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HKEx-LD63-2013 (published in April 2013) (Updated in July 2014)

Parties Company A — a Main Board listed issuer

Mr. X — an independent non-executive director of Company A

Company B — a company indirectly owned as to 30% by Mr. X
Issue Whether the Exchange would waive the annual review and reporting requirements for a continuing connected transaction between Company A and Company B
Listing Rules Main Board Rule 14A.103
Decision The Exchange waived the requirements


1. Company A proposed to enter into an agreement with Company B to supply certain goods to Company B for a three-year period (the Transaction). As Company B was an associate of Mr. X, the Transaction was a continuing connected transaction for Company A and subject to the announcement and annual review and reporting requirements.
2. Company A applied for a waiver from the annual review and reporting requirements for the Transaction under Rule 14A.103 because:
•   the Transaction was connected only because of Mr. X' s interests in Company B;
•   Mr. X was only an independent non-executive director of Company A. He did not control Company A and his principal business interests were not related to Company A;
•   the Transaction would be conducted on normal commercial terms and in the ordinary and usual course of business of both Company A and Company B;
•   the size of the Transaction was not significant to Company A with the highest percentage ratio slightly over 0.1%. It would be unduly burdensome to require the independent non-executive directors and the auditors to review the immaterial Transaction annually.
3. It would disclose the Transaction and the waiver, if granted, by way of an announcement.


4. Rule 14A.103 states that:
The Exchange may waive all or some of the connected transaction requirements for a connected transaction with a non-executive director of the listed issuer or its subsidiaries if:
(1) a transaction is connected only because of the interest of a nonexecutive director; and
(2) the director does not control the listed issuer's group, and his principal business interest is not the listed issuer's group.

Where a waiver is granted from the shareholders' approval requirement under this rule, the Exchange may require the listed issuer's auditor or an acceptable financial adviser to give the opinion that the transaction is fair and reasonable to the shareholders as a whole. "


5. The connected transaction Rules seek to safeguard against connected persons taking advantage of their positions to the detriment of the issuer's minority shareholders.
6. To reduce issuers' compliance burden, exemptions and waivers from all or some of the connected transaction requirements are available for transactions that are immaterial or specific circumstances where the risk of abuse by connected persons is low.
7. Here Mr. X was only an independent non-executive director and the Transaction met all waiver conditions set out in Rule 14A.103. It was unlikely that Mr. X could exert undue influence over Company A to obtain a benefit through the Transaction. In light of the remote relationship and the immaterial size of the Transaction, the Exchange agreed to waive the annual review and reporting requirements.


8. The Exchange granted the waiver to Company A.