HKSI Paper 17 v1.0 Eng Full

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Important Note
Please be advised that the following sections of this Manual have been revised. For examinations
effective from 25 February 2022, examination questions will be based on these revisions (English
version only).
1. Topic 1 section 6.22 (the whole section 6.22 will be replaced by the following)
6.22 The SFC’s “Guidance Note on Cooperation with the SFC” further explains the SFC’s
approach to recognise and value intermediaries’ cooperation with SFC’s investigation and
enforcement proceedings. Cooperation may be recognised by the SFC in the form of reduced
sanctions. As a general principle, the earlier the cooperation is given by an intermediary and
recognised by the SFC, the higher the reduction of sanction may be. The SFC may recognise
cooperation by reducing up to 30% of the disciplinary sanctions imposed. The ways of
cooperating with the SFC include:
(a) voluntarily and promptly reporting any breaches or failing to the SFC;
(b) providing true and complete information regarding breaches or failings;
(c) acceptance of liability, such as taking a proactive and positive approach to bring the
disciplinary case to an early conclusion; and
(d) taking rectification measures, for instance, taking early and active steps to contain
breaches or failings and/or making full and prompt compensation to clients for their
losses.
2. Topic 3 section 6.6

6.6 In addition to the voting arrangements that apply under the applicable company law and the
offeree company’s constitutional documents, the Takeovers Code requires that the resolution
is subject to the following two conditions:
(a) the resolution must be approved by at least 75% of the votes attaching to disinterested
shares cast in person or by proxy at a duly convened meeting of the disinterested
shareholders; and
(b) the number of votes cast against the resolution must not exceed 10% of votes attaching
to all disinterested shares.
Note 1: The threshold under (a) above is determined as a percentage of votes actually cast by
disinterested shareholders, whereas the threshold under (b) above is determined by the total
number of disinterested shares, whether or not such disinterested shares are cast.
Furthermore, while under (a) above any votes of interested shareholders are not counted, the
requirement under (b) above does not prohibit interested shareholders from voting against the
resolution.
Note 2: The above 75% / 10% voting requirements are the same as required for approving the
delisting of the offeree company. This is discussed in section 7 below.
Note 3: “Disinterested shares” means shares in the offeree company other than those which
are owned by the offeror or persons acting in concert with it.

4.8 All documents must clearly and prominently identify on whose behalf they are being issued.
Announcements issued by listed issuers must additionally comply with the relevant
Paper 17 Version 1.0 i © Hong Kong Securities and Investment Institute

requirements of the Listing Rules. Where an announcement is issued by an unlisted offeree
company, it must be published in English and Chinese languages as a paid announcement in
a leading Hong Kong newspaperas a paid announcement in at least one leading English
language newspaper and one leading Chinese language newspaper. All documents published
in respect of unlisted offeree companies must be provided to the SFC in electronic format for
publication on the SFC’s website.

5.3 However, the Executive may consent to vary such prohibitions and will normally do so where:
(a) the new offer is recommended by the board of the offeree company and the offeror is
not, and is not acting in concert with, a director or substantial shareholder of the offeree
company, provided the previous offer has lapsed for more than three months;
Note 1: However, where the offeror was prevented from revising or extending its previous
offer as a result of a no increase statement or a no extension statement, consent would
not normally be granted within three months of the lapsing of the earlier offer.
Note 2: The Takeovers Code defines a substantial shareholder as a person who holds
10% or more of the voting rights of a company.
(b) the new offer is made after a third party has announced an offer; or
(c) the new offer follows the announcement by the offeree company of a whitewash
proposal.

1.5 Where a financial adviser is considering an appointment as an IFA, it will need to consider
whether it is able to satisfy the requirements for being independent. This will require a careful
consideration as to its own circumstances as well as those of its associatesother companies in
the same group as the financial adviser, particularly as to whether any actual, potential or
perceived conflict of interest may exist.

2.17 Following its appointment, a financial adviser will be presumed acting in concert with its
client under Class (5) (see Note 1 below). Financial advisers involved in an offer (whether
acting for the offeror or offeree company) will need to be alert to information that it or its
group companies (see Note 2 below)and all entities within the same group might issue in its
usual course of business, such as research reports to clients. Where any such material concerns
companies involved in the offer, the consent of the Executive is required prior to its release.
Following the commencement of an offer period, all entities within the same group as the
financial adviser should stop issuing research reports on the offeree company and, in the case
of a securities exchange offer, research reports on the offeror. Old research reports should no
longer be circulated and should be removed from the relevant websites (see Note 32 below).
Note 1: It will also need to consider any presumptions arising under Class (2), for example,
any companies that are controlled by directors of the financial adviser. See Topic 3 section
2.7.
Note 2: That is, persons controlling, controlled by or under the same control as the adviser
(except in the capacity of an exempt principal trader or exempt fund manager).
Note 32: The Executive would normally regard research reports issued within six months prior
to the offer period as being “live”
Paper 17 Version 1.0 ii © Hong Kong Securities and Investment Institute

3.1 During an offer period, dealings by certain persons in the relevant securities of the offeree
company are required to disclose their dealings. Where the offer is a securities exchange offer,
disclosure of dealings in the relevant securities of an offeror will also be required.
Note: “Relevant securities” means (i) securities which are being offered for or which that
carry voting rights, (ii) the equity share capital of the offeree company, (iii) securities
convertible into either of the foregoing, and (iv) options and derivatives in respect of any of
the foregoing and,. Iin the case of a securities exchange offer, additionallyit means (vi) the
securities being offered as consideration (of the offeror or another company whose securities
are offered as consideration), (vi) securities (of the offeror or another company whose
securities are offered as consideration) that carry the same or substantially the same rights
as the securities to be issued as consideration for the offer, (vii) securities convertible into the
foregoing, and (viii) options and derivatives in respect of either of the foregoing.
Paper 17 Version 1.0 iii © Hong Kong Securities and Investment Institute
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STUDY MANUAL FOR
PAPER 17
REGULATION OF TAKEOVERS AND
SHARE BUY-BACKS
of
the Licensing Examination
for Securities and Futures Intermediaries
First Edition, November 2021

Published by:
Hong Kong Securities and Investment Institute

First edition © Hong Kong Securities and Investment Institute 2021
17/F, Cambridge House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong
Website: www.hksi.org
Hotline: (852) 3120-6100
Email: info@hksi.org
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without the prior permission of the copyright owner.
ISBN: 978-988-76081-0-3
Disclaimer
This manual is for educational purpose only and does not form any legal and/or expert opinion or
advice in whatsoever form by the Hong Kong Securities and Investment Institute (“HKSI Institute”)
and/or its consultants and shall not be so relied upon. While every effort has been made to ensure its
accuracy, the HKSI Institute and/or its consultants give no warranties and/or representations in
relation to any materials in and/or contents of this manual. Under no circumstances shall the HKSI
Institute or its consultants be liable for any direct or indirect or implied loss or damage caused or
alleged to be caused by reliance on any materials in and/or contents and/or omissions of this manual.
Without prejudice to the generality of the foregoing, the HKSI Institute and/or its consultants shall
have no such liability regarding the fitness for purpose, quality or merchantability of the manual,
whether express or implied, statutory or otherwise.

About the Licensing Examination Paper 17
The Licensing Examination for Securities and Futures Intermediaries (“LE”) has been designed to
accord with the single licensing regime under the Securities and Futures Ordinance. LE Paper 17 has
been approved by the Academic and Accreditation Advisory Committee of the Securities and Futures
Commission (“SFC”) for the purpose of a special examination for meeting the SFC’s enhanced
competence requirements for licensed persons of Type 6 (advising on corporate finance) regulated
activity intending to engage in or advise on matters or transactions subject to the Codes on Takeovers
and Mergers and Share Buy-backs (“Codes”).
The examination aims to test candidates’ understanding of the work of a financial adviser (“TC
Adviser”) undertaking activities on Codes related matters or transactions (“TC Transactions”), in
particular the legal and regulatory requirements governing the conduct of TC Transactions in Hong
Kong, as well as their general understanding of related matters with which practitioners should
reasonably be expected to be familiar, including the practice and ethics of undertaking the work of a
TC Adviser.
The examination consists of 40 multiple-choice questions to be completed within 60 minutes. The
pass mark is 70%.
Paper 17 Version 1.0 iii © Hong Kong Securities and Investment Institute
Examination syllabus
Topic 1: General framework

1 Background to takeovers and share buy-backs in Hong Kong
2 The role of the TC Adviser
3 Licensing and registration requirements
4 Key laws and regulations
5 Regulatory codes of conduct issued by the Securities and Futures Commission (“SFC”)
6 SFC’s powers
Topic 2: Scope and application of the Codes on Takeovers and Mergers and Share Buy-backs
1 Application
2 Ten General Principles
3 Administration
4 Enforcement
Topic 3: Takeovers structures

1 Different arrangements and approaches
2 Acting in concert
3 General offers
4 Voluntary general offers
5 Mandatory general offers
6 Schemes of arrangement
7 Privatisation
8 The offer timetable
Topic 4: Obligations of the offeror and the offeree company

1 General considerations
2 Prior to an offer period
(1) Offeror
(2) Offeree company
3 At the commencement of an offer period
(1) Offeror
(2) Offeree company
4 Announcements obligations under the Code on Takeovers and Mergers
(1) Prior to an offer
(2) At the commencement of an offer period
(3) On the closing date
Paper 17 Version 1.0 iv © Hong Kong Securities and Investment Institute

5 Following the end of an offer period
Topic 5: Obligations of financial advisers

1 Preparing for an engagement
2 Obligations common to all financial advisers
3 Requirements relating to financial information
4 Financial adviser to the offeror
5 Independent financial advisers
Topic 6: Other considerations

1 Dealings in securities of the offeree company
2 Dealings in securities of the offeror
3 Disclosure of dealings
4 Special deals and other arrangements
Topic 7: Share buy-backs

1 Introduction
2 Share buy-backs by general offer
3 Off-market share buy-backs
4 On-market share buy-backs
5 Exempt share buy-backs
Topic 8: Case studies

1 Executive Director of the Corporate Finance Division of the Securities and Futures Commission
2 Takeovers and Mergers Panel
Paper 17 Version 1.0 v © Hong Kong Securities and Investment Institute

About this study manual
This manual has been designed to provide candidates with the information they need for the
examination. It is estimated that this study manual will require a total of 70-80 hours of study time
for all eight Topics, although candidates may need slightly less or more depending on their work
experience and background.
Each topic in the manual consists of an overview, the expected learning outcomes, the study text itself
and revision questions and answers. Candidates are advised to use the “Learning Outcomes” section
of each Topic as an indication of the way in which the topic material is to be studied. It indicates the
key areas of knowledge which they are expected to master and on which examination questions will
be based. Revision questions are included in each Topic to help reinforce candidates’ understanding
of the material. They may be tested on any aspect of the study manual unless it is specifically ruled
out in the manual.
Notice that words carrying a masculine meaning are to be taken to include the feminine, and vice
versa.
Timeliness and Updates of this Study Manual

Every effort has been made to ensure it is accurate at the time of publication. Given that the relevant
legal and regulatory requirements and market practices covered by the syllabus of the Paper 17
examination may be revised, amended or updated from time to time, no express or implied warranty
is given by the HKSI Institute that the content of this manual is up-to-date or accurately reflects the
latest position. For the avoidance of doubt, this manual does not amount to or constitute any legal
advice given by the HKSI Institute and shall not be so relied upon. Candidates are reminded to keep
abreast of any updates or amendments of the relevant legal and regulatory requirements and market
practices by making reference to the relevant information published by the relevant authorities.
Updates are produced at appropriate intervals to reflect changes in applicable laws, rules, regulations,
codes and market practices in Hong Kong. Once an update is released, an announcement will be made
on the HKSI Institute website and the latest version of the Study Manual will be available for
candidates to download via the HKSI Institute Online Portal. Candidates are advised to visit the HKSI
Institute website and log on to the HKSI Institute Online Portal regularly during their studies to ensure
that they have the latest version of the Study Manual prior to taking the examination. This Paper 17
Study Manual covers relevant rules and regulations up to 17 November 2021.
This Study Manual and the relevant LE Paper

This manual and its subsequent updates are the only source of materials for the setting of the
questions, candidates therefore need to study only the manual and updates to prepare for the
examination. For the purpose of the examination, however, unless updates on the relevant part of the
manual are provided by the HKSI Institute, questions will only be based on materials in the manual
that are still current.
Paper 17 Version 1.0 vi © Hong Kong Securities and Investment Institute

Acknowledgements
The HKSI Institute would like to express our gratitude to the following people for their involvement,
suggestions and support in the development of the study manual:
Consultant
Mr Syren JOHNSTONE of the University of Hong Kong
Working Group Members

Mr Benny CHUNG
Mr Allen TZE
HKSI Institute Project Team (Development Team, Curriculum & Examinations Department)
Mr Bernard HO (Director of Curriculum & Examinations)
Miss Katherine CHAN (Senior Manager)
Miss Phoebe LEUNG (Manager)
Mr Sunny SIU
Mr Nelson CHAN
Paper 17 Version 1.0 vii © Hong Kong Securities and Investment Institute
List of useful websites
 Hong Kong e-Legislation

www.elegislation.gov.hk/
 Hong Kong Exchanges and Clearing Limited

www.hkex.com.hk/
 Hong Kong Legal Information Institute: Hong Kong Ordinances

www.hklii.hk/eng/hk/legis/ord/
 Hong Kong Monetary Authority

www.hkma.gov.hk/
 Hong Kong Securities and Investment Institute

www.hksi.org/
 International Organization of Securities Commissions

www.iosco.org/
 Securities and Futures Commission

www.sfc.hk/
Paper 17 Version 1.0 viii © Hong Kong Securities and Investment Institute
Topic 1: General framework
Table of contents
Topic overview 1
Learning outcomes 1
1 Background to takeovers and share buy-backs in Hong Kong 2
Introduction to the Codes on Takeovers and Mergers and Share Buy-backs 2
2 The role of the TC Adviser 5
Financial advisers as a gateway mechanism for market integrity 5
Dealings with the Executive Director of the Corporate Finance Division of the Securities and
Futures Commission 5
3 Licensing and registration requirements 7
Additional competence requirements for corporations and individuals which undertake
activities in connection with matters regulated by the Codes on Takeovers and Mergers and
Share Buy-backs 7
4 Key laws and regulations 11
Securities and Futures Ordinance 11
Companies (Winding Up and Miscellaneous Provisions) Ordinance 14
Companies Ordinance 14
Other ordinances 15
Other legal considerations 15
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited 15
5 Regulatory codes of conduct issued by the Securities and Futures Commission (“SFC”) 18
Conduct and controls 18
Corporate Finance Adviser Code of Conduct 18
6 SFC’s powers 21
Supervision and investigation 21
Investigations of possible offences, etc. 21
Offences 22
Discipline 22
SFC Disciplinary Fining Guidelines 23
Cooperation with the SFC 23
Public register 24
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Topic overview
The opening two sections of this Topic introduce the context of how the market in takeovers, mergers
and share-buy backs is regulated in Hong Kong. The Codes on Takeovers and Mergers and Share
Buy-backs (“Codes”), which will be discussed in detail in the Topics that follow, are briefly
introduced. Undertaking activities in connection with matters or transactions falling within the ambit
of the Codes (“TC Transactions”) will require the involvement of a financial adviser (“TC Adviser”).
The TC Adviser will need to properly understand its role in the regulatory framework and comply
with the requisite minimum standards of conduct. This includes its dealings with the Executive
Director of the Corporate Finance Division of the Securities and Futures Commission (“Executive”).
Section 3 then discusses the licensing, registration and competence requirements that responsible
officers (“ROs”) and other licensed representatives engaged in TC Adviser work must satisfy.
The next two sections of this Topic introduce the most relevant laws and regulations to TC Adviser
work. Section 4 discusses the provisions of key ordinances that a financial adviser should be familiar
with as well as some relevant provisions of the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited (“Listing Rules”). Section 5 discusses two important
regulatory codes of conduct that a financial adviser must at all times have regard to, namely, the Code
of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission
(“Code of Conduct”) and the Corporate Finance Adviser Code of Conduct (“CFA Code”).
The final section 6 introduces the various powers of the Securities and Futures Commission (“SFC”)
to supervise and inspect, as well as the types of disciplinary sanctions it is able to impose on
wrongdoers. The section concludes with the approach taken by the SFC where intermediaries duly
cooperate in disciplinary proceedings.
Learning outcomes
At the end of this Topic, candidates should:
(a) identify the codes that govern the execution of TC Transactions;
(b) understand the overall structure of the Codes and the different matters that each part of the Codes
is concerned with;
(c) understand the primary purposes of the Code on Takeovers and Mergers (“Takeovers Code”)
and the Code on Share Buy-backs (“Share Buy-backs Code”);
(d) explain the standing of the Codes in Hong Kong’s regulatory framework;
(e) explain the role of financial advisers in the integrity of the market in relation to TC Transactions;
(f) state the other laws and regulations that may affect the conduct of a TC Transaction;
(g) describe the licensing and registration requirements that apply to TC Advisers;
(h) describe the competence requirements that apply to TC Advisers; and
(i) understand the relevance of the SFC’s powers under the Securities and Futures Ordinance
(“SFO”) to licence, supervise, investigate, and impose disciplinary sanctions.
Paper 17 Version 1.0 1- 1 © Hong Kong Securities and Investment Institute

1 Background to takeovers and share buy-backs in Hong
Kong
1.1 Both the Organisation for Economic Co-operation and Development (“OECD”) and the
International Organization of Securities Commissions (“IOSCO”) have indicated that
effective securities regulation must address the rights and equitable treatment of shareholders
in takeover bids and other transactions intended to effect a change in control. This could
include share buy-backs conducted by the issuer as well as offers made by third parties.
1.2 While commercial objectives may vary considerably, at the core of any takeover or merger is
an intention to consolidate or obtain control of another company. Share buy-backs are
undertaken for a variety of commercial reasons, such as management perceiving its stock is
undervalued, ownership consolidation, and distributing capital to shareholders. Such
activities are a core element of any capital market. As an international financial market, it is
essential to the vibrancy of Hong Kong’s market that commercial entities may engage in such
activities in an orderly manner having regard to the interests of various stakeholders in the
market. While all sophisticated markets regulate such activities, this may be accomplished via
legislative backing (such as the United Kingdom (“UK”)), the application of fiduciary law
(such as the United States), or by non-statutory regulation, as is the case in Hong Kong.
1.3 Historically, Hong Kong’s approach to takeovers and mergers and share buy-backs is derived
from the approach taken in the UK. Both approaches are primarily concerned with the
treatment of shareholders and the preservation of an orderly market in takeovers, mergers and
share buy-backs. Both also utilise a combination of oversight by a statutory regulatory agency
(the SFC in Hong Kong and the Financial Conduct Authority in the UK) and a panel of market
practitioners.
1.4 However, since the introduction of separate codes regulating takeovers and share repurchases
in Hong Kong (in 1975 and 1991 respectively), the approaches in Hong Kong and the UK
have evolved in different ways in their detail. In particular, whereas the UK Companies Act
2006 gave statutory backing to the UK’s Takeovers Code and the powers of its takeovers
panel, and regulates share buy-backs, the approach taken in Hong Kong is to regulate these
activities on a non-statutory basis. The SFC has previously examined whether the Codes
should also be given statutory force and concluded that the non-statutory nature of the Codes
has enabled the SFC to work more flexibly and responsively with those affected by the Codes
and has in general led to an efficient processing of transactions. The SFC also took the view
that those involved in disciplinary proceedings before the Takeovers and Mergers Panel
(“Panel”) took the threat of sanctions seriously.
Note: The Codes were originally known as the Codes on Takeovers and Mergers and Share
Repurchases.
1.5 The Codes are today regarded as one of the centrepieces of Hong Kong’s regulatory
framework and it is one that is widely respected by the market. This has supported an active
market in Hong Kong that requires the SFC to consider, on a regular basis, takeovers-related
and share buy-backs cases. This includes privatisations, voluntary and mandatory general
offers, off-market and general-offer share buy-backs, as well as considering whitewash
applications and ruling applications.
1.6 Together with this activity, there is also the eventuality that the Codes may have been
breached, leading to the Executive or the Panel exercising their disciplinary powers.
Introduction to the Codes on Takeovers and Mergers and Share

Buy-backs
1.7 The Codes have been issued by the SFC in consultation with the Panel.
1.8 The primary purpose of the Codes is to afford fair treatment for shareholders affected by

takeovers, mergers and share buy-backs. The Codes facilitate this by:
(a) requiring equal treatment of shareholders; and
(b) mandating disclosure of timely and adequate information to ensure a fair and informed
market that will enable shareholders to make an informed decision as to the merits of an
offer.
The Codes also provide an orderly framework for takeovers, mergers and share buy-backs.
1.9 The Codes are comprised of six parts, each serving a distinct purpose:
(a) the Introduction establishes the framework of the Codes including its overarching
purpose, its scope of application and how it is to be administered and enforced (discussed
in Topic 2);
(b) the Definitions section comes next and contains important clarifications of how certain
terms are to be understood for the purposes of the Codes;
(c) this is followed by ten General Principles that express high level expectations of the
conduct required in relation to TC Transactions (discussed in Topic 2);
(d) the next part sets out the Takeovers Code, which is primarily concerned with offers for,
and changes of control of, offeree companies subject to the Codes (discussed in Topics
3 and 4);
(e) the penultimate part sets out the Share Buy-backs Code, which applies to share buy-
backs of companies subject to the Codes (discussed in Topic 7); and
Note: Share buy-backs by general offer will be considered to be offers, in which case
both the Takeovers Code and the Share Buy-backs Code will apply. See Topic 7.
(f) the final part of the Codes comprises schedules that set out guidance notes and other
requirements related to specific matters arising under the Codes.
1.10 The financial or commercial merits of any takeover, merger or share buy-back, being matters
for the offeror, the offeree company and its shareholders, are not dealt with by the Codes.
1.11 Persons who wish to take advantage of the securities markets in Hong Kong are expected to
conduct themselves in accordance with the Codes. If they fail to do so, the facilities of the
markets may be withheld from them. Topic 2 discusses the persons who are subject to the
Codes as well as the enforcement mechanisms provided for in the Codes.
1.12 The Executive, supported by the SFC’s Corporate Finance Division, is responsible for the
day-to-day administration of the Codes. The Executive normally makes first-instance
decisions in relation to all issues arising under the Codes, although it will only decide
disciplinary matters if the affected party consents. Matters not resolved by the Executive may
be referred to the Panel. The roles of the Executive and the Panel are discussed in Topic 2
where the role of the Takeovers Appeal Committee (“TAC”) is introduced.

Revision questions:
Question 1A: Since the Takeovers Code is derived from the approach taken in the UK, is it
essentially the same as the approach in the UK?
Answer 1A: No, the approach in Hong Kong and the UK have evolved in different ways, including
that, unlike the situation in the UK, the Codes do not have statutory backing.
Question 1B: What is the primary purpose of the Codes as regards shareholders affected by a share
buy-back?
Answer 1B: To ensure shareholders are treated fairly. See further section 1.8 above.
Question 1C: Is the Takeovers Code concerned with the commercial merits of a transaction?
Answer 1C: No, this is not a purpose of the Takeovers Code.
Question 1D: Who is responsible for the day-to-day administration of the Codes?
Answer 1D: The Executive supported by the SFC’s Corporate Finance Division.

2 The role of the TC Adviser
Financial advisers as a gateway mechanism for market integrity
2.1 Financial advisers play a unique role in a TC Transaction. They are an important part of the
gateway mechanism that serves to protect the integrity of the Hong Kong market and the
interests of its various stakeholders, in particular, the shareholders of companies involved in
a relevant transaction. This requires them to be familiar with the provisions of the Codes in
order to better assist their client to understand how the Codes impact on commercial decision
making and charting a course of action that is consistent with the regulatory requirements and,
more broadly, the expectations of the market.
2.2 However, in view of concerns over unsatisfactory work and practices, additional competence
requirements have been introduced, with effect from 1 January 2022, to upgrade the
competency of market practitioners advising on TC Transactions. Enhanced competency
encompasses regulatory knowledge, ethical standards and professionalism. For example, it is
unacceptable, and a failure to discharge its own duties and roles, for a financial adviser
advising on TC Transactions to either not fully appreciate the requirements of the Codes or
rely excessively on its legal advisers.
2.3 Under the TC Adviser regime, a corporation licensed or registered for Type 6 regulated
activity (advising on corporate finance) wishing to undertake activities in connection with a
TC Transaction must (i) satisfy additional competence requirements and (ii) not be subject to
a licensing condition that prohibits it from undertaking a role as a TC Adviser. This serves to
bring greater emphasis on the TC Adviser’s role as an important gateway mechanism intended
to ensure the integrity of the Hong Kong market. The additional competence requirements are
discussed in section 3 below.
Note: The Codes continue to refer to “financial adviser”, as does this Manual. However, to
undertake such a role in relation to the Codes, an intermediary must be competent and
permitted to act as a TC Adviser.
2.4 Personnel involved in TC Adviser work are expected to uphold high standards of
professionalism in their dealings, not only with their clients, but also with the agencies
charged with oversight of the takeovers and share buy-backs market, namely, the Executive
and the Panel. As such, they are subject to regulatory requirements above and beyond those
that apply to financial advisers not engaged in TC Adviser work. This includes, in addition to
the requirements applying to them under the Code of Conduct and the CFA Code, an in-depth
understanding of:
(a) the Codes;
(b) Practice Notes and decisions and statements of the Executive, Panel and TAC; and
(c) the Additional competence requirements for corporations and individuals which
undertake activities in connection with matters regulated by the Codes on Takeovers and
Mergers and Share Buy-backs (“TC Adviser Guidelines”), which form part of the
Guidelines on Competence issued by the SFC.
2.5 To perform such a role and properly discharge their responsibilities, the TC Adviser must
possess the necessary competence and professional expertise as well as adequate resources to
devote to the transaction or matter. This requires the TC Adviser to assess itself before
accepting a mandate to advise on a TC Transaction, as discussed further in Topic 5.
Dealings with the Executive Director of the Corporate Finance

Division of the Securities and Futures Commission
2.6 While financial advisers are expected to be familiar with the requirements of the Codes,
particular note should be made of the requirement that any person dealing with the Executive

must be open and co-operative, and act honestly and in utmost good faith. All information
relevant to the matter being considered must be provided, and such information should be
true, accurate and complete. All reasonable care must be taken to correct or update any
information that has been previously provided. This requires financial advisers to exercise the
requisite degree of professionalism. These requirements reflect General Principle 10 of the
Codes (see Topic 2 section 2).
Note: The General Principles are discussed in Topic 2 section 2.
2.7 Examples of unprofessional conduct include the following:
(a) contacting multiple officers of the Corporate Finance Division of the SFC within a short
time-fame on a no-name basis, effectively abusing the consultation process;
(b) expecting the Executive to answer hypothetical questions or give provisional rulings;
and
(c) addressing case-specific questions on a no-name basis to officers not assigned to the
case.
2.8 Such conduct amounts to an abuse of the consultation process, and where such acts are
engaged in, the Executive may report the matter to regulatory authorities or professional
bodies where such conduct may have breached the applicable rules of conduct.
Revision questions:
Question 2A: Can any Type 6 licensed person be engaged in advising a client on a TC Transaction?
Answer 2A: No, a Type 6 licensed person must additionally be approved to undertake TC Adviser
work by satisfying certain additional competence requirements.
Question 2B: What are the purposes of the additional competence requirements that apply to TC
Advisers?
Answer 2B: To ensure that TC Advisers possess the necessary regulatory knowledge, ethical
standards and professionalism to engage in TC Adviser work.
Question 2C: Name two other codes of conduct that every TC Adviser must comply with when
undertaking an engagement in a TC Transaction.
Answer 2C: The Code of Conduct and the CFA Code.
Question 2D: Give an example of unprofessional conduct for a TC Adviser.
Answer 2D: Contacting multiple officers of the Corporate Finance Division of the SFC within a
short timeframe to raise the same issue.

3 Licensing and registration requirements
3.1 As already mentioned in section 2.3 above, an intermediary wishing to undertake TC Adviser
work must be (i) licensed or registered to engage in Type 6 regulated activity (advising on
corporate finance) and (ii) not subject to a licensing condition which prohibits it from
engaging in TC Adviser work. This section deals with the eligibility requirements for
engaging in TC Adviser work, which are set out in the TC Adviser Guidelines.
3.2 Although not having the status of laws, the SFC’s codes are nevertheless of considerable
importance, and compliance with them should be regarded as a necessary requirement in
undertaking TC Adviser work. The SFC will regard any breach of any of the SFC’s codes (or
the Listing Rules requirements) as casting doubts on the fitness and properness of the TC
Adviser.
3.3 The SFO requires all licensed or registered persons to be fit and proper. The TC Adviser
Guidelines set out the specific competence requirements for persons licensed or registered for
Type 6 regulated activity who wish to engage in TC Adviser work. The requirements are
additional to those set out in the Fit and Proper Guidelines applying to all licensed and
registered persons, and cover the TC Adviser firm itself, persons within the firm acting as
Principals or representatives/relevant individuals of the firm, and the requirements for
continuous professional training (“CPT”).
Additional competence requirements for corporations and

individuals which undertake activities in connection with matters
regulated by the Codes on Takeovers and Mergers and Share Buy-
backs
3.4 It is the responsibility of the TC Adviser and its management to ensure that staff undertaking
TC Adviser work are appropriately licensed or registered, are competent and meet the criteria
set out in the TC Adviser Guidelines.
Note 1: In this Topic, and generally in this Manual, the term “management” of a TC Adviser
refers to a TC Adviser’s board of directors, managing director, chief executive officer, ROs,
executive officers (“EOs”) and other senior management personnel (see Note 2 below). This
follows the approach taken by the SFC in its codes.
Note 2: The SFC has made it clear in its Circular of 16 December 2016 that the senior
management of a licensed corporation will include directors, ROs, and persons designated
as “Managers-In-Charge of Core Functions” (“MICs”). There are eight core functions
(covering front, middle and back office) and each of these will need at least one designated
MIC. Those who have overall management oversight of the licensed corporations and those
in charge of key business line functions must also seek and obtain the SFC’s approval as ROs.
Undertaking TC Adviser work

3.5 The primary obligations and duties of a TC Adviser to its client cannot be delegated.
Note: This means that while a TC Adviser may engage, for example, a legal adviser, to assist
it with its task, the TC Adviser ultimately remains responsible for the quality of its work.
3.6 A financial adviser should only undertake TC Adviser work where it has adequate resources
and possesses internal procedures and expertise necessary to ensure full compliance with the
Codes and otherwise properly discharge its obligations. The allocation of work in relation to
a TC Transaction must be to personnel (the “Transaction Team”) who (i) have satisfied the
eligibility requirements (see sections 3.12 to 3.20 below) and (ii) are sufficiently competent
and professional. The Transaction Team should be subject to the supervision of a RO (in the
case of a licensed corporation) or EO (in the case of a registered institution).

Note: ROs and EOs are referred to in the TC Adviser Guidelines and herein as “TCROs”.
3.7 A TC Adviser is expected to have at least one duly approved (see section 3.9 below) TCRO,
who is expected to be in a position to devote sufficient time and effort to each TC Transaction
the TC Adviser is involved in. Each Transaction Team should be headed up by one or more
TCROs, and where there is more than one TCRO, they are jointly and severally responsible
for performing their roles as TCROs.
Note: Where a TC Adviser does not have a TCRO, the SFC may impose a “non-sole capacity”
licensing condition that it may only act in connection with a TC Transaction where it does so
with another TC Adviser that is not subject to such a condition.
3.8 It is essential that TC Advisers maintain effective reporting lines and communications with
staff assigned to the Transaction Team. This should incorporate other members of the TC
Adviser’s management. Among the internal procedures that should be put in place, a TC
Adviser should have designated staff responsible for compliance with the dealing disclosure
requirements under the Codes.
Note: The dealing disclosure requirements are discussed in Topic 6 section 3.
The role of the TCRO

3.9 A TCRO is expected to be fully conversant with the requirements of the Codes. As a core role
of the TCRO is to supervise the Transaction Team assigned to a TC Transaction, the TCRO
should be in a position to ensure the client is properly advised and to promptly respond to any
queries raised by relevant regulatory agencies, including the Executive, the SFC and The
Stock Exchange of Hong Kong Limited (“SEHK”).
3.10 The work undertaken by the Transaction Team will inevitably give rise to issues that need to
be resolved. The TCRO should be involved in the making of key decisions having first had
due regard to the risks involved. The TCRO must assume responsibility for the measures taken
to address the attendant risks.
3.11 Particular matters identified by the TC Adviser Guidelines that would typically concern the
TCRO include the following:
(a) due diligence concerns, such as the offeror’s financial resources, the existence of concert
party, and dealings by associates of the offeror and offeree companies before and during
an offer period;
Note: The concepts of “concert party” and “associates” are discussed in Topic 3 section
2 and Topic 4 section 1.3, respectively.
(b) the TC Adviser’s own internal compliance controls, such as restrictions on the firm’s
other activities, including dealings and disclosures, that may need to be handled by the
firm’s compliance team;
(c) ensuring all relevant disclosure requirements are met;
(d) ensuring confidentiality is properly maintained; and
(e) providing full co-operation to the Executive at all times (see section 2.6 above).
Note: Such list is not exhaustive and a TCRO must take into account the particular risks
arising in relation to each TC Transaction they are involved in.
Eligibility criteria
3.12 The following sections set out the eligibility requirements for staff of a TC Adviser wishing
to engage in TC Transactions. Applications to the SFC in this regard are subject to the SFO
which imposes criminal liability for making false or misleading representations to the SFC.
3.13 It is important for the TC Adviser to be able to demonstrate to the SFC its compliance with

these requirements upon request. Accordingly, appropriate documentation and records should
be kept for this purpose.
TCRO
3.14 A TCRO must be appointed as an RO for a corporation licensed or registered to engage in
Type 6 regulated activity (advising on corporate finance).
3.15 In addition, a TCRO must satisfy one of the following eligibility criteria:
(a) Option 1 – (i) has acquired “corporate finance experience” in respect of companies listed
on the SEHK (Main Board or GEM) over a period of at least five continuous years
preceding his appointment as a TCRO, and (ii) has been “substantially involved” in
advising an offeror or offeree company in at least two “completed transactions” within
the immediately preceding five years; or
(b) Option 2 – has been a member of the Panel for two years within the last five years
preceding the appointment as a TCRO.
3.16 The three phrases referred to in the Option 1 route should be understood as follows:
(a) “corporate finance experience” means experience gained from initial public offerings,
notifiable or connected transactions governed by the Listing Rules, rights issues or open
offers by a listed company pursuant to the Listing Rules, takeovers and share buy-backs
subject to the Codes, or other significant transactions or equity fund raising exercises;
(b) “substantially involved” means taking the lead role in supervision and execution
throughout the duration of the transaction; and
Note 1: The SFC will take into account a number of factors including, for example,
leading and supervising due diligence, responsibility for key decisions, signing off on
major documentation such as submissions to the Executive, and whether the individual
had a leading role in advising the client on matters such as transaction structure and
the offer timetable.
Note 2: Where the individual has simply relied on the advice of external legal counsel,
this would not amount to substantially involved.
(c) “completed TC transaction” means a TC Transaction in which an offer document,
offeree company’s board circular, whitewash circular, share buy-back offer document or
off-market share buy-back circular was issued.
Note: Engagement as an independent financial adviser would not be considered as being
involved in a completed TC Transaction.
3.17 Persons who have ceased to act as a TCRO for a period of more than three years will need to
demonstrate they satisfy the eligibility criteria irrespective of their standing as an RO.
Licensed representative
3.18 Type 6 licensed representatives (other than TCROs) must, unless exempt, pass Paper 17 of
the Licensing Examination for Securities and Futures Intermediaries administered by the
Hong Kong Securities and Investment Institute (“LE Paper 17”) not more than three years
prior to and not later than six months after the date of their first engagement as a member of
a Transaction Team on a TC Transaction.
Note: As the TC Adviser regime is effective as of 1 January 2022, non-exempt licensed
representatives who have not passed the LE Paper 17 prior to 1 July 2022 are prohibited
from engaging in any TC Transaction work until they have passed the examination.
3.19 A licensed representative will be exempt from the foregoing requirement if they have engaged
in TC Transaction work as Type 6 (advising on corporate finance) licensed representative in
at least one completed TC Transaction throughout the duration of that transaction within the

three years preceding the commencement of the new TC Adviser regime (i.e. 1 January 2022).
3.20 Individuals who have either passed the LE Paper 17 or are exempt but who subsequently cease
to be licensed for Type 6 (advising on corporate finance) regulated activity for more than three
years will need to take the LE Paper 17 again.
CPT
3.21 A TC Adviser must ensure that adequate training is provided both initially and on an ongoing
basis. Such training should be sufficient to ensure compliance with the TC Adviser’s
operational and internal control policies and procedures, as well as all applicable legal and
regulatory requirements.
3.22 Training should be relevant to the skills required by TCROs and licensed representatives to
carry out their respective roles in relation to TC Adviser work. Such training should constitute
at least 2.5 CPT hours per annum.
Revision questions:
Question 3A: Can a TC Adviser delegate its primary duties and obligations to a client to other
persons?
Answer 3A: No, these remain with the TC Adviser at all times.
Question 3B: What is a key role of a TCRO?
Answer 3B: A TCRO should be fully conversant with the requirements of the Codes and be in a
position to supervise the Transaction Team and ensure the client is properly advised,
including being involved in the making of key decisions.
Question 3C: What are the eligibility criteria for a TCRO?
Answer 3C: See sections 3.15 to 3.17 above.
Question 3D: Does a licensed representative need to have engaged in TC Transaction work to be
eligible to undertake TC Adviser work?
Answer 3D: No, prior experience is one route but another is passing LE Paper 17. See sections
3.18 to 3.20 above.
Paper 17 Version 1.0 1 - 10 © Hong Kong Securities and Investment Institute

4 Key laws and regulations
4.1 In addition to the Codes, financial advisers must also ensure that their client complies with
various other laws and regulations, including the SFO, the Companies (Winding Up and
Miscellaneous Provisions) Ordinance (“CWUMPO”), the Companies Ordinance (“CO”) as
well as other ordinances. Where a party to a transaction is incorporated outside of Hong Kong,
the laws of its place of incorporation may also come into play and will need to be considered.
4.2 The Listing Rules must also be considered as it will normally be the case that the offeree
company is listed on the SEHK. Where the offeree company has a dual listing, additional
considerations apply, which are discussed in Topic 2. Offerors that are listed on the SEHK
will need to note the requirements imposed on them by the Listing Rules. Nevertheless,
offerors that are not listed on the SEHK will also need to have regard to the Listing Rules
insofar as requirements imposed on the offeree company may have an impact on the progress
of the TC Transaction.
4.3 Some of the main points that commonly arise in connection with TC Transactions are
discussed below.
Securities and Futures Ordinance

Advising on corporate finance
4.4 A TC Adviser undertaking a TC Transaction assignment will be engaged in the regulated
activity of advising on corporate finance (Type 6 regulated activity) and accordingly will need
to be appropriately licensed or registered. The SFO defines this activity as giving advice:
(a) about compliance with or in respect of the Listing Rules;
(b) about compliance with or in respect of the Takeovers Code or the Share Buy-backs Code;
(c) about any offer to dispose of or acquire securities to or from the public (including
advising holders of such securities concerning acceptance of the offers); or
(d) to a listed corporation or public company (or its subsidiary, officers or shareholders)
about corporate restructuring in respect of securities.
4.5 A TC Adviser holding a Type 6 licence or registration will additionally need to be permitted
to engage in TC Adviser work. The licensing and registration requirements for TC Advisers
are discussed in section 3 above.
Provision of false or misleading information (s. 384, SFO)

4.6 Any statements or information provided to the SFC or the SEHK by TC Advisers in
connection with a TC Transaction that are false or misleading in a material particular
constitute an offence under s. 384, SFO and are punishable by a fine and/or imprisonment.
They may additionally result in the SFC calling into question the TC Advisers’ fitness and
properness to act as a licensed corporation or registered institution. Accordingly, due care and
attention must be given to the accuracy and completeness of any such statements or
information provided. In this context, a very high standard is expected.
Market misconduct (Parts XIII and XIV, SFO)

4.7 The SFO defines six types of market misconduct (see section 4.13 below) that may lead to
either administrative proceedings before the Market Misconduct Tribunal (“MMT”) (Part
XIII, SFO), or criminal proceedings conducted before a court of law (Part XIV, SFO).
4.8 Market misconduct may be pursued under either one of these routes. The choice of which
route depends on a number of factors including the nature of the wrongdoing and the strength
of evidence. However, once proceedings have been commenced under one of these routes, no
proceedings may be commenced under the other route in respect of the same misconduct, i.e.

there is no double jeopardy, nor can the chosen route subsequently be changed.
4.9 Penalties that may be imposed by a court of law include a fine of up to HK$10 million and/or
imprisonment for up to ten years.
4.10 The penalties that may be imposed by the MMT include:
(a) disqualifying a person from holding office as a director, liquidator or receiver or from
taking part in the management of a corporation for up to five years;
(b) prohibiting a person from investing or trading in Hong Kong markets for up to five years
(a “cold shoulder order”);
(c) ordering a person to pay reasonable costs and expenses incurred by the Government and
the SFC; and
(d) ordering a person to pay to the Government any profit gained or loss avoided, plus
compound interest.
4.11 In addition to the foregoing, market misconduct may also result in liability to pay civil
damages to any person who has suffered pecuniary loss as a result of the market misconduct.
4.12 Officers of a corporation (which includes ROs) are required to take all reasonable measures
to ensure proper safeguards against the corporation engaging in market misconduct. Where a
corporation has committed an act of market misconduct, an officer may also be liable to the
same extent if (i) he has aided, abetted, counselled or procured the misconduct, or (ii) the
misconduct took place with his consent or is attributable to his recklessness.
4.13 The types of market misconduct are:
(a) insider dealing;
(b) disclosure of false or misleading information inducing transactions;
(c) stock market manipulation;
(d) false trading;
(e) price rigging; and
(f) disclosure of information about prohibited transactions.
4.14 The first two of these are likely to be of most relevance to the undertaking of TC Adviser
work and will be briefly introduced below.
Insider dealing (ss. 270 and 291, SFO)

4.15 Insider dealing in relation to a listed corporation takes place:
(a) when a person who is connected with the corporation (see Note 1 below) and has
information which he knows is “inside information” (see Note 2 below) in relation to
the corporation, (i) deals in the listed securities or their derivatives of the corporation or
a related corporation, or (ii) counsels or procures another person to deal in such listed
securities or derivatives; or
(b) when a person who is contemplating or has contemplated making a takeover offer for
the corporation and knows that the information is inside information in relation to the
corporation, either deals or procures as above.
Note 1: Persons connected with a corporation include its directors, employees, substantial
shareholders, those with a position of access to inside information (such as a financial adviser
advising a corporation) and connected persons of another corporation where the inside
information relates to transactions between the two corporations.
Note 2: The term “inside information” in relation to a corporation means specific information
about the corporation, a shareholder or officer of the corporation, the listed securities of the

corporation or their derivatives, which is not generally known to the persons who are
accustomed or would be likely to deal in the listed securities of the corporation but which
would, if it were generally known to them, be likely to materially affect the price of the listed
securities.
4.16 There are a number of defences to insider dealing, of which the most relevant to TC Advisers
is the Chinese wall defence. Under this defence, a corporation would not be liable for insider
dealing if an effective information barrier operated between the persons engaging in the
dealing and the persons possessing the inside information.
Note: Notwithstanding such defence, TC Advisers need to be aware of the dealing restrictions
that apply once they are engaged in relation to a TC Transaction. This is discussed in Topic
6.
Disclosure of false or misleading information inducing transactions (ss. 277

and 298, SFO)
4.17 There are two key elements to this form of market misconduct:
(a) disclosure of information that is false or misleading as to a material fact (or the omission
of a material fact) and knowing or being reckless as to the information being false or
misleading; and
(b) the information is likely to induce a person to subscribe for or deal in securities or affect
their prices.
4.18 TC Advisers participating in such disclosures may be liable and so it is very important that all
information is properly verified prior to its release. Topic 5 discusses the standards of
documents and their verification.
Other relevant provisions of the SFO
Disclosure of inside information (Part XIVA, SFO)

4.19 Part XIVA, SFO imposes on listed companies an obligation to disclose inside information to
the public as soon as reasonably practicable after the information has come to their
knowledge, subject to specified safe harbours (ss. 307B and 307D, SFO).
Note: See section 4.15 Note 2 above for the definition of inside information.
4.20 The main safe harbours provided for are:
(a) where the disclosure is prohibited under a restriction imposed by an enactment or a court
order; or
(b) the corporation takes reasonable precautions to preserve the confidentiality of the
information and that confidentiality is in fact preserved, and: (i) the information
concerns an incomplete proposal or negotiation; (ii) the information is a trade secret; or
(iii) the SFC grants a waiver on disclosure prohibited by overseas legislation or
restriction orders.
4.21 Officers are under a duty to take all reasonable measures to ensure proper safeguards exist to
prevent a breach of a disclosure requirement. Where they have not done so, they may be in
breach of Part XIVA, SFO.
4.22 Breaches of the disclosure requirements are subject to proceedings before the MMT, which
has the power to impose a range of orders, including imposing a fine of up to HK$8 million
(s. 307N, SFO).
4.23 Persons in breach of the disclosure requirements are also subject to civil liability to pay
damages to any other person who has suffered pecuniary loss as a result of the breach,
provided the court considers it fair, just and reasonable in the circumstances (s. 307Z, SFO).

