Report on Improving Corporate Governance in Hong Kong

Оригинал на английском языке.
Гонконгский институт лицензированных публичных бухгалтеров
Hong Kong Institute of Certified Public Accountants
Авторы: Syren Johnstone и Say H Goo
Обзор текущего состояния (дата издания отчета 15.12.2017) корпоративного права Гонконга, основанного на Ординансе "О компаниях" 2014 года (Hong Kong Companies Ordinance) и Ординансе "О ценных бумагах и фьючерсах" 2003 года (Hong Kong Securities and Futures Ordinance). Исследование недостатков действующего режима и предложения о направлениях развития.

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Воскресенье, 12 мая 2019 апдейт:

3. Discussion and analysis of jurisdictions studied. 3.3.2 Disclosure of listing rule compliance

Since 2009/2010, both NYSE and Nasdaq have imposed requirements on the CEO (NYSE) or the issuer (Nasdaq) of listed issuers to notify the Exchange in writing of any non-compliance with the Exchange's CG standards; NYSE additionally imposes an annual certification requirement and a requirement to make an affirmation as and when required. Per the commentary in the NYSE rules, the intention of the requirement is to bring greater focus of the senior management on compliance with the CG listing standards. In Singapore, there is an obligation to explain non-compliance of the CG Code in the annual report, and for companies with a secondary listing in SGX, an obligation, since November 2014, to provide an annual certification that it has complied with the applicable continuing listing obligations in the SGX Listing Manual (see Appendix V.4.1); rather similar to the NYSE's certification requirement. In Mainland China, all CG provisions and listing rules must be complied with. There is an obligation to report «any breaches of laws and regulations» to the CSRC under rule 17.1(6) of the Shanghai Stock Exchange listing rules. There is no annual certification or self-declaration requirement.

Hong Kong

An issuer is required to comply with the listing rules and the responsibility for ensuring full compliance falls to the directors individually and collectively. It is also required to provide to the SEHK any other information or explanation that the SEHK might require for the purpose of investigating a suspected breach of or verifying compliance with the listing rules.

That these obligations are widely expected to be fulfilled is consistent with the desirability of fostering investor confidence and market integrity. In particular, the disclosures expected to be made in compliance with the listing rules are relevant to the total mix of information in a market and constitutes information that a shareholder might reasonably expect to receive for statutory purposes. Given these considerations, it is somewhat surprising that there is no corresponding obligation to report a breach.


It is a legitimate expectation of shareholders of a listed issuer that the company will comply with the laws and regulations that apply to it, including the listing rules. This includes many provisions that are not enforceable at law by shareholders but which nevertheless impact on CG standards and the legitimate rights of shareholders. Directors already do give an undertaking to the SEHK (LR Appendix 5B, H or I) to use best endeavours to procure compliance with the listing rules. However, that issuers are not required to self-report breaches can give rise to anomalies.

A recent example of such an anomaly was the case brought by the SFC in the Market Misconduct Tribunal (MMT) against CITIC Limited under section 277 of the SFO. In the

established facts of that case, which occurred prior to the introduction of Part XIVA of the SFO, the directors of CITIC were able to issue, without attracting any legal liability, a «no material adverse change» (no-MAC) statement in compliance with Chapter 14A, despite its directors being aware of price sensitive information (PSI) that had not been disclosed to the market in accordance with MBLR 13.09. Had the market been aware of the breach of the 13.09 requirement - that the directors possessed undisclosed PSI - the reception of the no-MAC statement would likely have been entirely different.

The foregoing considerations give rise to the suggestion that an obligation be placed on an issuer and its directors to self-report breaches of the listing rules. The requirement to impose an obligation to disclose a breach is not without precedent in the listing rules: an issuer is already required to disclose in its annual report whether its directors have or have not complied with the Model Code for directors' dealings.150

As observed in many places in the present Report, providing shareholders with access to relevant information is a central concern of CG. A self-reporting obligation combined with a disclosure requirement not only facilitates information to shareholders, it also emphasizes the legitimate expectations of shareholders as regards compliance with the listing rules and the CG standards comprised therein. At the same time, it facilitates the SEHK and the SFC gaining an appreciation of the nature of the breach so that appropriate action may be undertaken. However, as also observed elsewhere in this Report, information disclosure must be timely for disclosure to be meaningful and effective. If disclosure of listing rule breaches were left to disclosure on an annual basis, one must query whether the foregoing objectives are truly achieved or are relegated to what amounts to a box-tick approach.

To give practical effect to the proposal it would therefore be necessary to impose a continuing obligation as well as an annual declaration of compliance.

To give teeth to the disclosure, it should be made subject to section 384(3) of the SFO on the same basis, and for the same reasons, as already discussed in Section 3.3.1 «Legal status of CG disclosures». Because this includes the ability of the SFC to seek the imposition of fines where the form is false or misleading, it means that where there has been a breach that has not been self-reported during the year, failure to disclose it on the annual declaration would expose the directors to a section 384 sanction. A failure to disclose a breach possibly may also work to create a failure of properly undertaking the directors' fiduciary duty that gives rise to a cause of action. So as to differentiate the breach itself from the self-reporting of the breach, self-reporting should be encouraged by an appropriate amelioration of the sanction that might otherwise be applied in respect of the breach, much the same way that the SFC will consider to reduce a proposed disciplinary sanction where a licensed corporation has self-reported and admits fault. One possible difficulty is when the directors have reasonable grounds to believe that they have not breached the listing rules, where for example whether the conduct of directors or the behaviour of the company constitutes a breach is debatable. Thus, any imposition of a duty to disclose breaches must be qualified by a defence that directors have reasonable grounds to believe and did believe that no breach has been committed. The NYSE rule allows this possibility as it requires director to certify that he/she «is not aware of any violation by the listed company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary». The wording in Singapore which says that the director certifies «to the Exchange that after making due and careful enquiry, and at the time of this certification, the Company has complied with the applicable continuing listing obligations in the SGX Listing Manual on a continuing basis» is less clear.

