information required under the “Mandatory Disclosure Requirements” in Part B of the ESG Reporting Guide; and
(b) state whether they have complied with the “comply or explain” provisions set out in Part C of the ESG Reporting Guide.
(3) Where the issuer deviates from the “comply or explain” provisions, it must give considered reasons in its ESG report.
(4) Issuers must publish their ESG reports on an annual basis and regarding the same period covered in their annual reports. An ESG report may be presented as information in the issuer’s annual report or in a separate report. Regardless of the format adopted, the ESG report must be published on the Exchange’s website and the issuer’s website.
(5) Where the ESG report does not form part of the issuer’s annual report:
(a) To the extent permitted under all applicable laws and regulations and the issuer’s own constitutional documents, an issuer is not required to provide the ESG report in printed form to its shareholders irrespective of whether such shareholders have elected to receive the issuer’s corporate communication electronically or otherwise under rule 2.07A.
(b) The issuer must notify the intended recipient of:
(i) the presence of the ESG report on the website; (ii) the address of the website; (iii) the place on the website where it may be accessed; and (iv) how to access the ESG report.
(c) Notwithstanding the above, the issuer shall promptly provide a shareholder with an ESG report in printed form upon its specific request.
(d) The issuer is encouraged to publish the ESG report at the same time as the publication of the annual report. In any event, the issuer should publish the ESG report as close as possible to, and no later than five months after, the end of the financial year.
The nomination committee (or the board) shall have a policy concerning diversity of board members, and shall disclose the policy on diversity or a summary of the policy in the corporate governance report.
Note: Board diversity will differ according to the circumstances of each issuer. Diversity of board members can be achieved through consideration of a number of factors, including but not limited to gender, age, cultural and educational background, or professional experience. Each issuer should take into account its own business model and specific needs, and disclose the rationale for the factors it uses for this purpose.