4.24 The SFC has issued the Guidelines on Disclosure of Inside Information (“GDII”) to assist
listed companies to comply with their obligations to disclose inside information under Part
XIVA, SFO. The GDII provide examples and discuss issues in particular situations to illustrate
the SFC’s views on how the relevant provisions of the SFO should be operated. The GDII do
not have the force of law.
4.25 Financial advisers must take great care in any TC Transaction to ensure that all inside
information is kept strictly confidential and that parties having access to inside information
are aware of the relevant legal considerations. Where confidentiality is not maintained, this
may require a listed issuer to disclose the information to the market in accordance with its
obligations under Part XIVA, SFO – early disclosure of transaction-sensitive information may
be prejudicial to the planned progress of the transaction, for example, where negotiations
between a potential offeror and offeree company are underway.
Note: The Listing Rules may also require the announcement of information necessary to avoid
a false market.
Disclosure of interests (Part XV, SFO)

4.26 The following persons are obliged to disclose their interests in the relevant share capital of a
listed company:
(a) directors and chief executives, who are required to disclose all interests; and
(b) persons interested in 5% or more of the company’s voting shares.
4.27 What constitutes an “interest” is widely defined and includes both long and short positions,
interests in equity derivatives (such as warrants, options, etc.), and attributed interests (for
example, through trust arrangements or corporate shareholdings).
4.28 Disclosures must be made to the listed corporation and to the SEHK within the prescribed
timeframe:
(a) on being admitted to listing, an initial disclosure obligation is triggered and interests
must be disclosed within ten business days; and
(b) all changes of interest after the initial listing must normally be disclosed within three
business days after either (i) the relevant event or (ii) the day on which the person comes
to know about the occurrence of the relevant event.
Note: The SFC has released a useful guide, “Outline of Part XV of the Securities and Futures
Ordinance (Cap. 571) － Disclosure of Interests” which can be found on the SFC’s website.
Companies (Winding Up and Miscellaneous Provisions) Ordinance

4.29 As offers made to shareholders may appear to fall into the definition of “prospectus” under
the CWUMPO, financial advisers should appreciate the carve out from the prospectus
provisions of CWUMPO, provided in the Seventeenth Schedule of CWUMPO, for offers that
comply with the requirements of the Codes.
Companies Ordinance
4.30 If a takeover involves a scheme of arrangement or other corporate event (e.g. a takeover
involving a reduction of capital), then the provisions of the CO will need to be considered.
Note: As many listed issuers in Hong Kong are incorporated in a jurisdiction other than Hong
Kong, it will be necessary to consider the applicable corporate laws. This will normally entail
the engagement of foreign legal counsel.

Other ordinances
4.31 There are other ordinances that may have a bearing on a takeover situation, depending upon
which industry either party is involved in, and a financial adviser will need to take these into
account. This tends to arise in industries that are subject to ownership or change of control
regulations such as the financial, telecommunications, mining and utilities sectors.
Note: See Topic 8 for an example of a transaction that was subject to the Broadcasting
Ordinance (Cap. 562).
Other legal considerations

4.32 Both TC Adviser firms and individuals working at TC Adviser firms continue to be subject to
the general law. The following are of particular relevance to the financial community.
Prevention of Bribery Ordinance (“POBO”)

4.33 A TC Adviser and its staff may, in the course of undertaking TC Adviser duties, be regarded
for legal purposes as agents of their client. Section 9, POBO makes it an offence for an agent
to solicit or accept unfair advantages that might induce him not to act in the best interests of
his principal. It also makes it an offence to offer an advantage to an agent.
Conspiracy to defraud
4.34 Conspiracy to defraud is an offence under the common law. It involves two or more persons
acting dishonestly with a view to practising a fraud on one or more victims. It may also be
effected via a series of dishonest acts. For example, the concealing of material information or
the falsification of financial data in the course of undertaking a TC Adviser role may constitute
this offence. It is clear that the acts involved in committing this offence fall well below the
standards of integrity and honesty expected of licensed or registered persons.
General criminal law

4.35 Individuals (whether or not they are directors or management of the TC Adviser firm) may
also be criminally liable in connection with offences committed by the TC Adviser firm under
any ordinance if they are found to have aided, abetted, counselled or procured the offence (s.
89, Criminal Procedure Ordinance).
4.36 Directors and other officers concerned in the management of a TC Adviser firm are also
subject to criminal liability under s. 101E of the Criminal Procedure Ordinance if the firm has
committed an offence with their consent or connivance.
Rules Governing the Listing of Securities on The Stock Exchange

of Hong Kong Limited
Nature of Listing Rules
4.37 The SEHK’s powers to operate the stock market and issue the Listing Rules arises from its
status as a recognised exchange company for the purposes of the SFO. As such, it is the
frontline regulator of all listing related matters and of issuers listed on its markets. However,
the SEHK is subject to the regulatory oversight of the SFC. The regulatory status of its parent
company, Hong Kong Exchanges and Clearing Limited (“HKEX”), is that of an exchange
controller.
4.38 The principal function of the SEHK is to provide a fair, orderly and efficient market for the
trading of securities. The Listing Rules have been issued by the SEHK to prescribe the
requirements which have to be met before securities may be listed and continuing obligations
with which an issuer must comply once listing has been granted. The Listing Rules are
approved by the SFC whose approval is also required for any changes to the Listing Rules.

4.39 The Listing Rules reflect currently acceptable standards in the marketplace and aim to ensure
and maintain investors’ confidence in the market, in particular, that:
(a) investors are kept fully informed by listed companies, and any information which might
reasonably be expected to have a material effect on market activity in, and the prices of,
listed securities is disclosed immediately;
(b) all holders of listed securities are treated fairly and equally; and
(c) directors of a listed company act in the interests of its shareholders as a whole
particularly where the public represents only a minority of the shareholders.
Specific requirements
4.40 The Listing Rules require a listed company and its directors to comply with the Takeovers
Code and the Share Buy-backs Code, any breach of which will be deemed a breach of the
Listing Rules.
4.41 The requirements of the Listing Rules continue to apply in the course of a TC Transaction,
meaning that an offeror or offeree company listed on the SEHK will continue to be required
to comply with them. Where the Listing Rules do apply, which is normally the case, actions
of the offeror or offeree company may trigger particular provisions of the Listing Rules that
can give rise to implications for the conduct of an offer or potential offer, such as the
following.
4.42 Avoidance of a false market: Where in the view of the SEHK there is likely to be a false
market in its securities, the listed company must announce the information necessary to avoid
a false market. For example, speculation in the media about a potential offer could create a
false market, in which case the listed company may need to consider the need to make a
clarificatory announcement.
4.43 Notifiable and connected transactions: Chapters 14 and 14A of the Main Board Listing
Rules (“MBLR”) deal with transactions involving a listed company and impose various
requirements on the listed company. This could include imposing announcement obligations,
a requirement to circularise shareholders with specified information, and the need to obtain
shareholder approval for the transaction in question. It will also be necessary to consider the
specific requirements of Chapter 14 of the MBLR concerning the contents of the offer
document, and this is discussed in Topic 4 section 4.34(e).
4.44 Trading halt or suspension: Listed companies that are involved in a potential takeover will
also need to consider whether to seek a trading halt or suspension in dealings in their
securities. This is discussed further in Topic 4 section 1.12.
The Listed Issuer Regulation Department

4.45 A listed company will, so far as responding to specific requirements of the Listing Rules are
concerned, need to be aware of the different roles of the SEHK and the Executive over the
course of a TC Transaction. Overall regulatory oversight of a TC Transaction is conducted by
the Executive insofar as requirements under the Codes are stated. For the specific
requirements arising out of the Listing Rules, a listed company will need to liaise with the
Listed Issuer Regulation (“LIR”) Department of the Listing Division of the HKEX, which is
responsible for monitoring the ongoing compliance with the Listing Rules.
4.46 The listed company is required to liaise with the LIR team that has been assigned to it. Various
announcement obligations arising under the Listing Rules will frequently involve a pre-
vetting procedure. However, certain announcements and documents that are subject to the
requirements of the Codes, and so subject to the oversight of the Executive, do not need to be
pre-vetted under the Listing Rules, namely: voluntary withdrawal of listing under compulsory
acquisition or privatisation (both discussed in Topic 3), and announcements by an offeror or
offeree company pursuant to the Takeovers Code or Share Buy-backs Code (discussed in

Topic 4 section 4 and Topic 7 respectively).
Note: It is nevertheless customary practice for announcements not subject to pre-vetting to
be provided to the relevant LIR team.
Revision questions:
Question 4A: What is the potential legal liability of a TC Adviser who provides false or misleading
information to the SFC?
Answer 4A: The TC Adviser may have committed an offence under s. 384, SFO, which is
punishable by fine and/or imprisonment.
Question 4B: Name two penalties that can be imposed by the MMT on a person who has engaged
in market misconduct.
Answer 4B: The MMT may impose a fine. It can also impose a cold shoulder order. See further
section 4.10 above.
Question 4C: Name three persons who are regarded as connected with a corporation for the
purpose of the insider dealing provisions of the SFO.
Answer 4C: A director or employee of the corporation and persons with a position of access to
inside information. See section 4.15 above.
Question 4D: What are the implications under Part XIVA, SFO if confidentiality is not maintained
in relation to a potential offeror and offeree company who are negotiating a potential
takeover?
Answer 4D: The safe harbour will no longer apply and the offeree company (and the offeror if it
is a listed company in Hong Kong) will need to make a disclosure.
Question 4E: Is an offer made pursuant to the Codes subject to the prospectus provisions of the
CWUMPO?
Answer 4E: If an offer complies with the requirements of the Codes, it is not subject to the
prospectus provisions of CWUMPO.
Question 4F: Identify two rules from the Listing Rules that could have an important impact on
how a TC Transaction is conducted.
Answer 4F: Rules requiring disclosure to avoid a false market, or disclosures made in connection
with a notifiable transaction subject to Chapter 14 of the MBLR. See sections 4.42
to 4.44 above.

5 Regulatory codes of conduct issued by the Securities and
Futures Commission (“SFC”)
5.1 All TC Advisers are required to hold a Type 6 licence or registration and accordingly are
subject to the codes and guidelines issued by the SFC that apply to all holders of such
licence/registration. While this section will introduce the regulatory rules of specific relevance
to TC Adviser work, TC Advisers nevertheless need to be aware of all regulatory rules that
affect the conduct of their business, including the provisions of the Code of Conduct and the
Management, Supervision and Internal Control Guidelines for Persons Licensed by or
Registered with the Securities and Futures Commission (“ICG”).
Conduct and controls

5.2 The Code of Conduct applies, with limited exceptions, to all persons licensed by or registered
with the SFC. It sets out the conduct requirement to which they must adhere to ensure they
remain fit and proper. The Code of Conduct is based around nine general principles in relation
to:
(a) honesty and fairness;
(b) the need to act with due skill, care and diligence and in the best interests of the client
and the integrity of the market;
(c) capabilities;
(d) information about clients;
(e) information for clients;
(f) conflicts of interest;
(g) compliance;
(h) client assets; and
(i) the responsibility of senior management.
5.3 The ICG applies to all persons licensed by or registered with the SFC. It is concerned with
the key areas of business controls, namely:
(a) management and supervision;
(b) segregation of duties and functions;
(c) personnel and training;
(d) information management;
(e) compliance;
(f) audit;
(g) operational controls; and
(h) risk management.
Corporate Finance Adviser Code of Conduct

5.4 The CFA Code sets out the requirements and guidelines in respect of the conduct of financial
advisers and therefore covers TC Adviser work. It serves as one of the benchmarks against
which a TC Adviser’s fitness and properness will be measured. The CFA Code requires
financial advisers to observe the specific requirements of the Codes and the Listing Rules.
Accordingly, breaches of the CFA Code, the Codes or the Listing Rules, will reflect adversely
on the fitness and properness of a TC Adviser.

5.5 The CFA Code requires a TC Adviser to maintain an effective compliance function headed by
a Designated Compliance Officer (see Note below), independent of other business functions,
and reporting directly to senior management. Where necessary, such a function may be
assumed by senior management.
Note: The CFA Code defines “Designated Compliance Officer” as the person within a
financial adviser who supervises and oversees the compliance function of the financial
adviser, who may carry out other functions or responsibilities.
5.6 The compliance function should have the competence, resources and experience to monitor
compliance with the TC Adviser’s internal policies and procedures as well as applicable laws
and regulations.
5.7 Other provisions of the CFA Code are mainly concerned with the following matters:
(a) the proper licensing or registration of the financial adviser’s staff for the duties they are
engaged in;
(b) the need for financial advisers to maintain a high standard of integrity and fair dealing;
(c) the demonstration of adequate resources, competence and staff suitability;
(d) the adoption of an appropriate written staff dealing policy;
(e) the implementation of a watchlist and restricted list system for the proper monitoring of
personal account dealings and proprietary trading;
(f) the avoidance of conflicts of interest and, where they cannot be avoided, ensuring a
proper response (such as withdrawal from the engagement or obtaining client consent)
to ensure the client receives fair treatment;
Note: Where the financial adviser is acting as an independent financial adviser and the
conflict relates to its independence, the matter is to be dealt with in accordance with the
Codes. This is discussed in Topic 5.
(g) the maintenance of effective and operational Chinese walls;
(h) ensuring that advice and information given to a client is comprehensive and timely
(including advice on the Codes) to enable its client to make a balanced and informed
decision;
(i) ensuring that a financial adviser does not offer or accept inducements in connection with
client transactions unless appropriate disclosure to the client has been made;
(j) the need to act with due skill, care and diligence and observe proper standards of market
conduct;
(k) the need to undertake reasonableness checks to assess the relevant experience and
expertise of work undertaken by experts or other professionals;
(l) the need to act in the best interests of clients at all times and to understand a client’s
business through obtaining relevant information about such client;
(m) the need for both the financial adviser and its client to co-operate and adopt open and
truthful communication with the regulators;
(n) cases where the client is not in compliance with the relevant regulatory requirements,
the financial adviser should advise the client to bring the matter to the attention of the
regulators; where the client declines to do so without valid reasons, it should consider
the need to cease acting for that client; and
(o) the need to safeguard the confidentiality of client information, including taking
reasonable steps to ensure that other persons who receive confidential information from
the financial adviser avoid an accidental leak of information.

5.8 Where a regulatory issue arises on a transaction, a financial adviser is encouraged to consult
the regulators at an early stage to seek guidance.
Revision questions:
Question 5A: What is the relevance of the CFA Code to TC Advisers?

Answer 5A: The CFA Code sets out the requirements and guidelines in respect of the conduct of
financial advisers and therefore covers TC Adviser work. It serves as one of the
benchmarks against which a financial adviser’s fitness and properness will be
measured.
Question 5B: What is a Designated Compliance Officer?
Answer 5B: A Designated Compliance Officer supervises and oversees the compliance function
of the financial adviser.
Question 5C: What should a financial adviser do if the client is not in compliance with relevant
regulatory requirements?
Answer 5C: The financial adviser should advise the client to bring the matter to the attention of
the regulators and if the client declines to do so without valid reasons, the financial
adviser should consider the need to cease acting for that client.

6 SFC’s powers
6.1 Ongoing compliance with the legal and regulatory obligations to which a TC Adviser is
subject is an important matter. The SFO empowers the SFC to conduct supervision and
investigations of licensed and registered persons, including those acting as TC Advisers, and
to apply disciplinary measures where such persons have failed to meet the relevant
requirements.
Note: The SFC’s powers also extend to certain matters pertaining to listed companies. While
the syllabus of this Manual does not encompass these powers, TC Advisers should note that
where the SFC is investigating a listed company, the role of a TC Adviser in a TC Transaction
may be subject to the SFC’s powers in this regard.
Supervision and investigation

6.2 The SFO gives to the SFC the power to, in specified circumstances:
(a) make enquiries and obtain documents and answers in relation to listed corporations
(s.179, SFO), intermediaries and their associated entities (s. 180, SFO) and specified
transactions (s. 181, SFO); and
(b) investigate, among other things, possible breaches of the SFO, misfeasance and
activities that are not in the public interest (ss. 182 and 183, SFO).
6.3 The SFC may (i) conduct supervisory inspections for the purposes of ascertaining whether an
intermediary or its associated entity has complied with the SFO and any related notices and
requirements, any terms and conditions of any licence or registration, or any other conditions
imposed; or (ii) require copies of documents or inquire into the affairs of a licensed
corporation or its related corporations for the purpose of providing assistance, in relation to
the licensed corporation, to an authority or regulatory organisation outside Hong Kong.
6.4 The SFC may authorise a person (usually a member of its staff) to inspect the premises of a
licensed corporation, and ask for documents and explanations from the licensed corporation,
an associated entity, a related corporation or an associated entity of a related corporation.
6.5 The authorised person may in writing require the person giving an answer to:
(a) verify the answer within a reasonable period by a statutory declaration; or
(b) make a statutory declaration that he cannot give an answer because it is not within his
knowledge, stating the reasons.
6.6 A statutory declaration may be taken by the authorised person.
Investigations of possible offences, etc.

6.7 These are key provisions of the SFO that give the SFC considerable powers to investigate,
among other things, possible breaches of the SFO, misfeasance and activities not in the public
interest. The SFC may also investigate to determine whether to take disciplinary action under
Part XI, SFO.
6.8 The SFC may authorise an employee (or another person with the consent of the Financial
Secretary) to carry out an investigation. The person so authorised may investigate any person,
who is required to:
(a) provide documents and explanations;
(b) attend before the investigator and answer questions;
(c) give the investigator all reasonable assistance;
(d) support his evidence by making a statutory declaration; or

(e) make a statutory declaration that he is unable to provide the evidence for reasons to be
stated, if such is the case.
Offences
6.9 A person who, without reasonable excuse, fails to comply with the requests of an investigator
appointed by the SFC or provides false or misleading responses is guilty of an offence.
Officers or employees of a corporation who cause or allow the corporation to commit the
offences are also subject to liability.
6.10 The SFC may apply to the court to order a person who does not comply with requirements
made by the authorised person or investigator under relevant provisions to do so (s. 185, SFO).
6.11 An employee of the SFC, an authorised person or an investigator may, in appropriate
circumstances, apply to a magistrate for the issue of a warrant:
(a) authorising specified persons, a police officer and such other persons as may be
necessary to assist in the execution of the warrant to enter specified premises, if
necessary by force, at any time within seven days;
(b) requiring any person on the premises to produce any relevant documents;
(c) prohibiting any person to erase or alter or remove any relevant documents; and
(d) authorising the specified persons to: (i) search for, seize and remove any relevant
documents; and (ii) retain such documents for six months, a period which may be
extended (s. 191, SFO).
6.12 Any person who destroys, falsifies, conceals or otherwise disposes of any documents required
to be produced under Part VIII, SFO is guilty of an offence.
Discipline
6.13 Section 194, SFO provides that if a “regulated person” is guilty of a “misconduct”, or is
considered not a fit and proper person, the SFC may:
(a) in the case of a licensed corporation or representative, revoke or suspend the licence in
respect of all or part of the regulated activity;
(b) in the case of a RO (see Note below), revoke or suspend approval as a RO;
Note: A RO is a licensed representative who (i) actively participates in or supervises a
regulated activity, (ii) is nominated by the licensed corporation as a RO, and (iii) is
approved by the SFC as a RO.
(c) publicly or privately reprimand the regulated person;
(d) prohibit the regulated person from applying for a licence, registration, approval as a RO
or entry in the Hong Kong Monetary Authority (“HKMA”) register, or to act as an EO;
and
(e) separately or in addition order the regulated person to pay a penalty up to the greater of
HK$10 million or three times any profit gained or loss avoided as a result of his
misconduct.
6.14 “Regulated person” here refers to a licensed corporation, a licensed representative, a RO of a
licensed corporation, or a person involved in the management of the business of a licensed
corporation.
6.15 “Misconduct” in this context includes contravention of any of the following:
(a) the provisions of the SFO (and certain parts of the CWUMPO and CO);
(b) the terms and conditions of any licence or registration with the SFC; and

(c) any act or omission relating to regulated activities which is prejudicial to the public
interest.
6.16 Similar provisions are set out in s. 196, SFO, where “regulated person” refers to a registered
institution, an EO of a registered institution, a person involved in the management of a
registered institution or an individual whose name is recorded on the HKMA register as
engaged in a regulated activity.
6.17 Sections 195 and 197, SFO define other circumstances where disciplinary action may be taken
by the SFC, including suspension or revocation of a licence or registration in the event of:
(a) bankruptcy or receivership or arrangements with creditors;
(b) failure to satisfy a levy of execution;
(c) mental incapacity of individuals or directors; or
(d) the conviction of individuals, corporations or directors for an offence which casts doubts
on their fitness and properness.
6.18 The suspension or revocation may be applied to the entire regulated business or to a specific
part of it.
SFC Disciplinary Fining Guidelines

6.19 Clearly, certain types of misconduct are more serious than others: the more serious the
misconduct, the greater the likelihood that the SFC will impose a fine and that the fine will
be larger. Misconduct which is intentional or reckless, damages the integrity of the market,
causes losses to or imposes costs on others, or provides a benefit to the intermediary itself or
other persons, is normally regarded as more serious cases than where these factors are absent
(e.g. negligent but not intentional misconduct, misconduct which causes no losses, etc.).
6.20 In determining the seriousness of the misconduct, the SFC will also consider other factors,
including but not limited to whether:
(a) a breach of fiduciary duty is involved;
(b) the misconduct reflects serious or systematic weaknesses in management or internal
control systems;
(c) the intermediary or individual reports the conduct and co-operates with the SFC; and
(d) the intermediary takes remedial steps such as: (i) compensating clients; (ii) disciplining
any staff concerned; and (iii) preventing recurrences, and so on.
6.21 In such cases, the SFC will also consider whether the intermediary or individual has a previous
disciplinary record, and whether there is a likelihood of other punishment being imposed on
the intermediary or individual by other authorities, or through civil actions by third parties.
Cooperation with the SFC

6.22 The SFC’s Guidance Note on Cooperation with the SFC further explains the SFC’s approach
to intermediaries that cooperate in disciplinary proceedings. The SFC has indicated that it will
take cooperation into account as a means of reducing the type of sanction and that the
maximum reduction is either by one order of magnitude (e.g. from a revocation of licence to
a suspension) or 33%, particularly if the cooperation is spontaneous and extensive. While all
the circumstances of the case will need to be considered, the SFC has indicated that ways of
cooperating with the SFC include:
(a) taking a positive approach to bringing the disciplinary case to an early conclusion;
(b) indicating the facts or issues which are not in dispute;
(c) accepting disciplinary liability for the matter at an early stage in the investigation; and

(d) taking remedial steps to rectify problems and/or to compensate clients for any loss.
Public register
6.23 Disciplinary actions, other than minor ones such as private reprimands, will be communicated
to the media and placed on a public register, which will include relevant details of the
intermediary and the disciplinary action taken. (See Schedule 4, Securities and Futures
(Licensing and Registration) (Information) Rules for full details.)
Revision questions:
Question 6A: For what purpose may the SFC exercise its powers to conduct supervisory
investigations?
Answer 6A: See section 6.3 above.
Question 6B: Does the SFC have the power to inspect the premises of a financial adviser and require
copies of documents to be provided?
Answer 6B: Yes, see sections 6.3 to 6.4 above.
Question 6C: Name two disciplinary sanctions available to the SFC where a regulated person has
engaged in misconduct.
Answer 6C: The SFC may suspend or revoke the licence; it may also impose a fine. See further
section 6.13 above.
Question 6D: What are the different consequences of cooperating, or not cooperating with the SFC
in connection with disciplinary proceedings?
Answer 6D: The SFC has indicated that it will take cooperation into account as a means of reducing
the type of sanction.
Question 6E: Identify one means of cooperating with the SFC in relation to a disciplinary matter.
Answer 6E: Taking remedial steps to rectify problems and/or to compensate clients for any loss.

Topic 2: Scope and application of the Codes on Takeovers and
Mergers and Share Buy-backs (“Codes”)
Table of contents
Topic overview 1
Learning outcomes 1
1 Application 2
Scope 2
Persons subject to the Codes 3
Non-statutory nature 4
Structure and interpretation of the Codes 4
2 Ten General Principles 6
3 Administration 8
The Executive Director of the Corporate Finance Division of the Securities and
Futures Commission (“Executive”) 8
The Takeovers and Mergers Panel (“Panel”) 9
Publication of non-disciplinary matters 10
Role of the Securities and Futures Commission 10
4 Enforcement 12
By the Executive 12
By the Panel 12
Disciplinary appeals – the Takeovers Appeal Committee 13
Publication of disciplinary rulings 14
[Blank Page]
Topic overview
This Topic begins with a discussion of the scope of application of the Codes on Takeovers and
Mergers and Share Buy-backs (“Codes”), that is, the companies and persons that are subject to their
requirements. It then discusses the non-statutory nature of the Codes and how they are structured and
to be interpreted. Interpretation of the Codes also requires an appreciation of the ten General
Principles of the Codes, and this is discussed in section 2.
Sections 3 and 4 are respectively concerned with the administration and enforcement of the Codes.
The roles of the Executive Director of the Corporate Finance Division of the Securities and Futures
Commission (“Executive”), the Takeovers and Mergers Panel (“Panel”), and the Takeovers Appeal
Committee (“TAC”) are considered together with various procedural considerations including the
means of appeal. Matters such as consultations and rulings relating to non-disciplinary issues are the
primary concern of section 3. The concluding section 4 addresses matters related to enforcement,
including the types and nature of disciplinary action that may be imposed on persons who have
breached the Codes.
Learning outcomes
(a) describe the scope of the Codes;
(b) recognise the factors relevant to consider when determining if an issuer of securities may be
subject to the Codes;
(c) understand and explain the ten General Principles of the Codes;
(d) identify the persons who may be subject to the Codes, and describe their respective roles and
responsibilities;
(e) describe the different roles of the Executive, the Panel and the TAC;
(f) appreciate the circumstances when the Executive may exercise disciplinary powers;
(g) understand the composition, standing and role of the Panel in regulating takeover activity;
(h) describe the disciplinary powers of the Executive and the Panel; and
(i) describe the role of, and the procedures used by, the TAC.

1 Application
Scope
1.1 The Codes apply to takeovers, mergers and share buy-backs affecting (i) public companies in
Hong Kong and (ii) companies with a primary listing of their equity securities in Hong Kong.
It also applies to real estate investment trusts (“REITs”) with a primary listing of their units
in Hong Kong. It is essential to appreciate how each of these categories is determined for the
purposes of the Codes.
Note: While the Codes are primarily concerned with equity shares carrying voting rights and
the control of such voting rights, the Codes may apply to other classes of equity and equity-
related securities. See further Topic 3 discussing the Code on Takeovers and Mergers
(“Takeovers Code”), and Topic 7 discussing the Code on Share Buy-backs (“Share Buy-
backs Code”).
1.2 In order to determine whether a company is a public company in Hong Kong, the Executive
will consider all circumstances and will apply an economic or commercial test. The number
of Hong Kong shareholders and the extent of share trading in Hong Kong will be primary
considerations. Other factors taken into consideration are:
(a) the location of its head office and place of central management;
(b) the location of its business and assets, as indicated by such factors as registration under
companies legislation and tax status; and
(c) the existence or absence of protection available to Hong Kong shareholders.
If a company has any doubt about its status as a public company in Hong Kong, it should
consult the Executive.
1.3 Whether a company has a primary or secondary listing in Hong Kong is typically
straightforward to establish, though care will need to be taken in each case to confirm the
company’s treatment for the purposes of the Codes.
1.4 Issuers that have obtained a secondary listing on The Stock Exchange of Hong Kong Limited
(“SEHK”) as a “Qualifying Issuer” under Chapter 19C of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (Main Board) (“Main Board Listing
Rules”) will not normally be regarded as public companies in Hong Kong for the purposes of
the Takeovers Code. However, if the bulk of their trading moves to Hong Kong, they may be
regarded as having a dual primary listing in Hong Kong in which case the Takeovers Code
would then apply.
Note: Special rules apply to certain issuers that have a centre of gravity in China, and
obtained, on or before 15 December 2017, a primary listing on the New York Stock Exchange
LLC, Nasdaq Stock Market, or the premium listing segment of the Main Market of the London
Stock Exchange.
1.5 Other issuers with a secondary listing on the HKEX may need to actively seek confirmation
whether or not they will be regarded as a public company in Hong Kong subject to the Codes.
To determine this, it will be necessary to review its current circumstances having regard to
the economic or commercial approach taken by the Executive as mentioned above. It should
be noted that the relevant characteristics of a company (see section 1.2 above) may change
over time - an example of this would be where the bulk of trading in the company’s shares
shifts to Hong Kong, or the number of Hong Kong shareholders has materially increased.
Note: For further information, candidates may wish to refer to the Panel’s decisions of 13
April 2014 and 19 June 2014 (the further details of these decisions are outside the scope of
this syllabus).
1.6 The Securities and Futures Commission (“SFC”) maintains a list on its website of secondary

listed companies that it regards as either subject to, or not subject to the Codes. If a company
has any doubt about its status as a public company in Hong Kong, it should consult the
Executive.
1.7 The Share Buy-backs Code applies to share buy-backs of companies subject to the Codes.
Share buy-backs by general offer will be considered to be offers, in which case both the
Takeovers Code and the Share Buy-backs Code will apply. Persons engaging in share buy-
backs by general offer should therefore consider the requirements of these two codes.
However, for a public company with a primary listing outside Hong Kong, the Executive will
normally grant a waiver from the requirements of the Codes provided that shareholders in
Hong Kong are adequately protected.
1.8 A transaction falling within the ambit of the Codes (“TC Transaction”) may be subject to the
jurisdiction of both the Panel and an overseas regulator. In such cases, the Executive should
be consulted at an early stage so that any conflicts between the requirements of the two
jurisdictions may be resolved.
1.9 Notwithstanding the foregoing, persons will be exempt from any obligation arising under the
Codes in respect of certain financial institutions listed in Hong Kong that are subject to a bail-
in procedure under the Financial Institutions (Resolution) Ordinance (Cap. 628). This
includes financial institutions in the banking and insurance sectors as well as securities and
futures entities.
Note: Knowledge of bail-in procedures is outside the scope of this syllabus.
Persons subject to the Codes

1.10 Where the Codes apply, a number of persons will become subject to obligations imposed by
the Codes. In each case, it is important to appreciate the different means by which their
obligations are subject to enforcement mechanisms, which may arise directly out of the
Codes, as discussed in section 4 below, or via other mechanisms. For example: listed issuers
that are involved in a TC Transaction continue to be subject to the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”), which require
issuers to comply with the Codes; and licensed persons involved in a TC Transaction continue
to be subject to the SFC’s oversight and disciplinary powers.
1.11 The responsibilities provided for in the Codes apply to:
(a) directors of companies that are subject to the Codes;
Note: This includes both the offeror and the offeree company. Topic 4 discusses their
responsibilities.
(b) management companies (and their directors) and trustees of REITs that are subject to
the Codes;
Note: Schedule IX of the Codes clarifies various provisions of the Codes in the context
of REITs. The contents of Schedule IX are outside the scope of this syllabus, save as
expressly discussed herein.
(c) persons or groups of persons who seek to gain or consolidate control of companies that
are subject to the Codes;
Note: For this purpose, it will be important to appreciate the concept of “acting in
concert”, which is discussed in Topic 3.
(d) their professional advisers;
Note: The responsibilities of financial advisers are discussed in Topic 5.
(e) persons who otherwise participate in, or are connected with, TC Transactions; and
(f) persons who are actively engaged in the securities market.

1.12 Persons who issue circulars or advertisements in connection with a TC Transaction are also
expected to exercise the highest standards of care and consult with the Executive prior to the
release of any such materials.
Non-statutory nature
1.13 The Codes have been published by the SFC pursuant to s. 399(2) of the Securities and Futures
Ordinance (“SFO”). As noted in Topic 1, the Codes are non-statutory in nature. As such, they
should not be interpreted as if they are statutes. The Codes represent a consensus of opinion
of participants in Hong Kong’s financial markets and the SFC regarding standards of
commercial conduct and behaviour considered acceptable for takeovers, mergers and share
buy-backs.
1.14 While the Codes provide for their own appeal mechanisms (discussed in sections 3 and 4
below), rulings by the Panel can be judicially reviewed, i.e. the Court of First Instance can
determine whether a decision of the Panel is lawful and valid.
Note: See Topic 8 section 2 Case 10 for an example of a judicial review.
1.15 Listed issuers are subject to the Listing Rules, which require compliance with the Codes.
Accordingly, a listed issuer in breach of the Codes will also be in breach of the Listing Rules
(rules 13.23(2) and 14.78 of Main Board Listing Rules, and rules 17.89 and 19.78 of GEM
Listing Rules).
Structure and interpretation of the Codes

1.16 As it is impracticable to set out detailed rules covering all circumstances that can arise in
takeovers and share buy-backs, the Codes are comprised of ten General Principles (discussed
in section 2 below) and detailed rules, many of which are supported by explanatory notes.
Some of the rules expand upon the General Principles and provide examples of their
application, while others are rules of procedure designed to govern specific types of TC
Transactions.
1.17 The Codes require the spirit as well as the letter of the General Principles and rules to be
observed. This is an important feature of how the Codes are to be understood in their
application. It means that the General Principles and the spirit of the Codes may extend to and
apply in circumstances not explicitly covered by any rule.
1.18 Where a party involved in a TC Transaction has any doubt whether its proposed course of
action is consistent with the General Principles, it should consult the Executive before
engaging in that course of action. This will minimise the risk of engaging in an action that is
in breach of the Codes. The Codes frequently remind concerned persons to consult with the
Executive at an early stage in case of any doubt as to the application or interpretation of any
rule, which may be undertaken via a consultation or by seeking a ruling, both of which are
discussed in section 3 below.
1.19 The Codes are supplemented in important regards by Practice Notes as well as decisions and
statements of the Executive, Panel and TAC, which are published on the SFC’s website. These
sources provide helpful clarifications, guidance and examples to the market regarding how
the Executive and the Panel will normally interpret the Codes.
1.20 The Executive and the Panel, when interpreting and applying the provisions of the Codes, will
have regard to previous rulings that have been made under the Codes. However, each TC
Transaction must be considered on its own circumstances.
1.21 The SFC also publishes a quarterly newsletter, the Takeovers Bulletin, that helps industry
participants better understand the Codes. Licensed persons should familiarise themselves with
the issues discussed in these important supplements to the Codes.

Revision questions:
Question 1A: How does the Executive determine whether a company is a public company in Hong
Kong for the purposes of the Codes?
Answer 1A: The Executive considers all circumstances and applies an economic or commercial
test. See section 1.2 above.
Question 1B: Is a company with a secondary listing subject to the Share Buy-backs Code?
Answer 1B: This depends on the circumstances of the company and whether the Executive has
granted a waiver from the requirements of the Share Buy-backs Code.
Question 1C: Identify three persons who are subject to responsibilities provided for in the Codes.
Answer 1C: Directors of companies subject to the Codes; their professional advisers and persons
who are actively engaged in the securities market. See section 1.11 above.
Question 1D: What should a person do when it has doubt whether its proposed course of action is
consistent with the General Principles?
Answer 1D: It should consult the Executive before engaging in that course of action.

2 Ten General Principles
2.1 The General Principles are essentially statements, expressed in broad terms, of the standards
of conduct expected of persons who are involved in TC Transactions. The General Principles
do not define the precise extent or the limits of their application. The Executive and the Panel
apply the General Principles in accordance with their spirit and may modify or relax the effect
of the language to achieve their underlying purposes.
2.2 The ten General Principles are:
General Principle 1 — All shareholders are to be treated even-handedly and all shareholders
of the same class are to be treated similarly.
General Principle 2 — A general offer to all other shareholders is normally required when
control of a company changes or is acquired or is consolidated. Where an acquisition is being
considered and a person may incur an obligation to make a general offer as a result of such
acquisition, he must, before making the acquisition, ensure that he can and will continue to
be able to implement such an offer.
General Principle 3 — During the course of an offer or the contemplation of an offer, neither
an offeror, nor the offeree company, nor any of their respective advisers may provide
information to some shareholders which is not made available to all shareholders. This
principle does not apply to the provision of confidential information by the offeree company
to a bona fide potential offeror, or vice versa.
General Principle 4 — An offer should only be announced after careful and responsible
consideration. The same applies to making acquisitions which may result in an obligation to
make a general offer. In either case, the offeror and its financial advisers should be satisfied
that it can and will continue to be able to implement the offer in full.
General Principle 5 — The offeror should give shareholders sufficient information and time
to obtain advice and reach an informed decision on an offer. No relevant information should
be withheld. All documents must be prepared with the highest possible degree of care,
responsibility and accuracy.
General Principle 6 — All persons concerned with offers should make full and prompt
disclosure of all relevant information and take every precaution to avoid the creation or
continuance of a false market. Parties involved in offers must take care that no misleading
statements are made to shareholders or the market.
General Principle 7 — Rights of control should be exercised in good faith and the oppression
of minority or non-controlling shareholders is not acceptable.
General Principle 8 — In advising their shareholders, directors of the offeror and offeree
companies must always act only in their capacity as directors with no regard to their personal
or family shareholdings or to their personal relationships with the companies. They should
only consider the shareholders’ interests taken as a whole when advising shareholders.
Directors of the offeree company should consider the matter carefully before entering into
any commitment with an offeror (or anyone else) that would restrict their freedom to advise
their shareholders. Such commitments may give rise to conflicts of interest or result in a
breach of the directors’ fiduciary duties.
General Principle 9 — After the board of the offeree company has received a bona fide offer,
or after the board has reason to believe that a bona fide offer might be imminent, the board of
the offeree company may not take any action in relation to the affairs of the company, without
the approval of shareholders in general meeting, which could effectively result in any bona
fide offer being frustrated or in the shareholders being denied an opportunity to decide on its
merits.

General Principle 10 — All parties concerned with TC Transactions are required to co-operate
to the fullest extent with the Executive, the Panel and the TAC, and to provide all relevant
information.
Revision questions:
Question 2A: Are the General Principles applied strictly?

Answer 2A: The Executive and the Panel apply the General Principles in accordance with their
spirit and may modify or relax the effect of the language to achieve their underlying
purposes.
Question 2B: What is a key purpose of General Principle 1?
Answer 2B: To ensure all shareholders are treated even-handedly and all shareholders of the same
class are treated similarly.
Question 2C: Identify a General Principle that is concerned with the disclosure of relevant
information.
Answer 2C: General Principle 6 is specifically concerned with prompt disclosure of relevant
information, though other General Principles are also concerned about the provision
of information.

3 Administration
3.1 The Codes are subject to two main layers of administration. The first layer is the Executive,
who is the main initial point of contact for persons involved in TC Transactions. The second
layer is the Panel, which is comprised primarily of market participants and as such represents
an element of self-regulation as envisaged by the SFO. While this section 3 deals with the
non-disciplinary administration of the Codes by the Executive and the Panel, section 4 below
discusses the enforcement, i.e. disciplinary, roles of the Executive and the Panel as well as
introducing a third layer, the TAC, which is only concerned with appeals regarding
enforcement, not administrative, aspects of the Codes.
3.2 In any non-disciplinary matter, particular attention should be paid to the obligation to be open,
co-operative and act professionally in all communications with the Executive and the Panel
(as discussed in Topic 1 section 2.6). Where relevant information is withheld, there is a risk
that any ruling given may as a consequence be invalidated.
The Executive Director of the Corporate Finance Division of the

Securities and Futures Commission (“Executive”)
3.3 The Codes are administered by the Executive. The Executive undertakes the investigation of
takeovers, mergers and share buy-backs, and monitors related dealings in connection with the
Codes. It is available for consultation and to give rulings on all matters to which the Codes
apply.
Consultations
3.4 The Executive should be consulted in advance where there is any doubt as to the application
of or any action required by the Codes. Consultations minimise the risk of taking action that
might itself be a breach of the Codes.
3.5 Consultations generally take the form of verbal discussions and do not result in any formal
ruling. As such, consultations are non-binding by nature and a party wishing to obtain a
binding ruling will need to seek a formal ruling, as discussed below. Consultations do not
attract any fee.
3.6 While the Executive will give interpretations on aspects of the Codes, it will normally not
answer hypothetical questions or give provisional rulings (for example, when the parties with
an interest in such rulings are not identified).
Rulings
3.7 An important function of the Executive is to give rulings on various matters arising under the
Codes. This includes giving waivers, consents, decisions, confirmations or other
determination in writing.
3.8 Rulings may be given by the Executive on its own volition or at the request of an interested
party. Rulings are given after a consideration of all relevant information and involve a more
thorough analysis than what is possible under a consultation. A fee may be payable for rulings
(see Schedule IV of the Codes).
3.9 Applications for a ruling under the Codes should be in writing, addressed to the Executive
and contain all relevant information, which should normally include the following:
(a) Summary: The ruling being sought, and any alternative courses of action, should be
clearly described and the issues for consideration summarised. The relevant sections of
the Codes should also be identified.
(b) Parties: All parties with a material interest in the submission, and their respective
financial and legal advisers, should be identified.