The form could additionally be used to generate an annual renewal of the sponsor's declaration - albeit now given by the directors - made on the issuer's admission to listing that the company's procedures, systems and controls are adequate to enable the board to comply with their obligations and that the directors possess adequate experience and qualifications etc. These matters as addressed in the sponsor declaration are of crucial importance as without the sponsor's declaration the company cannot be admitted to listing. They are also matters that go to the ability of an issuer to effectuate CG standards. However, it appears to be a material shortcoming of the listing rules that once a company is listed, these matters become of significantly less consequence insofar as they are broadly dealt with to some extent by MBLR Chapter 3 and the comparatively lighter and more flexible hand of the HK CG Code, neither of which are currently accompanied by effective mechanisms of enforcement where the management falls short of the relevant expectations. This disjunct reflects an aspect of the broader laws and regulatory approach in Hong Kong that is in various ways misaligned as regards the matters to which the primary market is subjected as compared to the secondary market.

The foregoing leads to Recommendation C4.5.2 «Status of listing rule compliance and related disclosures (continuing)».

Issuers may adopt and disclose CG practices that are not mandated by the listing rules and, although variations from those practices may not amount to a breach of the listing rules, they are no less important to investors' legitimate interest in the CG practices of an issuer.

The foregoing leads to Recommendation S4.3.2 «Disclosure of non-compliance with issuer's disclosed CG practices».

Unlike Recommendation A4.5.1 and Recommendation C4.5.2 (see above) it is not proposed to require this disclosure to be made on a form subjecting the issuer and its directors to liability under the SFO - it would be inappropriate to do so as Recommendation S4.3.2 addresses practices that have been voluntarily adopted and so imposing liability may discourage issuers from adopting higher standards.

While these recommendations improve the transparency of CG-related information to shareholders, it does not directly change their standing to take any action in respect of breaches. However, breaches of the recommended disclosure requirements will be relevant to consider again in Section 3.6.4 «Legal standing of listing rules» where the discussion leads to Recommendation S4.4.1 «Shareholders as beneficiaries of listing rules».


Содержание отчета

Executive summary
Executive Summary I Key Findings
Executive Summary II Summary of Recommendations
Executive Summary III Approach to the Study
Executive Summary IV Abridged Text of the Analysis

1 Introduction to the study and its purposes
1.1 Purpose of this Report
1.2 The development of CG in Hong Kong
1.2.1 Domestic drivers
1.2.2 Global drivers
1.3 Structure of this Report
1.3 Structure of this Report
1.3.1 Methodology
1.3.2 Analysis
1.3.3 Recommendations
1.4 Scope and limitations of this Report
1.5 Next steps

2 Methodology
2.1 Scope
2.1.1 CG concepts
2.1.2 CG Geographic reach
2.1.3 CG mechanisms
2.2 Work process
2.2.1 Data collection
2.2.2 Initial data organization
2.2.3 Oral evidence
2.2.4 Parity check
2.2.5 Analysis
2.2.6 recommendations

3 Discussion and analysis of jurisdictions studied
3.1 Overarching considerations
3.1.1 Thematic topics
3.1.2 Trends in regulating CG standards
3.1.3 The role of culture
3.1.4 The methodology of assessment
3.1.5 Cost-benefit considerations
3.1.6 Maintaining competitiveness
3.1.7 Effectiveness
3.2 Non-locally incorporated companies
3.2.1 Application of local laws and regulations
3.2.2 Cross border enforcement and cooperation
3.3 Information
3.3.1 Legal status of CG disclosures
3.3.2 Disclosure of listing rule compliance
3.3.3 Board evaluation
3.3.4 Audit committee
3.4 Involvement
3.4.1 Shareholder stewardship
3.4.2 Shareholder votes
3.4.3 Remuneration
3.4.4 Changes of control
3.5 Equality
3.5.1 Voting rights generally
3.5.2 Weighted voting rights
3.6 Accountability
3.6.1 Information disclosures generally
3.6.2 Listing rules
3.6.3 Board refreshment
3.6.4 Appointment of independent directors
3.7 Effectiveness
Part A - CG system design
3.7.1 Impact of regulatory design
3.7.2 Policy development agencies
3.7.3 Enforcement agencies
3.7.4 Audits of public companies
3.7.5 Duties of directors
3.7.6 Role of fiduciary law
Part B - Specific actions
3.7.7 Differentiation of CG requirements
3.7.8 Listing regime standards upon entry
Part C - Independent directors
3.7.9 Determination of independence
3.7.10 Requirements relating to INED performance
3.7.12 Empowerment of INEDs - controlling shareholders
Part D - Other items
3.7.13 Whistle-blowing
3.8 Coda

4 Recommendations
Introduction and approach to the recommendations
Part A - The board
4.1 Processes
4.2 Independent directors
4.3 CG standards
Part B - Enforcement
4.4 Shareholders
4.5 CG disclosures
4.6 Regulators
4.7 Ex ante mechanisms
Part C - Architecture and policy
4.8 Architecture
4.9 Policy
4.10 Summary tables

5 Concluding remarks
5.1 The Recommendations
5.2 The Hong Kong market

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