(c) Material facts: All material facts relevant to the application should be stated. This will
include providing a description of: (i) the proposed TC Transaction and the parties
involved (the offeror and offeree company and relevant interests of their directors and
controlling and substantial shareholders), (ii) the effect of the TC Transaction on the
offeree company and offeror, and (iii) how the interests of independent shareholders will
be safeguarded.
3.10 Each application should be accompanied by a duly completed and signed prescribed filing
form available on the SFC’s website. Such filing form contains a statement by the applicant
certifying the truth, accuracy and completeness of statements contained in the application.
When the financial adviser files an application on behalf of its client, the financial adviser
must use all reasonable efforts to ensure that its client understands, and abides by, the relevant
requirements of the Codes. It must also ensure that the submission of its client is true, accurate
and complete. Any subsequent submissions in respect of an application should also contain a
statement by the applicant certifying the truth, accuracy and completeness of statements
contained in the submission.
3.11 If a party wishes to contest a ruling of the Executive, he may ask the Panel to review the
matter. The Executive may also refer a matter to the Panel for a ruling without itself giving a
ruling when it considers that there is a particularly novel, important or difficult point at issue.
The Takeovers and Mergers Panel (“Panel”)

Members
3.12 The Panel is a committee of the SFC, established under s. 8(1), SFO. Its two primary functions
are (i) to hear disciplinary matters, and (ii) to review rulings of a non-disciplinary nature given
by the Executive where requested to do so. It also considers novel, important or difficult cases
referred to it by the Executive. The nature of the Panel is that it is an administrative body
whose decisions are potentially subject to judicial review (an example of a judicial review of
a non-disciplinary decision of the Panel is provided in Topic 8 section 2 Case 10).
3.13 The Panel consists of up to 40 members (not including members of the Disciplinary Chair
Committee) drawn from the financial and investment community, at least one of whom is
required to be a non-executive director of the SFC. No executive directors or staff of the SFC
may be members of the Panel.
Note: The Disciplinary Chair Committee comprises up to eight duly experienced and legally
qualified persons.
3.14 Members of the Panel are appointed, and may be removed, by the SFC. Discussions on
proposals for review of or amendment to the Codes shall include the executive directors and
staff of the SFC.
3.15 The Chairman of non-disciplinary meetings of the Panel will be either the Chairman of the
Panel or its Deputy Chairman. If neither is available, any other member may be appointed as
the Chairman by the Panel. The Chairman of each meeting of the Panel will have a
deliberative and a casting vote. The quorum for the Panel is five, including the Chairman.
3.16 Each member of the Panel and, where applicable, his firm is required to comply with the
Conflicts of Interest Guidelines referred to the Introduction to the Codes, which can be found
on the SFC’s website.
Procedures
3.17 Panel meetings can be convened at short notice.
3.18 Aggrieved shareholders may apply to the Panel for a review of the Executive’s ruling but the
Panel must first be satisfied that such a request is not frivolous.
3.19 Except in urgent cases, the Executive must be notified at the latest within 14 days of the event

giving rise to the request for the review. Any request for a review shall contain the grounds
on which the review is requested.
3.20 Panel meetings often involve confidential price-sensitive information, and non-disciplinary
hearings of the Panel are therefore informal and held in private. Unlike proceedings before a
court of law, there are no rules of evidence, which means that the Panel can decide what
evidence to receive and consider and to draw inferences from. A recording of the hearing will
normally be made, and a transcript may be made which may be requested by any party to the
hearing subject to confidentiality proceedings. The Panel directs its own proceedings and may
make any enquiries it deems relevant or appropriate.
3.21 However, hearings are conducted in accordance with the Panel’s Rules of Procedure, which
are issued by the SFC from time to time and are available on its website.
3.22 The Chairman of the meeting may give such procedural direction as he considers appropriate
for the determination of a case.
3.23 A party is permitted to bring to a meeting its financial adviser(s) and/or legal adviser(s),
although questions addressed to a person are expected to be answered directly and without
conferring with their advisers. A party may either present its own case to the Panel, or have it
presented by advisers on its behalf, although it is not usual in the case of non-disciplinary
hearings for the case to be presented by legal advisers.
3.24 Normally, the parties should set out their case briefly in writing beforehand; the Executive
will submit a written summary of the issues, together with its ruling or views. The parties
may, with the consent of the Chairman, call witnesses.
3.25 Following the conclusion of a meeting, the Panel will inform the parties of its ruling and the
reasons for it as soon as its deliberations are complete.
Publication of non-disciplinary matters

3.26 The approach generally taken under the Codes is to publish rulings together with the reasons
for the ruling in order to promote the public’s understanding of the activities of the Executive
and the Panel. In particular:
(a) the Executive may publish rulings that represent important rulings and interpretations of
the Codes;
(b) it is the policy of the Executive to publish an announcement when it initiates proceedings
before the Panel; and
(c) rulings of the Panel are normally published on the SFC’s website as soon as practicable.
3.27 However, where there are confidentiality considerations of a commercial nature such as price
sensitive information, publication may be delayed.
Note: Publication of disciplinary rulings are discussed in section 4 below.
Role of the Securities and Futures Commission

3.28 The SFC will not as a matter of general policy involve itself in any ruling of the Panel or the
TAC.
3.29 Information provided to the Executive, the Panel or the TAC is treated in the strictest
confidence. Information received by the SFC is subject to the SFC’s own obligations of
confidentiality established under the SFO. As one of the functions of the SFC, and hence the
Executive, is to co-operate with other regulatory authorities, information received by the
Executive and the SFC may be shared with such other regulatory authorities.

Revision questions:
Question 3A: Is a non-verbal consultation with the Executive binding?

Answer 3A: No. If a binding ruling is sought, it is necessary to seek, in writing, a formal ruling.
Question 3B: Is a ruling of the Executive final?
Answer 3B: No, a ruling of the Executive may be appealed to the Panel.
Question 3C: Is the Panel a part of the SFC?
Answer 3C: No, the Panel is comprised of persons drawn from the financial and investment
community. One member of the Panel is required to be a non-executive director of
the SFC. No executive directors or staff of the SFC may be members of the Panel.
Question 3D: Can a party to proceedings before the Panel be represented by legal counsel?
Answer 3D: Yes, this is permitted.

4 Enforcement
4.1 An important element of the Codes is the mechanisms that provide for enforcement where the
Codes are, or are likely to be, breached. The Codes provide for three main layers of
enforcement by which disciplinary sanctions or directions may be imposed on persons subject
to the Codes: the Executive, the Panel, and the TAC (unlike the Executive and the Panel, the
TAC is only concerned with enforcement, not administrative, aspects of the Codes).
4.2 In any disciplinary matter, particular attention should be paid to the obligation, discussed in
Topic 1 section 2.6, to be open, co-operative and act professionally in all communications
with the Executive, the Panel and the TAC.
By the Executive
4.3 The Executive may itself deal with a disciplinary matter if the party to be disciplined agrees
to the disciplinary action proposed to be taken by the Executive. See Topic 8 for sample case
studies.
4.4 The Executive also has the power to issue a compliance ruling, which is a direction given by
the Executive seeking to restrain persons from acting or continuing to act in breach of, or to
secure compliance with, the Codes. This is a pre-emptive measure to prevent breaches and to
protect shareholders and the market. Compliance rulings may be given to persons who the
Executive is satisfied have breached, or likely will breach, the Codes.
By the Panel
4.5 The Executive may institute disciplinary proceedings before the Panel when it considers that
there has been a breach of the Codes or of a ruling of the Executive or the Panel. Disciplinary
proceedings before the Panel and the TAC are held in public save where the Chairman of the
hearing considers it necessary to hear a matter in private in order to preserve commercial
confidentiality, such as where inside information may be involved. The Chairman of a
disciplinary hearing is selected from a Disciplinary Chair Committee comprising suitably
experienced lawyers.
4.6 When the Executive initiates a proceeding, it will submit to the Panel and to the respondents
a paper that sets out its case. The respondents have 28 days to submit their response. All
supporting documents will need to accompany the response. This process will often involve
the appointment of legal advisers to assist with the submission of the response and other
related matters. At proceedings before the Panel, respondents may represent themselves or be
represented by their legal advisers.
4.7 Proceedings before the Panel are informal and inquisitorial, meaning that the Panel may
generally determine the conduct of the proceedings and may ask questions of the parties
involved or their witnesses. The standard of proof adopted is the civil standard, i.e. on the
balance of probabilities. The Panel may direct the parties to prepare a statement of agreed
facts. It is important that parties involved in proceedings comply with the directions of the
Panel as failing to do so without reasonable excuse may prejudice the ability of the party to
submit documents or provide evidence and may result in the Panel drawing such adverse
inferences as it sees fit.
4.8 If the Panel finds that there has been a breach of the Codes or of a ruling, it may impose any
of the following sanctions:
(a) issuance of a public statement which involves criticism;
(b) issuance of a public censure;
(c) requiring licensed and registered persons not to act in a stated capacity for any person
who has failed to comply, or has indicated that he does not intend to comply, with the

Codes or a ruling (often referred to as a “cold shoulder order”);
(d) banning advisers from appearing before the Executive or the Panel for a stated period;
and/or
(e) requiring further action to be taken as the Panel thinks fit.
Note: See Topic 8 for examples of enforcement decisions of the Panel.
4.9 In relation to breaches of certain provisions of the Takeovers Code (see Note below), the Panel
is also able to make a compensation ruling. This type of ruling provides financial redress to
the holders (or former holders) of securities of the offeree company. It does so by requiring
the person who has breached the relevant provisions of the Takeovers Code to make such
payments to such holders (or former holders) as may be necessary to put them in the position
they would have been in had the relevant provision been complied with. Such ruling may be
given irrespective of whether any sanction is applied. The Panel may consider a compensation
ruling as more appropriate than, for example, requiring the breach to be rectified by making
a general offer forthwith.
Note: The relevant provisions concern comparable offers (see Topic 3 section 3.6), the nature
and level of consideration required to be offered or conditions attached to an offer (see Topic
3 section 4), the mandatory offer obligation (see Topic 3 section 5), special deals (see Topic
6 section 4), and the prohibition on purchases at a higher price following an offer (see Topic
4 section 5.5).
4.10 The Chairman of the meeting and the Panel may also give a compliance ruling (as discussed
in section 4.4 above). Where there has been no finding of a breach of the Codes, either the
Executive or the Panel may report a person to other regulatory authorities or professional
bodies (such as the SEHK, Hong Kong Monetary Authority, the Law Society of Hong Kong,
the Hong Kong Institute of Certified Public Accountants or the Financial Reporting Council)
if they have reasonable grounds for believing that person may have breached any applicable
rules, regulations or standards of professional conduct.
4.11 Failure of any licensed or registered persons to comply with a ruling of the Panel may lead to
suspension or revocation of their licences or registration.
4.12 None of the parties or persons appearing before the Panel are permitted to make any
announcement of a ruling before the public announcement by the Panel. In addition, the
parties or persons may comment on the ruling, but no announcement by any of them may
contain any information about the meeting, or make any reference to the text of the ruling or
the reasons for it in terms other than those used in the public announcement issued by the
Panel.
Disciplinary appeals – the Takeovers Appeal Committee

4.13 A party dissatisfied with a disciplinary ruling of the Panel may appeal to the TAC. It must
make its application to appeal no later than five business days after the Panel’s ruling and may
only do so on the grounds the sanction imposed by the Panel is unfair or excessive based upon
the Panel’s finding of facts. The application must state the full grounds of appeal together
with reasons.
4.14 Like the Panel, the TAC is a committee of the SFC established under s. 8(1), SFO. The TAC
consists of a Chairman who is a member of the Disciplinary Chair Committee and other
members of the Panel. No member of the Panel may participate in a hearing of the TAC if he
had participated in the disciplinary proceedings in question.
4.15 Proceedings before the TAC are generally conducted in a similar way to those before the
Panel.

4.16 The TAC’s ruling and the reasons for it will be provided to the parties in writing as soon as
practicable following the hearing. The parties may also be advised verbally following the
conclusion of the TAC’s deliberations.
4.17 Parties or persons appearing before the TAC are subject to the same restrictions on making
announcements or comments on a ruling of the TAC, or information about the meeting, as
discussed in relation to rulings and meetings of the Panel (see section 4.12 above).
Publication of disciplinary rulings

4.18 In general, disciplinary rulings made pursuant to the Codes (including those by the TAC) are
published in the same manner and subject to the same considerations as applied in the case of
non-disciplinary rulings, as discussed in sections 3.26 to 3.27 above. While non-disciplinary
rulings of the Executive are only published where the rulings represent important rulings and
interpretations of the Codes, in practice, its disciplinary rulings are normally published.
Revision questions:
Question 4A: Can the Executive impose a disciplinary sanction on a person who has breached the
Codes?
Answer 4A: The Executive may do so if the party to be disciplined agrees to the proposed
disciplinary sanction.
Question 4B: Are disciplinary matters before the Panel and the TAC held in private?
Answer 4B: The proceedings are normally held in public save where the Chairman considers a
private proceeding is necessary in order to preserve commercial confidentiality.
Question 4C: State two types of sanction that the Panel may impose on a person who has breached
the Codes?
Answer 4C: A public censure and a cold shoulder order. See section 4.8 above.
Question 4D: What is the chief role of the TAC?
Answer 4D: To hear appeals by parties who are dissatisfied with a disciplinary ruling of the Panel.

Topic 3: Takeovers structures
Table of contents
Topic overview 1
Learning outcomes 1
1 Different arrangements and approaches 3
Offer 3
Offer period 4
Information 4
2 Acting in concert 6
Definition 6
Presumptions 6
Examples of arrangements entered into that may indicate a concert party relationship 7
3 General offers 10
Introduction 10
Types of general offers 10
4 Voluntary general offers 13
Consideration 13
Level of consideration 13
When cash offer required 14
When securities offer required 14
Conditions of the offer 14
Change of control during offer 15
5 Mandatory general offers 18
General Principle 2 and Rule 26 of the Code on Takeovers and Mergers 18
Terms 21
Waiver of obligation 21
6 Schemes of arrangement 26
Shareholder approvals 26
Costs 27
7 Privatisation 29
Compulsory acquisition 29
Withdrawal of listing 29
8 The offer timetable 32
Requirements for a general offer 32
Variation of the timetable 33
[Blank Page]
Topic overview
This Topic introduces the considerations relevant to different types of offer structure that may be
involved in a transaction subject to the Code on Takeovers and Mergers (“Takeovers Code”). It begins
with an overview of the different arrangements and approaches that an offeror or potential offeror
might take and notes that different approaches will interact with commercial considerations.
At the outset of any potential transaction, an important concept that will need to be considered and
assessed is acting in concert, as this has a number of potentially important consequences for persons
involved in an offer or connected with an offeror in the relevant regard. This is discussed in section
2.
The next sections then address different types of offer. Section 3 provides a brief review of the types
of general offer that may be made. Of these, two types of general offer require special attention as
they are frequently seen in the market, namely, the voluntary general offer and the mandatory general
offer, which are discussed in sections 4 and 5, respectively. The general offer may be contrasted with
an offer that is undertaken by way of a scheme of arrangement, which is discussed in section 6. Each
of these sections 4, 5 and 6 discuss the characteristics associated with each type of offer according to
the requirements of the Takeovers Code.
When taken together, sections 4, 5 and 6 also serve to highlight two fundamental distinctions. The
first distinction is that between an offer that is voluntarily made by an offeror (whether by way of
general offer or scheme of arrangement) and one that is imposed on a person by the Takeovers Code
as a mandatory obligation (the mandatory general offer) – significant because of the potential impact
on commercial planning and flexibility. The second distinction is that between the general offer
(whether voluntary or mandatory) and the scheme of arrangement – significant because the latter will
be subject to a court-governed procedure driven by the applicable company laws, which creates
different timing and other requirements as compared to the general offer.
The penultimate section 7 discusses the situation where an offeror intends to privatise and delist the
offeree company should the offer be successful. This will require an appreciation of regulatory
requirements arising not only under the Takeovers Code but also under the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”). Depending
on the offer structure, it may also require consideration of the applicable company laws.
The final section discusses the requirements arising under the Takeovers Code pertaining to timing
requirements, from the outset of an offer through to its conclusion. A summary table is provided at
the end of section 8 for ease of reference.
Learning outcomes
(a) explain the different types of offers and takeover structures that might be used to gain control of
another company;
(b) establish an understanding of the circumstances when persons may be regarded as acting in
concert, including the presumptions that apply;
(c) explain the circumstances where the actions of one member of a concert party may affect the
obligations of other concert party members;
(d) differentiate between voluntary and mandatory offers and the obligations and limitations arising
under each, including the permitted terms and the factors affecting the minimum offer price;
(e) recognise when a comparable offer may be required;
(f) identify the circumstances when a mandatory offer may be triggered;

(g) apply the trigger threshold and creeper threshold to different transaction scenarios;
(h) illustrate the circumstances where the Executive Director of the Corporate Finance Division of
the Securities and Futures Commission (“Executive”) may consider granting a waiver from an
obligation to make a mandatory offer;
(i) understand the circumstances and requirements for a whitewash transaction;
(j) understand the impact on the conduct of transactions where the chain principle applies;
(k) describe how a scheme of arrangement operates and how it is different from a general offer;
(l) establish an understanding of the provisions of the Takeovers Code that concern shareholder
approvals and disclosure;
(m) relate the requirements of the Takeovers Code to various provisions of the Listing Rules;
(n) establish an understanding of how to construct a timetable in accordance with the Takeovers
Code and apply it to a transaction scenario; and
(o) understand when an offer may be withdrawn.

1 Different arrangements and approaches
1.1 As already noted in Topic 1, there are a variety of commercial reasons that may underlie
matters or transactions falling within the ambit of the Codes (“TC Transactions”). Offerors
may seek to obtain or consolidate control with a view to achieving different outcomes and
may do so using different methods and approaches. The Takeovers Code allows for a variety
of approaches and takeover structures, and so permits some commercial flexibility in how an
offeror chooses to proceed. However, the Takeovers Code also imposes on the offeror, and
other persons subject to the Takeovers Code, requirements that arise out of overarching
regulatory concerns to protect the integrity of the market and its stakeholders. The highest-
level expression of such concerns can be found in the statement of purpose of the Codes on
Takeovers and Mergers and Share Buy-backs (“Codes”) (see Topic 1, section 1) and the
General Principles (See Topic 2, section 2).
1.2 Such regulatory concerns, together with the duties of directors, will inevitably have an effect
on the commercial freedom of action of the boards of an offeror and an offeree company, as
well as other persons involved in an offer. Accordingly, it is necessary for parties involved in
a TC Transaction to be aware of the limitations the Takeovers Code imposes on their actions,
and how they may pursue their commercial interests while remaining in compliance with the
Codes.
1.3 The Takeovers Code may be invoked in a number of different ways that will impact on which
provisions of the Takeovers Code will come into play. Changes of, or consolidation of, control
may be actively sought. Alternatively, it may come about as a consequence of some action
that has been taken, whether planned or inadvertently, including the actions of third parties;
the acquisition of votes as a result of purchasing shares in a listed company is one of the
examples, though there are others, as discussed in section 5 below.
1.4 It will also be necessary to consider who is a party to any potential or actual TC Transaction,
and to appreciate the obligations imposed on each such party at different stages. The concept
of “acting in concert” is introduced in section 2 below.
Offer
1.5 An offer may proceed either (i) by an offeror making a general offer to all the shareholders of
the target company (the offeree company), either by way of a voluntary or mandatory general
offer, or (ii) by an offeror seeking the offeree company to undertake a scheme of arrangement
in which its share capital is reorganised. These two very different approaches are respectively
addressed in sections 3 to 5 and 6 below. Although very different in nature, each of these
methods are regarded as an “offer” for the purposes of the Codes. Potential offerors and their
advisers will normally take great care in considering the characteristics of each of these
methods and which will provide them with the greatest chance of meeting their commercial
objectives.
1.6 Careful consideration is also warranted as the Takeovers Code provides that once a firm
intention to make an offer has been announced, it cannot be withdrawn except (i) with the
consent of the Executive, or (ii) where the offer is subject to a condition that is not satisfied
in a material regard (see Note 1 below). The Executive’s consent to the withdrawal would
normally be given where a competing offer has been made at a higher level of consideration
without additional conditions. General changes in the economic, industrial or political
landscape would not justify the withdrawal of an offer, and exceptional circumstances would
be required to support an application to the Executive not to proceed. In each case where the
Executive is minded to grant a consent not to proceed with an offer, the Executive may seek
the views of the offeree company and its advisers. Generally, the offeree company shall not
carry out acts with a view to blocking an offer (or an offer in contemplation). Some acts of
the offeree companies are considered frustrating actions and are prohibited under the

Takeovers Code, unless undertaken with the consent of the Executive (see Note 2 below).
Note 1: The non-satisfaction of conditions is discussed in section 4 below.
Note 2: Frustrating actions are discussed in Topic 4.
Offer period
1.7 Irrespective of the offer method involved, it will be essential to appreciate when an offer
period commences and when it ends. The offer period is an important concept because it will
determine many of the obligations that are imposed on the offeror, the offeree company and
others.
1.8 The offer period commences when an announcement is made of a proposed or possible offer
(with or without terms). The offer period ends on the later of when:
(a) the offer closes for acceptances;
(b) the offer lapses;
(c) a possible offeror announces that the possible offer will not proceed;
(d) an announcement about the withdrawal of a proposed offer is made; and
(e) where the offer contains a possibility to elect for alternative forms of consideration, the
latest date for making such election.
1.9 As explained in the following sections, and in section 8 below, these dates are determined in
material ways by provisions in the Takeovers Code that limit the extent of commercial
flexibility.
Information
1.10 Knowledge that has been formed or acquired in the course of considering whether to make or
making an offer may constitute information of a confidential, price sensitive or inside nature.
Potential offerors and their advisers will therefore need to take great care to observe the
obligations imposed upon them in relation to the handling of such information. The offeree
company and its advisers will also become subject to these obligations once it becomes aware
of a potential offer. Such obligations arise not only from the Takeovers Code but also from
the Securities and Futures Ordinance and the Listing Rules, as discussed in Topic 4.
Note: The obligations of financial advisers are discussed in Topic 5.
1.11 Closely connected with the foregoing concerns, it will also be necessary for all parties
involved in a takeover to be aware of their announcement obligations. In this regard, care
needs to be taken to distinguish between (i) offer announcements that give rise to or concern
an existing offer and (ii) information announcements that do not constitute an offer
announcement but may nevertheless trigger obligations under the Takeovers Code. This
distinction will become clear in Topic 4 section 4 where the announcement obligations of the
offeror and offeree company are discussed.

Revision questions:
Question 1A: To what extent does the Takeovers Code permit commercial flexibility in an offer?
Answer 1A: While the Takeovers Code does permit some commercial flexibility, overarching
regulatory concerns of the Takeovers Code will impinge on the commercial freedom
of action of the boards of an offeror and an offeree company, as well as other persons
involved in an offer.
Question 1B: Is a general offer the only way an offer may proceed?
Answer 1B: No, an offeror may also proceed by seeking the offeree company to undertake a
scheme of arrangement in which its share capital is reorganised.
Question 1C: Once an offer period has commenced, when does it conclude?
Answer 1C: The offer period concludes on the later of certain events, as described in section 1.8
above.

2 Acting in concert
Definition
2.1 The complexity and size of takeover transactions often means that the objectives of an offeror
may involve other persons cooperating with the offeror to gain or consolidate control of
another company and/or having an interest in the outcome of the offer, for example, beyond
that of a shareholder in the offeree company. To capture them, the Codes provide for the
concept of “acting in concert”.
2.2 There are two essential elements to the definition of acting in concert:
(a) two or more persons actively cooperate to obtain or consolidate control of a company
through the acquisition by any of them of voting rights of the company; and
(b) their cooperation is pursuant to an agreement or understanding among them, which may
be formal or informal.
Note: The offeror and the group of persons acting in concert with the offeror are normally
referred to as a “concert party”. Persons who are members of the same concert party are
referred to as “concert parties”.
2.3 While a concert party may be formed as a result of arrangements its members have entered
into, certain persons are presumed to be acting in concert by virtue of some pre-existing
relationship, as discussed in section 2.7 below.
2.4 In general, requirements of the Takeovers Code that apply to the offeror also apply to its
concert parties. This is crucial to recognise since, once a concert party comes into existence,
all the voting rights controlled by its members are aggregated for the purposes of the
Takeovers Code. This may have important implications as regards the mandatory offer
obligation under Rule 26 of the Takeovers Code (“TC r26”), which is discussed in section 5
below. In particular, potentially onerous obligations may be imposed on members of a concert
party as a result of the actions of one of its members.
2.5 Given the breadth of the concept, the determination of what persons may be regarded as being
members of a concert party may not always be straightforward. Accordingly, an important
task of a financial adviser is to assess, at an early stage of its appointment, by undertaking
appropriate due diligence:
(a) who will be presumed to be acting in concert (see section 2.7 below);
(b) who might be regarded as acting in concert as a result of entering into arrangements (see
the examples given under sections 2.8 to 2.15 below);
(c) the detailed arrangements between different members of a concert party; and
(d) the holdings and recent trading activities and other relevant acts of each member of a
concert party in relation to the voting interests of the offeree company (and the offeror
in the case of a securities exchange offer).
2.6 The Executive should be consulted at an early stage if there is doubt as to who might be
regarded as a member of a concert party. This is important as issues related to the existence
of a concert party are frequently in play.
Presumptions
2.7 The Codes provide that certain classes of persons are presumed to be acting in concert with
others in the same class unless the contrary is established:
(a) Class (1): a company, its parent, its subsidiaries, its fellow subsidiaries, associated
companies of any of the foregoing, and companies of which such companies are
associated companies;

Note: An individual controlling 20% or more of the voting rights of a company in class
(1) will, together with persons falling in class (8) below, be regarded as acting in concert
with one or more persons in class (1), unless the contrary is established.
(b) Class (2): a company with any of its directors (and their close relatives, related trusts
and companies controlled by any of these persons) or those of its parent;
Note: For the purposes of classes (2), and classes (6) and (8) below, “close relatives”
means a person’s spouse, de facto spouse, children, parents and siblings.
(c) Class (3): a company with any of its pension funds, provident funds and employee share
schemes;
Note: Class (3) does not apply to an employee benefit trust.
(d) Class (4): a fund manager (including an exempt fund manager) with any investment
company, mutual fund, unit trust or other person, whose investments such fund manager
manages on a discretionary basis;
Note: Exempt fund managers are discussed in Topic 6.
(e) Class (5): a financial adviser or other professional adviser (including a stockbroker) with
its client in respect of the shareholdings of the adviser and persons controlling, controlled
by or under the same control as the adviser (except in the capacity of an exempt principal
trader or exempt fund manager);
Note: Exempt principal traders are discussed in Topic 6.
(f) Class (6): directors of a company (and their close relatives, related trusts and companies
controlled by any of these persons) which is subject to an offer or where the directors
have reason to believe a bona fide offer for their company may be imminent;
(g) Class (7): partners;
(h) Class (8): an individual (including any person who usually acts in accordance with the
individual’s instructions) with his close relatives, related trusts and companies controlled
by any of these persons; and
(i) Class (9): a person, other than an authorised institution lending money in the ordinary
course of business, providing finance or financial assistance (directly or indirectly) to
any person (or his concert party) relating to an acquisition of voting rights (including
any direct or indirect refinancing of the funding of the acquisition).
Examples of arrangements entered into that may indicate a concert

party relationship
2.8 In addition to the foregoing presumptions, the question of whether a person involved in a
takeover is a member of a concert party depends on the factual circumstances in each case,
which will require careful investigation. The following situations are examples of where the
concert party question will frequently need to be considered.
2.9 Consortium offers: Where two or more persons form a vehicle company, for the purpose of
making an offer, such persons will normally be treated as acting in concert with the offeror.
If an investor in a consortium formed is part of a larger organisation, the Executive will need
to be consulted as to which other parts of that organisation may also be regarded as acting in
concert.
Note: An offeror wishing to form a consortium will also need to be aware of its other
obligations under the Takeovers Code. This is discussed in Topic 6.
2.10 Shareholders voting together: Shareholders voting together on particular resolutions will
not normally be regarded by the Executive as the action of a concert party. However, such an
arrangement may be taken into account as one indication that the shareholders are acting in

concert.
2.11 Standstill agreements: Arrangements between a company (or its directors) and a shareholder
of the company that restrict the actions of the shareholder or the directors in relation to making
or accepting an offer, or from increasing or reducing their shareholding, may be relevant for
the purpose of determining whether the parties to the standstill agreement are acting in
concert.
2.12 Irrevocable undertakings and warranties: A shareholder who gives an irrevocable
undertaking to an offeror to accept an offer (whether to accept a general offer or to vote in
favour of a scheme of arrangement), or who gives warranties to an offeror in relation to the
offeree company will not, of itself, and in the absence of any other factor, lead to the
presumption that the shareholder is acting in concert with the offeror.
2.13 Underwriting arrangements: Where a securities exchange offer includes a cash alternative
that is underwritten by a third party, it will be necessary to consider whether the arrangements
with the underwriter might render the underwriter a concert party. Underwriting arrangements
on arm’s length commercial terms would not normally cause the underwriter to be regarded
as a concert party. However, the Executive will consider the overall terms of the underwriting
agreement to see if there are any features of which may lead the Executive to conclude that a
sufficient level of understanding has been created between the offeror and the underwriter to
amount to an agreement or understanding within the meaning of acting in concert. In
particular, the Codes provide that the following features could give rise to a concert party
concern: the proportion of the ultimate total liability assumed by an underwriter, the
commission structure, or the degree of involvement of the underwriter with the offeror in
connection with the offer.
2.14 Lending banks: An arm’s length agreement between a lending bank and a shareholder who
borrows money for the acquisition of shares will not normally result in the bank becoming a
concert party.
2.15 Break up once concert party established: In some cases, two or more persons will seek a
ruling from the Executive to confirm they are acting in concert. Where a confirming ruling is
subsequently given, or where persons have admitted they are acting on concert, it will be
necessary for clear evidence to be presented before it can be accepted that such parties are no
longer acting in concert.
Note: The reader may wish to refer to the May 1998 decision of the Takeovers and Mergers
Panel (“Panel”) regarding the liquidation of a holding company that had been formed by a
concert party. Following the liquidation, members of the concert party submitted that they no
longer act in concert, and appealed a ruling obtained from the Executive in this regard. The
Panel found that there was insufficient evidence to support the break up of the concert party.
The further details of the Panel decision are outside the scope of this syllabus.

Revision questions:
Question 2A: What are the two essential elements of the definition of acting in concert, and is this
the only way two persons might be regarded as acting in concert?
Answer 2A: The two elements concern active cooperation to obtain or consolidate control
pursuant to some agreement or understanding between two or more persons, as
described in section 2.2 above. However, it should also be noted that certain persons
may be presumed to be acting in concert unless the contrary is established, as
described in section 2.7 above.
Question 2B: Why is it important to recognise whether two persons are regarded as acting in
concert with each other?
Answer 2B: The voting rights controlled by members of a concert party will be aggregated for
the purposes of the Takeovers Code, and the actions of one member of a concert party
may give rise to potentially onerous obligations being imposed on other members of
the concert party.
Question 2C: What is a Class (5) concert party?
Answer 2C: This refers to financial advisers or other professional advisers who are presumed to
be acting in concert with their clients.
Question 2D: Is a person who gives an irrevocable undertaking to an offeror regarded as acting in
concert with the offeror?
Answer 2D: In the absence of other factors, an irrevocable undertaking does not, by itself, give
rise to a concert party relationship.

3 General offers
Introduction
3.1 A general offer is an offer made by an offeror to all shareholders of an offeree company to
purchase their shares, subject to the terms on which the offer is made. This may take the form
of a voluntary general offer or a mandatory general offer. A voluntary general offer is one that
has been made voluntarily, not pursuant to a mandatory general offer obligation arising under
TC r26. Voluntary general offers are discussed in section 4 below and mandatory general
offers are discussed in section 5 below.
Note: Instead of making a voluntary general offer, an offeror (which is not subject to a
mandatory general offer obligation) may choose to make an offer by way of a scheme of
arrangement, and this approach is discussed in section 6 below).
3.2 As noted above, a general offer is made subject to the terms and conditions of the offer, and
in this regard voluntary offers have some flexibility compared to mandatory offers, as to the
nature and level of the consideration offered and the conditions attached to the offer.
3.3 Except with the consent of the Executive, all general offers (other than partial offers) are
required to be subject to an “acceptance condition” – that is, a condition that refers to the level
of acceptances received by the offeror together with shares acquired or agreed to be acquired
before or during the offer by the offeror and its concert parties. The minimum threshold for
the acceptance condition is more than 50% of the voting rights of the offeree company (the
“50% acceptance condition”).
3.4 Voluntary offers may set a higher threshold for acceptances and include certain other
conditions, as discussed in section 4 below. However, a mandatory offer may not contain any
conditions other than the 50% acceptance condition.
Note: An acceptance can only be counted towards fulfilling the acceptance condition if the
acceptance form is duly completed and executed and received by the offeror’s receiving agent
by the last time set out in the offer’s document. An offer can only be declared unconditional
as to acceptances following the issue of the receiving agent’s certificate confirming the
number of validly received acceptances. Copies of such certificate must be provided to the
Executive and the financial adviser of the offeree company.
Types of general offers

3.5 While this Topic is largely concerned with offers for all the outstanding voting equity shares
of a company subject to the Takeovers Code, there are a number of other types of offers that
can be made within the overall ambit of voluntary or mandatory general offers, as follows.
3.6 Comparable offers: Where a company has more than one class of equity share capital, a
comparable offer must be made for each class whether or not the shares carry voting rights.
The Executive must be consulted in all such cases.
3.7 Offers for convertible securities/subscription rights: Where the offeree company has
outstanding issued securities convertible into equity or any rights to subscribe for equity,
including convertible bonds, options, warrants, etc., the offeror must make an appropriate
offer or proposal to their holders. This requirement reflects General Principles 1 and 2 of the
Codes and is intended to ensure equal treatment of holders of convertible
securities/subscription rights. This requirement applies to all such convertible
securities/subscription rights irrespective of whether the conversion/subscription rights are
exercisable during the offer period. Any such offer is required to be made conditional on the
offer for equity shares. The consideration will normally be considered appropriate if it is a
“see-through” price based on the offer price for the relevant equity share capital (i.e. the
prevailing price for the convertible securities/subscription rights in the market is irrelevant

for this purpose).
Note: For an example of a see-through price, see Practice Note 6. The further details of
Practice Note 6 not covered here are outside the scope of this syllabus.
3.8 Partial offers: A voluntary share offer can be made in the form of a partial offer, which is an
offer to buy a specified number (but not all) shares carrying voting rights. All partial offers
require the consent of the Executive, which will normally be given where:
(a) the offeror and its concert parties will end up with less than 30% of the voting rights; or
(b) the offeror and its concert parties hold more than 50% of the voting rights and the offer
will take the total holding of the voting rights to no more than 75%.
3.9 A partial offer should be made by the common pool method. This method provides a means
of dealing with the situation where the total number of acceptances tendered exceed the
number of shares which are the subject of the partial offer. In this method, the percentage of
shares that an offeror will take from each accepting shareholder is equal to the percentage of
shares the offeror will take up from the total pool (see Note 1 below). There is no requirement
for provision to be made for excess applications.
Note 1: The percentage is calculated as follows: the number of shares subject to the partial
offer divided by the number of shares tendered by accepting shareholders.
Note 2: Where a partial offer may result in shareholders holding odd lots, and designated
broker may be appointed to match sales and purchases of odd lot holders. However, the broker
may not make an offer to buy the odd lots from shareholders.
3.10 If a partial offer may result in the offeror becoming subject to a mandatory offer obligation
under TC r26, the Executive will normally not give consent if the offeror or its concert parties
have acquired voting rights in the offeree company during the six months prior to the
commencement of an offer period.
3.11 Share buy-backs by general offer: This is discussed in Topic 7, section 2.
3.12 Offers that comprise reverse takeovers: Where an offer may result in the offeror increasing
its existing issued voting share capital by more than 100%, the transaction will be regarded
as a reverse takeover for the purposes of the Takeovers Code. Reverse takeovers create
additional obligations for the board of the offeror, and these are discussed in Topic 4.
Note: A securities exchange offer that involves an offeror offering its own shares as
consideration may give rise to a reverse takeover depending on the relative valuation of the
offeror and offeree company.
3.13 Some of these types of general offer can only arise under a voluntary general offer context,
namely, partial offers and share buy-backs by general offer. Comparable offers and offers for
convertible securities/subscription rights arise as a result of the operation of the Takeovers
Code and the particular characteristics of the securities that have been issued by the offeree
company; accordingly, the obligation to make these kind of offers can arise in either the
voluntary or mandatory general offer contexts. Finally, an offer that comprises a reverse
takeover will normally arise in a voluntary offer context; it is possible though less likely to
arise in a mandatory offer context since, inter alia, all mandatory offers must be accompanied
by a cash alternative, as discussed in section 5 below.

Revision questions:
Question 3A: What is a general offer?

Answer 3A: A general offer is an offer made by an offeror to all shareholders of an offeree
company to purchase their shares, subject to the terms and conditions on which the
offer is made. A general offer may be a voluntary or mandatory offer.
Question 3B: What does “acceptance condition” mean and what offers have an acceptance
condition?
Answer 3B: All general offers other than partial offers must be subject to an acceptance condition,
which refers to the level of acceptances received by the offeror together with shares
acquired or agreed to be acquired before or during the offer by the offeror and its
concert parties.
Question 3C: Where an offeree company has classes of equity share capital that do not carry voting
rights, is an offeror required to make an offer for them?
Answer 3C: Yes, an offeror is required to make a comparable offer. The Executive must be
consulted in all cases.
Question 3D: Under what circumstances can a partial offer be made by an offeror holding less than
30% of the voting rights of a company subject to the Codes?
Answer 3D: The consent of the Executive will be required, and this will normally be given if the
result of the partial offer is that the offeror and its concert parties will end up with
less than 30% of the voting rights.

4 Voluntary general offers
Consideration
4.1 A voluntary offer may be in cash or in some other form of consideration (typically transferable
securities). Where the consideration includes securities of the offeror or another company, it
is known as a securities exchange offer. Where the consideration comprises some form of
consideration other than cash but includes an option to elect for cash, it is known as a cash
alternative.
4.2 While an offeror making a voluntary offer is normally free to determine the nature and level
of consideration offered (unlike mandatory offers), in various circumstances the offeror may
be required to, for example, include a cash alternative. The offeror may also be subject to
restrictions on the minimum offer price allowed. The relevant provisions are discussed below.
Since these provisions will, if they apply, have a significant effect on the terms of a voluntary
offer, it will be usual for a financial adviser at the outset of its appointment to an offeror to
conduct due diligence on the share dealing activities of the offeror and its concert parties over
an appropriate look back period.
Level of consideration
4.3 In general, the level of consideration set in a voluntary offer is at the commercial discretion
of the offeror. However, this is subject to some important limitations that give effect to
General Principle 1 (see Topic 2, section 2), and which safeguard the integrity of the market.
4.4 If the offeror or any person acting in concert with it purchases shares in the offeree company
during the offer period or the three-month period prior to its commencement, the level of
consideration offered to shareholders of the same class must not be on less favourable terms.
Where the offer is a securities exchange offer, the current value of the offer on a given day is
determined by reference to the weighted average traded price of board lots of the issued
securities traded during the immediately preceding trading day.
Note: Subject as provided in sections 4.11 to 4.13 below, the above requirement does not
require a cash alternative even if the shares have been bought for cash.
4.5 Where the offer is a mix of cash and securities, purchases of shares after the formal
announcement of an offer at a price higher than the offer price will oblige the offeror to
increase the value of the offer while maintaining, so far as practicable, the same ratio of cash
to securities as represented by the offer.
4.6 In addition, the Executive has the discretion to consider purchases made prior to the three-
month periods mentioned above if necessary to give effect to General Principle 1, though it
would normally not do so unless the shares were purchased from directors or other persons
closely connected with the offeror or offeree company.
4.7 The level of consideration offered is also subject to rules where a cash offer or cash alternative
is required – as discussed in sections 4.11 to 4.13 below. Where those rules apply, the
consideration offered must be at not less than the highest price paid for the offeree company
shares during the relevant period.
4.8 When calculating the highest price paid, the following deductions may be made: (i) stamp
duty and dealing costs; and (ii) any net dividend declared but not yet paid, provided that
accepting shareholders will under the terms of the offer remain entitled to retain the dividend.
4.9 In any case where the offeror or its concert parties purchase shares in the offeree company
during the offer period at a level above the offer price, the offer will need to be increased
accordingly and an announcement shall be made (see further section 8 below).

Low ball limit
4.10 “Low ball” offers (i.e. unrealistically low offers) might be used as a tactic to frustrate the
offeree company’s business where there is no genuine intention to take over the offeree
company. The Codes therefore provide that a voluntary offer at a discount of more than 50%
to the market price of the shares will not normally be allowed to proceed, except with the
Executive’s consent. In all cases which fall within “low ball” offers, the Executive should be
consulted (see Note to definition of “offer” in the Codes).
When cash offer required

4.11 A voluntary offer must be made in cash, or include a cash alternative, in the following
circumstances (unless the Executive has given consent to the contrary):
(a) the offeror or any of its concert parties purchase shares for cash during the offer period
and the six-month period prior to its commencement which together represent 10% or
more of the voting rights of that class; or
Note: Where 10% or more of the voting rights of that class have been acquired in
exchange for any securities in the three months prior to the commencement of, or during,
the offer period, the offeror may be required to include an offer of the same securities in
its offer. Unless the Executive consents otherwise, the 10% figure is calculated on a
gross-purchases basis (i.e. not allowing deduction of shares sold during the period).
(b) any shares were purchased for cash by the offeror or its concert parties during the offer
period.
4.12 In addition, the Executive has the discretion to consider purchases where less than 10% of
shares has been made in the foregoing six-month period if necessary to give effect to General
Principle 1. However, it would normally not do so unless the shares were purchased from
directors or other persons closely connected with the offeror or offeree company. In this
regard, purchases of 10% or more that have been made in the prior six months for a mixture
of securities and cash may also be relevant.
4.13 For the purposes of section 4.11 above, a purchase of shares in exchange for securities will
be deemed to be a purchase for cash, except where the vendors of the offeree company shares
are required to hold the securities received until the offer has lapsed or the offer consideration
has been posted to accepting shareholders. The same requirement will also apply to the
conversion or exercise of convertible securities. In the case of shares carrying voting rights
being allotted but not issued, the Executive should be consulted.
When securities offer required

4.14 The Takeovers Code also makes provisions for when the offeror or any of its concert parties
purchase shares in exchange for securities during the offer period and the three-month period
prior to its commencement which together represent 10% or more of the voting rights of that
class.
Conditions of the offer

4.15 A voluntary offer may be made subject to an acceptance condition higher than the 50%
acceptance condition (see section 3.3 above), as well as other conditions. Consistent with
General Principle 5, all conditions to which an offer is subject must be stated in the offer
announcement made pursuant to Rule 3.5 of the Takeovers Code (“TC r3.5”) (see Topic 4).
This will require the offeror and its advisers, including the financial adviser, to conduct
sufficient and thorough due diligence so as to be able to clearly identify all relevant
conditions.
Note: This section discusses conditions of a formal offer. A potential offeror may also make a

possible offer announcement, including one that is subject to pre-conditions, in which case
slightly different considerations apply, and this is discussed in Topic 4, section 4.12 to 4.17.
4.16 Conditions of an offer shall include details of all types of material regulatory approvals that
may be required to complete an offer. Providing generic conditions in the relevant
announcement, such as “all regulatory approvals, authorisations or consents being obtained”
would be regarded as inadequate. A potential offeror and its advisers may need to consider
the desirability of including such regulatory approvals as conditions in a pre-conditional
possible offer announcement made prior to starting an offer period rather than in the offer per
se (see further Topic 4 section 4).
Note: An offeror must disclose a particular regulatory approval in its firm intention offer
announcement made pursuant to TC r3.5 if it wishes to have the opportunity to rely on it as a
condition to the offer. The Executive may not allow the offeror to walk away from an offer
where such disclosure has not been made and the relevant regulatory approval has not been
obtained, even if this may result in the offeror needing to proceed with an offer in breach of a
legal or regulatory requirement. A failure to identify and disclose a relevant regulatory
approval could indicate a failure to undertake proper due diligence and may reflect on the
financial adviser’s ability and competence. See further Topic 4, section 4.
4.17 An offer must not be made subject to any conditions that depend on judgements by the offeror
(such as a subjective condition) or the fulfilment of which is in its hands. However, the
Executive may be prepared to accept certain conditions, such as the obtaining of regulatory
approvals, that may depend on the offeror fulfilling certain requirements in relation to the
approval. Further, an offer that is conditional on statements or estimates being appropriately
verified would normally be acceptable.
4.18 In addition, an offer must not be subject to a condition that it is able to obtain relevant
financing, or a condition to a similar effect.
4.19 Some typical examples of acceptable conditions are as follows:
(a) the offer sets a higher acceptance condition, such as 90% of the offeree company voting
rights (normally used where an offeror seeks to privatise a company by exercising a right
of compulsory acquisition – see sections 7.2 to 7.4 below);
(b) the approval of The Stock Exchange of Hong Kong Limited (“SEHK”) to admit the
relevant securities (normally used where listed securities are being offered as
consideration); and
(c) the approval of a certain regulatory authority (normally used where regulatory approval
is required for normal continuation of business).
4.20 An offeror should not invoke a condition, so as to cause the offer to lapse unless the
circumstances which give rise to invoke the condition are of material significance to the
offeror in the context of the offer.
Note: An offeror may normally not waive fulfilment of a condition unless the offer
announcement made pursuant to TC r3.5 states it can be waived.
4.21 Finally, all conditions must be fulfilled or the offer must lapse within 21 days of the later of:
(i) the first closing date and (ii) the date the offer becomes or is declared unconditional as to
acceptances. See further section 8 below.
Change of control during offer

4.22 It may happen that, during the course of a voluntary offer, there is a change in control of the
offeree company that causes the offeror to become subject to a mandatory offer obligation,
for example, as a result of the offeror or its concert parties acquiring additional voting rights.
Where such action is intended, the Executive must be consulted in advance. Such an

acquisition can only be made if the offer can remain open for acceptance for a further 14 days
following the date on which the revised offer document is posted.
4.23 Once a mandatory offer obligation is incurred, an offer in compliance with TC r26 must be
announced immediately. Accordingly, the voluntary offer is replaced by a mandatory offer
that is subject to the rules applying to mandatory offers. As discussed in sections 5.20 to 5.23
below, the only condition remaining is the 50% acceptance condition. Such an announcement
is not, for the purposes of other rules of the Codes, regarded as a revised offer if no change in
the nature or level of consideration is involved, in which case it will be sufficient for the
offeree company shareholders to be advised in writing:
(a) of the new total holding of the offeror;
(b) that not more than 50% of voting rights is held, which is the only condition remaining;
and
(c) of the period for which the offer will remain open following posting of the document.
Note: If there is a change in the consideration, the offeror will need to make an appropriate
revision to the offer in the announcement (announcement requirements are discussed in Topic
4 section 4). Section 5 below discusses the requirements attaching to mandatory offer
obligations.

Revision questions:
Question 4A: Must a voluntary offer be in cash only?

Answer 4A: No, a voluntary offer may be in cash or some other form of consideration. A cash
offer will only be required in specific circumstances, as discussed in sections 4.11 to
4.13 above.
Question 4B: What are the main issues to consider as regards the level of consideration offered in
a voluntary offer?
Answer 4B: The most important is the principle that the level of consideration offered to
shareholders of the same class must not be on less favourable terms than other
purchases (of shares of the same class) made by the offeror or its concert parties in
the three-month period prior to the commencement of the offer period and during the
offer period, however, this period may be extended to six months prior to the
commencement of the offer period in certain circumstances. There is also a
restriction on making low-ball offers.
Question 4C: Must a voluntary offer contain a minimum acceptance condition?
Answer 4C: All voluntary offers contain a minimum acceptance condition of more than 50% of
the voting rights of the offeree company. A voluntary offer may also set a higher level
of acceptances.
Question 4D: Can an offeror make an offer containing subjective conditions?
Answer 4D: The conditions attached to an offer must be objective and not depend on judgements
by the offeror or conditions where the fulfilment of which is in its hands. The
Executive may be prepared to accept certain conditions, such as the obtaining of
regulatory approvals that may depend on the offeror fulfilling certain requirements
in relation to the approval.
Question 4E: What should an offeror do if, during a voluntary offer, it is planning to acquire control
of additional voting rights that would give rise to a mandatory offer obligation?
Answer 4E: It must consult the Executive in advance of taking any action that would trigger a
mandatory offer obligation.

5 Mandatory general offers
General Principle 2 and Rule 26 of the Code on Takeovers and
Mergers
5.1 General Principle 2 provides that where the control of a company changes or is acquired or
consolidated, a general offer to all other shareholders is normally required. In this regard, it
is important to recognise that the Takeovers Code is concerned with the control of voting
rights, not the ownership of shares per se. Therefore, it is sufficient for a person to obtain
control over voting rights and it is not necessary to be the beneficial owner of the shares or a
registered shareholder.
5.2 The above principle is implemented by TC r26, which sets out the circumstances when a
mandatory offer is required. TC r26 is an extremely important provision of the Takeovers
Code as it may impose onerous obligations on persons who become subject to it, and it is
frequently in play in takeovers scenarios. In addition, great care will need to be taken as
regards the actions of members of a concert party, which may give rise to a mandatory offer
obligation.
5.3 TC r26 provides for two different situations where a person or its concert parties are required
to make a mandatory offer: these are commonly referred to as the “trigger” and “creeper”
thresholds of the Takeovers Code.
5.4 A mandatory offer is required to be made when:
Trigger threshold
(a) any person, whether by a series of transactions over a period of time or not, acquires or
otherwise comes to control the exercise of 30% or more of the voting rights of a
company; or
(b) any one or more persons in a concert party that collectively holds less than 30% of the
voting rights of a company, whether by a series of transactions over a period of time or
not, acquires or otherwise comes to control the exercise of further voting rights which
would increase the concert party’s collective holding of voting rights of the company to
30% or more;
Creeper threshold
(c) any person holding not less than 30% and not more than 50% of the voting rights of a
company acquires or otherwise comes to control additional voting rights which would
increase his holding of voting rights of the company by more than 2% from his lowest
percentage holding in the 12-month period ending on and inclusive of the date of the
relevant acquisition; or
(d) any one or more persons in a concert party that collectively holds not less than 30% and
not more than 50% of the voting rights of a company acquires or otherwise comes to
control additional voting rights which would increase the concert party’s collective
holding of voting rights of the company by more than 2% from the concert party’s lowest
percentage holding in the 12-month period ending on and inclusive of the date of the
relevant acquisition.
Note: See sections 5.9 to 5.17 below for further clarification of the creeper threshold.
5.5 Unlike the degree of flexibility allowed in connection with voluntary offers, all mandatory
offers must be subject to the 50% acceptance condition and no other conditions are allowed.
Note: Either of the trigger or creeper thresholds may be crossed as a result of a share sale
and purchase agreement (“SPA”). It is not acceptable for a SPA to contain a condition that
the buyer (who will become subject to a mandatory offer obligation following completion of

the transaction) is able to obtain relevant financing to make the mandatory offer.
Examples
5.6 To illustrate the operation of the trigger and creeper thresholds, the following are four
examples of where an acquisition of interests in voting rights would give rise to a mandatory
offer obligation:
(a) U holds a 29.0% voting interest and acquires a 1.0% voting interest;
(b) V & W are concert parties who each hold a 14.5% voting interest and W acquires a 1.0%
voting interest;
Note: It would also be triggered if each of V & W independently acquired a 0.5% voting
interest.
(c) X has been holding a 35.0% voting interest in the last 12 months, and acquires, within a
12-month period, a voting interest of more than 2.0%; and
Note: If X had during the same 12-month period sold 3.0% of its voting interest before
any further acquisition, the maximum voting interest that X could hold at the end of such
period without triggering a mandatory offer obligation would be 34.0% since the
creeper threshold is calculated based on the lowest percentage holding during the
preceding 12 months.
(d) Y & Z are concert parties who together have been holding a 50.0% voting interest during
the last 12 months, and Z acquires, within a 12-month period, a voting interest of more
than 2.0%.
Note: Similar to the example at (c) above, if the Y & Z concert party had during the same
12-month period sold 3.0% of their voting interests before any further acquisition, the
maximum interest the concert party could hold at the end of such period without
triggering a mandatory offer obligation would be 49.0%.
5.7 In examples (b) and (d) above, the concert parties have already been formed and the actions
described have occurred subsequent to its formation. The act of forming a concert party (i.e.
the coming together of persons who have previously acquired voting rights independently of
each other) is not normally relevant to the mandatory offer obligation; only subsequent
acquisitions will be relevant. To illustrate this, we can consider three different scenarios
around the following assumed facts: (i) person S has a 20.0% voting interest, and (ii) person
T has, over the past 6 months, acquired shares to increase his holdings from 5.0% to his current
15.0% voting interest:
(a) today, S and T decided to enter into a concert party arrangement (so that the concert
party will be regarded as holding a 35.0% voting interest) – no mandatory offer
obligation exists;
(b) one month after (a) above, T acquires a further 2.5% voting interest – a mandatory offer
obligation is imposed because of the creeper threshold being applied to the concert party
holding increasing from 35.0% to greater than 37.0%; and
(c) the day after (a) above, it is discovered that, starting from one year ago, S and T in fact
had an arrangement that satisfied the definition of acting in concert – a mandatory offer
obligation is imposed because of the trigger threshold being applied, since at some point
during T’s acquisitions over the past six months the concert party will have moved from
less than 30% to 30% or more.
5.8 As shown in the above examples, the question of when a concert party was formed is critical
to establish, which depends on the factual circumstances in each case.

Clarification of the creeper threshold
5.9 Persons or concert parties that hold 30% or more of the voting rights of a company but not
more than 50% may engage in both acquisitions and disposals of voting rights during any 12-
month period over which the rule is applied. The precise application of the creeper threshold
in such circumstances is as follows.
5.10 Acquisitions and dispositions of voting rights: Acquisitions and disposals of further voting
rights within a band of 2% above the greater of 30% or its lowest percentage holding of voting
rights in the previous 12-month period may be made without incurring a mandatory offer
obligation. Within this band, dispositions of voting rights may be netted off against
acquisitions thereof.
5.11 Effect of dispositions: Where a disposal of voting rights is made in circumstances other than
those mentioned in section 5.10 above, the reduced holding becomes the new lowest
percentage holding for purposes of the creeper threshold. A mandatory offer obligation will
arise if the reduced holding is increased by net acquisitions of voting rights by more than 2%
in the next 12-month period.
5.12 Effect of dispositions to below 30%: If a disposition causes the holding to fall below 30%,
a mandatory offer obligation will arise if the holding is subsequently increased to 30% or
more.
5.13 Effect of dilution: Subject to the circumstances mentioned in section 5.14 below, the dilution
of a holding of voting rights by the issue of new shares or otherwise will normally be regarded
by the Executive as equivalent to a reduction by way of a disposition of voting rights.
5.14 Placing and top-up transactions: A shareholder participating in a placing and top-up
transaction may, as a result of the change in his holdings, cross either the trigger threshold or
the creeper threshold. In such a case, the Executive will normally grant a waiver from a
mandatory offer obligation where (i) the shareholder, together with persons acting in concert
with him, holds not more than 50% of the voting rights in the company, (ii) his shares are
placed to an independent third party, and (iii) as soon as practicable thereafter he subscribes
for new shares up to the number placed at a price substantially equivalent to the placing price
after expenses incurred in the transaction. He will then be deemed to have a lowest percentage
holding equal to the lower of his lowest percentage holding in the 12-month period prior to
or immediately after the placing and top-up transaction.
5.15 Effect of whitewash (see section 5.35 below): When a mandatory offer obligation is waived
pursuant to a whitewash transaction (see section 5.36 below), the person, or group of persons,
that is the subject of the waiver shall be deemed to have a lowest percentage holding equal to
his or their percentage holding immediately after the whitewash transaction. Any acquisition
of additional voting rights by such person, or group of persons, subsequent to the whitewash
transaction, shall be subject to the creeper threshold by reference to the lowest percentage
holding in the 12-month period ending on the date of the completion of the relevant
acquisition.
5.16 Voting rights acquired during mandatory offer: If a mandatory offer does not become
unconditional, an offeror shall be deemed to have a lowest percentage holding equal to his
aggregate holding of voting rights at the close of the offer period, including any voting rights
acquired during the offer.
5.17 Holdings between 48% and 50%: The creeper threshold applies to any immediately
preceding 12-month period if at any time during such period, a person, or group of persons
acting in concert, holds 50% or less of the voting rights. For example, a person or group of
persons with 49% of the voting rights of a company cannot acquire more than a further 2% of
the offeree company’s voting rights (resulting in a total of 51%) for a period of 12 months
thereafter.

Chain principle offer
5.18 A person acquiring statutory control of a company (which may or may not be a company to
which the Takeovers Code apply) will sometimes acquire indirect control of a second
company subject to the Codes as a result of such person and the first company together
holding (whether directly or indirectly) 30% or more of voting rights of the second company.
In such cases, it will be necessary to consult the Executive as to whether or not a mandatory
offer obligation is required. This will mainly depend on the intention of the acquiror and/or
the relative importance of the second company to the first company.
Note: Where a chain principle offer is required, the mechanism for pricing is set out in
Practice Note 19. The further details of Practice Note 19 are outside the scope of this syllabus.
Terms
5.19 Compared with the flexibility inherent in a voluntary offer, the mandatory offer is notable in
three regards.
5.20 First, a mandatory offer must be made in cash or be accompanied by a cash alternative. This
does not prevent the offeror from offering some other form of consideration, such as
securities, but shareholders of the offeree company must have the option to elect for cash
consideration if they so wish.
5.21 Second, the offer price must be at a level not less than the highest price paid by the offeror or
any person acting in concert with it for shares of that class of the offeree company during the
offer period and within six months prior to its commencement. When calculating the highest
price paid, the same deductions may be made as for a voluntary offer (see section 4.8 above).
5.22 Third, the only condition permitted in a mandatory offer is the 50% acceptance condition.
This means the offer will become unconditional once the offeror and its concert parties hold
more than 50% of the voting rights in the offeree company. For this purpose, it will be
necessary to aggregate votes represented by acceptances that have been received together with
voting rights already acquired or agreed to be acquired by the offeror and its concert parties
before or during the offer. In some cases, a mandatory offer obligation will be triggered as a
consequence of a transaction that results in the offeror and its concert parties holding more
than 50% of the voting rights. In such cases, the mandatory offer will be unconditional at the
time of making the offer.
5.23 It is the responsibility of shareholders and investors to be aware of the potential for triggering
a mandatory offer obligation as a result of their actions. No acquisitions that will give rise to
a mandatory offer obligation should be made if such acquisition may require prior approval
from a regulatory body (such as in relation to merger control or otherwise). Any such approval
should be obtained in advance of triggering a mandatory offer obligation. Failure to observe
this requirement will be regarded as a breach of the Takeovers Code and could result in
disciplinary action.
Waiver of obligation
5.24 There are a variety of circumstances that could give rise to a mandatory offer obligation. The
Executive has the power to grant a dispensation from the obligation and the following are
some of the common scenarios where dispensation may be available. However, it should not
be assumed that any such dispensation will be granted.
5.25 Acquisition of voting rights by members of a group acting in concert: While a concert
party is normally regarded as a single entity, the holdings of members of the concert party
may change over time. For example, one member may acquire voting rights from another
member, or from a person who is not a member of the concert party (e.g. by buying shares
from the market). This could result in the acquiring member triggering a mandatory offer
obligation as explained in sections 5.6 and 5.7 above.

5.26 However, where the concert party already holds 30% or more of the voting rights, the
Executive may grant a waiver under certain circumstances:
(a) where a transfer of voting rights between members of the concert party triggers a
mandatory offer obligation, the Executive will consider whether the transfer has caused
a change in leadership of the concert party, the price paid, and the relationship between
the transferring parties. If the relationship is between group companies, or between an
individual and his close relatives, related trusts or his controlled companies, the
Executive will normally grant a waiver;
(b) where a member of the concert party acquires voting rights from non-members that
causes that member to cross the trigger or creeper threshold, the Executive may regard
this as giving rise to a mandatory offer obligation, subject to similar considerations as
those explained in (a) above; and
(c) where a concert party acquires more than 2% of voting rights from non-members in any
12-month period, a mandatory offer obligation will be triggered save that where the
concert party holds more than 50% of voting rights (as at the commencement of the
relevant 12 month period), no such obligation will normally arise.
5.27 Cash to be provided by cash underwritten alternative: In some circumstances, an offeror
under a mandatory offer obligation will seek to raise the cash for the offer by way of a new
issue of shares that is underwritten subject to the condition that a listing for the new shares is
obtained. In such case, the Executive will allow the offer to proceed on the basis that the offer
document and offer announcement made pursuant to TC r3.5 state that, if the acceptance
condition is satisfied but the listing condition is not within the time required, then (i) the
offeror will immediately make a new cash offer, and (ii) the offeror and its concert parties can
only exercise less than 30% of the voting rights held until the offer document for the new
offer is posted. Where the Executive allows an offeror to proceed in this manner, the offeror
must endeavour to obtain a listing for the new shares with all due diligence.
5.28 Vendor of part only of a shareholding: Where only part of a holding is sold, particularly
where an acquirer wishes to acquire under 30%, to avoid a mandatory offer obligation, it will
be relevant to consider whether the arrangements between the purchaser and vendor
effectively allow the purchaser to exercise a significant degree of control over the retained
voting rights, in which case a general offer would normally be required.
5.29 Placing: The Executive would not give its consent to the acquisition of a holding of 30% or
more by a person in conjunction with arrangements by the purchaser to place sufficient voting
rights to reduce the holding below 30%.
5.30 Where chain principle applies: The Executive will not normally require a mandatory offer
where the chain principle applies, save that an offer may be required where:
(a) the holding in the second company is significant. The Executive will have regard to a
number of factors including relative assets and profits of the companies with a relative
value of 60% or more normally being regarded as significant; or
(b) one of the main purposes of acquiring the first company is to acquire control of the
second company.
5.31 Convertible securities, warrants and options: The acquisition of convertible securities,
warrants or options does not normally give rise to an obligation to make a mandatory offer,
but the subsequent acquisition of voting rights arising from the exercise of any conversion or
subscription rights will be considered to be an acquisition of voting rights for the purpose of
TC r26.
5.32 Allotted but unissued shares: Shares of a company carrying voting rights which have been
allotted (even if only provisionally) but have not yet been issued — for example, under a

rights issue when the shares are represented by renounceable letters of allotment — may be
relevant for the purposes of the Takeovers Code, and the Executive should be consulted.
5.33 Discretionary fund managers and principal traders: Dealings by discretionary fund
managers and principal traders connected with an offeror or the offeree company may be
relevant.
5.34 Employee benefit trusts: The Executive must be consulted in the following cases:
(a) before any proposed acquisition of new or existing shares if the aggregate holdings of
the directors, any other shareholders acting, or presumed to be acting, in concert with
any of the directors and the trustees of an employee benefit trust will, as a result of the
acquisition, equal or exceed 30% of the voting rights or, if already exceeding 30%, will
increase further; and
(b) where a shareholder (or group of shareholders acting, or presumed to be acting, in
concert) holds not less than 30% and not more than 50% of the voting rights, and it is
proposed that an employee benefit trust acquires shares. The mere establishment and
operation of an employee benefit trust will not by itself give rise to a presumption that
the trustees are acting in concert with the directors and/or a controlling shareholder. The
Executive will, however, consider all relevant factors.
5.35 Whitewash: where an issue of new securities might result in an obligation to make a
mandatory offer, the Executive will normally waive the obligation subject to independent
shareholders (see Note below) approving both the transaction (at least 50% majority required)
and the whitewash waiver to be granted by the Executive (at least 75% majority required)
(also known as a “whitewash” or a “whitewash transaction”). The Whitewash Guidance Note
(in Schedule VI of the Takeovers Code) sets out the specific requirements.
Note: Independent shareholders are those who are not involved in, or interested in, the
transaction in question.
5.36 Where an independent shareholders’ vote is obtained, there are other considerations that the
Executive will take into account before granting a waiver. First, since all whitewash
transactions involve the issue of new securities, the Executive expects all concerned parties
to comply with the applicable Listing Rule requirements. Where such requirements have not
been complied with, the Executive may not grant a whitewash waiver. Second, the Executive
will not normally grant a waiver if:
(a) the person to whom the new securities are to be issued (or any person acting in concert
with such person) has acquired voting rights in the company (save for subscriptions for
new shares which have been fully disclosed in the whitewash circular) in the six months
prior to the announcement of the proposals, but subsequent to negotiations, discussions
or the reaching of understandings or agreements with the directors of the company in
relation to the proposed issue of new securities; or
(b) acquisitions or disposals of voting rights are made between the announcement of the
proposals and the completion of the subscription without the prior consent of the
Executive, and if any waiver has been granted, such acquisitions or disposals will
invalidate the waiver.
5.37 Following a whitewash waiver, such person or group of persons to whom a whitewash waiver
is granted shall be deemed to have a lowest percentage holding equal to their shareholding
immediately following the whitewash transaction for the purpose of the creeper threshold.
Any additional acquisitions of voting rights will be subject to the creeper threshold by
reference to their holding in the 12-month period ending on the date of completion of the
relevant acquisition.
5.38 Foreclosure on security provided for a loan: Where shares of a company subject to the
Codes have been charged to a bank or lending institution, it is possible that the subsequent

enforcement of such security could give rise to an obligation being imposed on the bank or
lending institution to make a mandatory offer. In these circumstances, the Executive will
normally waive such obligation provided that the secured loan was entered into on an arm’s
length basis and in the ordinary course of business, as well as the security was not given when
the lender had reason to believe that enforcement over the secured shares was likely. However,
when the lender disposes of the shareholdings following foreclosure, the purchaser would be
subject to TC r26.
Note: The Executive construes the meaning of “bank or lending institution” narrowly. This
will normally include an authorised institution under the Banking Ordinance. The holding of
a money lenders licence is unlikely to fall within the definition. The Executive will in all cases
examine the purpose of the loan, the nature of the lender’s business and other relevant
circumstances.
5.39 Receivers: A receiver or liquidator who takes control of a company subject to the Codes is
not required to make a mandatory offer. However, a purchaser from receiver or liquidator of
a company will be subject to the Codes, which may subject them to a mandatory offer
obligation.
5.40 Rescue operations: Where a company is in such a serious financial position that the only way
to save it is by an urgent rescue operation which involves the issue of new shares without the
independent shareholders’ approval or by the acquisition of existing securities by the rescuer
which would otherwise trigger a mandatory offer obligation, the Executive will normally
grant a waiver, and will have regard to:
(a) the views of the directors and advisers of the potential offeree company, presumably to
ascertain whether the rescue is essential and urgent; and
(b) whether the rescue proposal is equitable to the existing shareholders and whether they
may participate in the rescue proposal on the same terms as the rescuing party.
5.41 Inadvertent mistake: If a person triggers a mandatory offer obligation due to an inadvertent
mistake, the Executive will not normally require him to make a mandatory offer if sufficient
voting rights are disposed of within a limited period to persons unconnected with him.
5.42 Single shareholder within a group holding more than 30%: There may be situations where
a group of persons acting in concert already hold more than 30% or more of the voting rights,
and subsequently another person, or group of persons acting in concert, acquires 30% or more
of the voting rights. In such a case, a dispensation from the mandatory offer requirement may
be granted if:
(a) a single person holding more than 50% or more of the voting rights of such a company
states that he will not accept the offer that the purchaser would otherwise make; or
(b) the holders of not less than 50% of the voting rights provide the Executive with a written
confirmation that they will not accept the offer.

Revision questions:
Question 5A: How does a mandatory offer obligation arise?

Answer 5A: A mandatory offer obligation arises when a person, together with its concert parties,
acquires control of additional voting rights that causes them to cross either the trigger
threshold or the creeper threshold.
Question 5B: Can the formation of a concert party result in a mandatory offer obligation being
imposed?
Answer 5B: The mere formation of a concert party does not trigger a mandatory offer obligation.
Question 5C: Are persons who hold between 48% and 50% exempt from the creeper threshold?
Answer 5C: No, there is no such exemption. The application of the creeper threshold is applied
based on the lowest holding of a person in the preceding 12-month period.
Question 5D: When will it be relevant to consider the chain principle?
Answer 5D: When acquiring statutory control of one company results in the acquirer also
acquiring or consolidating direct and indirect control of a second company subject
to the Codes.
Question 5E: What conditions can an offeror include in a mandatory offer?
Answer 5E: The only condition that is allowed to be included is the 50% acceptance condition.
No other conditions are permitted.
Question 5F: Explain what happens in a whitewash transaction.
Answer 5F: This arises where an issue of new securities would result in a person being obliged
to make a mandatory offer but for a waiver granted by the Executive. If a waiver is
granted, the Executive will normally require independent shareholders to have
approved both the transaction and the whitewash waiver.
Question 5G: Identify three situations other than a whitewash waiver where the Executive might
exempt a person from making a mandatory offer.
Answer 5G: Where the mandatory obligation arises from a bank enforcing security over a loan,
in certain placing and top-up scenarios, and rescue operations. See sections 5.24 to
5.42 above.

6 Schemes of arrangement
6.1 Where a person seeks to take over an offeree company by way of a scheme of arrangement
involving the reorganisation of the company’s share capital, it will be necessary, unlike
general offers, to procure a corporate act of the offeree company. A scheme of arrangement
will require a resolution of the shareholders of the offeree company to approve at a meeting,
in return for the consideration provided in the offer (such as cash or securities of the offeror),
that, normally, their shares in the offeree company are either (i) transferred to the oﬀeror, or
(ii) cancelled and new shares will be issued to the offeror.
6.2 The convening of the meeting and the details of the resolution will be governed by the offeree
company’s constitutive documents (such as articles of association or bye-laws) and by the
applicable company law (normally the place of its incorporation). The provisions of the Codes
apply irrespective of where a company is incorporated. Accordingly, the provisions of the
Codes apply in addition to any requirement at law.
Note: Only the requirements of the Codes are discussed in this section.
6.3 To proceed by way of scheme of arrangement, a potential offeror will need to be in a position
to procure a meeting of the shareholders of the offeree company. To do this, it will need to
either (i) seek the cooperation of the board of the offeree company (likely only possible in a
friendly bid context) or (ii) control enough votes to requisition a shareholders’ meeting
(possibly a hostile bid situation). In either case, the process for convening the meeting will be
determined according to the offeree company’s articles of association or bye-laws and the law
of its place of incorporation.
6.4 Where a meeting is validly convened and the resolution is successfully passed, a court
approval process is usually required to complete the legal process following which all
shareholders of the offeree company will be bound irrespective of whether or not they
attended or voted at the meeting. As such, a scheme of arrangement is administratively more
complex than a general oﬀer.
Note: The majority of companies listed in Hong Kong are not incorporated in Hong Kong,
however, the corporate procedure is in general broadly similar in other jurisdictions accepted
for listing in Hong Kong. Accordingly, it will frequently be the case that the procedures
required by foreign laws will need to be considered.
6.5 Schemes of arrangement are typically used where the offeror intends to privatise the offeree
company and seek to withdraw its listing. This is discussed in section 7 below.
Shareholder approvals
6.6 In addition to the voting arrangements that apply under the applicable company law and the
offeree company’s constitutional documents, the Takeovers Code requires that the resolution
is subject to the following two conditions:
(a) the resolution must be approved by at least 75% of the votes attaching to disinterested
shares cast in person or by proxy at a duly convened meeting of the disinterested
shareholders; and
(b) the number of votes cast against the resolution must not exceed 10% of votes attaching
to all disinterested shares.
Note 1: The threshold under (a) above is determined as a percentage of votes actually cast by
disinterested shareholders, whereas the threshold under (b) above is determined by the total
number of disinterested shares, whether or not such disinterested shares are cast.
Furthermore, while under (a) above any votes of interested shareholders are not counted, the
requirement under (b) above does not prohibit interested shareholders from voting against the
resolution.

Note 2: The above 75% / 10% voting requirements are the same as required for approving the
delisting of the offeree company. This is discussed in section 7 below.
Note 3: “Disinterested shares” means shares in the offeree company other than those which
are owned by the offeror or persons acting in concert with it.
6.7 The Takeovers Code additionally requires that the vote must be taken by way of poll. The
offeree company must appoint one of its auditors, share registrar or an accounting firm that is
qualified to act as its auditors to act as scrutineer for the vote-taking.
Note: A vote by poll means that votes are calculated by counting the number of votes attaching
to shares being voted at the meeting (whether present in person or by proxy). It is to be
contrasted with a vote by a show of hands, which counts the number of shareholders
physically present.
Disclosure of results
6.8 Following completion of the shareholder meeting, the results must be announced on the same
day as the shareholder meeting. A draft of the announcement must be provided to the
Executive by 6:00pm (or such later time as permitted by the Executive) for comment.
6.9 The announcement must include the identity of the scrutineer and the results of the vote with
details of (i) the number of shares of each class voted for and against the resolution, and (ii)
the percentage of the relevant class of share capital which those numbers represent.
6.10 In some jurisdictions, such as Cayman Islands and Bermuda, the approval of a scheme of
arrangement is subject to approval by a majority in number representing 75% in value of the
shareholders present and voting. Where that is the case, the announcement must also disclose
details of (i) the number of shareholders voting for and against the resolution, and (ii) the
number of CCASS Participants instructing HKSCC Nominees Limited to vote for and against
the resolution and the number of shares so voted.
Costs
6.11 If the resolution is passed, all costs incurred by the offeree company in connection with the
scheme of arrangement will be borne by the offeree company. However, where the resolution
is not approved, all such costs will be borne by the offeror if either:
(a) the independent committee of the board of the offeree company did not recommend the
offer; or
(b) the independent financial adviser did not recommend the offer as fair and reasonable.

Revision questions:
Question 6A: Is a scheme of arrangement the same as a general offer?

Answer 6A: While both are types of offer for the purposes of the Codes, unlike a general offer, a
scheme of arrangement requires the offeree company to engage in a corporate act
pursuant to the laws of its place of incorporation and its articles of association or
bye-laws.
Question 6B: What happens in a scheme of arrangement?
Answer 6B: The offeree company convenes a general meeting of its shareholders who vote on a
resolution to approve or reject the proposed scheme.
Question 6C: In the context of an offer by way of a scheme of arrangement, are the legal
requirements arising under the applicable laws and bye-laws or articles of association
the only matters an offeree company needs to be concerned with?
Answer 6C: The offeree company also needs to comply with the Takeovers Code requirements
that the scheme must be approved by at least 75% of disinterested shareholders
voting at the meeting, and the number of votes cast against the resolution must not
exceed 10% of votes attaching to all disinterested shares.
Question 6D: Who bears the costs of a scheme of arrangement that has been approved by
shareholders?
Answer 6D: The offeree company.

7 Privatisation
7.1 An offeror that intends to privatise a listed company and withdraw its listing (referred to in
the Takeovers Code as delisting) generally will take one of two routes. It may undertake the
offer by way of a scheme of arrangement, and this has been discussed in section 6 above.
Alternatively, it may proceed by way of a general offer and seek to acquire sufficient number
of shares to exercise rights of compulsory acquisition. In both cases, the offeror will need to
observe requirements of the Takeovers Code and the Listing Rules. These two sets of rules
are broadly aligned.
Compulsory acquisition
7.2 The company law of jurisdictions accepted for listing in Hong Kong may provide for rights
of compulsory acquisition where an offeror in a takeover acquires a certain level of shares. In
Hong Kong, the level is 90% of the shares to which the offer relates. This is a process
governed by the court under which non-accepting shareholders are forced to sell their shares
to the offeror.
Note 1: The 90% number used in this section reflects the provisions of the Hong Kong
Companies Ordinance (Cap. 622).Since the majority of companies listed in Hong Kong are
not incorporated in Hong Kong, it will be necessary to ensure the position under applicable
company law (normally the place of the issuer’s incorporation) is followed.
Note 2: Where the offeror acquires a right of compulsory acquisition, for offeree companies
incorporated in Hong Kong, non-accepting shareholders also acquire a similar right to
require the offeror to purchase their shares.
7.3 Offerors undertaking a voluntary offer wishing to take advantage of this provision may
therefore elect to set a 90% acceptance condition to its offer. Its intention to carry out a
compulsory acquisition if such condition is met will need to be disclosed in the offer
announcement made pursuant to TC r3.5 and offer document (see further Topic 4, section 4).
7.4 In addition to any requirement imposed by the applicable company law, the Takeovers Code
requires that the offeror and its concert parties acquire, or receive acceptances from, at least
90% of the disinterested shares within four months after posting the initial offer document.
Note: “Disinterested shares” has the same meaning as previously described in section 6.6
above.
Withdrawal of listing
Takeovers Code requirements
7.5 The Takeovers Code requires a withdrawal of listing to be approved by shareholders in a
general meeting. The requirements are essentially the same irrespective of whether the offer
is undertaken by a scheme of arrangement (the requirement is discussed in section 6 above)
or a general offer and are designed to ensure that the proposal to withdraw the offeree
company’s listing is not used to coerce independent shareholders into accepting the offer.
7.6 In the case of a scheme of arrangement, the requirements will have been met provided that
the resolution put to shareholders in relation to the scheme also includes a resolution
concerning the withdrawal of the offeree company’s listing.
7.7 In the case of a general offer, the resolution to approve the withdrawal of listing must:
(a) be subject to the offeror being entitled to exercise and subsequently exercising rights of
compulsory acquisition;
Note: Where the applicable company law does not provide for rights of compulsory
acquisition, the Executive will require the resolution to be subject to the offeror

acquiring 90% of the disinterested shares, and may require other arrangements to be in
place, such as the offer remaining open for a longer period.
(b) be approved by at least 75% of the disinterested shares cast in person or by proxy at a
duly convened meeting; and
(c) not have votes cast against the resolution of more than 10% of the votes attaching to all
disinterested shares.
Note: The threshold under (b) above is determined as a percentage of votes actually cast by
disinterested shareholders, whereas the threshold under (c) above is determined by the total
number of disinterested shares, whether or not such disinterested shares are cast. Further,
while under (b) above any votes of interested shareholders are not counted, the requirement
under (c) above does not prohibit interested shareholders from voting against the resolution.
7.8 Where the place of incorporation of the offeree company does not provide for compulsory
rights of acquisition, the requirement in section 7.7(a) above may be waived by the Executive
– in which case the Executive may require other arrangements to be put in place. For example,
following an offer being declared unconditional, the Executive may require an extended offer
period during which shareholders who have not accepted are notified of the implications of
not accepting the offer. The Executive may also require the resolution to approve the
withdrawal of listing to be subject to the receipt of valid acceptances of at least 90% of
disinterested shares.
7.9 In some circumstances, an offeror that has not proceeded by way of scheme of arrangement
or exercised rights of compulsory acquisition may after a takeover intend to dispose of the
assets or operations of the offeree company. Where such disposals may lead to the offeree
company no longer being considered suitable for listing, or there is a proposal to withdraw
the offeree company’s listing on the SEHK, the Executive must be consulted at an early stage.
The Executive has the discretion to aggregate transactions completed within a period of 12
months or otherwise related and apply the 75% / 10% voting requirement mentioned above
and other requirements of the Takeovers Code.
Listing Rules requirements

7.10 Where an offeror has successfully undertaken a scheme of arrangement or a general offer
followed by an exercise of rights of compulsory acquisition, the offeree company may
voluntarily withdraw its listing subject to one proviso. The proviso is that the offeree company
has given notice to shareholders of the proposed withdrawal of listing and its intention not to
retain the listing by way of a circular to shareholders.
7.11 In cases where an offeror has undertaken a general offer but has fallen short of the relevant
compulsory acquisition threshold, any proposal to withdraw the offeree company’s listing will
need to comply with the other requirements of the Listing Rules, which contain two sets of
requirements according to whether an issuer does or does not have an alternative listing on
another regulated, regularly operating, open stock exchange. In the interim, it will also need
to be concerned with maintaining the offeree company’s public float requirements.
Note: Knowledge of the other requirements of the Listing Rules not discussed here is outside
the scope of this syllabus.

Revision questions:
Question 7A: What does compulsory acquisition mean?

Answer 7A: It means that, under the company law of the jurisdiction in which the offeree
company is incorporated, the offeror has acquired sufficient shares within the
specified period of time to require the court to force non-accepting shareholders to
sell their shares to the offeror.
Question 7B: How might the right of compulsory acquisition be relevant to the terms of an offer?
Answer 7B: Where an offeror making a voluntary offer intends to privatise a company, it may
choose to set an acceptance condition that corresponds to the number of shares it
needs to acquire in order to obtain such right.
Question 7C: If an offeror intends to privatise a company following a successful offer, what rules
will it need to consider and what should it pay attention to?
Answer 7C: The offeror will need to observe the requirements of both the Takeovers Code and
the Listing Rules, both of which contain provisions concerning shareholder
approval.

8 The offer timetable
8.1 General Principle 5 provides that the offeree company shareholders should be given sufficient
information, advice and time to reach an informed decision on an offer. General Principle 6
provides that all persons concerned with offers should make full and prompt disclosure of all
relevant information. Accordingly, the Takeovers Code prescribes a timetable for the conduct
of the offer, setting out the periods within which various events must occur, including those
set out below, and the standards to which documentation relating to the offer must be prepared.
8.2 Parties involved in a transaction subject to the Takeovers Code must be familiar with the
relevant requirements, including how and when various documents need to be submitted. In
this regard, the financial adviser will perform an important role to assist its client understand
the impact of the timetable on the progress of the transaction and the obligations of its client
at different stages of the transaction. As discussed in Topic 4, the preparation of
documentation is an onerous task and sufficient time will need to be allowed for the
preparation and vetting of required documentation.
Requirements for a general offer

8.3 The date of the offer document, including the latest practicable date of the offer document,
must not be dated more than three days prior to despatch. It should normally be posted:
(a) in the case of a cash offer, within 21 days of the announcement of the terms of the offer;
or
(b) in the case of a securities exchange offer, within 35 days of the announcement of the
terms of the offer.
Where the offer document and the offeree company’s response document are combined into
a composite document, it must also be posted within this same period.
Note 1: In the event the latest practicable date falls on a day other than a business day, the
latest practicable date can be set on the preceding business day.
Note 2: If an offer document or composite document cannot be despatched within 21 days (or
35 days in the case of a securities exchange offer) of the date of the announcement of the
terms of the offer, monthly update announcements should be issued until the relevant
shareholder’s document is despatched to keep the market regularly informed of the progress
of the transaction.
8.4 If a delay is expected in the despatch, it is essential that this is discussed with the Executive
as the Executive’s consent is required if the offer document is not going to be posted on time.
8.5 Where a composite document is not issued, the offeree company should send its response to
the offer by way of a circular to its shareholders within 14 days of the date on which the offer
document is posted, unless the Executive consents otherwise.
8.6 Other critical dates specified by the Takeovers Code are as follows. In each case, parties
involved in an offer should take note of changed timing requirements that apply in relation to
revised offers, alternative offers or competitive offers, and when an acceptance can be
withdrawn by an acceptor.
(a) Minimum offer period (21 or 28 days): where the offer and response documents are
sent out on the same day, the offer must be open for acceptance for at least 21 days.
Where the response document is sent after the despatch of the offer document, the offer
must be open for 28 days following the date of posting of the offer document.
(b) Announcement by offeree company (day 39): except with the consent of the
Executive, the offeree company should not announce trading results, profit or dividend
forecasts, assets valuations or major transactions after the 39th day following the posting

date of the offer document. .
(c) Revision of offer (day 46): no revision of the offer document may be made in the 14
days ending on the last day the offer can become unconditional as to acceptances.
(d) Acceptor’s right to withdraw: if an offer has not yet become unconditional as to
acceptances, a shareholder who has accepted an offer may withdraw his acceptance after
21 days from the first closing date of the offer but no later than the final time for the
lodgement of acceptances (see (g) below).
Note: All offers (other than partial offers) are required to be conditional on a 50%
acceptances condition, save with the consent of the Executive. As noted in section 4
above, voluntary offers may be made subject to a higher level of acceptances.
(e) Final day unconditional as to acceptances (day 60): except with the consent of the
Executive, the offer may not become or be declared unconditional as to acceptances after
7:00pm on the date which is 60 days after the date on which the offer was posted.
(f) Final day to become unconditional (day 81): except with the consent of the Executive,
all conditions of the offer (other than as to acceptances) must be fulfilled within 21 days
of the first closing date or of the date the offer is unconditional as to acceptances,
whichever is the later (i.e. day 81 if it becomes unconditional as to acceptances on day
60). If it does not become unconditional within that period, the offer must lapse. An
extension may be granted in a few cases — for example, a competing offer is announced.
(g) Unconditional offer to remain open for 14 days: in the event of an offer being declared
unconditional by the offeror, it must remain open for at least another 14 days.
(h) Extension of the offer: there is no obligation to extend an offer if the conditions have
not been met by the first or any subsequent closing date.
(i) Settlement of offer consideration: the offeror shall pay for shares represented by
acceptances within seven business days of the later of the date an offer becoming
unconditional and the date of receipt of a duly completed acceptance.
(j) Return of share certificates: if an offer lapses or is withdrawn, any share certificates
lodged with acceptance forms must be available for collection within ten days thereafter.
(k) Compulsory acquisition rights: as already noted in sections 7.2 to 7.4 above, an offeror
who intends to privatise a company using compulsory acquisition rights must, together
with its concert parties, acquire at least 90% of disinterested shares within four months
after the posting of the initial offer document.
Variation of the timetable

8.7 The above requirements might be varied in two main circumstances: where there is a
competing offer, or where the offer is undertaken by a scheme of arrangement rather than a
general offer.
8.8 In the case of a competing offer, the posting of the competing offer document will generate a
new timetable that will bind both offerors.
8.9 In the case of a scheme of arrangement, because it is different in nature from a general offer,
it is subject to timing considerations driven by relevant company laws that require court
procedures to be followed. In particular, the time limit for posting the offer document and the
final day rule may need to be adjusted to accommodate the court timetable, in which case the
Executive should be consulted in advance.
8.10 Difficulties may arise where one offer has already been commenced by way of a scheme of
arrangement and a competing offer subsequently emerges by way of a general offer. Because
the timetable for a scheme is governed by relevant company laws, it may be difficult for the
scheme to adjust its timetable. This is sometimes cited as one of the potential drawbacks of

offers by way of schemes of arrangement.
Timetable summary
8.11 The Table overleaf provides an overview of the timing of the main events in a general offer,
which primarily revolve around three key dates:
(a) the date the offer period commences (“D day”);
(b) the date the offer document is sent to shareholders of the offeree company (“P day”); and
(c) the date the announcement is made that the offer has become unconditional (or if the
offer period is to be extended) (“A day”).
For the reasons mentioned in section 8.9 above, the timetable for a scheme of arrangement is
subject to slightly different considerations after D day.

Table showing the main timetable events for a general offer.
TIMING EVENT
Preliminary discussions between offeror and offeree company

Appointment of financial adviser and legal advisers
Identification of concert parties and their holdings/dealings
Pre-offer period Limited due diligence undertaken on offeree company
Irrevocable commitments signed by the offeror or any person
acting in concert with it
Commence drafting of offer announcement made pursuant to TC
r3.5 and offer document
Offeror makes formal approach to board of offeree company

D day Offeree company announces it has received an offer
(Offer period Offeror makes announcement (offer period formally commences)
commences) Offeree company establishes independent committee of the board
and appoints independent financial adviser
Prior to P Day Offer document submitted in draft to Executive and SEHK for
approval
P day
By D+21 days (D+35 Offer document sent to shareholders of offeree company
days if a securities
exchange offer) (=P day)
By P+14 days (If offer document is not a composite document) offeree company
sends its circular to shareholders
P+21 days (or P+28 days Offer remains open for at least 21 (or 28) days
if response document is Offeror receives shareholder acceptances, which are watched
sent separately) to P+60 closely
days (“Day 60”)
Offer must close on or before 7:00pm on P+60 days
“Day 39” (=P+39 days) Final day the offeree company can announce material new
information
Final day the offer may be revised, being 14 days prior to the close
“Day 46” (=P+46 days)
of the offer
A day Successful – announce offer becomes unconditional

(Unsuccessful – consider to extend or improve the offer)
A+7 business days Latest date to pay accepting shareholders
A+14 days Earliest closing date of the offer
P day + 4 months Latest day to obtain right to exercise compulsory acquisition

Revision questions:
Question 8A: Explain the two General Principles of the Takeovers Code concerned with the
preparation of a timetable and the disclosure of information in relation to a takeover
offer.
Answer 8A: General Principle 5 provides that the shareholders of the offeree company should be
given sufficient information, advice and time to reach an informed decision on an
offer. General Principle 6 provides that all persons concerned with offers should
make full and prompt disclosure of all relevant information. Accordingly, the
Takeovers Code prescribes a timetable for the conduct of the offer, setting out the
periods within which various events must occur and the standards to which
documentation relating to the offer must be prepared.
Question 8B: When must an offer document be dated and posted?
Answer 8B: It must not be dated more than three days prior to despatch. It should normally be
posted within the specified number of days of the announcement of the terms of the
offer, which is: 21 days in the case of a cash offer, or 35 days in the case of a securities
exchange offer.
Question 8C: Can the timetable for a general offer be varied?
Answer 8C: Yes, in the case of a competing offer, a new timetable will be generated that will bind
both offerors.
Question 8D: Is the timetable for a general offer and a scheme of arrangement the same?
Answer 8D: No, because the timetable for a scheme of arrangement is subject to timing
arrangements imposed by the relevant applicable law and this will require the
Executive to be consulted where the final day rule needs to be adjusted.

Topic 4: Obligations of the offeror and the offeree company
Table of contents
Topic overview 1
Learning outcomes 1
1 General considerations 3
Duties of directors may be delegated but are not diminished 3
Avoiding information asymmetry 4
2 Prior to the offer period 6
Offeror 6
Offeree company 8
3 At the commencement of an offer period 10
Offeror 10
Offeree company 11
Restrictions on action during offer period 12
Offeror and offeree company – documents on display 14
4 Announcements obligations under the Code on Takeovers and Mergers 16
General considerations 16
Meaning of “document” 16
Prior to an offer 18
At the commencement of an offer period 19
On the closing date 25
5 Following the end of an offer period 27
Subsequent acts of the offeror 27
Subsequent acts of the offeree company 28
[Blank Page]
Topic overview
The obligations of offerors and offeree companies under the Code on Takeovers and Mergers
(“Takeovers Code”) is the primary concern of this Topic. It begins with the general considerations
that apply to each of an offeror and an offeree company under the Codes on Takeovers and Mergers
and Share Buy-backs (“Codes”) in connection with matters or transactions falling within the ambit
of the Codes (“TC Transactions”). This includes the duties of directors, the importance of recognising
who their associates are, and their role in relation to preserving the integrity, fairness and orderliness
of the market.
Sections 2 and 3 respectively discuss the specific obligations that arise for the offeror and offeree
company. This covers the period prior to as well as during an offer period, and when different
considerations arise for each of these parties. Throughout the process, both parties will need to be
aware of the importance of managing confidential information and observing the relevant disclosure
obligations. Prior to the offer period commencing, an offeror will need to carefully consider its
financial resources and manage any approach it makes to shareholders of the offeree company with a
view to seeking irrevocable commitments. Once an offer period has commenced, the offeree company
will become subjected to a number of requirements, including the need to form an independent
committee of the board (“ICB”) and appoint an independent financial adviser (“IFA”), as well as the
restrictions that apply to engaging in certain corporate acts. The offeror and offeree company will
each need to be aware of the documentation it is required to put on display.
Section 4 then turns to introduce the announcement obligations arising under the Codes, the standards
that apply to the preparation of documents, the process of publishing documents, and the relevance
of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
(“Listing Rules”). Of central concern are the announcements of an offeror or potential offeror that
may commence an offer period as well as the content and timing requirements associated with
different types of announcements.
The Topic concludes with a discussion of matters that arise following the end of an offer period. This
covers acts of the offeror such as subsequent purchases or a subsequent offer.
The role of the Executive Director of the Corporate Finance Division of the Securities and Futures
Commission (“Executive”) is considered throughout the Topic. This includes the need to consult the
Executive prior to engaging in certain acts and to obtain its consent, the role of the Executive in
relation to the publication of documents, as well as the powers of the Executive to determine certain
matters and to waive particular requirements of the Takeovers Code.
Learning outcomes
(a) demonstrate an understanding of the roles and responsibilities of the board;
(b) explain the various obligations that may apply differentially to the offeror and offeree company’s
boards at different stages of a TC Transaction;
(c) describe the confidentiality obligations that apply to the offeror and offeree company and the
consequences where confidentiality is not maintained;
(d) apply the provisions of the Takeovers Code concerning dealing and disclosure to different
scenarios;
(e) assess and identify the persons an offeror may approach prior to an offer period in connection
with an offer;
(f) recognise when an offeror’s board may be required to obtain independent advice;

(g) understand the steps that must be taken by an offeror before approaching an offeree company
and by an offeree company’s board upon being approached with an offer;
(h) understand the circumstances where shareholder solicitation may only be undertaken by a
financial adviser;
(i) explain the actions that a board is prohibited from taking during an offer period;
(j) demonstrate an understanding of what may constitute a frustrating action;
(k) demonstrate an awareness of the announcement obligations that may arise, both prior to and
after an offer period commencing, and who is subject to such obligations;
(l) demonstrate an understanding of the confirmation, filing and display requirements for different
documents;
(m) understand the contents that are required to be included in different types of announcements;
(n) describe the required contents of an offer document and the related publication requirements;
and
(o) understand the obligations of the offeror and the offeree company after the close or lapse of an
offer.

1 General considerations
1.1 Board directors of an offeree company that is incorporated in Hong Kong or listed on The
Stock Exchange of Hong Kong Limited (“SEHK”) are expected, both collectively and
individually, to fulfil fiduciary duties and duties of skill, care and diligence to a standard at
least commensurate with that imposed by the laws of Hong Kong (see Note below). This
requires directors to at all times act in the best interests of the shareholders of their company.
Where the offeror is a company, directors of the offeror are likely to have similar duties
imposed upon them according to the laws or regulations that govern them.
Note: Directors of companies not incorporated in Hong Kong but listed on the SEHK are
subject to this requirement as a result of the requirements of the Listing Rules.
1.2 In addition to the foregoing duties, directors of the offeror or the offeree company are
responsible for ensuring the Codes are complied with in connection with a TC Transaction.
This means they will need to consider the General Principles and rules of the Codes, which
will affect the freedom of their actions. For example, as discussed in section 3 below, certain
actions might constitute frustrating actions that are expressly forbidden by the Takeovers
Code.
1.3 The offeror and the offeree company will also need to assess who are to be regarded as their
associates for the purposes of the Takeovers Code. This will be particularly relevant to their
announcement and disclosure obligations. The Codes define an associate of the offeror or
offeree company, as the case may be, as including the following persons:
(a) their concert parties (see Topic 3 section 2.7);
(b) any financial or other professional advisers including of their parent, subsidiaries and
fellow subsidiaries (other than exempt fund managers and exempt principal traders,
which are covered in a separate class below);
(c) the directors together with their close relatives, related trusts and companies controlled
by any of the foregoing;
(d) the pension funds, provident funds and employee share schemes of their parent,
subsidiaries and fellow subsidiaries;
(e) any exempt principal trader or exempt fund manager in the same group of companies;
and
(f) a person who owns or controls 5% or more of any class of their relevant securities.
Note: Financial advisers and other persons involved in a TC Transaction, such as valuers,
will also need to assess who is regarded as their associates in order to be in a position to
comply with various obligations imposed upon them. See further Topic 5.
Duties of directors may be delegated but are not diminished

1.4 In practice, a board may delegate certain matters, including the conduct of TC Transactions,
to a committee of the board. In recognition of this, the Takeovers Code sets out two important
provisions.
1.5 First, any document issued by a company in connection with an offer or possible offer must
state that all directors of the company are jointly and severally liable for, and accept full
responsibility for, the accuracy and completeness of information contained in the document.
The statement must also confirm that the directors have made all reasonable enquires, and
that the document has been issued after due and careful consideration and does not omit
material information that might render a statement in the document misleading. This
requirement reflects General Principle 5. The standards applicable to documents are further
discussed in Topic 5, section 2.

Note: For these purposes, “document” includes any announcement, advertisement or
document issued by an offeror and its concert parties. For a fuller definition of this term, see
sections 4.4 to 4.5 below.
1.6 Occasionally it may happen that a particular director wishes to be excluded from accepting
responsibility for a document. In such cases, it would be necessary to obtain the consent of
the Executive for the exclusion, and where consent is given, the basis for the exclusion must
be stated in the relevant document. The Executive will only grant consent in exceptional
circumstances, and usually only in temporary cases — for example, where a director is
overseas at the time a document is finally approved and is not otherwise contactable.
1.7 Second, where day-to-day responsibility for the conduct of an offer has been delegated to a
committee of the board, the remaining directors must have a reasonable belief that those to
whom the work is delegated are competent to carry out their duties. The remaining directors
must disclose to the committee relevant information known to them, or any views on the offer
they might hold. The board must ensure that proper arrangements are established to enable
each director to fulfil his own responsibility. This should include:
(a) the board being promptly apprised of all documents, details of dealing activities and
other matters relevant to the offer;
(b) directors with day-to-day responsibility for the offer being able to justify their actions to
the board; and
(c) the opinions of the advisers being made available to the board.
1.8 A director who has concerns about the propriety of any action as regards the provisions of the
Takeovers Code should ensure that the Executive is consulted.
Avoiding information asymmetry

1.9 It is important that non-public information concerning an offer or potential offer is kept
confidential, particularly where the information is of a price-sensitive nature. This is
necessary to preserve the fairness and orderliness of the market as well as the integrity of the
market more generally. Such information should only be shared on a need-to-know basis.
Professional advisers, such as the financial adviser, should ensure that persons assisting their
clients are aware of the importance of preserving confidentiality, both at the outset of a
person’s involvement as well as during the course of a TC Transaction.
1.10 While subject to a continuing obligation of confidentiality, the offeror and offeree company
are also subject to announcement obligations arising under the Takeovers Code, both before
and during the offer period. In some circumstances, it may be necessary for an announcement
to be made prior to any firm intention to make an offer has been formed, even where making
an announcement may be inconvenient to the offeror or potential offeror. This may arise as a
consequence of confidential information being leaked to persons not directly involved in the
TC Transaction, resulting in information asymmetry in the market. Announcement obligations
arising under the Takeovers Code are discussed further in section 4 below.
Note: In cases where a leakage of confidential information has occurred, the Securities and
Futures Commission (“SFC”) may conduct an investigation and take disciplinary action if
appropriate.
1.11 In addition to the announcement obligations arising under the Takeovers Code, any offeror,
potential offeror or offeree company that is listed on the SEHK must consider its
announcement obligations under the Securities and Futures Ordinance (“SFO”) and the
Listing Rules. Such obligations may arise at various stages of a TC Transaction – while the
offeror is engaged in its internal considerations, prior to any discussions with an offeree
company taking place, once discussions between an offeror and offeree company commence,
or once a formal offer has been made and an offer period has commenced. The announcement
requirements arising under Part XIVA, SFO and the Listing Rules have been discussed in

Topic 1, section 4.
1.12 Where an announcement is required, whether pursuant to the Takeovers Code, the SFO or the
Listing Rules, it will be necessary to consider seeking a trading halt or suspension in dealings
in their securities. A financial adviser should advise its client that trading halts and
suspensions should not be used as a tool of convenience, for example, to facilitate negotiations
and price setting.
Revision questions:
Question 1A: What is the implication of directors being required to fulfil fiduciary duties?
Answer 1A: Directors must at all times act in the best interests of the shareholders of their
company.
Question 1B: Identify three persons who are an associate of an offeror.
Answer 1B: The offeror’s concert parties; the offeror’s financial advisers; and the offeror’s
directors. See section 1.3 above.
Question 1C: Can a director of a company issuing a document subject to the Takeovers Code be
excluded from liability for the document?
Answer 1C: While generally all directors are jointly and severally liable, it is possible for a
director to be excluded from responsibility upon the consent of the Executive, which
would only be granted in exceptional circumstances.
Question 1D: When is it inappropriate to seek a trading halt?
Answer 1D: It would be inappropriate to use a trading halt as a tool of convenience, such as to
facilitate negotiations and price setting.

2 Prior to the offer period
Offeror
Information
2.1 As noted earlier in this Topic, it is important that non-public information concerning an offer
or potential offer is kept confidential and, prior to the offer period, an offeror will need to
carefully manage the information it is handling.
2.2 Topic 1 sections 4.15 to 4.16 and 4.19 to 4.25 discussed the laws applying to inside
information, namely, insider dealing and the obligations imposed on listed companies and its
officers in respect of inside information under Part XIVA, SFO. Prior to an offer period
commencing, an offeror (i) will be generating its own inside information at various stages of
its decision-making process when evaluating a potential offer (see Note 1 below), (ii) may be
acquiring inside information, such as where it is in talks with the board of an offeree company
or a controlling shareholder of the offeree company, and (iii) will be acquiring information
from the public domain (see Note 2 below). The first two sources of information (under (i)
and (ii) above) must be subject to effective confidentiality and compliance arrangements to
avoid triggering issues under applicable laws.
Note 1: Of relevance to (i) above, a decision to make an offer or a decision to cease to proceed
with a potential offer will very likely constitute inside information until such decision is
publicly disclosed.
Note 2: While information obtained under (iii) above may not per se be inside information,
any analyses or combination with non-public information in connection with evaluating a
potential offer may amount to inside information under (i) above.
2.3 An offeror will also need to recognise the announcement implications in the event
confidentiality is not appropriately maintained – see further sections 4.12 to 4.14 below.
Where an announcement obligation arises as a result of a failure to maintain confidentiality,
this may impact on the offeror’s overall plan for the conduct of the TC Transaction.
Irrevocable commitments
2.4 Prior to approaching the board of the offeree company with a formal offer, an offeror may
wish to approach shareholders of the offeree company to obtain irrevocable commitments.
This practice gives rise to issues arising under General Principles 3 and 5, which will need to
be observed in addition to the specific rules discussed below.
2.5 Offerors may only approach no more than six sophisticated investors who have a controlling
shareholding without the need for the consent of the Executive. Where an offeror wishes to
approach other shareholders, the consent of the Executive must be obtained in advance. Where
the Executive gives consent, the following conditions will normally be imposed in relation to
approaching such other shareholders:
(a) they may only be approached within a limited period (to be agreed with the Executive)
prior to the announcement of a firm intention to make an offer;
(b) the total number of shareholders who may be approached is restricted to six (although
the Executive may adopt a more relaxed approach to the number of shareholders who
may be approached where the offer is recommended by the board of the offeree
company);
(c) the information provided to the shareholders must be limited to information that would
appear in the offer announcement made pursuant to Rule 3.5 of the Takeovers Code (“TC
r3.5”), which is discussed in sections 4.21 to 4.27 below, or information that is already
public;

(d) the shareholders will need to agree to be insiders which will be subject to the applicable
laws and regulations and agree to maintain confidentiality of the information they are
provided with (in practice, a suitable confidentiality undertaking is required); and
(e) a list of the shareholders being approached would normally need to be provided to the
Executive.
Note: Once the offer period has commenced, there is normally no restriction on the number
of shareholders who may be approached. Information provided in such approaches must be
restricted to details that have already been made public, i.e. no non-public information may
be provided to the shareholders being approached.
Financial resources of the offeror

2.6 Prior to making any approach to an offeree company, an offeror must ensure it will be in a
position to implement the offer in full. An offeror should also note that the offeree company,
upon being approach by an offeror, is entitled to be satisfied in this regard. Moreover, the offer
announcement made pursuant to TC r3.5 will need to include a confirmation from the
financial adviser or another acceptable third party stating that the offeror has sufficient
resources to implement the offer in full, and the Executive may require evidence to support
such statement. The responsibilities of the financial adviser in this regard are discussed in
Topic 5 section 4.
Previous dealings
2.7 As discussed in Topic 3, the dealing activities of the offeror and its concert parties may impact
the terms of any potential offer. Accordingly, the offeror should check carefully its own
trading records over the past six-month period as well as those of its concert parties. This
information will in any case be required to be included in the offer announcement made
pursuant to TC r3.5, as discussed in section 4.33 below.
Where independent advice required

2.8 The board of an offeror will need to seek the advice of a competent IFA if they are considering
to make an offer where:
Conflicts of interest and reverse takeovers

(a) the directors of the offeror have a conflict of interest (for example, where there are
significant cross-shareholdings between the offeror and offeree company, where there
are directors common to both companies, or when a person is a substantial shareholder
in both companies);
Note: In respect of a substantial shareholder that is not acting in concert with the offeror
or the directors of the offeree company, the Executive will normally waive this
requirement, however, any application for a waiver must be submitted as early as
possible.
(b) the offer would result in the issued voting share capital of the offeror being increased by
more than 100% (for the purposes of the Takeovers Code, this is known as a “reverse
takeover”); or
Note: The definition of the phrase “reverse takeover” in the Listing Rules is different
from the use of this phrase in the Takeovers Code owing to the different concerns of the
Takeovers Code and the Listing Rules. Knowledge of the Listing Rules use of this phrase
is outside the scope of this syllabus.
Offers for companies that control the offeror

(c) if the offeror is a public company in Hong Kong and it, or its subsidiary, proposes to
make an offer for a company that, together with any persons acting in concert with the

offeree company, directly or indirectly controls the offeror.
Note: In the case of (c) above, the board of the offeror should establish an ICB to assess
the proposed offer.
2.9 Where the advice of an IFA is required, the IFA must be appointed and its advice must be
obtained by the board of the offeror before announcing the offer or any revised offer.
2.10 The IFA’s advice must be concerned with whether or not the offer is in the interests of the
offeror’s shareholders. Shareholders of the offeror must have access to the substance of the
IFA’s advice.
2.11 The board of the offeror may seek oral advice prior to the announcement of the offer and then
obtain the full advice as soon as possible. The main points of the advice received must be
summarised in the offer announcement made pursuant to TC r3.5 and the full advice must be
circulated to the offeror’s shareholders as soon as practicable. If a general meeting of the
offeror is to be convened to approve the proposed offer, the full advice must be sent to
shareholders at least 14 days in advance. In such cases, the board of the offeror must include
a responsibility statement by the directors as set out in the Codes when issuing any documents
or advertisements.
2.12 Topic 5 discusses the specific responsibilities of the IFA, including the meaning and
assessment of “independence”.
Offeree company
2.13 Prior to becoming aware of any potential takeover, the offeree company will mainly be
concerned with any disclosure obligations arising under the SFO or the Listing Rules
(discussed in Topic 1 section 4).
2.14 Where an offeree company becomes involved in takeover talks prior to an offer being made,
it must be particularly careful with the handling of confidential information, as discussed in
section 1 above. Persons privy to the talks should be aware of their potential liability under
the insider information provisions of the SFO, including the insider dealing provisions and
the obligations imposed by Part XIVA, SFO. Directors of the offeree company will continue
to be subject to the restrictions on dealing imposed by the Listing Rules (see Note below).
Note: The Model Code for Securities Transactions by Directors of Listed Issuers in Appendix
10 of the Main Board Listing Rules (“MBLR”), or such other code that the offeree company
has adopted for this purpose, provides for restrictions on directors of listed issuers wishing
to deal in shares of the issuer. Knowledge of the further requirements of Appendix 10 is
outside the scope of this syllabus.
2.15 Section 3.13 below further discusses the offeree company’s situation once it has been
approached with an offer.

Revision questions:
Question 2A: When a potential offeror reaches a decision in its evaluation of a potential offer that
is not widely known, should this be regarded as inside information?
Answer 2A: Yes, this will be subject to provisions of the Takeovers Code and applicable laws for
inside information.
Question 2B: What are the main limitations on an offeror approaching shareholders of the offeree
company prior to the commencement of an offer period?
Answer 2B: Unless the prior consent of the Executive has been obtained, no more than six
sophisticated investors who have a controlling shareholding may be approached. See
section 2.5 above regarding the Executive giving consent.
Question 2C: Does the Executive require evidence that an offeror has sufficient financial resources
to implement an offer in full?
Answer 2C: The Executive may require evidence to support the statement made in the offer
announcement made pursuant to TC r3.5 that the offeror does have sufficient
resources.
Question 2D: Identify a situation where the board of an offeror will need to seek the advice of a
competent IFA.
Answer 2D: There are significant cross-shareholdings between the offeror and offeree company.
See section 2.8 above.

3 At the commencement of an offer period
Offeror
3.1 An offeror must put an offer to the board of the offeree company or its adviser before making
the offer public. The identity of the offeror must be made known to the offeree company (for
example, where the offer is communicated by a person other than the offeror, such as an
adviser).
3.2 Once a formal offer has been made, a central concern of the offeror is to prepare the offer
document for publication. It is quite likely that the preparation work will have already
commenced and the document will be substantially prepared by the time the offer has been
made to the board of the offeree company. As discussed in section 4 below, the preparation of
the offer document is onerous. It must comply with certain content requirements that will
require due diligence to be undertaken and must be prepared to prospectus standard. As
already discussed in Topic 3 section 8, the offer document must be posted within 21 days of
the announcement of the offer (35 days in the case of a securities exchange offer) and dated
not more than three days prior to its despatch.
3.3 Where the board of the offeree company is in agreement with the offer, the Takeovers Code
encourages the offer document to be combined with the offeree company’s board circular to
its shareholders (referred to in the Takeovers Code as the “offeree board circular”). Where the
offer document and the offeree board circular are combined, the document is known as a
“composite document”, and this will require coordination between the offeror and the offeree
company and their respective advisers.
3.4 In some circumstances, an offer may be subject to the fulfilment of a pre-condition, and this
is discussed in section 4 below.
Confidentiality
3.5 During the offer period, the offeror will need to continue to be aware of its obligations in
regards to confidentiality discussed above as there will inevitably be a mix of information that
has or has not been made public. In this regard, two other important issues also commonly
arise during the offer period.
Note: The financial adviser plays an important role in relation to the monitoring of
information, such as that exchanged during meetings between the offeror and offeree
company as well as statements publicly made. For a discussion, see Topic 5 section 2.
3.6 First, an offeror may wish to approach shareholders with a view to solicit their acceptances.
Solicitations of shareholders other than institutional shareholders may only be undertaken by
a staff of a financial adviser to the soliciting person who is fully conversant with their
responsibilities under the Takeovers Code. In any solicitation (whether or not an institutional
shareholder), (i) only previously published information which remains accurate and is not
misleading at the time being quoted may be used (see Note below), and (ii) the shareholder
must not be pressured and must be encouraged to consult their professional advisers. The
financial adviser is responsible for confirming to the Executive in writing by noon of the
following business day, that no material new information was provided and no significant new
opinions were expressed at meetings between the offeror or their financial advisers and the
shareholders.
Note: In the event new information is given to a shareholder being solicited, such information
must immediately be disclosed to all other shareholders.
3.7 Second, an offeror or its concert parties may wish to engage in dealing activities, typically in
the shares of the offeree company but also sometimes in the shares of the offeror. Such
activities are subject to restrictions and disclosure obligations – the relevant requirements are
discussed in Topic 6.

Statements of intention
3.8 During an offer period, statements might be made by or on behalf of the offeror, its directors,
officials or advisers that concern intent (“statements of intention”). These generally fall into
two categories:
(a) “no extension statements” that concern the duration of the offer (for example, that the
offer will not be extended beyond a specified date unless it is unconditional as to
acceptances); and
(b) “no increase statements” that concern the value or type of consideration offered (for
example, that the offer price remains fixed at a specific price and will not be raised).
3.9 The drafting of statements of intention should not be used to mislead investors. The Executive
will treat any indication of finality (for example, this would include a phrase such as “present
intention”) as absolute unless accompanied by a clear statement of the circumstances where
the statement will not apply.
3.10 An offeror will, save in exceptional circumstances, be bound by statements of intention made
in documents sent to the shareholders of the offeree company. In other cases, where statements
of intention are incorrect, the offeror will nevertheless be bound by such statements if they
are not withdrawn immediately.
3.11 Notwithstanding the foregoing, an offeror who has made a no extension statement or no
increase statement can elect not to be bound by it where a competing offer has subsequently
been made and the offeror:
(a) announces it chooses not to be bound by such statement as soon as possible and within
four business days of the competing offer;
(b) sends a circular to shareholders of the offeree company at the earliest opportunity; and
(c) gives the shareholders of the offeree company who have already accepted the offer the
right to withdraw their acceptance within the period of eight days following the date the
circular is sent.
Offeree company
3.12 As already noted, upon being approached with an offer, the board of the offeree company is
entitled to be satisfied that the offeror is in a position to implement the offer in full.
3.13 Once it has received a bona fide offer (or has reason to believe one is imminent) (including a
whitewash transaction), no changes to the board of the offeree company may be made save
with the consent of the Executive. In the absence of such consent, a director wishing to resign
should not do so until the later of (i) the first closing date of the offer, (ii) the offer being
declared unconditional, or (iii) the shareholders have voted on the waiver of a mandatory offer
obligation. Consent will not normally be given if the offeror is a controlling shareholder of
the offeree company and the director is eligible to serve on the ICB (to be discussed below).
In the case of a mandatory offer, save with the consent of the Executive, no appointment of a
new director that is a nominee of an offeror (or its concert parties) may be made to the board
of the offeree company or its subsidiaries prior to the posting of the offer document.
3.14 Directors of an offeree company who oppose an offer, their financial advisers, and others
acting in concert with them should consult the Executive before acquiring any voting rights
that might trigger a mandatory offer obligation.
3.15 Directors of an offeree company will continue to be subject to the insider information
provisions of the SFO and the dealing restrictions in the Listing Rules, as noted in section
2.14 above.

Independent committee of the board
3.16 After being approached by a potential offeror or receiving an offer, the board of the offeree
company must: (i) establish an ICB, and (ii) appoint, subject to the approval of the ICB, a
competent IFA to advise the ICB.
3.17 The ICB should consist of all non-executive directors of the offeree company who have no
direct or indirect interest in any offer or possible offer (other than as shareholders of the
offeree company). Its role is to make a recommendation as to (i) whether the offer is fair and
reasonable and (ii) acceptance or voting.
3.18 If it is impracticable to form an ICB, such as where none of the directors are independent of
the offeror, the IFA will take the primary responsibility to represent the interests of any
independent shareholders.
Independent financial adviser

3.19 The appointment of the IFA must be announced by the board as soon as possible after the
appointment is made. A key role of the IFA to an offeree company is to advise the ICB in
writing as to whether the offer is fair and reasonable and as to acceptance and voting, having
regard to the interests of shareholders. In the event the IFA is unable to advise whether the
offer is or is not fair and reasonable, the Executive should be consulted.
Note: Topic 5 further discusses the responsibilities of the IFA.
Offeree board circular

3.20 Once an ICB has been established and an IFA has been appointed, the preparation of the
offeree board circular to shareholders (also sometimes referred to as the response document)
will need to commence. The purpose of the offeree board circular is to enable shareholders to
reach a properly informed decision on the offer.
3.21 As discussed in section 4 below, the preparation of the offeree board circular is onerous. The
preparation work should begin as soon as an offer is announced. It must comply with certain
content requirements that will require due diligence to be undertaken and must be prepared to
prospectus standard. The offeree company will also need to prepare and post the offeree board
circular within the applicable timeframe, as discussed in Topic 3 section 8.
Restrictions on action during offer period

No frustrating action
3.22 Once the board of an offeree company has received a bona fide offer or has reason to believe
that a bona fide offer may be imminent, the board must not take any action which could
effectively cause an offer to be frustrated, or interfere with the right of the shareholders of the
offeree company to decide on the merits of an offer, unless approved by the shareholders in
general meeting.
3.23 In particular, the offeree company’s board must not, in the absence of shareholder approval
or a waiver from the Executive (see sections 3.25 to 3.27 below), do or agree to do the
following:
(a) issue any shares;
(b) cause or permit the creation, issue or grant of any convertible securities, options or
warrants in respect of shares of the offeree company;
(c) sell, dispose of or acquire assets of a material amount;
(d) enter into any contracts outside the ordinary course of business, including service
contracts; or

(e) cause the buy-back, purchase or redemption of any shares in the offeree company by the
offeree company itself or any subsidiary or associated company, or provide financial
assistance for any such buy-back, purchase or redemption.
3.24 Where the offeree company passes any of the above shareholders’ resolutions in general
meeting prior to the posting of the offer document, or announces a transaction that would
require such a resolution but for the fact it is pursuant to a contract previously entered into,
the Executive may allow an offeror not to proceed with an offer.
Executive waiver
3.25 In appropriate circumstances, the board of the offeree company may apply to the Executive
for a waiver from the general requirement to obtain shareholders’ approval. In these cases, the
board must consult the Executive at the earliest opportunity to determine whether a waiver is
appropriate.
3.26 Where there is a prior contractual obligation — that is, where the offeree company is already
obliged to take what would otherwise be frustrating action — the Executive may grant a
waiver from the general requirement to obtain shareholders’ approval. In this case, the
Executive will consider the details (if any) disclosed by the board of the offeree company to
its shareholders in relation to any such prior contractual duty, obligation or right, the
fulfilment or enforcement of which may result in the offer being frustrated or the shareholders
of the offeree company being denied the opportunity to decide on the merits of the offer.
3.27 In addition to prior contractual arrangements, other special circumstances may exist which
persuade the Executive to grant a waiver from the need to obtain shareholders’ approval.
Service contracts
3.28 If an offeree company enters into a service contract with a director, or creates or varies the
terms of an existing contract, which constitutes an abnormal increase in the emoluments or a
significant improvement in the terms of service of such director, the Executive will regard
such increase or improvement as entering into a contract “otherwise than in the ordinary
course of business” for the purpose of the prohibition on frustrating actions.
3.29 Any such increase or improvement resulting from a genuine promotion or new appointment
will not be so restricted, but the offeree company must consult the Executive in advance.
Material amount
3.30 The same tests as those set out in the Listing Rules to determine whether a transaction is a
“discloseable transaction” will apply when determining whether a disposal or acquisition is
of a “material amount”.
Note: A discloseable transaction is one category of notifiable transactions determined by the
application of percentage ratio tests that compares the size of the transaction with the size of
the issuer. Where the percentage ratio is 5% or more, but less than 25%, the transaction will
for the purposes of the Takeovers Code be regarded as a discloseable transaction. Therefore,
transactions where the percentage ratio is 5% or more will be regarded as being a material
amount.
3.31 For this purpose, if several transactions are intended that are not themselves material, the
Executive may aggregate them to determine whether the materiality threshold is met.
3.32 The Executive should be consulted in advance where there may be any doubt as to the
application of the above.
Established share option schemes

3.33 Where the offeree company proposes to grant options over shares in a manner consistent with
its normal practice under an established share option scheme, the Executive will normally

give its consent.
Interim dividends
3.34 Where during an offer period the offeree company intends to declare and pay an interim
dividend outside the normal course, this could constitute frustrating action. In such cases, the
Executive should be consulted in advance.
Share issue
3.35 The general mandate under the Listing Rules to issue up to 20% of the number of company’s
shares (as at the date of the resolution granting the general mandate) without the need for
further approval cannot be exercised freely during the offer period. One of the aims of the
prohibition on frustrating actions is to ensure that the shareholding base is not deliberately
altered.
Offeror and offeree company – documents on display

3.36 When the offer document or offeree board circular (each a “Code Document”) has been
posted, certain documents (“Display Documents”) are required to be made available for
inspection from the time the Code Document is released until the end of the offer period (or
the relevant shareholders meeting in the case of schemes of arrangement and whitewash
transactions where the condition for the whitewash waiver is not waivable). The issuer of the
relevant Code Document must make the Display Documents available on their website (see
Note below). Display Documents are also required to be submitted electronically using the
SFC’s online portal called WINGS (i.e. Web-based INteGrated Service).
Note: The address of the website must be provided in the Code Document. The website may
be a transaction-specific website.
3.37 Display Documents include (in each case in relation to the issuer of the relevant Code
Document):
(a) the articles of association, by-laws or equivalent documents;
(b) audited consolidated accounts for the past two financial years;
(c) any report, letter or valuation or similar referred to in the Code Document;
(d) written consents of the financial advisers to be named as such in the Code Document;
(e) where a profit forecast has been made, the reports of the auditors or consultant
accountants and of the financial advisers together with letters of consent from the
foregoing to the issue of the Code Document with the reports as presented therein;
(f) where an asset valuation has been made, the valuation certificate and associated report
together with a letter of consent to the publication of the valuer’s name;
Note: Profit forecasts and asset valuations are discussed further in Topic 5 section 3.
(g) documents evidencing irrevocable commitments;
(h) information related to dealings including in derivatives;
(i) material contracts referred to in the Code Document;
(j) service contracts referred to in the Code Document;
(k) documents related to the offer’s financing arrangements; and
(l) other documents that may be required by the Executive.

Revision questions:
Question 3A: During an offer period, can non-institutional shareholders of the offeree company be
solicited for acceptances?
Answer 3A: Yes, though only financial advisers of the soliciting person who are fully conversant
with their responsibilities under the Takeovers Code may undertake such
solicitations.
Question 3B: What are the consequences of an offeror stating in a document sent to shareholders
of the offeree company that its “present intention is that there will be no extension
of the offer period”?
Answer 3B: This will be treated as final and absolute and, in the absence of exceptional
circumstances, the offeror will be bound by such statement.
Question 3C: Can a director of the offeree company resign following the receipt of a bona fide
offer?
Answer 3C: No, except with the consent of the Executive. The earliest a director can resign is set
out in section 3.13 above.
Question 3D: Identify two characteristics of a director of an offeree company who would not be
suitable to sit on the ICB.
Answer 3D: A director who is an executive director of the offeree company; a non-executive
director who has an indirect interest in the offer (i.e. other than as a shareholder of
the offeree company).
Question 3E: Identify three things that an offeree company is prohibited from doing once it has
received a bona fide offer, assuming it does not have shareholder approval or a
waiver from the Executive.
Answer 3E: It may not issue any shares; it may not dispose of assets of a material amount; it may
not enter into any contracts outside the ordinary course of business. See section 3.23
above.
Question 3F: Identify three documents that must be put on display by an offeree company at the
time when it issues the offeree board circular.
Answer 3F: Its articles of association (or equivalent documents); audited consolidated accounts
for the past two financial years; any report referred to in the circular. See section 3.37
above.

4 Announcements obligations under the Code on Takeovers
and Mergers
General considerations
4.1 The offeror and offeree company are subject to a number of announcement obligations both
before and during an offer period that may arise not only from the Takeovers Code but also
from Part XIVA, SFO and the Listing Rules (see the discussion in Topic 1 section 4). A
number of the obligations arising in connection with the offer timetable generated by the
Takeovers Code was discussed in Topic 3 section 8. The responsibilities of directors were
discussed in section 1 above.
4.2 General Principle 1 requires all shareholders to be treated even-handedly and General
Principle 5 requires shareholders to have access to sufficient information. The Takeovers
Code specifically requires information to be made equally available to all shareholders as
nearly as possible at the same time and in the same manner. This does not prevent information
from being provided in confidence to persons that need to know, such as by an offeree
company to a bona fide potential offeror. Nor does it prevent associates (e.g. a financial
adviser) from issuing circulars or similar material to their clients (see Note 1 below). However,
it does mean that great care must be taken not to disclose confidential information during, for
example, meetings with investment analysts or interviews with the media (see Note 2 below).
Where the foregoing has not been observed and material new information or significant new
opinions are released, they must immediately be announced to the shareholders and the
market. The Executive may also require the information to be disseminated by means of a
circular to shareholders.
Note 1: Circulars or similar should also not contain any statement or opinion derived from
confidential information. The associate’s status should be clearly disclosed.
Note 2: Except with the consent of the Executive, an appropriate representative of the
financial adviser to the offeror or offeree company must be present at each such meeting.
4.3 In addition to the specific obligations arising under the Takeovers Code discussed in this
section, an offeror or offeree company that is listed on a stock exchange will be subject to
ongoing obligations under the applicable listing requirements. Where such requirements give
rise to an announcement obligation, careful consideration should be given to the possible
implications under the Takeovers Code. For example, announcements by the offeree company
(or the offeror in a securities exchange offer) that concern matters touching on valuation or
profitability (such as a profit warning statement) will give rise to additional considerations
under the Takeovers Code.
Meaning of “document”
4.4 The Takeovers Code defines “document” to include any announcement, advertisement or
document issued in connection with an offer or possible offer by an offeror, the offeree
company, their shareholders, or any persons acting in concert with any of the foregoing. This
definition also includes documents in relation to a transaction where a ruling is sought that no
offer obligation arises or it is stated as conditional on no offer obligation arising or a ruling
being given to that effect.
Note: Documents that are required to be put on display for inspection are excluded from the
foregoing definition – these are discussed in sections 3.36 to 3.37 above.
4.5 The foregoing definition catches many disclosures that are made by parties involved in a TC
Transaction. Accordingly, the parties involved will need to carefully consider whether an
announcement is a document and to observe the relevant requirements.

Process of publishing documents
4.6 In general, all documents must be filed with the Executive for comment prior to being released
or published and may not be released or published until the Executive has confirmed that it
has no further comment (see Note below). Such filing should comprise an advanced form of
the document and allow the Executive sufficient time to consider the document. The
Executive’s role in this regard is to assist the parties in resolving any issues that arise under
the Codes, and so the issuer of the document (and its directors and advisers) remains solely
responsible for complying with the Codes and ensuring the accuracy and completeness of the
document. Accordingly, the Executive indicating it has no further comment on a document
does not imply that the document fully complies with the Codes. In the event of any material
change to a document following the Executive’s “no further comment”, it should be
resubmitted for further comment prior to its release or publication.
Note: The SFC’s website should be consulted for the types of documents that are not normally
required to be subject to the above requirement. In these cases, the documents are subject to
post-vetting and must be submitted to the Executive immediately after the document is
published. Where the Executive raises an issue on a post-vet document that cannot be
resolved, it may be necessary to publish a supplementary or clarification announcement.
4.7 Once published, a copy of the document as published should be provided to the Executive
together with written confirmation of the date and time of publication and a statement of no
material changes to the version on which the Executive indicated it had no further comments.
Note: In the event that changes have been made to the document since the Executive’s “no
further comment”, a marked-up version showing the changes should also be provided to the
Executive.
4.8 All documents must clearly and prominently identify on whose behalf they are being issued.
Announcements issued by listed issuers must additionally comply with the relevant
requirements of the Listing Rules. Where an announcement is issued by an unlisted offeree
company, it must be published in English and Chinese languages as a paid announcement in
a leading Hong Kong newspaper. All documents published in respect of unlisted offeree
companies must be provided to the SFC in electronic format for publication on the SFC’s
website.
Standard of documents
4.9 The preparation of any document required under the Codes is required to observe the highest
standards of care and accuracy, and present information fairly and adequately. This is
normally referred to as a “prospectus standard”. Where there are material changes to
information previously provided, such as it becomes out of date or ceases to be accurate,
shareholders must be notified as soon as possible. In this regard, a financial adviser bears an
important responsibility, and this is discussed in Topic 5.
4.10 Care should be taken that a document does not mislead. It should provide shareholders, in a
timely manner, with sufficient information and advice to reach a properly informed decision
on the merits of an offer. Accordingly, language should be unambiguous. The word
“agreement” should be used carefully so as to avoid suggesting a person may have committed
to a course of action when they have not. Diagrams should not distort. The use of comparables
should be fair and representative. Quotations should be appropriately sourced.
Note: Where it is intended to use television, video, audio tapes etc., the Executive must be
consulted in advance in all cases.
4.11 In addition to the matters governed by the Codes, persons issuing documents in connection
with a TC Transaction are also potentially criminally liable under s. 384, SFO if they provide
information to the SFC that is false or misleading in a material particular.

Prior to an offer
Offeror
4.12 Independent of any obligations it may have under the Listing Rules or the SFO, and
irrespective of the stage of an offeror’s planning prior to approaching the board of an offeree
company with a firm offer, an offeror or a potential offeror may be required to make an
announcement in two circumstances:
(a) where, before an approach has been made to the offeree company, the offeree company
is the subject of rumour or speculation about a possible offer, or where there is undue
movement in either its share price or trading volume that may be due to the actions of
the potential offeror or its concert parties. The announcement will need to indicate that
the potential offeror is considering making an offer; or
Note: “Undue movement” is to be determined according to all relevant facts, not merely
the absolute percentage change in share price or trading volume. This might include
factors such as market and sector movements, information relating to the company, and
trading activity in the company’s shares over the relevant period. In case of doubt, the
Executive should be consulted.
(b) where negotiations or discussions are about to be extended beyond a very restricted
group of people, i.e. outside those who need to know in the companies concerned and
their immediate advisers (since in this case there is a greatly increased risk of
confidential information leaking out). The announcement will need to indicate that talks
regarding a possible change in control and a general offer for shares in the offeree
companies are taking place.
4.13 An announcement that talks are taking place or that a potential offeror is considering making
an offer will commence an offer period, often referred to as a “possible offer announcement”
(it may also be referred to as a “Rule 3.7 announcement”). Any such announcement should
only be made where it is necessary to do so, and the Executive and the SEHK should be
immediately notified. Consideration should be given to requesting a trading halt or suspension
to avoid an uninformed market in the shares of the offeree company (and/or offeror). Any
trading halt shall be kept as short as practicable. Unnecessary trading halt shall be avoided.
The announcement should be relatively short and disclose no more than the fact that talks are
taking place – it is not appropriate to include details such as any indictive offer price or the
form of consideration.
4.14 Once a possible offer announcement has been made, it will be necessary to provide, if no
further announcements have been made, an update announcement not more than one month
later than the prior announcement. Having regard to the required standard of documents
discussed above, such update will need to set out any relevant developments, such as progress
in the talks. The obligation to provide a monthly update continues until an announcement is
made of either a firm intention to make an offer or a decision not to proceed with an offer.
Pre-conditional announcements
4.15 In some circumstances, a potential offeror may, instead of a possible offer announcement as
described above, make an announcement indicating that the potential offeror is considering
to make an offer subject to the satisfaction of certain pre-conditions – this is known as a pre-
conditional possible offer announcement. As a form of possible offer announcement, this type
of announcement will commence an offer period. The Executive must be consulted in advance
if such an announcement is proposed to be made.
4.16 Unlike the case with a general offer, the conditions to a pre-conditional possible offer
announcement may be subjective, and there is no obligation to disclose all the pre-conditions
that may be relevant. However, in respect of the pre-conditions that are disclosed, it must be
indicated whether they are waivable.

4.17 If the potential offeror decides to specify all the pre-conditions to the making of a formal offer,
and states that they will proceed if the conditions are satisfied or waived, then the
announcement will need to be structured as a pre-conditional offer announcement (also known
as a pre-conditional Rule 3.5 announcement). In this case, the announcement will need to
comply with the requirements applying to offer announcements pursuant to TC r3.5
(discussed in sections 4.24 to 4.27 below).
Offeree company
4.18 Prior to any formal offer being made, an offeree company will need to be aware of its
announcement obligations under the Takeovers Code where either:
(a) the offeree company has been approached by a potential offeror;
(b) the offeree company is seeking potential offerors; or
(c) the board of the offeree company is aware that a potential offeror has approached the
holder(s) of shares carrying 30% or more of the voting rights of the offeree company.
Note: This is additional to any obligations arising under the SFO or the Listing Rules
discussed earlier.
4.19 The board of the offeree company will need to keep a close watch on the price and trading
volume of the offeree company’s shares. The offeree company will need to make an
announcement where:
(a) it is the subject of rumour or speculation about a possible offer;
(b) there is undue movement (see the Note to section 4.12(a) above) in either its share price
or trading volume;
(c) discussions are about to be extended beyond a very restricted group of people (i.e.
outside those who need to know within the company and its immediate advisers); or
(d) the offeree company is seeking potential purchasers or offerors and the number being
approached is about to be increased to more than a very restricted number of people.
Potential vendor
4.20 A potential vendor may also be subject to an announcement obligation where there are
discussions between a potential offeror and holder(s) of shares carrying 30% or more of the
voting rights of the company. An announcement obligation will arise where the company is
the subject of rumour or speculation about a possible offer or there is undue movement (see
the Note to section 4.12(a) above) in either the price or trading volume of the company’s
shares and there are reasonable grounds for concluding that the situation has arisen as a result
of the potential vendor’s actions.
At the commencement of an offer period

4.21 As discussed in Topic 3 section 1.8, the offer period commences when an announcement is
made of a proposed or possible offer. Thus, unless the offer period has already commenced as
a result of a possible offer announcement previously made (see section 4.13 above), the offer
period will start with the offeror’s announcement of a firm intention to make an offer – this is
the “offer announcement” (though it is also often referred to as the “Rule 3.5 announcement”).
4.22 Once the board of the offeree company has received an offer from a serious source, it must
make an announcement irrespective of the attitude of the board to the offer.
4.23 In addition to any announcement obligations that may arise under the SFO or the Listing Rules
(see sections 1.11 to 1.12 above), the main announcement obligations that will be involved at
the outset of every takeover is the offeror’s offer announcement, the offeror’s offer document
and the offeree board circular. Other announcement obligations may arise during the course

of an offer. Each of the foregoing are discussed in the following sections.
Note: The announcement obligations under the Takeovers Code, both before and after a
formal offer is made, reflect General Principles 4, 5 and 6 (see Topic 2 section 2).
Offeror: the offer announcement

4.24 Topic 3 noted that the offer announcement represents a point of no return as there are limited
circumstances where an offeror may be able to withdraw an offer once made. Offerors must
not make an offer announcement unless it has every reason to believe that it can and will be
able to implement the offer. In this regard, the financial adviser also bears responsibility, and
this is discussed in Topic 5 section 4.
4.25 An offer announcement must contain the following details:
(a) the terms of the offer;
(b) the identity of the offeror including where applicable any ultimate controlling
shareholder and ultimate parent company;
(c) confirmation from the financial adviser or another appropriate third party that the offeror
has sufficient resources to complete the offer if successful (see further, Topic 5 section
4);
(where any of the following is not applicable because no such matter or arrangement
exists, an appropriate negative statement must be made)
(d) the existing holding of voting rights, and rights over shares, in the offeree company held
or controlled by the offeror and its concert parties, including those that are the subject
of any irrevocable commitment or any convertible securities, warrants or options;
Note: A reference to an irrevocable commitment to accept an offer must specify in what
circumstances it ceases to be binding. For example, an irrevocable commitment might
no longer be binding if a higher offer is made.
(e) any derivatives held that pertain to the offeree company’s securities held by the offeror
or its concert parties;
(f) all conditions to which the offer is subject, including conditions such as related to
acceptance level as well as any relevant regulatory or other approvals;
Note: The details should be specified clearly such as the names of the relevant
authorities, the expected timing and whether the conditions can be waived. If there are
no such regulatory approvals, an appropriate negative statement should be made.
(g) any arrangement involving rights over the shares in the offeror or the offeree company
that may be an inducement to deal or refrain from dealing;
(h) any arrangements to which the offeror is a party concerning the invocation or non-
invocation of any condition (or pre-condition) to an offer, including details of any
applicable break fees;
(i) any relevant securities in the offeree company subject to stock borrowing arrangements
(including the shares to be offered as the consideration for the offer or securities carrying
conversion of subscription rights into such shares); and
(j) the details of any special deals or an appropriate negative statement where none exist
(see Topic 6).
4.26 In addition to the foregoing, where the offeror has appointed an IFA pursuant to the Takeovers
Code (see sections 2.8 to 2.11 above) the offer announcement must also contain a summary
of the key points of the advice received.
4.27 Where the offeror is a company listed on the SEHK, it will also need to be aware of the

provisions of Chapter 14 of the MBLR concerning the offer document, and this is discussed
in section 4.34(e) below.
Offeror and offeree company: disclosures of relevant securities

4.28 Once an offer period has commenced, the offeror and offeree company will each need to
make, as soon as possible, disclosure of:
(a) in the case of the offeree company, the details of all classes of relevant securities issued
by the offeree company;
(b) in the case of the offeror, the same details relating to its relevant securities.
Note: Refer to Topic 6 for the definition of “relevant securities”.
4.29 The announcement should remind associates of the offeror or the offeree company to disclose
any relevant dealings in the offeree company shares. In the case of a securities exchange offer,
the offeror or the offeree company should extend this reminder to cover dealings in the
securities that are being offered in exchange.
Offeror: the offer document

4.30 The offer document must contain the information necessary to enable shareholders of the
offeree company to reach a properly informed decision. It must also contain the information
required by Schedule I of the Codes.
4.31 Preparing the offer document to meet the content requirements is an onerous task that will
require the offeror and its advisers, including in particular the financial adviser, to undertake
careful due diligence and ensure that the quality of the information presented is consistent
with the expected standard (discussed in sections 4.9 to 4.11 above). The role of the financial
adviser to the offeror is discussed in Topic 5 section 4.
4.32 Regard will also need to be had to the required timing of publishing the offer document (see
Topic 3 section 8) as well as the process by which documents are vetted before being issued
(see section 4.6 above).
4.33 Some of the other key items of information required to be included in the offer document as
specified in Schedule I are as follows:
(a) the name and address of the offeror, its financial advisers and the principal members of
the offeror’s concert party;
(b) the offeror’s intentions regarding the offeree company and its employees, such as the
continuation of business or any major changes intended and the continuation of the
employment of the employees;
(c) the shareholdings and dealings of the offeror and its concert parties in the shares of the
offeree company, including those that are the subject of any irrevocable commitment
and any convertible securities, warrants or options or derivatives held that pertain to the
offeree company’s securities;
Note: The shareholdings and dealings of any non-exempt discretionary fund manager
and non-exempt principal trader connected with an offeror should also be disclosed.
(d) the securities that are the subject of the offer should be clearly identified including
whether the offer is being made on a cum dividend or ex dividend basis, and who will
bear the stamp duty where the offer is accepted by a shareholder;
(e) the consideration payable for the securities that are the subject of the offer;
(f) all conditions to which the offer is subject;
Note: Where this includes regulatory approvals, the expected timetable for that approval
process should also be set out. See Topic 3 section 4.16.

(g) particulars of all documents and procedures required for a shareholder of the offeree
company to accept the offer;
(h) whether the offeror intends to exercise any rights of compulsory acquisition;
(i) data on the market prices of the offeree company’s and offeror’s securities over specified
periods;
(j) a description of how the offer is to be financed including the sources of finance and the
names of any principal lenders or arrangers, save where the offer is a cash offer and the
offeror seeks to privatise the offeree company;
Note: Where the repayment of any financial arrangement depends to a significant extent
on the business of the offeree company, disclosure of the arrangements is required. An
appropriate negative statement must be made where there are no such arrangements.
(k) details of any arrangements made in connection with the offer, or an appropriate negative
statement;
Note: For example, arrangements: with directors of the offeree company compensating
them for loss of office; that are contingent on the outcome of the offer; that concern the
offeror seeking to invoke or not invoke a condition to the offer. This is particularly
relevant in relation to special deals (see Topic 6 section 4).
(l) a statement confirming certain obligations of the offeror and rights of the offeree
company shareholders under the Takeovers Code, including pertaining to the timing of
the offer, revised and alternative offers, the period during which an acceptor has the right
to withdraw their acceptance, announcing the results of the offer, and settlement of
consideration (all discussed in Topic 3 section 8); and
(m) any arrangements that may induce another person to deal or refrain from dealing, or an
appropriate negative statement.
4.34 In addition to the foregoing, in the following circumstances the offer document should
include:
(a) if the offer is a partial offer, a statement of the reasons for making a partial but not full
offer;
(b) if the offer is a cash offer (or involves some other asset other than a new issue of
securities), a statement from a financial adviser (or another appropriate independent
party) confirming that the offeror has sufficient resources available to satisfy full
acceptance of the offer;
(c) if the offer is a securities exchange offer, specified information about the offeror
including its business, its share capital, the securities being offered (including how
documents of title to the securities will be issued), certain financial disclosures, any
material litigation, any material contracts entered into over the past two years not in the
ordinary course of business, and how the acquisition of the offeree company will affect
the emoluments of the directors of the offeror (or an appropriate negative statement if it
will not);
(d) if the offeror is a company listed on the SEHK, (i) a statement whether the offeror intends
to continue the listing of the listed offeree company, and (ii) information pertaining to
ensuring an open market in the securities of the listed offeree company together with a
prominent and legible statement to the effect that, where a false market exists or the
public float requirement is not met, the SEHK may suspend dealings in the shares of the
offeree company;
(e) if the offeror is a company listed on the SEHK and the offer is a securities exchange
offer involving the issue of new securities for which listing is being sought, (i) the offer
document will constitute a listing document and (ii) certain financial disclosure

requirements may be satisfied by incorporating by reference information disclosed by
the offeror pursuant to the Listing Rules;
Note: The above requirement arises out of Chapter 14 of the MBLR and the SEHK may
impose other requirements provided they are not inconsistent with the Takeovers Code.
(f) if the offeror is a subsidiary, information about the ultimate holding company in the form
of group accounts, unless the Executive regards the subsidiary as being of sufficient
substance in relation to the group and the offer; and
(g) if the offeror is not listed on the SEHK, a general description of the business interests of
the offeror (possibly including other person(s) concerned) and details of its assets that
may, in the opinion of the Executive, be relevant to the business of the offeree company.
Offeror: other announcements that may be required during an offer period

4.35 An announcement will be required where the offeror or its concert parties acquire voting
rights and any of the following apply:
(a) the offer does not include a cash alternative but the consideration for the acquisition was
cash – this will require a cash alternative offer to be extended to all shareholders of the
offeree company;
(b) the acquisition was at a price higher than the offer price – this will require a revision of
the offer price; or
(c) the offer is a voluntary offer and the acquisition gives rise to a mandatory offer obligation
– this will cause the voluntary offer to become a mandatory offer.
4.36 An announcement will be required where a conditional offer becomes unconditional in regard
to acceptances and when it becomes unconditional in all respects.
4.37 Where the offer price is revised, either as a consequence of acquisitions (see section 4.35(b)
above) or because the offeror decides to revise terms of its offer, it will have to announce the
revision as soon as possible. Since a revised offer must be kept open for at least 14 days
following the date it is posted, no revised offer document may be posted in the 14 days ending
on the last day the offer is able to become unconditional as to acceptances. Where a revision
might come about as a result of acquisitions at above the offer price (i.e. section 4.35(b)
above), the offeror and its concert parties should not put themselves in a position where they
cannot comply with the foregoing.
Offeree company: circular to shareholders

4.38 The offeree company’s board will need to send a circular to its shareholders, referred to in the
Takeovers Code as the “offeree board circular” containing the information it considers
relevant to enable its shareholders company to reach a properly informed decision on the offer.
It must also contain the information required by Schedule II of the Takeovers Code.
4.39 Preparing the offeree board circular will require the offeree company’s board and its advisers,
including in particular the financial adviser, to undertake careful due diligence and ensure that
the quality of the information presented is consistent with the required standard (discussed in
sections 4.9 to 4.11 above). This should begin as soon as an offer has been announced. The
role of the financial adviser to the offeror is discussed in Topic 5 section 4.
4.40 Regard will also need to be had to the required timing of publishing the offeree board circular
(see Topic 3 section 8) as well as the process by which documents are vetted before being
issued (see sections 4.6 to 4.8 above).
4.41 Two items of information of central importance to the offeree board circular are to provide to
shareholders:
(a) the ICB’s recommendations on the offer; and

Note 1: Where relevant, a comment should be provided on the offeror’s intentions as
regards the business and employees of the offeree company.
Note 2: Reasons for the recommendation must be given. Where the ICB is unable to
express a view, the reasons for not expressing a view must also be given. In some cases,
the board may be split as to its views and in this case the Executive will normally require
the minority views to be circulated together with the majority view.
(b) the written advice of the IFA as to whether or not the offer is fair and reasonable (this is
discussed in further detail in Topic 5, section 5).
4.42 Some of the other key items of information required to be included in the offeree board
circular as specified in Schedule II are as follows (references to directors are to directors of
the offeree company):
(a) the names of all directors;
(b) a statement that the IFA and any financial adviser respectively consents to the issue of
the offeree board circular with its name and its recommendation;
(c) information about shareholding interests of (or appropriate negative statements where
there are no such interests) (i) the offeree company in the offeror, (ii) subsidiaries of the
offeree company in the offeree company (and, in the case of a securities exchange offer,
in the offeror), and (iii) the directors in the offeree company;
Note: The shareholdings and dealings of any non-exempt discretionary fund manager
and non-exempt principal trader connected with the offeree company should also be
disclosed.
(d) whether the directors who hold shares in the offeree company intend to accept or reject
the offer as regards their own shareholdings;
(e) details of the share capital of the offeree company including authorised and issued share
capital as well as any options, warrants and conversion rights that affect shares in the
offeree company;
(f) financial information covering the last three financial years (e.g. a recent indebtedness
statement and any required property/asset valuation reports);
Note: If the offeree company is listed on the SEHK, certain of the financial disclosure
requirements may be satisfied by incorporating by reference information disclosed by
the offeree company pursuant to the Listing Rules.
(g) material contracts entered into over the two years prior to the offer period not in the
ordinary course of business;
(h) details of any director who (i) will receive a benefit as compensation for loss of office
in connection with the offer, (ii) has an agreement or arrangement that is connected to
the offer or, (iii) has a material personal interest in a material contract entered into by
the offeror;
(i) any directors’ service contracts (including directors of subsidiaries of the offeree
company) that (or an appropriate negative statement) (i) have been entered into or
amended (see Note below) within six months before the offer period commenced, (ii)
are continuous contracts with a notice period of at least 12 months, or (iii) are fixed term
contracts with more than 12 months to run irrespective of the notice period; and
Note: A material increase in remuneration made within six months of the date of the
offeree board circular for a director’s service contract that has more than 12 months to
run will be regarded as an amendment.
(j) the website address where the documents on display (see section 3.36 above) may be
inspected.

Offeree company: announcement of new information
4.43 An offeree company continues to be subject to its usual disclosure obligations, such as those
arising under the SFO or the Listing Rules, throughout an offer period. However, where any
disclosure after “Day 39” (the 39th day following the posting of the initial offer document)
might involve material new information, the Executive must be consulted in advance. Where
possible, the offeree company should use every effort to make any such announcement prior
to this Day 39 cut-off date. Where that is not possible, or the matter arises after Day 39, the
Executive will normally give consent.
Note: Where an announcement of material new information is made after Day 39, the
Executive will normally be prepared to grant an extension of Day 46 and/or Day 60 – see the
timetable in Topic 3 section 8.
Subsequent documents
4.44 Where shareholders of the offeree company receive any announcement, advertisement or
document from either the offeror or offeree company, any material information that has
previously been provided to them during the offer period must be appropriately updated with
details of any material change to the information previously provided. If there are no such
changes, an appropriate negative statement must be made.
4.45 In any event, where the prior information contained a profit forecast, a directors’ statement
must be made that the forecast remains valid for the purpose of the offer. It should also state
that the third party who reported on the forecast has no objection to their reports continuing
to apply. Where such statement cannot be made, the Executive must be consulted.
Note: Profit forecasts are discussed further in Topic 5 section 3.
On the closing date

4.46 On the closing date (see Note below), the offeror will need to reach a decision as to whether
the offer:
(a) has become, or will be declared, unconditional as to acceptances or in all respects;
(b) will be revised or extended; or
(c) has expired.
Note: In a scheme of arrangement, the relevant date will be the date of the shareholders
meeting to approve the scheme.
4.47 The offeror will then need to, by the times indicated on the same day, (i) inform the Executive
and the SEHK of its decision by 6:00pm (and, as soon as practicable thereafter, the offeree
company and any other competing offeror) and (ii) publish an announcement in accordance
with the Listing Rules by 7:00pm. A draft of the announcement must be provided to the
Executive by 6:00pm for comment.
4.48 The announcement must state the total number of shares and rights over shares for which:
(a) acceptances have been received (acceptances received from persons acting in concert
with the offeror and acceptances of cash alternatives must be disclosed);
(b) the offeror and its concert parties held or controlled before the offer period; and
(c) the offeror and its concert parties have during the offer period acquired or agreed to be
acquired.
Note: The percentage of the class of share capital and voting rights represented by these
numbers must also be stated.
4.49 In the event an offeror is unable to comply with any aspect of the foregoing, the Executive
should be consulted. In such cases, the Executive may require that acceptors be granted a right

of withdrawal until such requirements can be met.
Revision questions:
Question 4A: Does “document” in the Takeovers Code mainly refer to just the offer document?
Answer 4A: No, the term is defined to include any announcement, advertisement or document
issued in connection with an offer or possible offer by an offeror, the offeree
company, their shareholders, or any persons acting in concert with any of the
foregoing.
Question 4B: Do all documents issued in the course of a TC Transaction need to be pre-vetted by
the Executive before they can be published?
Answer 4B: In general, all documents must be filed with the Executive for comment prior to being
published, however, the SFC’s website contains a list of documents that are subject
to post-vetting rather than pre-vetting.
Question 4C: What is the consequence of providing a materially false or misleading information
to the SFC in connection with a TC Transaction?
Answer 4C: The person providing such information may be criminally liable under s. 384, SFO.
Question 4D: What is a “possible offer announcement”, and does it commence an offer period?
Answer 4D: This is an announcement that a potential offeror is considering an offer, and it will
commence an offer period.
Question 4E: What is the difference between a possible offer announcement and a pre-conditional
possible offer announcement?
Answer 4E: A pre-conditional possible offer announcement is a type of possible offer
announcement that uses pre-conditions that may be subjective.
Question 4F: What information needs to be included in an offer document?
Answer 4F: See sections 4.33 to 4.34 above.
Question 4G: Where an offeror that is listed on the SEHK makes a securities exchange offer
involving the listing of new securities, what provisions of the Listing Rules will it
need to consider?
Answer 4G: It will need to consider Chapter 14 of the MBLR, which imposes additional content
requirements for the offer document. See sections 4.27 and 4.34(e) above.

5 Following the end of an offer period
Subsequent acts of the offeror
5.1 An offeror should from the outset be aware of various prohibitions that it will become subject
to if it proceeds with an offer or possible offer.
Subsequent offer
5.2 Where an offer has been announced but has not become unconditional, and has been
withdrawn or has lapsed, the offeror and each of its concert parties are subject to a 12-month
prohibition, running from the date the offer is withdrawn or lapses, as follows:
(a) it may not announce an offer or possible offer (or a partial offer that would result in it
coming to own shares representing 30% or more of the voting rights of the offeree
company); or
(b) it may not acquire voting rights of the offeree company that would give rise to a
mandatory offer obligation.
Note: The foregoing restrictions may also be applied, for a period of six months, to persons
who either (i) raises or confirms the possibility that an offer might be made but do not
subsequently make an offer within a reasonable time thereafter, or (ii) make an announcement
that they do not intend to make an offer for a company.
5.3 However, the Executive may consent to vary such prohibitions and will normally do so where:
(a) the new offer is recommended by the board of the offeree company and the offeror is
not, and is not acting in concert with, a director or substantial shareholder of the offeree
company, provided the previous offer has lapsed for more than three months;
Note: The Takeovers Code defines a substantial shareholder as a person who holds 10%
or more of the voting rights of a company.
(b) the new offer is made after a third party has announced an offer; or
(c) the new offer follows the announcement by the offeree company of a whitewash
proposal.
5.4 The foregoing restrictions may also be applied to partial offers.
Subsequent purchases
5.5 An offeror who, together with its concert parties, has made an offer and holds more than 50%
of the voting rights of the offeree company may not, for a period of six months from the end
of the offer period, acquire or offer to acquire further shares at a higher price than that offered
in the previous offer. The consent of the Executive would be needed for any such transaction.
5.6 For the purposes of the above rule:
(a) a new issue of shares by placing, subscription or in exchange for assets would not need
the consent of the Executive; and
(b) the Executive would need to be consulted in relation to the acquisition or exercise of
securities convertible into existing shares of the company, such as warrants or options.
5.7 Where there are competing offers, an offeror whose offer has lapsed may not acquire (nor
may its concert parties acquire) shares in the offeree company on terms better than that
provided in its lapsed offer, until such time as all offers have lapsed or have been declared
unconditional in all respects.
Special deals
5.8 The prohibition on special deals (discussed in Topic 6) continues to apply for a period of six

months after the close of an offer or, in the case of a whitewash transaction, the date of the
relevant shareholders’ meeting.
Confirmation required
5.9 An offeror is required to confirm, within three business days of the expiry of six months from
the end of the offer period, that it and its concert parties have complied with the rules
concerning subsequent purchases in section 5.5 above and special deals.
Subsequent acts of the offeree company

5.10 Once an offer has become unconditional in all respects:
(a) the offeror may seek to requisition a general meeting of shareholders of the offeree
company and, where so requested, the offeree company’s board is expected to cooperate
and convene the general meeting as soon as possible;
Note: This is often done with a view to the appointment of new directors to the board of
the offeree company.
(b) save with the consent of the offeror or approval of the shareholders of the offeree
company, the offeree company’s board should not engage in any acts which the
Takeovers Code prohibits it to take following the board being approached with a bona
fide offer (see section 3.22 above).
Revision questions:
Question 5A: Where an offer has been announced but has lapsed, can the offeror subsequently
announce another offer?
Answer 5A: The offeror will be prohibited from making another offer for a 12-month period,
unless the Executive consents to vary such prohibition.
Question 5B: In what circumstances would an offeror following the end of the offer period be
subject to a restriction on buying shares in the offeree company?
Answer 5B: An offeror who, together with its concert parties, holds more than 50% of the voting
rights of the offeree company may not buy shares at a higher price than that offered
in the previous offer for a period of six months from the end of the offer period.
Question 5C: Can an offeror enter into a special deal with, for example, a director of the offeree
company, after a whitewash transaction?
Answer 5C: No, the prohibition on special deals continues for six months after the date of the
relevant shareholders’ meeting.
Question 5D: What must an offeror do six months after the end of an offer period?
Answer 5D: It must, within three business days, confirm to the Executive that is has complied
with the rules concerning subsequent purchases and special deals.

Topic 5: Obligations of financial advisers
Table of contents
Topic overview 1
Learning outcomes 1
1 Preparing for an engagement 3
Prior to appointment 3
Commencement of appointment 3
2 Obligations common to all financial advisers 5
Overall role 5
Advising on specific matters related to the Codes on Takeovers and Mergers and Share
Buy-backs 6
Cooperation 7
Information 7
Documents to be submitted 9
Standard of documents 9
Dealings 10
3 Requirements relating to financial information 11
Profit forecasts 11
Asset valuations given in connection with an offer 12
4 Financial adviser to the offeror 15
Ability to implement offer 15
5 Independent financial advisers (“IFAs”) 17
IFA appointment and role 17
Determination of independence 17
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Topic overview
This Topic discusses the various obligations of financial advisers, including independent financial
advisers (“IFAs”), under the Codes on Takeovers and Mergers and Share Buy-backs (“Codes”). The
relevant considerations in fact commence prior to any engagement as a financial adviser, who will
need to consider a number of matters when preparing for a possible new engagement. These matters
are discussed in section 1.
Section 2 considers the overall role of the financial adviser and some of its specific responsibilities
once it has secured an appointment. This includes understanding its relationship with other
professional advisers who may be appointed to assist with various aspects of a transaction. Financial
advisers will need to take stock of many matters. It will need to advise its client on, and ensure its
client understands its obligations under the Codes. Upon securing an engagement, it will need to
consider its own compliance obligations, including the impact of the appointment on its group
companies. The financial adviser, and its client, must also appreciate the standards applicable to
documents issued in connection with an offer and what this will require as regards the document
production process.
Section 3 turns to the special requirements arising under the Code on Takeovers and Mergers
(“Takeovers Code”) attaching to financial information such as profit forecasts and valuations. This
requires a financial adviser to recognise when such requirements apply, and to advise the client on
the applicable provisions of the Codes. This will include an appreciation of the different roles played
by, and the standards applicable to, other professional advisers to the client, including accountants
and valuers.
Attention is then turned to matters that concern specific types of financial adviser. Section 4 considers
the role of the financial adviser to the offeror. The final section 5 discusses the IFA and matters unique
to it, such as independence and understanding the nature of the advice it is required to give and to
who.
Learning outcomes
(a) describe the matters a financial adviser must consider prior to accepting an engagement,
including possible conflicts of interest;
(b) assess the consequences of accepting a financial adviser role, including the matters that are
necessary to be considered in relation to the associates of a financial adviser;
(c) establish an understanding of the general roles and responsibilities of financial advisers and other
professional advisers, including as to proper communication, consultation and cooperation with
the Executive Director of the Corporate Finance Division of the Securities and Futures
Commission (“Executive”) and the Securities and Futures Commission (“SFC”), ensuring
compliance with the Codes, and confidentiality;
(d) describe the financial adviser’s roles and post-meeting obligations in relation to meetings
between the offeror and offeree company, as well as meetings with other persons including
shareholders and analysts;
(e) understand the verification process and the standard required of documents and announcements;
(f) recognise the particular roles of the financial adviser in relation to the publication of financial
information, such as profit forecasts and valuations;
(g) understand the steps required to be taken in relation to the offeror’s financial capability to
implement an offer, and the financial adviser’s obligations arising in relation thereto;
(h) determine whether a financial adviser is able to act as an IFA;

(i) identify the circumstances where an offeror is required to appoint an IFA; and
(j) understand the core duties of the IFA.

1 Preparing for an engagement
1.1 The Executive considers it important that each of the offeror and offeree company engages a
financial adviser to assist them with meeting their obligations under the Codes. As discussed
in Topic 1, to assist either of the parties mentioned above with its Codes obligations, a
financial adviser must hold a Type 6 licence (advising on corporate finance) and be permitted
under its licence to advise on matters or transactions falling within the ambit of the Codes
(“TC Transactions”).
1.2 The financial adviser must have the necessary competence, professional expertise and
resources to act in relation to a TC Transaction. This requires a thorough understanding of the
Codes and their various responsibilities thereunder including the standard to which they are
expected to undertake those responsibilities.
Prior to appointment
1.3 Prior to accepting any assignment, a financial adviser must ensure that it has the expertise,
competence and resources to fulfil its role and discharge its obligations under the regulations
that apply to it – this includes not only the Codes but also the other regulatory codes discussed
in Topic 1 section 5. A financial adviser will need to be in a position to allocate sufficient
experienced and competent professional staff to each TC Transaction on which it is appointed.
In addition, a responsible officer or executive officer for Type 6 regulated activity eligible to
advise on TC Transactions in a sole capacity (“TCRO”) must be appropriately involved. The
TCRO and all involved staff are each expected to devote sufficient time and effort to the TC
Transaction to discharge the financial adviser’s responsibilities under the Codes.
Note: See Topic 1 section 3 for a discussion of the regulatory expectations placed on the
TCRO.
1.4 A financial adviser should consider the internal control implications of the foregoing
requirements, including in particular in relation to matters such as the handling of information
and the dealing and disclosure requirements (respectively discussed in section 2 below and in
Topic 6). Proper policies and procedures should be in place that allow prompt communication
among all relevant departments of the financial adviser, including the compliance function.
1.5 Where a financial adviser is considering an appointment as an IFA, it will need to consider
whether it is able to satisfy the requirements for being independent. This will require a careful
consideration as to its own circumstances as well as those of its associates, particularly as to
whether any actual, potential or perceived conflict of interest may exist.
Note: The independence requirements are discussed in section 5 below.
1.6 A financial adviser will therefore need to carefully consider its ability to fulfil the foregoing
requirements prior to accepting an advisory role. The Executive also has the discretion to not
allow a financial adviser to act where such requirements are not met.
Commencement of appointment
1.7 The Executive will regard the financial adviser’s appointment to have commenced as soon as
it starts working with its client, whether or not any written agreement has been entered into.
1.8 The appointment of a financial adviser is required to be made known to the Executive as soon
as possible and in any event no later than three business days after the publication of the
announcement which commences an offer period or the first announcement of the whitewash
proposal.
1.9 The potential offeror, the offeror, the offeree company and the whitewash applicant (as
appropriate) should provide the following details to the Executive:
(a) the types of licences held by each financial adviser and any conditions attached to such

licences;
(b) the names of the TCROs in charge of the TC Transaction;
(c) the name and title of each team member involved in the TC Transaction;
(d) the detailed responsibility and role to be played by each team member during the TC
Transaction; and
(e) the types of licences held by each team member and any conditions attached to his or
her licences.
1.10 Where no financial adviser has been appointed, an appropriate negative statement should be
made to the Executive.
Revision questions:
Question 1A: What matters should a financial adviser consider prior to accepting an offer?
Answer 1A: Matters that a financial adviser should consider include its expertise, competence
and resources as well as the internal control implications of accepting an
appointment. If it wishes to undertake a role as an IFA, it will additionally need to
consider whether it is able to satisfy the requirements for being independent. See
sections 1.3 to 1.5 above.
Question 1B: At what point in time does the Executive regard a financial adviser’s appointment to
commence?
Answer 1B: It commences as soon as the financial adviser starts working with the client.
Question 1C: Is a potential offeror required to give the Executive notice of an appointment of a
financial adviser?
Answer 1C: Yes, as soon as possible after an announcement that commences an offer period and
in any event not later than the period specified in section 1.8 above.
Question 1D: What details should be provided to the Executive about the appointment of a
financial adviser?
Answer 1D: This should include the details of the TCROs in charge of the TC transaction and the
transaction team together with the other matters set out in section 1.9 above.

2 Obligations common to all financial advisers
Overall role
2.1 Topic 1 section 2 discussed the important role financial advisers play as a gateway mechanism
to market integrity, whether acting for the offeree company, an offeror or another person
having a relevant interest in a TC Transaction. The specialised role undertaken by a financial
adviser assists a client to understand and comply with the requirements of the Codes, and this
provides an important assurance to the market as to the proper conduct of a TC Transaction.
Various stakeholders in the market, particularly affected shareholders, expect that parties
involved in the conduct of a TC Transaction will observe the spirit and letter of the Codes and
that the intermediaries involved will facilitate the oversight role of regulators such as the
Executive, the Takeovers and Mergers Panel (“Panel”) and the SFC.
2.2 In addition to the financial adviser, any TC Transaction will also involve a number of other
professional advisers. This inevitably includes lawyers and accountants, and may involve
others, such as professional valuers, each of whom are expected to contribute their particular
expertise subject to codes of practice that govern their respective professions. Such advisers
may be appointed by various parties involved in the TC Transaction, including the offeror and
its concert parties, the offeree company, and the financial advisers to each of the foregoing. A
financial adviser should at an early stage of its appointment bring to the attention of its client
the various requirements that are imposed on different professional parties – as discussed in
section 3 below, the Takeovers Code imposes specific demands on accountants and valuers
that will require properly qualified firms to be appointed.
2.3 The financial adviser must recognise the distinct roles of each professional involved in a TC
Transaction and its relationship with the work of the financial adviser. For example, while
both the financial adviser and auditors (or consultant accountants) have roles to play in the
preparation of a profit forecast, the role of the latter is specifically concerned with whether
the profit forecast has been properly compiled having regard to the accounting policies and
calculations of the relevant company. This is distinct from the role performed by financial
advisers.
2.4 Such other appointments in no way replace or diminish the roles and duties of the financial
adviser. The financial adviser remains solely responsible for the fulfilment of its obligations
that arise under the Codes as well as the regulatory codes and rules that apply to it as a licensed
or registered person (discussed in Topic 1 section 5). For example, as noted in Topic 1 section
2.2, a financial adviser should not place excessive reliance on its legal advisers and should
ensure that it fully appreciates the requirements of the Codes. Where it does excessively rely
on another professional adviser, the financial adviser may not be fulfilling its role, including
in relation to the duties it owes to its client, its various obligations under the Codes, and the
matters that it may be required to bring to the attention of the Executive or the SFC. A failure
to fulfill regulatory requirements applicable to it may cause the fitness and properness of a
financial adviser to be called into question.
2.5 The role of the financial adviser in a TC Transaction requires it to have a good grasp of the
specific areas of competence of each professional adviser that has been engaged. It should
also have a clear understanding of its own obligations in relation to the work of such
professional advisers and the steps it must engage in to ensure that it is able to properly
discharge its duties and roles. Accordingly, the financial adviser should ensure that the client
engages professional advisers that are properly qualified and experienced to undertake the
relevant work. This will be of particular importance in relation to professional advisers such
as accountants and valuers undertaking work directly regulated by the Codes. Where the
financial adviser considers that a professional adviser has been (or may be) appointed which
is not appropriately qualified, it should raise this with the client. Where the client does not
agree with the financial adviser’s assessment, the financial adviser should consider the client’s

ability to comply with the Codes and whether such appointment may impact on the financial
adviser’s ability to perform its own role having regard to the ethical standards and
professionalism that is expected of it. Where the financial adviser concludes that it is unable
to meet such expectations, it may need to consider resigning from the appointment if the
situation is not resolved.
Note: General principles 1 and 2 of the Code of Conduct for Persons Licensed by or
Registered with the Securities and Futures Commission (“Code of Conduct”), require the
financial adviser when conducting its business activities to act in the best interests of the
integrity of the market.
Advising on specific matters related to the Codes on Takeovers and

Mergers and Share Buy-backs
2.6 Assisting a client to understand and comply with the requirements of the Codes will require
the financial adviser to understand and recognise the various requirements of the Codes that
arise at different stages of a TC Transaction, including prior to an offer period commencing,
during an offer period, and following the end of an offer period (see Topic 3 section 1.8 for a
definition of the offer period), and in view of the specific circumstances arising under each
appointment.
2.7 The following is a non-exhaustive list of some of the key matters that a financial adviser will
need to consider, and advise the client accordingly:
(a) the importance of maintaining confidentiality (see sections 2.13 to 2.15 below);
(b) the restrictions that apply to shareholder solicitation (discussed in Topic 4);
(c) the restrictions that apply to the withdrawal of offers (discussed in Topic 3);
(d) the prohibitions and obligations associated with special deals (discussed in Topic 6);
(e) various matters relating to information including relating to announcements, financial
information and misleading statements (discussed in section 2.15 below);
(f) the required standards and publication process of documents, and how “document” is
understood for the purposes of the Codes (discussed in Topic 4);
(g) the dealing restrictions, who such restrictions apply to, and that such persons should be
reminded of the dealing restrictions (discussed in Topics 4 and 6); and
(h) the dealing disclosure obligations of the client and its associates (discussed in Topic 6),
including the persons who fall within the definition of “associates”, which will also
apply to relevant members of the financial adviser’s group.
Note: See Topic 4 section 1.3 for the definition of “associate”.
2.8 The above matters will require a financial adviser to be closely involved in many aspects of a
TC Transaction, particularly following the commencement of an offer period. Examples of
these aspects include:
(a) complying with confidentiality obligations, in relation to which it will be necessary for
a financial adviser to closely monitor shareholder solicitations and public statements by
its client and its client’s senior management;
(b) ensuring, in view of ongoing announcement obligations, that shareholder acceptances
are valid and that the tally is up to date to be able to clearly identify when the acceptance
condition is met - similarly with the progress of any other conditions that are imposed
on a voluntary offer;
(c) putting in place arrangements to keep track of any dealings that are undertaken, to ensure
that only permitted dealing activities are undertaken, and to comply with the relevant
dealing disclosure obligations; and

(d) ensuring it is able to promptly and informatively respond to any questions that may be
raised by the Executive as regards any aspect of the offer and its conduct.
2.9 A financial adviser to a client that is considering to, or does, proceed with an offer or possible
offer should also advise its client as to the obligations that will continue to apply following
the end of an offer period, including:
(a) restrictions on making a subsequent offer where the original offer has lapsed or been
withdrawn;
(b) restrictions on subsequent purchases following the end of an offer period;
(c) prohibitions on special deals; and
(d) the requirement to confirm its compliance with such obligations.
Note: See Topic 4 section 5 for a further discussion.
2.10 A financial adviser will additionally need to consider matters that apply to its own undertaking
and those of its concert parties, including its group companies, which will require appropriate
internal controls and procedures to be in place to procure compliance with the relevant
requirements. This includes:
(a) its own handling of confidential information as well as the publication of certain other
information, whether by itself or by its group companies;
(b) the identification and management of potential conflicts of interest (discussed in Topic
1 section 5.7);
Note: In the case of a financial adviser wishing to take on the role of IFA, a conflict may
prevent it from being regarded as independent (see sections 5.11 to 5.14 below).
(c) the implications of its appointment as regards dealing and disclosure obligations, before,
during and following the end of an offer period (see Topic 6).
Cooperation
2.11 Where the Executive, the Panel or the Takeovers Appeal Committee (“TAC”) raises enquiries
in relation to any matter arising under the Codes, the financial adviser should co-operate, and
it should use all reasonable efforts to ensure that its client co-operates, by responding to those
enquiries in a prompt and open manner. This reflects General Principle 10 of the Codes, which
requires co-operation to the fullest extent and all relevant information to be provided.
2.12 In the event of a hearing of the Panel or TAC, the financial adviser may present the matter
either on its own behalf or on behalf of the client. In practice, attendance of the financial
adviser is normally customary at hearings. Where the matter concerns the financial adviser,
if the financial adviser does not attend without good reason, the hearing may proceed in its
absence.
Note: Proceedings before the Panel and TAC are discussed in Topic 2 sections 3 and 4.
Information
2.13 The handling of information and disclosures during the conduct of an offer is a central concern
of the Codes. It is important that confidential information is handled appropriately and the
financial adviser plays an important monitoring role in this regard, including recognising what
information has been made public, and what information has not and remains confidential.
This is relevant to (i) the avoidance of information asymmetries in the market that may disrupt
a fair and orderly market, (ii) ensuring that shareholder solicitations do not involve the
disclosure of unpublished information, and (iii) avoiding the breach of dealing restrictions
arising under either the Codes or the Securities and Futures Ordinance (“SFO”) (for a further
discussion see Topic 4 section 1, Topic 4 section 3 and Topic 6 sections 1 and 2, respectively).

2.14 A financial adviser is expected, at the outset of an engagement and over the course of a TC
Transaction, to remind its client and others assisting the client (such as public relations
advisers) of their obligations under the Takeovers Code. This includes the possible
implications of what they say, particularly when speaking to shareholders, investment analysts
or the media (or other persons not subject to professional or other confidentiality obligations).
2.15 Matters relating to information that the financial adviser should remind its clients and others
of include:
(a) the importance of maintaining confidentiality;
(b) the circumstances where information may be provided to another person;
(c) the client’s announcement obligations including the required contents and timing of such
announcements (discussed in Topic 4) and when an announcement is appropriate;
(d) not to issue statements which, while not factually inaccurate, may mislead shareholders
and the market or may create uncertainty;
(e) that statements of intention will be regarded as a firm statement that will bind the offeror
save in wholly exceptional circumstances; and
Note: Statements of intention are discussed in Topic 4 sections 3.8 to 3.11.
(f) the standards of care and other requirements in relation to the publication of financial
information, such as profit forecasts and valuations (discussed in section 3 below).
Note: In certain circumstances, the Executive may require a statement of retraction.
2.16 As discussed in Topic 4 section 4, an offeror or offeree company may hold meetings with their
shareholders or members of the investment community (such as brokers, investment managers
and analysts) provided that no material new information is provided. However, except with
the consent of the Executive, an appropriate representative of the financial adviser to the
offeror or offeree company must be present at such meetings. They will need to confirm to
the Executive, in writing and by noon of the following business day, that no material new
information was provided and no significant new opinions were expressed.
2.17 Following its appointment, a financial adviser will be presumed acting in concert with its
client under Class (5) (see Note 1 below). Financial advisers involved in an offer (whether
acting for the offeror or offeree company) will need to be alert to information that it or its
group companies (see Note 2 below) might issue in its usual course of business, such as
research reports to clients. Where any such material concerns companies involved in the offer,
the consent of the Executive is required prior to its release. Following the commencement of
an offer period, all entities within the same group as the financial adviser should stop issuing
research reports on the offeree company and, in the case of a securities exchange offer,
research reports on the offeror. Old research reports should no longer be circulated and should
be removed from the relevant websites (see Note 3 below).
Note 1: It will also need to consider any presumptions arising under Class (2), for example,
any companies that are controlled by directors of the financial adviser. See Topic 3 section
2.7.
Note 2: That is, persons controlling, controlled by or under the same control as the adviser
(except in the capacity of an exempt principal trader or exempt fund manager).
Note 3: The Executive would normally regard research reports issued within six months prior
to the offer period as being “live”.
2.18 A financial adviser should also remind all persons involved of the restrictions imposed by the
Takeovers Code on dealing activities.

Documents to be submitted
2.19 Financial advisers should have a clear understanding of what documents are required to be
submitted at different stages of a TC Transaction. This will enable them to properly advise
and prepare the client to be in a position that it is able to comply with its obligations. Financial
advisers should, in particular, note that, as discussed in Topic 4 section 4.6, documents
generally need to be filed with the Executive for comment prior to being released or published
and may not be released or published until the Executive has confirmed that it has no further
comment. This will mean commencing the preparation of documents in good time prior to
their submission.
2.20 The following list highlights the main events over the course of a TC Transaction at which
documents will need to be submitted to the Executive. The list is not exhaustive and a financial
adviser should be alert to events that give rise to additional documentary submission
requirements, such as where the Executive is to be consulted. The list should be read together
with the earlier discussions in this Manual concerning the various announcement obligations
arising at different stages during the course of a TC Transaction and the details required to be
provided in them (see Topic 4 section 4) including the timing requirements applicable to such
documents (as summarised in Topic 3 section 8):
(a) the announcement of a possible offer;
(b) the announcement of a firm intention to make an offer;
(c) the offer document / offeree company’s board circular / composite document / share buy-
back document / scheme document;
(d) circulars in relation to a whitewash transaction;
(e) the closing announcement;
(f) announcements of results of general meetings (for whitewash transactions, share buy-
backs and privatisations by way of scheme of arrangement); and
(g) the announcement of final completion for whitewash transactions.
Note: The above list is derived from a checklist provided in Appendix 1 of Practice Note 20
that also summarises the documents required to be submitted, which is a useful resource for
parties and their advisers. Knowledge of the contents of Practice Note 20 beyond what is
discussed in this Manual and is outside the scope of this syllabus.
2.21 Financial advisers should draw to the attention of the client that non-compliance with the
documentary requirements may lengthen the vetting process and the Executive may suspend
vetting until such requirements are complied with. Where that happens, the consequential
delay in the anticipated timetable may bring about undesirable commercial consequences for
the execution of the transaction.
Standard of documents
2.22 As discussed in Topic 4 section 4, documents issued in connection with a TC Transaction
must be to prospectus standard. Accordingly, the financial adviser will need to be very
involved with the process of making due diligence enquiries and verifying statements made
in such documents. This will involve the directors and the financial adviser establishing
procedures to ensure that:
(a) all material facts have been identified and correctly stated in the document;
(b) all the facts stated in the documents are verifiable;
(c) all opinions expressed in the documents are based on reasonable grounds; and
(d) the directors have properly accepted responsibility for the documents concerned.

2.23 Procedures that can be adopted include:
(a) distribution, to all directors and others involved in the TC Transaction, of a
memorandum setting out the legal and regulatory obligations and potential liabilities
arising in relation thereto;
(b) preparation of detailed minutes demonstrating the degree of responsibility in relation to
various information-related tasks undertaken by directors;
(c) implementation of a due diligence programme involving financial, accounting and legal
advisers with a view to identifying material facts to be disclosed; and
(d) execution of a responsibility statement that references a set of verification notes under
which evidence is summarised to support the facts stated in the documents.
Note: While it is common practice for legal advisers to assist in the verification exercise, the
function of the legal adviser to provide legal advice or opinions on matters of law is to be
distinguished from its role in assisting verification.
Dealings
2.24 Financial advisers, particularly those being a part of multi-service institutions, will need to be
aware of the dealing and disclosure requirements that are imposed on it and its group
companies (as noted in section 2.17 above). It is essential that matters relating to internal
control issues, which will involve the compliance function, are addressed in order to avoid
breaches of the Codes. The dealing and disclosure requirements are discussed in Topic 6.
Topic 8 provides some case study examples where a financial adviser has breached the Codes
as a result of internal control failings.
Revision questions:
Question 2A: Identify three key matters that a financial adviser should consider and advise its client
on.
Answer 2A: The importance of maintaining confidentiality, the restrictions that apply to
shareholder solicitation, and the client’s announcement obligations. A non-
exhaustive list is provided in section 2.7 above.
Question 2B: Is a financial adviser required to attend hearings of the Panel or TAC?
Answer 2B: A financial adviser must cooperate in relation to any enquiries from the Executive,
the Panel or the TAC. In practice, attendance of the financial adviser is normally
customary at hearings.
Question 2C: Identify three key concerns that a financial adviser should advise its client on in
relation to information.
Answer 2C: The circumstances where information may be provided to another person, not to
issue statements that may mislead shareholders or the market even though the
statement may be factually correct, that statements of intention will be regarded as a
firm statement that will bind the offeror save in wholly exceptional circumstances.
See further section 2.15 above.
Question 2D: What is the standard expected on documents issued in connection with an offer?
Answer 2D: Documents must meet the prospectus standard, which will require the financial
adviser to be very involved in due diligence and verification.

3 Requirements relating to financial information
3.1 During the course of an offer, either the offeror or the offeree company may find it necessary
to publish new financial information. Two areas of particular concern under the Takeovers
Code are profit forecasts and asset valuations made in connection with an offer. The issue of
such financial information is the primary responsibility of directors of the company issuing
it. The Takeovers Code requires the directors to exercise due skill and care in relation to profit
forecasts and valuations to be supported by a named independent valuer. In this regard, the
financial adviser to the company plays an important role, in particular, to satisfy itself that the
profit forecast has been prepared by the directors after due care and consideration and in
compliance with the other applicable requirements, as discussed below.
Profit forecasts
3.2 A profit forecast may take the form of a formal profit forecast identified as such. Alternatively,
as discussed below, a profit forecast may also be made indirectly or via informal statements,
or it may be made as a result of a legal obligation to disclose inside information. Having
regard to the required standards of information circulated in connection with an offer, the
Takeovers Code provides for a number of safeguards where a profit forecast is made during
the course of an offer by an offeree company or offeror, including the following.
3.3 Any formal profit forecast must state the specific assumptions on which it is based; general
or vague assumptions do not meet this standard. The assumptions stated should only be those
of material relevance to the forecast and they should be selected and drafted in a manner that
assists a shareholder to form a judgement as to the reasonableness of the forecast. A
shareholder should be able to understand the implications of the assumptions as well as the
main uncertainties.
3.4 Save as mentioned in the Note below, all profit forecasts must be reported on by the auditors
or consultant accountants and by any financial adviser mentioned in the document (the
“Reporting Requirement”). Such reports must be included in the document addressed to
shareholders containing the forecast.
Note: The exception to the above Reporting Requirement is a profit forecast made by an
offeror who has made a cash-only offer. This exemption may be extended to an offeror offering
a non-convertible debt instrument provided that the consent of Executive has been obtained.
An offeror who has made a securities exchange offer and makes a profit forecast during the
course of an offer will therefore be subject to the Reporting Requirement.
3.5 Reporting on a profit forecast requires:
(a) the auditors or consultant accountants to examine and report on the accounting policies
and calculations for the forecasts; and
(b) the financial adviser to discuss the assumptions with its client and be satisfied that due
care and consideration has been given to the forecast. Where the financial adviser
believes that an assumption is unreasonable or misleading, it should not allow it to be
published without commenting appropriately in its report. An unreasonable assumption
may also make the related forecast statement misleading, in which case the financial
adviser should advise the client not to make such forecast statement. Where a financial
adviser considers a profit forecast omits an important assumption, it should comment on
it in its report.
Note: Financial advisers and the auditors/accountants are required to issue letters to their
respective clients confirming their finding. Such letters are to be reproduced in the related
offer documents, however, written confirmations are not normally required to be provided to
the Executive in relation to the above matters.
3.6 Once a profit forecast has been made during an offer, subsequent documents must, save with

the consent of the Executive, state that the forecast remains valid for the purposes of the offer.
Accordingly, this may require the correctness of the forecast to be revisited over the course
of the offer.
3.7 As mentioned in section 3.2 above, profit forecasts may also be made indirectly or informally.
The following are examples that a financial adviser should be alert to:
(a) words are used that comment on future profitability (such as, “performance in the second
half-year is expected to be similar to our performance and results in the first half-year”);
(b) an estimate of profit for a period, or a forecast for a limited period;
(c) a dividend forecast combined with an estimate of dividend cover;
(d) a profit warranty (the Executive should be consulted in advance of issuing any profit
warranty);
(e) statements about the expected financial benefits of a proposed takeover or merger; and
(f) a profit warning or positive profit alert issued pursuant to the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”)
or Part XIVA, SFO.
3.8 Information about material changes in the financial or trading position or outlook of the
offeror or offeree company could also constitute a profit forecast. Where it does, it is subject
to the Reporting Requirement. The directors of the company will need to provide the
Executive with evidence of the steps they have taken, including discussions with its financial
adviser as to whether there has been a change in the financial or trading position or outlook,
to support the statements made.
3.9 In general, unaudited profit figures published during an offer period is subject to the Reporting
Requirement, unless the Executive consents otherwise. However, this provision does not
apply to unaudited annual or interim results announcements that have already been published
or certain other results announcements that comply with requirements of the Listing Rules.
3.10 Unaudited information may be published by a listed company as a consequence of entering
into a notifiable transaction under the Listing Rules. In this case, the Listing Rules require the
disclosure of the net asset value of, and net profits or losses attributable to, the assets acquired
or disposed of. This information is not required to be audited, and if it is unaudited and
disclose in an announcement, it will be regarded as a profit forecast. In such cases, the
Executive is prepared to relax the Reporting Requirement such that the Reporting
Requirement must be met in the next document sent to shareholders.
3.11 Listed companies involved in a TC Transaction remain subject to announcement obligations
concerning the disclosure of inside information under Part XIVA, SFO (discussed in Topic 1
section 4). Complying with Part XIVA obligations may oblige the company to make a profit
warning or a positive profit alert announcement, each of which will constitute a profit forecast.
While profit forecasts normally need to be reported on, this may be impracticable in view of
time constraints associated with the Part XIVA announcement obligations. In such cases, the
Executive will normally relax the Reporting Requirement such that the Reporting
Requirement will no longer apply if (i) the announcement has been made and the relevant
results to which the profit warning or profit alert relates have been announced and (ii) the
relevant results and the notes to the financial statements are included in the next document
sent to shareholders. The Executive should be consulted at the earliest opportunity in such
cases.
Asset valuations given in connection with an offer

3.12 Asset valuations given in connection with an offer must observe requirements concerning
disclosure and the relevant valuation standards. This covers any valuations of tangible assets
(such as land and machinery) or intangible assets (such as goodwill or intellectual property).

In all cases, the valuation should be supported by the opinion of a named independent valuer,
the highest standards of accuracy and fair presentation are required, and the valuation should
only be made after due and careful enquiry.
Note: Directors’ estimates of asset values published in the company’s accounts will not
normally be regarded as being given in connection with an offer, unless such estimates are
significant in terms of assessing the offer or are given prominence in the offer documents.
3.13 Where a valuation is given in any document to shareholders, the full valuation report must be
made available for inspection. The valuation report must contain the opinion of value and it
must include a statement that the valuer has given and not withdrawn its written consent to
the publication of its valuation report.
3.14 The basis of any valuation, including the material assumptions made, must be clearly stated.
The valuation should not be qualified, save in exceptional circumstances in which case the
valuer must explain why the valuation is qualified. Care will need to be had to the valuation
of properties that have been adapted to the needs of a particular business or that comprises
land under development or with development potential.
3.15 Valuations of assets other than land and buildings will normally be undertaken by the relevant
financial adviser. However, where the valuation is done by a person other than the financial
adviser, the person should be suitably qualified and competent, including possessing relevant
local and international knowledge, in respect of the particular asset being valued – the
financial adviser will need to report on any such valuation.
3.16 Where any such valuation (other than land and buildings) comprises a forward-looking
element, this will normally be regarded as an indirect profit forecast. This is typically a
problem with valuations based on discounted cash flows or similar since it may be possible
to derive a forecast of profits, earnings or cash flows from the valuation. In any such case, the
Reporting Requirements for profit forecasts discussed above will normally be applied and the
Executive must be consulted in advance.
3.17 Valuations of land and buildings should be undertaken by a professional member of The Hong
Kong Institute of Surveyors or some other person approved by the Executive. The relevant
valuation standards to be applied are “The HKIS Valuation Standards on Properties”
published by The Hong Kong Institute of Surveyors.
3.18 A valuation of properties of the offeree company is required where (i) the offeree company
has significant property interests (see Note 1 below) and (ii) the offeror is an interested party
(see Note 2 below). Where the properties to be valued are located in developing property
markets, the Executive should be consulted.
Note 1: A company where the book value of its consolidated property assets exceeds 15% of
its consolidated total assets would generally be regarded as having significant property
interests. Where such significant property interests represent (i) less than 50% of the book
value of the company’s consolidated total assets, a valuation of property assets held by its
associated companies will not normally be required, otherwise (ii) a valuation of property
assets held by its associated companies will only be required where the company has a direct
or indirect interest of 30% or more of the voting rights of the associated company. An
“associated company” is one in which one of the companies owns or controls 20% or more
of the other.
Note 2: Interested parties refer to (i) persons who hold together with their concert parties
30% or more of the voting rights of the offeree company, (ii) directors of the offeree company
and (iii) concert parties of any of the foregoing.
3.19 All valuations should normally be accompanied by a statement of the potential tax liability
that would arise upon its sale.

Revision questions:
Question 3A: Can an offeror or offeree company make a profit forecast during the course of an
offer?
Answer 3A: Yes, however, the Takeovers Code imposes a number of safeguards including in
particular that a profit forecast must be reported on by the financial adviser and by
the auditors or consultant accountants.
Question 3B: Give two examples of where a profit forecast may be derived from other information.
Answer 3B: A comment on future profitability; a profit warning. See section 3.7 above for other
examples.
Question 3C: What assets of a company are subject to the provisions in the Takeovers Code
concerning valuation?
Answer 3C: All tangible and intangible assets of a company are covered.
Question 3D: What information must be given to shareholders when an asset valuation is given in
connection with an offer?
Answer 3D: The full valuation report must be made available for inspection.

4 Financial adviser to the offeror
Ability to implement offer
4.1 The financial adviser to the offeror will play an important role in guiding its client through
the requirements of the Codes and the ramifications of such requirements on the conduct of
the offer prior to, during and following an offer period. This will require the financial adviser
to the offeror to be closely involved with its client at all stages of planning and implementing
an offer.
4.2 In addition to the above role and the requirements imposed on financial advisers generally (as
discussed above), a specific role the financial adviser to the offeror must perform is to confirm
that the offeror’s financial resources are and will continue to be sufficient to complete the
offer if it becomes unconditional. This confirmation is of considerable importance to the
integrity of the takeovers market.
Note: The confirmation will be required in all cases except where the consideration consists
of new securities to be issued by the offeror.
4.3 For this purpose, the financial adviser will need to observe the highest standard of care, which
will require it to undertake due diligence. Where it has acted responsibly and taken all
reasonable steps, it will not be expected to produce the cash itself.
4.4 As a matter of practice, the financial adviser will need to provide the Executive with a signed
letter:
(a) confirming the sufficiency of resources and, where relevant, that no subjective conditions
are attached to the financing; and
(b) setting out the basis for the confirmation including the details of due diligence steps
undertaken.
Note: The letter should include, but not limited to, a list of the documents reviewed.
4.5 As noted in Topic 4 section 4, the offer announcement made pursuant to Rule 3.5 of the
Takeovers Code (“TC r3.5”) will need to contain the financial adviser’s confirmation and
accordingly such letter should be provided to the Executive at the time the first draft of the
offer announcement is submitted for vetting by the Executive. Prior to the despatch of the
offer document, the financial adviser will need to provide to the Executive an updated signed
letter of confirmation.
4.6 The Executive may also require evidence of the sufficiency of the offeror’s resources.

Revision questions:
Question 4A: What mechanism provides an assurance to the market that an offeror has sufficient
resources to complete an offer?
Answer 4A: The financial adviser to the offeror must confirm the sufficiency of the offeror’s
resources.
Question 4B: Does the financial adviser need to make its confirmation known to persons other than
the offeror?
Answer 4B: Yes. It must inform the Executive in writing. The offer announcement made pursuant
to TC r3.5 must also contain its confirmation.
Question 4C: Is the financial adviser required to submit evidence for the sufficiency of the offeror’s
financial resources?
Answer 4C: No, unless the Executive requests it. In all cases, the financial adviser must set out
to the Executive the basis for its confirmation including the details of due diligence
steps undertaken.

5 Independent financial advisers (“IFAs”)
5.1 As discussed in Topic 4, an offeree company is always required to appoint an IFA, whereas
an offeror is only required to appoint an IFA in specified circumstances (as discussed in Topic
4 sections 2.8 to 2.11). In each case, the IFA must have been permitted under its licence to
advise in relation to a TC Transaction.
IFA appointment and role

5.2 Where an IFA is required to be appointed, the appointment should be made as soon as possible
after the offeror or offeree company becomes aware of the possibility that an offer may be
made. The IFA is required to send to the Executive a confirmation of independence as soon
as possible after being appointed (see sections 5.9 to 5.14 below for a discussion of
independence requirements).
5.3 The IFA has a number of key roles to perform in a TC Transaction that ultimately serve to
protect the interests of the independent shareholders of its client, i.e. shareholders who have
no interest in the proposed transaction other than as a shareholder of the IFA’s client. An IFA
must therefore concern itself only with the interests of the independent shareholders, that is:
(a) an IFA of an offeree company will need to have regard to the interests of the independent
shareholders of the offeree company; and
(b) an IFA of an offeror will need to have regard to the interests of the independent
shareholders of the offeror.
5.4 A key role of the IFA is to provide competent independent advice to (i) in the case of an IFA
to an offeree company, the independent committee of the board (“ICB”), or (ii) in the case of
an IFA to an offeror, the board of the offeror or its ICB where one is required to be formed
(see Topic 4 sections 3.16 to 3.18 and 2.8 to 2.11, respectively). In each case, the reasons for
the IFA’s advice must be clearly stated and the IFA will need to discuss all relevant factors
with the ICB or board, and the IFA’s written advice must be provided to the shareholders to
whom it is directed as soon as possible.
5.5 Where it is impracticable to form an ICB (of the offeree company or, where it is required to
form one, the offeror), the IFA will take the primary responsibility to represent the interests
of any independent shareholders.
5.6 In the course of providing such advice, the IFA may also need to consider other aspects of the
offer, such as special deals subject to disinterested shareholders’ approval or inducements
(both discussed in Topic 6). This will require the IFA to be alert to circumstances that may
suggest such arrangements have been entered into.
5.7 In the case of an IFA to an offeror that is required to convene a general meeting to approve
the offer, the written advice from the IFA must be provided to shareholders of the offeror at
least 14 days in advance of the meeting. While an offeror may proceed to announce an offer
based on the IFA’s oral advice and the announcement would summarise the salient points of
the advice received, the full written advice will still be required to be provided to offeror’s
shareholders.
5.8 In the case of the IFA to the offeree company, the IFA may also undertake the financial
adviser’s role in relation to the preparation of profit forecasts and the assumptions on which
it is based (profit forecasts are discussed in sections 3.2 to 3.11 above).
Determination of independence
5.9 Where there is a requirement of independence, the considerations described in sections 5.10
to 5.14 below will apply. In case of doubt as to independence issues, the Executive should be
consulted at an early stage.

Who are independent shareholders
5.10 A shareholder will be regarded as independent, and so “disinterested”, if it has no interest in
a TC Transaction other than as shareholder of the company. For example:
(a) a shareholder in an offeree company would not be regarded as independent if it was a
director or substantial shareholder of the offeror; and
(b) a shareholder in an offeror would not be regarded as independent if it was a director or
substantial shareholder of the offeree company.
Independent advice
5.11 A financial adviser would not be regarded as independent, and so not able to undertake the
IFA role, if it is:
(a) a member of the same group as the financial adviser or other professional adviser
(including a stockbroker) to either the offeror or offeree company; or
(b) a person who has, or had a significant connection, financial or otherwise, with either the
offeror or offeree company, or the controlling shareholder(s) of either of them, and such
connection is likely to create, or create the perception of, a conflict of interest or affect
the objectivity of his advice.
Note: For the purposes of (b) above, the Executive would normally regard a significant
connection within the two years prior to the commencement of an offer as reasonably
likely to give rise to such concerns.
5.12 A conflict of interest may therefore cause a financial adviser to be not independent. For
example, such a conflict might arise where the financial adviser possesses material
confidential information as a result of a prior engagement. Where the conflict arises because
it has an affiliate that acts as the auditor of its client (i.e. the offeror or offeree company), it
must not act as the IFA.
5.13 Financial advisers that are part of a multi-service financial organisation must ensure that
information is properly and effectively segregated behind information barriers (i.e. Chinese
walls). This is particularly important as the Takeovers Code permits certain fund management
and trading operations to take place in an organisation notwithstanding its involvement in a
TC Transaction, provided that such information barriers are in fact effective to prevent the
sharing of confidential information. In this regard, the compliance function within an
organisation will play an important role.
Note: The Executive must be consulted where there is doubt about a possible conflict of
interest.
5.14 Other considerations include information concerning both the group company arrangements
and employees who are or will be involved in the TC Transaction. A financial adviser
intending to act as an IFA will need to confirm certain matters in writing to the Executive.
These include whether (in relation to an offeror, offeree company or a controlling shareholder
of either of them) the IFA or its employees involved in the TC Transaction:
(a) has in the past two years acted as financial adviser or agent or had any financial or other
connection;
(b) is contemplating any business dealings;
(c) holds any equity or equity related interests;
(d) is a counterparty to any special fee arrangements (such as an inducement fee or break
fee); or
Note: Fees that are payable contingent on the outcome of the offer would normally
disqualify a financial adviser from acting as an IFA.

(e) has any other matters that may give rise to a conflict of interest.
Note: Where any of the foregoing apply, a financial adviser wishing to act as an IFA will need
to satisfy the Executive as to why it can give objective advice.
Revision questions:
Question 5A: When advising the board of an offeree company, whose interests must an IFA have
regard to?
Answer 5A: An IFA must concern itself only with the interests of the independent shareholders
of the offeree company.
Question 5B: What is the IFA’s key role with regard to the ICB?
Answer 5B: To provide competent independent advice to the ICB.
Question 5C: What circumstances would cause a financial adviser as being not independent for the
purposes of a proposed role as an IFA?
Answer 5C: See sections 5.11 to 5.14 above.

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Topic 6: Other considerations
Table of contents
Topic overview 1
Learning outcomes 1
1 Dealings in securities of the offeree company 2
Restrictions before the offer period 2
Restrictions during the offer period 2
Fund managers and principal traders 3
Restrictions following the end of an offer period 5
2 Dealings in securities of the offeror 7
Restrictions before the offer period 7
Restrictions during the offer period 7
3 Disclosure of dealings 8
When public disclosure required 8
When private disclosure required 8
Details required to be disclosed 8
4 Special deals and other arrangements 11
Special deals 11
Exclusivity 12
Inducements 12
Standstill agreements 13
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Topic overview
The first three sections of this Topic discuss the provisions of the Code on Takeovers and Mergers
(“Takeovers Code”) that are concerned with dealings in relevant securities before, during and after
an offer period, and the attendant disclosure requirements.
Sections 1 and 2 discuss dealings in the relevant securities of the offeror and the offeree company.
This covers dealings by a wide range of parties, including the offeror and its concert parties, members
of a consortium, financial advisers and stockbrokers to an offeree company and their associates.
Section 1 also addresses the provisions that apply to fund managers and principal traders who may
have a relevant connection with persons involved in an offer, as well as the special status accorded to
exempt fund managers (“EFMs”) and exempt principal traders (“EPTs”).
Section 3 reviews the disclosure obligations, including the circumstances where either public or
private disclosure must be made, as well as the details that need to be included in each type of
disclosure.
Finally, this Topic considers the Takeovers Code implications of certain arrangements that could give
rise to concerns that may be traced back to the General Principles. This covers different types of
arrangements that may be entered into, for example, between the offeror and the directors or
shareholders of the offeree company, between the offeror and offeree company, or between the offeree
company and its shareholders.
Learning outcomes
(a) identify the persons who may be subject to dealing restrictions and disclosure obligations;
(b) understand when dealing may be restricted and the consequences of dealings;
(c) understand the dealing disclosure obligations of the offeror and the offeree company and their
respective associates;
(d) recognise when dealing may constitute insider dealing;
(e) explain the significance of EFM and EPT status;
(f) differentiate when dealings in relevant securities may or may not invoke Takeovers Code
considerations;
(g) understand what may constitute a special deal and apply the requirements applicable to special
deals to different scenarios; and
(h) explain the provisions of the Takeovers Code relevant to inducement fees, break fees, exclusivity
agreements and standstill agreements.

1 Dealings in securities of the offeree company
1.1 Persons involved in a transaction subject to the Codes on Takeovers and Mergers and Share
Buy-backs (“Codes”) will at various stages of the transaction, including planning and
execution stages, be in possession of information that will give rise to legal and regulatory
considerations where they wish to deal in the securities of the offeree company or its
derivatives. They will need to consider, both prior to and during the offer period: (i) their
potential liability under the insider dealing provisions of the Securities and Futures Ordinance
(“SFO”), which provides for administrative and criminal sanctions as well as civil damages
claims; and (ii) the restrictions and other requirements that are imposed by the Takeovers
Code on the offeror and its concert parties and associates.
Note 1: See Topic 4 section 1.3 for the definition of “associate”.
Note 2: The primary concern of the rest of this Topic is the provisions of the Takeovers Code.
Please refer to Topic 1 sections 4.15 to 4.16 for a discussion of insider dealing.
Restrictions before the offer period

1.2 Prior to an offer or potential offer being announced, no person privy to the information that
an offer is being contemplated, other than the offeror, may deal in the securities of the offeree
company, securities convertible into securities of the of the offeree company (such as warrants
or convertible bonds), or their derivatives. An offeror wishing to deal will nevertheless need
to consider whether the insider dealing provisions of the SFO prevent it from dealing, such as
where it has acquired inside information during discussions with the offeree company.
1.3 In some cases, there will have been an announcement that offer discussions are taking place
or an offer is being contemplated, but the offeror subsequently decides to withdraw and not
proceed further. Where this happens, neither the offeror, its concert parties nor any person
privy to this new information may deal until such time as the new information regarding the
decision has been announced.
Note: Dealing prior to an announcement of the new information could constitute insider
dealing under the SFO.
1.4 The foregoing prohibition also applies to the concert parties of the offeror, save where the
securities are excluded from the contemplated offer or there are no-profit arrangements in
place. In a no-profit arrangement, dealings by members of the concert party are undertaken
on the basis that all risks and benefits associated with the dealings are borne by the potential
offeror.
Note: Certain persons who may normally presumed to be acting in concert with the offeror,
namely, discretionary fund managers, principal traders and connected EPTs, are subject to
specific rules designed to allow them to deal in the ordinary course of their business, subject
to safeguards. This is discussed in sections 1.11 to 1.24 below.
1.5 All persons who are in possession of information about a contemplated offer are prohibited
from making any dealing recommendation to any other person.
Restrictions during the offer period

1.6 Once an offer period has commenced (see Topic 3 section 1.8), while the Takeovers Code
does not prohibit the offeror and its concert parties from buying securities in the offeree
company, they are prohibited from selling any securities in the offeree company. However,
they may do so with the prior consent of the Executive Director of the Corporate Finance
Division of the Securities and Futures Commission (“Executive”) and subject to giving the
market 24 hours’ public notice of its intention to sell. Where such consent is given, the offeror
and its concert parties will be prohibited from further purchases and, save in exceptional
circumstances permitted by the Executive, from revising its offer.

1.7 Where the offer is a consortium offer (see Topic 3 section 2.9), before any member or potential
member of the consortium purchases securities of the offeree company, it will be necessary
to consult with the Executive. It is not normally acceptable for such purchases to be made
unless the consortium’s arrangements ensure such purchases are made proportionate to
members’ interests in the consortium, or are made under arrangements which give no profit
to the purchaser.
Note: Members of a consortium will need to satisfy the Executive that any existing holdings
were acquired before the consortium was formed.
1.8 Certain prohibitions also apply to the financial advisers and stockbrokers (including any
person controlling, controlled by or under the same control as either of them) to an offeree
company (or any of its parents, subsidiaries or fellow subsidiaries, or their associated
companies or companies of which such companies are associated companies). Unless a
relevant exemption applies (see section 1.16 below) or the Executive consents (see Note
below), the prohibitions are:
(a) purchasing shares of the offeree company;
(b) dealing in convertible securities, warrants, options or derivatives in respect of the shares
of the offeree company;
(c) making any loan to facilitate any person engaging in dealing as described in (a) and (b)
above, unless such loan is in the ordinary course of business and on normal commercial
terms; or
(d) entering into any arrangement that induces a person to enter into or not enter into any
dealing as described in (a) and (b) above.
Note: The Executive will normally consent where the offer is (i) recommended by the board
of the offeree company and there is no competing offer, or (ii) an unconditional mandatory
offer.
1.9 Where directors or financial advisers have given advice to shareholders, they are generally
prohibited from dealing in a way that is contrary to that advice. However, where they wish to
deal in such manner, they must first give sufficient public notice of such intention together
with an appropriate explanation.
1.10 No securities borrowing or lending transaction may be entered into in relation to the securities
of the offeree company by the offeror, the offeree company, their concert parties, or any
financial or professional adviser (except for an EPT or an EFM) to any of the foregoing (see
Note below). Where such an arrangement has been entered into prior the commencement of
the offer period, no steps may be taken to unwind the arrangement.
Note: Such prohibition also extends to persons controlling, controlled by or under the same
control as any such adviser.
Fund managers and principal traders

1.11 In the course of an offer, it will be necessary to consider the existence of any relevant
relationship between persons involved in the offer and persons engaged in fund management
or who trade as a principal. Where a relevant relationship exists, the implications for any
dealing activities undertaken by fund managers or principal traders will need to be considered.
The Takeovers Code provides for two main situations, with different consequences for each:
(a) connected discretionary fund managers and connected principal traders; and
(b) EFMs and EPTs.
Note 1: An EFM is a person who manages investment accounts on a discretionary basis
and is recognised by the Executive as an EFM for the purposes of the Codes.

Note 2: An EPT is a person who trades as a principal in securities only for the purpose
of derivative arbitrage or hedging activities such as closing out existing derivatives,
delta hedging in respect of existing derivatives, index related product or tracker fund
arbitrage in relation to the relevant securities or other similar activities assented to by
the Executive during an offer period, and is recognised by the Executive as an EPT for
the purposes of the Codes.
Connected status
1.12 A discretionary fund manager or principal trader will be regarded as connected in a relevant
regard if it is controlled by or is under the same control as:
(a) an offeror;
(b) the offeree company;
(c) a financial or other professional adviser to either of the above; or
(d) an investor in a consortium formed for the purpose of making an offer.
Note: Control refers to a person having more than 30% of the voting rights of a company.
1.13 A discretionary fund manager or principal trader connected with an offeror (or potential
offeror) will not normally be presumed acting in concert with such person until the offeror (or
potential offeror) has made a public announcement or, if earlier, it has actual knowledge of a
potential offer. The same approach applies where the relevant connection is with the offeree
company.
1.14 The timing of a connected discretionary fund manager or a connected principal trader being
regarded as acting in concert is highly relevant for the purposes of its dealing activities in
relation to the offer:
(a) dealings prior to it being deemed a concert party will not be subject to the restrictions
on concert parties described above; and
(b) dealings after it being deemed a concert party will be subject to the restrictions on
concert parties described above.
Note: The above provisions are not relevant to consider where the discretionary fund manager
or principal trader is in fact acting in concert with an offeror (or potential offeror).
1.15 It will be essential for each of the parties mentioned in section 1.12 above to be aware of what
business operations in their group may be affected. The time when a connected discretionary
fund manager or connected principal trader is to be deemed a concert party is relevant to an
assessment of the implications of their dealing activities under the Codes, which could impact
on the terms of the offer, as discussed in Topic 3 section 4. This requires the implementation
of appropriate compliance controls on their activities not only for commercial reasons but also
to ensure compliance with the Codes.
Exempt status
1.16 Under class (5) of the definition of acting in concert (see Topic 3 section 2), a fund manager
and a principal trader will be presumed to be acting in concert with its client in respect of the
shareholdings they hold and with persons controlling, controlled by or under the same control
as themselves. Where they are part of a financial group, the presumption will extend to all
entities in the group, which may result in a fund manager or a principal trader being regarded
as acting in concert with a financial adviser to an offeror or offeree company.
1.17 Accordingly, the exempt status was introduced to:
(a) recognise that certain dealing activities are carried on separately from, and are not
influenced by, corporate finance operations; and

(b) remove EFMs and EPTs from the presumption of acting in concert under class (5).
1.18 A fund manager or principal trader will be regarded as exempt if it has applied to and has been
recognised by the Executive as such. The Executive may impose conditions in connection
with the granting of exempt status.
Note: The website of the Securities and Futures Commission (“SFC”) should be consulted
for how an application can be made. Knowledge of the application process is outside the
scope of this syllabus.
1.19 In the case of an EFM, the exempt status applies to all discretionary dealings in client funds
it manages. In the case of an EPT, the exemption only applies in respect of trading activities
conducted as a principal in securities for the purpose of derivative arbitrage or hedging
activities.
1.20 The exemption only applies in relation to members of the group that are advising an offeror
or offeree company. There is no exempt status where a fund manager or principal trader is in
the same group of companies as the offeror or offeree company.
1.21 An EPT connected with the offeror must not deal with the offeror or its concert parties in
relevant securities (see Note to section 3.1 below).
1.22 There are prohibitions related to the securities owned by connected EPTs that are the subject
of an offer:
(a) an EPT connected with the offeror must not (i) accept the offer until the offer is
unconditional as to acceptances, or (ii) exercise any votes associated with the securities
in the context of the offer; and
(b) an EPT connected with the offeree company must not exercise any votes associated with
the securities in the context of the offer.
Note: In certain circumstances, the Executive may be prepared to allow votes to be exercised,
such as where the EPT holds the shares as a custodian for a non-discretionary client who
retains control over the voting rights (i.e. the EPT has no voting discretion). In all such cases,
the Executive should be consulted in advance.
1.23 An EPT who is connected with the offeror or offeree company must not, with the purpose of
assisting the offeror or offeree company and without the consent of the Executive:
(a) carry out any dealings; or
(b) enter into or unwind a securities borrowing and lending transaction (see Note 2 below).
Note 1: A breach of the foregoing will constitute a serious breach of the Takeovers Code that
may lead to the Executive suspending the principal trader’s exempt status.
Note 2: An EPT who carries out securities borrowing and lending transactions (including the
unwinding of such transactions) in the ordinary course of its business is not subject to the
restriction in (b) above.
1.24 EFMs and EPTs are subject to disclosure requirements in relation to their dealing activities,
and these are discussed in section 3 below.
Restrictions following the end of an offer period

1.25 As discussed in Topic 4 sections 5.5 to 5.6, an offeror who, together with its concert parties,
has made an offer and holds more than 50% of the voting rights of the company may not, for
a period of six months from the end of the offer period, acquire or offer to acquire further
shares at a higher price than that offered in the previous offer. The consent of the Executive
would be needed for any such transaction.

Revision questions:
Question 1A: Can a member of a concert party of the offeror deal in the securities of an offeree
company prior to an offer period commencing?
Answer 1A: If the member of a concert party is aware that an offer is being contemplated, or is
no longer contemplated, it may not deal. If it does deal in these circumstances, it will
be breaching the Takeovers Code and may be engaging in insider dealing.
Question 1B: Can an offeror deal in securities of the offeree company once it has announced an
intention to make a firm offer?
Answer 1B: While the Takeovers Code does not prohibit the offeror and its concert parties from
buying securities in the offeree company, it does prohibit them from selling securities
of the offeree company during the offer period without the consent of the Executive.
Question 1C: Does a financial adviser to an offeree company require the consent of the Executive
to deal in the securities of the offeree company during an offer period?
Answer 1C: Yes, in the absence of which it is prohibited from dealing in the securities of the
offeree company during an offer period.
Question 1D: What is the relevance of a fund manager being given exempt status?
Answer 1D: Exempt status removes the fund manager from the presumption of acting in concert
under class (5).

2 Dealings in securities of the offeror
Restrictions before the offer period
2.1 Prior to an offer, when an offer is being contemplated, no person privy to the information that
an offer is being contemplated may deal in the securities of the offeror, unless the
contemplated offer is not price-sensitive in relation to those securities. Further, no person
privy to such information may make any recommendation to another person as to dealing in
those securities.
Restrictions during the offer period

2.2 Where the offer is a securities exchange offer involving the securities of the offeror or its
concert parties:
(a) neither the offeror nor its concert parties may deal in any such securities or conduct any
on-market buy-back of such securities during the offer period, save with the consent of
the Executive;
(b) neither the offeror nor the issuer of the securities may, following the announcement of a
firm intention to make an offer under Rule 3.5 of the Takeovers Code (“TC r3.5”),
propose or conduct any off-market share buy-back or share buy-back by general offer
until the end of the offer period; and
(c) the prohibition on securities borrowing and lending transactions discussed in section
1.10 above will apply to arrangements in relation to shares of the offeror.
Revision questions:
Question 2A: Can a person assisting a potential offeror deal in the securities of the offeror before
any announcement of an offer or possible offer is made?
Answer 2A: No, unless the contemplated offer is not price-sensitive in relation to those securities.
Question 2B: Where an offeror has announced a firm intention to make a securities exchange offer
for an offeree company, can a member of the offeror’s concert party deal in the
securities of the offeror?
Answer 2B: No, the consent of the Executive would be required.
Question 2C: In the scenario described in Question 2B above, can the offeror engage in a share
buy-back during the offer period?
Answer 2C: Generally, no. However, the offeror can seek the consent of the Executive in relation
to a proposed on-market share buy-back.

3 Disclosure of dealings
3.1 During an offer period, dealings by certain persons in the relevant securities of the offeree
company are required to disclose their dealings. Where the offer is a securities exchange offer,
disclosure of dealings in the relevant securities of an offeror will also be required.
Note: “Relevant securities” means (i) securities which are being offered for or which carry
voting rights, (ii) the equity share capital of the offeree company, (iii) securities convertible
into either of the foregoing, and (iv) options and derivatives in respect of any of the foregoing.
In the case of a securities exchange offer, it means (i) the securities being offered as
consideration, (ii) securities convertible into the foregoing, and (iii) options and derivatives
in respect of either of the foregoing.
3.2 Stockbrokers, banks and others involved in a transaction subject to the Takeovers Code should
ensure their clients are aware of the relevant disclosure requirements attaching to associates
of an offeror or offeree company and other persons, and that those clients are willing to
comply with them. In addition, the Takeovers Code imposes on all intermediaries that deal in
relevant securities on behalf of clients, including principal traders and dealers, a general duty
to ensure their clients are aware of the relevant disclosure obligations and are willing to
comply with them. Such intermediaries are expected to cooperate with the Executive in
dealings enquiries, which may require the identity of clients and their dealings to be disclosed
to the Executive.
When public disclosure required

3.3 The following persons dealing in relevant securities must publicly disclose their dealing:
(a) an offeror, an offeree company or an associate of either of them who deals for its own
account;
(b) an offeror, an offeree company or an associate (who is not an EFM) of either of them
who deals for the account of a discretionary client;
Note: For disclosure purposes, the holdings in a discretionary account will be regarded
as controlled by the person managing the account.
(c) a potential offeror who has made a possible offer announcement (see Topic 4, section
4.13); and
(d) an EPT that is connected with an offeror or the offeree company.
When private disclosure required

3.4 The following persons dealing in relevant securities must privately disclose their dealing to
the Executive:
(a) an offeror, an offeree company or an associate (who is not an EFM) of either of them
who deals for the account of a non-discretionary investment client (except where the
Executive consents otherwise); and
(b) an EFM that is an associate of the offeror or offeree company who deals for the account
of a discretionary client (except where the Executive consents otherwise).
Note: However, if the EFM is an associate by virtue of holding more than 5% of the
shares of the offeror or offeree company, then public disclosure will be required.
Details required to be disclosed

3.5 Disclosure must be made by noon on the business day following the relevant transactions.
Note: For transactions in the United States, the deadline is noon on the second business day

following the relevant transactions.
Public disclosure
3.6 The SFC website contains prescribed forms that must be used for making the relevant
disclosure. Following submission of the form, which may be done by the person concerned
or its agent, the SFC will post the disclosure to its website and arrange for the disclosure to
be posted to the website of The Stock Exchange of Hong Kong Limited.
3.7 The information required to be disclosed includes the following:
(a) the number of securities transacted and the transaction price;
(b) the identity of the persons doing the dealing, including the identity of the ultimate
beneficial owner of the dealings (and, if different, the owner or controller);
Note: The naming of vehicle companies or nominees will not satisfy the requirement of
identifying the ultimate beneficiary. Where the dealing is done by fund managers on
behalf of discretionary clients, it is not necessary to name the clients.
(c) where the dealing is by an associate of an offeror or offeree company, an explanation of
how it is an associate;
Note: If there is more than one basis on which the person is an associate, all the reasons
must be stated.
(d) if the disclosure is made by a 5% shareholder or group of shareholders, a statement to
that effect;
(e) the new total amount of relevant securities owned or controlled; and
(f) if relevant, details of any arrangement concerning relevant securities that may be an
inducement to deal or refrain from dealing.
3.8 An EPT will additionally need to disclose details of total purchases and sales, the highest and
lowest prices paid and received and whether the connection is with an offeror or the offeree
company.
Private disclosure
3.9 Private disclosures to the Executive are not published. They are to be made on the forms
provided on the SFC’s website or may be obtained from the Executive.
3.10 The information required to be disclosed includes the following:
(a) the identity of the person dealing;
(b) the total number of relevant securities transacted and the transaction price; and
(c) in the case of dealings in options or derivatives, the same information as specified in
section 3.7 above is required.

Revision questions:
Question 3A: Where the client of a stockbroker wishes to deal in shares that are subject to an offer,
what steps should the stockbroker take in view of the concerns of the Takeovers
Code?
Answer 3A: The stockbroker should ensure that its clients are aware of the relevant disclosure
requirements attaching to associates of an offeror or offeree company and other
persons, and that those clients are willing to comply with them.
Question 3B: Who needs to publicly disclose their dealings in the securities of an offeree company
during an offer period?
Answer 3B: See section 3.3 above.
Question 3C: Does an associate of an offeror need to disclose dealings for the account of a non-
discretionary client?
Answer 3C: Yes, the dealings must be privately disclosed to the Executive, unless the Executive
otherwise consents.
Question 3D: Where relevant dealings need to be publicly disclosed, what information must be
provided?
Answer 3D: See section 3.7 above.

4 Special deals and other arrangements
Special deals
4.1 From the time when an offer is reasonably in contemplation, the offeror and its concert parties
may not, save with the consent of the Executive, enter into any arrangements with any
shareholders that would be regarded as a “special deal” – i.e. a favourable arrangement that
is offered to one or more shareholders but not to all shareholders. This reflects General
Principle 1 (see Topic 2), which requires all shareholders to be treated similarly. Such
prohibition runs until the period ending six months after the close of the offer or the date of
the shareholders’ meeting in the case of a whitewash transaction.
4.2 A special deal may or may not directly concern the shares that are the subject of the offer.
While there are many possible ways that a special deal might be struck, the approach of the
Executive is as follows:
(a) where a special deal can be extended to all other shareholders, it should be so extended;
(b) where a special deal cannot be extended to other shareholders because of its particular
nature but the value of the benefit can be quantified, then the offer price should reflect
such value; and
(c) where a special deal cannot be extended to other shareholders because of its particular
nature and the value of the benefit cannot be quantified, then the Executive may consent
to the transaction if (i) the independent adviser to the offeree company publicly states
the terms of the special deal are fair and reasonable and (ii) the transaction must be
approved at a general meeting of the offeree company at which the only votes counted
are those voted by shareholders who are not involved in and have no interest in the
transaction (other than as a shareholder of the offeree company).
Note: An example of this might be the sale of specific assets to a shareholder (see section
4.7 below), or the entry into a business cooperation agreement or a management service
agreement.
4.3 The Takeovers Code specifically considers five special deal situations, as follows.
4.4 Top-ups and other arrangements: a special deal situation would arise where: (i) a selling
shareholder is offered an increased payment if a subsequent successful offer is made at a
higher price; or (ii) an irrevocable commitment provides the shareholder with a put option
exercisable in the event of the offer being unsuccessful.
Note: An arrangement between an offeror and one or more of its concert parties, whereby the
concert party acquires shares on the basis that the offeror takes all associated risks and
benefits, is not prohibited provided that such arrangement does not provide for benefits to the
concert party (other than normal expenses and carrying costs).
4.5 Finders’ fees: a special deal situation would arise where a fee is offered to a shareholder of
the offeree company for assisting to promote the offer. However, where it can be demonstrated
to the Executive’s satisfaction that the fee is on normal commercial terms for a person who
provides such services and is not a shareholder, the Executive may consent to the arrangement.
A shareholder who shares a permitted finder’s fee with another shareholder would fall foul of
the prohibition on special deals.
4.6 Management retaining an interest: a special deal situation would arise where an individual,
who is both a shareholder and a member of the management of the offeree company, is offered
an option that guarantees the original offer price as a minimum – such an arrangement would
normally not be acceptable to the Executive. However, the Executive recognises that an
offeror may have good and valid reasons to keep the management of the offeree company
financially interested in the offeree company, and where such an arrangement is proposed, the
Executive must be consulted. Where the Executive is prepared to consent to an arrangement

involving the management, it will normally impose two conditions: (i) the independent
adviser to the offeree company publicly states the arrangement is fair and reasonable; and (ii)
where the offeror and the management individual together hold more than 5% of the equity
share capital of the offeree company, the arrangement is approved by independent
shareholders at a general meeting of the offeree company.
4.7 Disposal of offeree company assets: there may be circumstances where an offeror intends to
sell assets of the offeree company that are of interest to a shareholder of the offeree company
to purchase. The Executive will normally consent to such arrangement, subject as provided in
section 4.2(c) above concerning the public statement of the independent adviser and the
approval of offeree company shareholders who have no interest in the special deal (other than
as a shareholder of the offeree company) at the general meeting.
Note: Notwithstanding the six month period mentioned in section 4.1 above, where assets of
the offeree company are sold to a shareholder after the expiry of such period, the Executive
will be concerned to see that there was no element of pre-arrangement in the transaction.
4.8 Repayment of shareholder loans: the Executive would normally consent to the repayment
or assignment (to the offeror or its concert parties) of a shareholder loan to the offeree
company if it is an arms-length transaction on normal commercial terms and subject as
provided in section 4.2(c) above concerning the public statement of the independent advisers
and the approval of offeree company shareholders who have no interest in the special deal
(other than as a shareholder of the offeree company) at the general meeting.
4.9 The offer announcement made pursuant to TC r3.5 and the offer document (see Topic 4,
section 4) will need to disclose details of any special deal or make an appropriate negative
statement where no special deal exists.
Exclusivity
4.10 In the course of considering a potential offer, the potential offeror may wish to approach either
the controlling shareholders of the offeree company or the offeree company itself with a view
to restricting the offeree company’s ability to discuss or negotiate any offer with another
potential offeror for a specified period of time.
4.11 Exclusivity agreements with shareholders of the offeree company are permitted. However,
the terms of the agreement should be carefully reviewed as to whether they may constitute a
special deal, as discussed above.
4.12 Exclusivity agreements with the offeree company are prohibited on the basis that such an
arrangement restricts the ability of the directors of the offeree company to fulfil their fiduciary
duties, as reflected in General Principles 8 and 9.
Inducements
4.13 In the course of takeover discussions, an offeror or potential offeror and the offeree company
may enter into arrangements whereby the offeror or potential offeror will be compensated by
the offeree company if specified events occur that prevent the offer from proceeding or cause
it to fail. The payments made under such arrangements are usually referred to as an
inducement fee or a break fee. Although these payments are often in cash, the compensation
may take some other form of economic benefits for the offeror or potential offeror or penalties
for the offeree company (together, the “fee”). The Executive should be consulted at an early
stage where any such arrangements may be entered into.
4.14 Any such fee should be (i) de minimis (normally not more than 1% of the offer value) and (ii)
fully disclosed in the offer announcement made pursuant to TC r3.5 and in the offer document.
The offeree company’s board and its financial adviser must confirm to the Executive in
writing that the fee is in the best interests of the shareholders.

Standstill agreements
4.15 Where an offeree company enters into an arrangement with any other person (typically
shareholders of the offeree company) which restricts such other person from making a general
offer for the offeree company, such arrangement must be fully disclosed in a timely manner
to its shareholders. The existence of any such standstill agreement may be relevant to the
question of whether the parties to it are acting in concert, and where there is doubt the
Executive should be consulted.
4.16 In the event that disclosure is not made, where the offeree company seeks to enforce such
standstill arrangement, the Executive will normally require the proposed legal action to be
taken subject to the approval of independent shareholders.
Revision questions:
Question 4A: Identify three arrangements that require careful consideration as regards whether
they might constitute a special deal.
Answer 4A: A top-up arrangement, a finder’s fee, and arrangements to dispose of assets of the
offeree company to one of its shareholders (see sections 4.4 to 4.8 above for more
examples set out in this Manual).
Question 4B: Why are exclusivity arrangements between a potential offeror and a potential offeree
company a concern under the Takeovers Code?
Answer 4B: Such an arrangement is prohibited because of concerns that such an arrangement
restricts the ability of the offeree company’s directors to fulfil their fiduciary duties.
Question 4C: What are the major concerns under the Takeovers Code where a company has entered
into a standstill agreement?
Answer 4C: Such an agreement must be disclosed to its shareholders. Failure to do so may result
in the Executive requiring any proposed legal action to enforce the agreement to be
subject to the approval of independent shareholders.

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Topic 7: Share buy-backs
Table of contents
Topic overview 1
Learning outcomes 1
1 Introduction 2
2 Share buy-backs by general offer 4
Relevance of Code on Takeovers and Mergers 4
Shareholder approval needed 4
The offer document 4
3 Off-market share buy-backs 6
4 On-market share buy-backs 7
5 Exempt share buy-backs 8
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Topic overview
This Topic introduces the three different methods of share buy-backs that are subject to the Code on
Share Buy-backs (“Share Buy-backs Code”). It begins with a discussion on the scope of application
of the Share Buy-backs Code, noting that in all three methods it will be necessary to consider the
implications of the Code on Takeovers and Mergers (“Takeovers Code”). Section 2 discusses share
buy-backs by general offer, including the shareholder approval requirements and the content
requirements for the offer document. Sections 3 and 4 respectively discuss off-market and on-market
share buy-backs, and the key differences between them. The Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (“Listing Rules”) will also be of relevance to consider
in relation to share buy-backs by general offer and on-market share buy-backs. The role of the
Executive Director of the Corporate Finance Division of the Securities and Futures Commission
(“Executive”) in relation to the different share buy-back methods is discussed. The final section 5
provides a list of share buy-backs that are exempt from the Share Buy-backs Code.
Learning outcomes
(a) recognise the distinctions between on-market, off-market and exempt share buy-backs;
(b) understand the process of share buy-backs;
(c) relate the requirements of the Share Buy-backs Code to various provisions of the Takeovers
Code and the Listing Rules; and
(d) understand the provisions of the Share Buy-backs Code that concern shareholder approval and
disclosure.

1 Introduction
1.1 The scope of application of the Share Buy-backs Code is the same as the Takeovers Code.
Topic 2 section 1 discussed the factors that need to be considered when determining whether
a company is subject to the Codes on Takeovers and Mergers and Share Buy-backs (“Codes”).
1.2 A share buy-back is a buy-back, or an offer to buy-back, redeem or acquire shares of the
offeror which is made by the offeror itself. It can include a privatisation, scheme of
arrangement or other form of reorganisation.
1.3 A share buy-back may normally only be made by the company whose shares are the subject
of the share buy-back. However, it sometimes happens that a wholly owned subsidiary of a
company has issued securities, such as warrants and convertible bonds, which can be
exercised or converted into shares of that company. In such cases, the subsidiary may redeem
or buy back such securities in accordance with their terms.
Note: For the purposes of the Share Buy-backs Code, the term “share” includes securities
that carry a right to subscribe for or purchase shares issued directly or indirectly by a
company or any of its subsidiaries.
1.4 A company may only carry out a share buy-back by one of the following means, and these
methods are discussed in the sections that follow:
(a) an on-market share buy-back;
(b) an off-market share buy-back;
(c) an exempt share buy-back; or
(d) a share buy-back by general offer.
1.5 Irrespective of the method chosen, a company planning a share buy-back exercise must
consult with the Executive prior to commencing any share buy-back in order to determine the
provisions of the Codes that are applicable to the proposed share buy-back. The Executive
has discretion to waive any requirement of the Share Buy-backs Code that may be unduly
burdensome.
1.6 Once a share buy-back has been announced, the company may not announce or engage in any
distribution of shares until after 31 days following the completion or withdrawal of the share
buy-back. However, the foregoing prohibition does not apply to distributions that do not
involve the raising of capital, such as a dividend by way of a distribution in specie or a bonus
issue – nevertheless, the Executive should be consulted in advance of any such distribution or
announcement thereof.
1.7 It will also be necessary to consider the application of the Takeovers Code. While this may be
a concern in connection with share buy-backs by general offer, as discussed below, any form
of share buy-back may cause the proportionate interest of any shareholders in the company to
increase. As such increase will be treated for the purposes of the Takeovers Code as an
acquisition of voting rights, this could result in a shareholder’s interest moving through either
the trigger threshold or the creeper threshold (both discussed in Topic 3) for the purposes of
the mandatory offer obligation under Rule 26 of the Takeovers Code. Whether or not such
shareholder will be subject to the mandatory offer obligation depends on several factors.
Shareholders who are not directors of the company, who have not appointed a representative
to the board of the company, and who are not acting in concert with any director of the
company would not normally incur such obligation. However, the mandatory offer obligation
may be imposed on shareholders who (i) have appointed a representative to the board of the
company or (ii) have purchased (or any of their concert party have purchased) shares in the
company at a time when they had reason to believe that such a share buy-back would take
place. Where the mandatory offer obligation may be imposed, the Executive will normally
grant a waiver from such obligation provided that:

(a) the share buy-back is by way of general offer or an off-market share buy-back;
Note: A mandatory offer obligation arising as a result of an on-market share buy-back is
not available for a waiver under this proviso.
(b) the Takeovers Code implications have been explained in the offer document;
(c) the applicable shareholder approval requirements are complied with; and
(d) a whitewash vote procedure has been followed (for a discussion, see Topic 3).
Revision questions:
Question 1A: What factors determine whether a company is subject to the Share Buy-backs Code?
Answer 1A: The same factors apply as when determining whether a company is subject to the
Takeovers Code.
Question 1B: Can a company announce a distribution of shares once a share buy-back has been
announced?
Answer 1B: It may not engage in any distribution that involves the raising of capital for a period
of 31 days following the completion or withdrawal of the share buy-back.
Question 1C: What happens if, as a result of an off-market share buy-back, a shareholder becomes
subject to a mandatory offer obligation under the Codes?
Answer 1C: The Executive will normally grant a waiver from the obligation subject as provided
in section 1.7 above).

2 Share buy-backs by general offer
Relevance of Code on Takeovers and Mergers
2.1 Where a company is considering to conduct a share buy-back by general offer, it will need to
consider the implications of the Takeovers Code. All provisions of the Takeovers Code will
normally apply where the offeror intends to privatise or delist the company. Where the general
offer involves a whitewash waiver (see Note 1 below), the offeror will need to observe the
particular requirements of the Takeovers Code concerning dispensations from mandatory
offers as well as the particular provisions of the Share Buy-backs Code. In other cases of share
buy-backs by general offer, the Share Buy-backs Code specifies which rules of the Takeovers
Code will normally apply (see Note 2 below).
Note 1: Refer to Topic 3 for a discussion of the requirements for whitewash waivers.
Note 2: A list of the applicable rules of the Takeovers Code is specified in Share Buy-backs
Code (knowledge of the list is outside the scope of this syllabus).
2.2 A general offer must be made on the same terms to all shareholders of each class of shares,
and may be for all or part of that class of shares. Where the general offer cannot be made to
shareholders in a jurisdiction that prohibits a share buy-back by general offer, the Executive
must be consulted. The Executive will be concerned with whether the interests of such
excluded shareholders are unfairly prejudiced.
2.3 Once a share buy-back by general offer has been announced, the offeror may not buy shares
on-market during the period from the announcing date to the offer closing, lapsing or being
withdrawn.
Shareholder approval needed

2.4 A general offer must be conditional on the approval by a majority of the votes cast by
shareholders at a duly convened meeting accompanied by the offer document. Where a
shareholder has a material interest in the proposed share buy-back that is different from other
shareholders, the Executive will normally require majority approval to be obtained from
among the other voting shareholders in general meeting. The offeror (i.e. the issuer of the
shares) will need to observe the applicable requirements arising under the relevant company
law (being the place of incorporation of the issuer) (see Note below).
Note: For issuers incorporated in Hong Kong, reference will need to be made to the
Companies Ordinance (Cap. 622) and Schedule V of the Codes; the latter provides guidelines
for certain exemptions that fall within the ambit of the SFC’s authority. Knowledge of the
relevant details of the Companies Ordinance or Schedule V is outside the scope of this
syllabus.
2.5 Where the intention is to privatise following a successful general offer, a majority approval
as outlined above will not be sufficient. It will be necessary to obtain the approval of at least
75% of the votes attaching to shares owned by independent shareholders cast at the general
meeting, and the number of votes cast against the resolution must be not more than 10% of
the votes attaching to shares owned by independent shareholders.
Note: For any delisting of a company listed on The Stock Exchange of Hong Kong Limited
(“SEHK”), it will also be necessary to comply with the requirements set out in the Listing
Rules.
The offer document

2.6 The offer document circulated to shareholders must contain the information set out in
Schedule III of the Codes. This includes:

(a) information about the offeror and any financial adviser;
(b) the intentions of the offeror as regards rights of compulsory acquisition or the
maintenance of the company’s public float for the purposes of the Listing Rules;
(c) the Takeovers Code implications including the intentions of any potential new
controlling shareholder;
(d) prescribed information about shareholdings and dealings of interested persons;
(e) the terms of the share buy-back including the class and number of shares sought and
whether or not ex dividend;
(f) the consideration offered and all conditions of the offer;
(g) information about the market prices of the shares;
(h) confirmation of the resources to complete the offer and certain financial information
about the offeror;
(i) a description of the authorised and issued share capital and the rights attaching to shares;
and
(j) a statement of certain obligations of the offeror and rights of shareholders under the
Takeovers Code.
Revision questions:
Question 2A: Is a share buy-back by general offer seeking to privatise or delist the company subject
to the Takeovers Code?
Answer 2A: Yes, all provisions of the Takeovers Code normally apply.
Question 2B: Can an offeror buy shares on-market after a share buy-back by general offer has been
announced?
Answer 2B: No, it may not buy shares on-market during the period from the announcing date to
the offer closing, lapsing or being withdrawn.
Question 2C: What shareholder approval will be required for a share buy-back by general offer
where the intention is to privatise if the offer is successful?
Answer 2C: This will require the approval of at least 75% of the votes attaching to shares owned
by independent shareholders cast at the meeting, and the number of votes cast against
the resolution must be not more than 10% of the votes attaching to shares owned by
independent shareholders.
Question 2D: What information must the offer document contain?
Answer 2D: See section 2.6 above.

3 Off-market share buy-backs
3.1 An off-market share buy-back is made between a repurchasing company and one or more
identified shareholders who are the offerees. As such, it is distinct from on-market share buy-
backs made through the facilities of an exchange (see section 4 below) or a share buy-back
by general offer (discussed in section 2 above).
3.2 An off-market share buy-back must be approved by the Executive before any shares are
acquired by the repurchasing company. The Share Buy-backs Code provides that approval by
the Executive will normally be conditional upon:
(a) approval by at least 75% of the votes cast by disinterested shareholders in a general
meeting duly convened;
(b) the shareholders have been provided with a circular containing the information set out
in Schedule III of the Codes (the content requirements have been set out in section 2.6
above);
(c) the circular to shareholders additionally sets out information about the proposed
offeree(s), as well as the terms and conditions of the agreement(s) between the company
and the proposed offeree(s);
(d) the circular to shareholders contains the advice of an independent financial adviser and
the recommendation of an independent committee of the board;
(e) a copy of the agreement(s) referred to in the circular being made available for inspection
by shareholders; and
(f) a certified copy of the resolution being provided to the Executive within three days of it
being passed.
3.3 Where an off-market share buy-back involves a whitewash waiver application, care will need
to be taken to observe the particular requirements of the Takeovers Code concerning
dispensations from mandatory offers as well as the particular provisions of the Share Buy-
backs Code.
Revision questions:
Question 3A: What is the main difference between an off-market and on-market share buy-back?
Answer 3A: Whereas an on-market share buy-back is made through the facilities of an exchange,
an off-market share buy-back is made between a repurchasing company and one or
more identified shareholders who are the offerees.
Question 3B: Does an off-market share buy-back require approval of shareholders or the
Executive?
Answer 3B: It needs the approval of the Executive, which will be conditional on obtaining the
requisite approval of shareholders as discussed in section 3.2 above.

4 On-market share buy-backs
4.1 An on-market share buy-back is a share buy-back made by an issuer with a primary or
secondary listing on the SEHK that is undertaken through the facilities of the SEHK or a
recognised exchange.
4.2 With regard to issuers listed on the SEHK, on-market share buy-backs are primarily carried
out through the facilities of the SEHK in accordance with the Listing Rules. Since the
purchase is carried out on market, the identity of the seller is not known to the offeror.
Note: Companies with primary listings in Hong Kong may buy back shares through the
facilities of another stock exchange in accordance with the Listing Rules.
4.3 The Listing Rules provide that the issuer may only buy back shares that are fully paid-up and
further require the issuer:
(a) to ensure it does not contravene the Share Buy-backs Code;
(b) to have provided its shareholders with an Explanatory Statement in compliance with the
Listing Rules; and
Note: The statement is required to contain information similar in nature to that described
in section 2.6 above.
(c) to ensure it has the necessary approval by way of an ordinary resolution of its
shareholders (either by a general mandate or a specific resolution) to conduct the share
buy-back.
4.4 On-market share buy-backs are the most commonly used method of share buy-backs for listed
issuers, since they can be carried out at any time where the shareholders have previously
provided a general mandate subject to applicable laws and regulations.
Revision questions:
Question 4A: Must a company listed on the SEHK conduct an on-market share buy-back through
the facilities of the SEHK?
Answer 4A: Not necessarily, as a company with a primary listing on the SEHK may be able to
buy back shares through the facilities of a recognised exchange.
Question 4B: Can a company listed on the SEHK buy back shares that are only partially paid-up?
Answer 4B: No, it may only buy back fully paid-up shares.
Question 4C: Can an on-market share buy-back be undertaken pursuant to a general mandate, or
is a specific shareholder resolution required for each on-market share buy-back?
Answer 4C: An on-market share buy-back can be made pursuant to a general mandate, subject to
applicable laws and regulations.

5 Exempt share buy-backs
5.1 A share buy-back that falls into any of the following categories is regarded as an exempt share
buy-back that is not subject to the Share Buy-backs Code:
(a) an employee share buy-back;
(b) a share buy-back made in accordance with the terms of the shares being bought back
without the need of the prior agreement of the owners of the shares;
(c) a share buy-back made by the company at the shareholders’ request in accordance with
the terms of the shares being bought back (i.e. the owners of the shares have the right to
require the company to effect the share buy-back); and
Note: For the purposes of (b) and (c) above, it is necessary to consider the terms of the
shares at the time the rights are being exercised. For details, candidates are referred to
Practice Note 16 of the Codes (the further details of Practice Note 16 are outside the
scope of this syllabus).
(d) a share buy-back required by the law of the place of the offeror’s incorporation.
Revision questions:
Question 5A: Is an employee share buy-back subject to the provisions of the Share Buy-backs
Code?
Answer 5A: No, it is regarded as an exempt share buy-back.
Question 5B: Where owners of the shares have the right to require the company to buy-back the
shares, is the buy-back subject to the Share Buy-backs Code?
Answer 5B: No, it is regarded as an exempt share buy-back.

Topic 8: Case studies
Table of contents
Topic overview 1
Learning outcomes 1
1 Executive Director of the Corporate Finance Division of the Securities and Futures
Commission (“Executive”) 2
Case 1: A breach of the mandatory offer obligation 2
Case 2: An offeror breaches the Code on Takeovers and Mergers following the close of an
offer 2
Case 3: A foreign listed company breaches the prohibition on special deals 2
Case 4: A financial adviser to offeree company breaches dealing and disclosure requirements 3
Case 5: A financial adviser breaches the Code on Share Buy-backs 3
Takeovers Bulletin 4
2 Takeovers and Mergers Panel (“Panel”) 5
Case 6: An offeree company seeks a ruling to revise the consideration offered 5
Case 7: A potential offeror seeks a waiver of a mandatory offer obligation 5
Case 8: The Executive refers a previously given whitewash waiver in view of a subsequently
discovered special deal 6
Case 9: Disciplinary hearing concerning warehousing shares leads to a cold shoulder order 6
Case 10: A Panel ruling subjected to judicial review 7
[Blank Page]
Topic overview
This Topic provides a number of case studies that illustrate how the Executive Director of the
Corporate Finance Division of the Securities and Futures Commission (“Executive”) (discussed in
section 1) and the Takeovers and Mergers Panel (“Panel”) (discussed in section 2) have applied their
disciplinary powers in relation to breaches of the Code on Takeovers and Mergers (“Takeovers Code”)
and the Code on Share Buy-backs (“Share Buy-backs Code”). Section 2 also illustrates the non-
disciplinary function of the Panel, how the Executive may choose to refer a matter to the Panel, and
that decisions of the Panel may be subject to judicial review.
Learning outcomes
(a) distinguish between breaches of codes of conduct applicable to a financial adviser and breaches
of the Codes on Takeovers and Mergers and Share Buy-backs (“Codes”);
(b) recognise certain deficiencies and inadequacies in the work of financial advisers;
(c) understand the different types of enforcement that might be imposed in relation to deficient work
of a financial adviser;
(d) extrapolate various common issues that have arisen under the Codes to different transaction
scenarios;
(e) explain the reasons behind decisions and statements of the Executive and the Panel; and
(f) recognise the importance of integrity and cooperation with the Executive when a financial
adviser is undertaking an assignment subject to the Codes.

1 Executive Director of the Corporate Finance Division of
the Securities and Futures Commission (“Executive”)
1.1 The role and the powers of the Executive were discussed in Topic 2 sections 3 and 4. In most
cases, parties involved in transactions subject to the Codes are well aware of the obligations
imposed on them, and where they have doubt as to a relevant matter, they would consult with
the Executive accordingly. This section provides a cross-section of matters where the parties
in breach of the Codes consent to disciplinary action being imposed by the Executive. In some
instances, the failure to comply with the Codes is a result of internal control failures (Cases 4
and 5). In other cases, it is a result of failure to obtain the prior consent of the Executive where
consent is needed (Cases 2 and 4). In others, it is a result of insufficient understanding of the
requirements of the Codes (Cases 1, 3 and 5), possibly as a result of a failure to consult
professional advisers (Case 3).
Case 1: A breach of the mandatory offer obligation

1.2 An individual (“IND1”) together with IND1’s concert parties acquired shares in a listed
company within a 12-month period which increased IND1’s shareholdings by more than 2%
from the previous holding of 48.48%. Although these and subsequent acquisitions crossed the
creeper threshold, no mandatory offer was made. The Securities and Futures Commission
(“SFC”) commenced disciplinary proceedings before the Panel.
1.3 However, proceedings before the Panel were discontinued upon IND1 agreeing to a
disciplinary action to be imposed by the Executive, namely, the imposition of an 18-month
cold-shoulder order. In deciding the action, the Executive took into account IND1’s
acceptance of the breach, which had been caused by IND1’s misunderstanding of the creeper
threshold for holdings between 48% and 50%.
Note: Topic 3 section 5 discusses the circumstances where a mandatory offer obligation will
be imposed - section 5.17 considers holdings between 48% and 50%.
Case 2: An offeror breaches the Code on Takeovers and Mergers

following the close of an offer
1.4 A listed company was the subject of an unconditional mandatory general offer by an offeror
(“OFF1”) beneficially owned by four persons. A few months following the close of the offer
period, OFF1 made a series of on-market acquisitions at prices above the offer price.
1.5 The purchases following the close of the offer are prohibited by the Takeovers Code as they
were made within six months after the close of the offer at a price higher than the offer price
without the prior consent of the Executive.
1.6 OFF1 and its four owners submitted that the breaches were not intentional and agreed to the
Executive’s disciplinary action, which comprised a public criticism of OFF1 and its four
owners.
Note: Topic 4 section 5 discusses the obligations of an offeror following the end of an offer
period – sections 5.5 to 5.7 consider purchases following the end of an offer period.
Case 3: A foreign listed company breaches the prohibition on

special deals
1.7 A company listed on The Stock Exchange of Hong Kong Limited (“SEHK”) (“Listco1”)
announced a proposed share subscription by a foreign listed company (“FLco”) that would,
upon completion, trigger a mandatory general offer for Listco1’s shares.
1.8 During the offer period, FLco issued new shares to one of its directors. However, as that
director is also a minority shareholder of Listco1, the issuance constituted a special deal for

the purposes of the Takeovers Code.
1.9 FLco failed to obtain advice from its professional advisers on the implications of its new share
issuance to its director. It accepted that it had breached the Takeovers Code and consented to
the disciplinary action taken against it, which comprised a public censure.
Note: Topic 6 sections 4.1 to 4.9 discuss the prohibitions on special deals.
Case 4: A financial adviser to offeree company breaches dealing

and disclosure requirements
1.10 The offeree company (“OC1”) verbally appointed a licensed corporation (“INT1”) as its
financial adviser in relation to a voluntary general offer. INT1 became an associate of OC1
upon such appointment, however, following the commencement of the offer period:
(a) INT1 executed more than 100 trades without making the required dealing disclosures;
(b) in more than 20 of these trades, INT1 failed to obtain prior consent from the Executive
for trades falling outside the scope of dealings covered by the exempt principal trader
and exempt fund manager status granted to the various entities within the INT1 group;
(c) INT1 continued to issue research reports on OC1 in breach of restrictions on issuing
such reports, and also failed to remove from its portal research reports on OC1 which
had been published; and
(d) the reports contained information that constituted profit forecasts, however, the profit
forecast was not reported on by an accountant or financial adviser as required by the
Takeovers Code.
1.11 INT1 self-reported the breaches, which it is required to do pursuant to paragraph 12.5 of the
Code of Conduct for Persons Licensed by or Registered with the Securities and Futures
Commission. It also subsequently cooperated with the Executive’s review. The Executive
found that the breaches were due to two factors: (i) INT1’s investment banking team failed to
inform the control room of the commencement of the offer period, and (ii) after the control
room had been informed of INT1’s verbal appointment, it failed to take appropriate action to
ascertain whether the offer period had already commenced (it failed to check with the
investment banking team and failed to monitor potential transaction announcements or public
media). INT1 has since introduced enhanced compliance policies to ensure future compliance
with the Takeovers Code.
1.12 After taking into account INT1’s self-reporting, its full cooperation and the steps taken to
ensure future compliance, the Executive publicly censured INT1 for serious breaches of the
Takeovers Code noting that the breaches suggest a significant breakdown in the compliance
policies and procedures of INT1 in relation to takeovers in Hong Kong.
Note: Topic 5 discusses the various considerations a financial adviser must take into account
following the appointment to advise on a transaction subject to the Takeovers Code or the
Share Buy-backs Code, including the commencement of its appointment, the issue of research
reports, the identification of its associates and the requirements related to profit forecasts.
Topic 6 sections 1 to 3 discuss the requirements imposed by the Takeovers Code in relation to
dealings and the disclosure of dealings.
Case 5: A financial adviser breaches the Code on Share Buy-backs

1.13 A licensed corporation (“INT2”) carried out a large number of purchases in a company listed
on the SEHK (“Listco2”) on behalf of Listco2 that allowed Listco2 to buy back its own shares.
Although the transactions were pre-arranged with INT2’s other institutional clients, including
another licensed corporation (“INT3”), on the basis of pre-agreed prices, size and timing, the
trades were executed on-market.

1.14 The above characteristics indicated a share buy-back by Listco2 that should have been
executed off-market after receiving the consent of the Executive. It also required the approval
of independent shareholders, and the fact that such approval was not obtained deprived
shareholders of the opportunity to vote on an important corporate action.
1.15 INT2 and two of its licensed representatives, INT3 and two of its responsible officers and a
licensed representative, and Listco2 and one of its officers accepted they had failed to comply
with the Share Buy-backs Code and consented to the Executive’s disciplinary action, which
comprised a public censure of all the foregoing persons.
Note: Topic 7 section 3 discusses off-market share buy-backs.
Takeovers Bulletin
1.16 Financial advisers are reminded to keep abreast of the SFC’s quarterly Takeovers Bulletin. In
addition to assisting practitioners to understand how the Codes are applied in practice and
providing updates on a range of matters including Practice Notes and the Executive’s
practices, the Takeovers Bulletin also provides brief descriptions of the key aspects of the
latest disciplinary and non-disciplinary rulings of interest of the Executive and the Panel. The
Takeovers Bulletin can be found on the SFC’s website.

2 Takeovers and Mergers Panel (“Panel”)
2.1 The role and the powers of the Panel were discussed in Topic 2 sections 3 and 4. Unlike the
disciplinary actions taken by the Executive with the consent of the disciplined party,
proceedings before the Panel are usually held in public and often involve the appointment of
legal counsel to represent the interests of the persons who are the subject of the hearing. The
following examples, which comprise both non-disciplinary and disciplinary hearings of the
Panel, show that in some instances a matter is brought to the Panel as a result of a party
appealing a ruling of the Executive (Case 6), and in other cases as a result of the Executive
referring a matter to the Panel because it involves issues that are particularly novel, important
or difficult (Cases 7 and 8). There is also an example of the Executive commencing
disciplinary actions before the Panel (Case 9) and an example which illustrates that decisions
of the Panel may be subject to judicial review (Case 10).
Case 6: An offeree company seeks a ruling to revise the

consideration offered
2.2 An offeror (“OFF2”) approached the board of a company listed on the SEHK (“Listco3”)
indicating its intention to make a voluntary conditional offer for Listco3. It indicated in a
private letter that the consideration would be comprised of cash and securities and specified
the cash price and ratio of securities that would be offered.
2.3 It was subsequently found that, prior to such approach, a concert party of OFF2 had purchased
shares in Listco3 for cash. This required OFF2 to ensure the value of the consideration per
Listco3 share under the offer was not less than such cash purchase, which it did in its later
offer announcement.
2.4 However, following the offer announcement, Listco3 applied to the Executive for a ruling that
the offer would need to be revised as a result of the concert party’s purchase. Listco3 claimed
this was required to ensure that the consideration offered to shareholders reflected the same
ratio of cash to securities as stated in OFF2’s previous private letter to Listco3, since OFF2
had only revised the cash price. The Executive refused to grant such ruling.
2.5 The Panel ruled that the Executive had been correct to refuse the requested ruling. This was
because the concert party’s cash purchase had been made prior to the offer announcement,
which only required the cash price to be matched. The cash-to-shares ratio would only have
needed to be revised if the concert party’s purchase had been made after the offer
announcement.
Note: Topic 3 section 4 discusses the requirements that apply to the minimum level of
consideration – section 4.5 considers offers that are a mix of cash and securities.
Case 7: A potential offeror seeks a waiver of a mandatory offer

obligation
2.6 A potential offeror (“OFF3”) sought a ruling from the Executive that a proposed acquisition
of a controlling shareholder interest in a company listed on the SEHK (“Listco4”) would not
trigger a mandatory offer obligation. The Executive referred the matter to the Panel.
2.7 The proposed acquisition was to be at nil consideration. OFF3 had suggested that the vendor
of the shares was its concert party and had sought a waiver from the Executive of the
mandatory offer obligation on the basis that the Executive may do so where the largest
shareholding has changed within the concert party.
2.8 The Panel did not find any evidence that OFF3 and the vendor were acting in concert and
accordingly ruled that if the proposed acquisition proceeded, it would give rise to a mandatory
offer obligation. It also ruled that, since the consideration in the acquisition was nil, the offer
price would need to be not less than the volume-weighted average price of Listco4’s shares

on the last trading day before the proposed transaction had been announced as a possible offer.
2.9 The Panel agreed, at the request of OFF3, to defer the publication of its ruling by one month
to enable it to consider how it might proceed in view of the decision.
Note: Topic 3 sections 2 and 5 respectively discuss the concept of acting in concert and the
requirements associated with mandatory general offers. Topic 2 section 3 discusses the
publication of non-disciplinary matters.
Case 8: The Executive refers a previously given whitewash waiver

in view of a subsequently discovered special deal
2.10 A company listed on the SEHK (“Listco5”) entered into a transaction with an investor
(“INV”) whereby INV would acquire a majority interest in Listco5 by subscribing for new
Listco5 shares, subject to the grant of a whitewash waiver. The waiver was sought since in its
absence the acquisition would result in INV becoming subject to a mandatory offer obligation.
The Executive consented to a whitewash waiver subject to shareholder approval, which was
subsequently obtained, and the whitewash transaction was then completed.
2.11 It was subsequently discovered that, during the acquisition, INV was in discussions with a
minority shareholder of Listco5 (“SH1”) who also had a very close connection with his sister,
an executive director and vice chairman of Listco5. Those discussions subsequently led to
INV acquiring SH1’s solely owned company. No mention of such discussions had appeared
in the information presented to the Executive or in the materials circularised to Listco5’s
shareholders.
2.12 The Panel ruled that the discussions and subsequent transaction with SH1 clearly constituted
a special deal that deprived shareholders of Listco5 from protection under the Takeovers Code
in terms of similar treatment of shareholders of the same class. It was irrelevant that the
transaction with SH1 was not conditional on the whitewash transaction.
2.13 As a result of this determination, the Panel had to consider whether to invalidate the
whitewash waiver that had previously been given. It noted that, given the centrality of the
special deals rule to the Takeovers Code, waivers should only be given in the most exceptional
circumstances. In the present case, given the passing of time since the whitewash transaction
occurred and Listco5’s changing circumstances, the Panel was unable to determine a price
that would be fair and reasonable to impose if the waiver was invalidated and a mandatory
offer obligation was imposed. Accordingly, the Panel decided to waive the mandatory offer
obligation.
Note: Topic 3 section 5 discusses the whitewash transaction. Topic 6 section 4 discusses the
prohibition on special deals.
Case 9: Disciplinary hearing concerning warehousing shares leads

to a cold shoulder order
2.14 Three individuals (“CPs”) actively cooperated with a fourth individual (“IND2”) over a period
of around two years in which the CPs would purchase shares in a company listed on the SEHK
(“Listco6”) at the instructions of IND2 and would subsequently be compensated by IND2 for
the purchases. This arrangement is commonly known as “warehousing” as it entails one or
more third parties holding shares on behalf of another in secret. Such third parties are regarded
as concert parties.
2.15 In this case, the warehousing arrangement led to IND2’s shareholding interest in Listco6 being
increased from around 34% to around 44%. The increase caused IND2 to exceed the creeper
threshold, however, this was not discovered at the time as IND2’s increased interest was
hidden behind a secret arrangement. As no mandatory offer obligation was made, this resulted
in a breach of the Takeovers Code.

2.16 Upon the facts coming to light, the Executive commenced disciplinary proceedings before the
Panel. The Panel considered the conduct of the CPs to constitute an extremely serious breach
of the Takeovers Code that deprived the shareholders of Listco6 of their right to receive a
general offer upon the change of control of the company.
2.17 The Panel imposed a ten-year cold shoulder order on the principal member of the CPs, and a
two-year cold shoulder order on the other two CPs. All of the CPs were additionally subject
to a public censure.
Note 1: IND2 had passed away by the time the facts had come to light. IND2 was not a subject
of the disciplinary proceedings, however, the Panel did express some regret that the Executive
did not bring proceedings against the estate of IND2.
Note 2: Topic 3 sections 2 and 5 respectively discuss the concept of acting in concert and
when a mandatory offer obligation is imposed.
Case 10: A Panel ruling subjected to judicial review

2.18 A company listed on the SEHK (“Listco7”) announced a share buy-back offer. The largest
shareholder of Listco7 together with its concert parties subsequently applied to the Executive
for a whitewash waiver application in the event that accepting shareholders caused the
shareholding of the concert party to trigger a mandatory offer obligation. The Executive
referred the matter to the Panel, which subsequently ruled, inter alia, that a simple majority
of votes cast was required to approve the offer.
2.19 Listco7 then applied to the Court of First Instance for a judicial review (see Note 1 below) of
the Panel’s ruling on the basis that it required Listco7 to undertake a vote counting procedure
that disregarded certain provisions of an applicable ordinance. Under that ordinance, the votes
of certain shareholders are required to be scaled-back. As such, Listco7 considered the Panel’s
ruling to be ultra vires and for an improper purpose (see Note 2 below).
Note 1: Topic 2 section 4 described the appeal process set out in the Takeovers Code for
persons dissatisfied with decisions of the Executive or disciplinary decisions of the Panel.
Decisions of the Panel are in addition potentially subject to judicial review. Judicial review
is a court proceeding in which the Court of First Instance exercises its supervisory
jurisdiction over the activities of administrative bodies, including the Panel. The focus of a
judicial review is to determine whether there is any error in the decision-making process.
Note 2: Meaning that the ruling was outside the jurisdiction or power of the Panel. In this
case, the Panel does not have the authority to disregard or direct others to disregard a
provision of the applicable ordinance.
2.20 The Court of First Instance, finding in favour of Listco7, quashed the Panel’s ruling. However,
as the Court in a judicial review is only concerned with the decision-making process of an
administrative body, it did not concern itself with whether the whitewash waiver application
should be granted, the decision for which remained with the Executive.

[Blank Page]
Abbreviations
Abbreviations Meaning
CFA Code Corporate Finance Adviser Code of Conduct
CO Companies Ordinance
Code of Conduct Code of Conduct for Persons Licensed by or Registered with the
Securities and Futures Commission
Codes Codes on Takeovers and Mergers and Share Buy-backs
CPT Continuous professional training
CWUMPO Companies (Winding Up and Miscellaneous Provisions) Ordinance
EFMs Exempt fund managers
EO Executive officer
EPTs Exempt principal traders
Executive Executive Director of the Corporate Finance Division of the Securities
and Futures Commission
GDII Guidelines on Disclosure of Inside Information
HKEX Hong Kong Exchanges and Clearing Limited
HKMA Hong Kong Monetary Authority
ICB Independent committee of the board
ICG Management, Supervision and Internal Control Guidelines for Persons
Licensed by or Registered with the Securities and Futures Commission
IFA Independent financial adviser
IOSCO International Organization of Securities Commissions
LE Paper 17 Paper 17 of the Licensing Examination for Securities and Futures
Intermediaries administered by the Hong Kong Securities and
Investment Institute
LIR Listed Issuer Regulation
Listing Rules Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited
Main Board Listing Rules Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited (Main Board)
MBLR Main Board Listing Rules
MICs Managers-In-Charge of Core Functions
MMT Market Misconduct Tribunal
OECD Organisation for Economic Co-operation and Development
Offeree board circular Offeree company’s board circular
Panel Takeovers and Mergers Panel
POBO Prevention of Bribery Ordinance
REITs Real estate investment trusts
RO Responsible officer
SEHK The Stock Exchange of Hong Kong Limited
SFC Securities and Futures Commission
SFO Securities and Futures Ordinance
Share Buy-backs Code Code on Share Buy-backs
SPA Share sale and purchase agreement
TAC Takeovers Appeal Committee
Takeovers Code Code on Takeovers and Mergers
TC Adviser A financial adviser undertaking activities in connection with matters or
transactions falling within the ambit of the Codes
Paper 17 Version 1.0 i © Hong Kong Securities and Investment Institute

Abbreviations
TC Adviser Guidelines Additional competence requirements for corporations and individuals

which undertake activities in connection with matters regulated by the
Codes on Takeovers and Mergers and Share Buy-backs
TC r3.5 Rule 3.5 of the Takeovers Code
TC r26 Rule 26 of the Takeovers Code
TC Transactions Transactions falling within the ambit of the Codes
TCRO A responsible officer or executive officer for Type 6 regulated activity
eligible to advise on matters or transactions falling within the ambit of
the Codes in a sole capacity
UK United Kingdom

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