Public companies and their equity securities: principles of regulation under Hong Kong law
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| Format: | Buch |
| Sprache: | English |
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The Hague [u.a.]
Kluwer Law International
1998
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| Schriftenreihe: | Studies in comaprative corporate and financial law
2 |
| Online-Zugang: | Inhaltsverzeichnis |
| Beschreibung: | XLVIII, 1156 S. |
| ISBN: | 904119648X |
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| 100 | 1 | |a Ho, Betty M. |e Verfasser |4 aut | |
| 245 | 1 | 0 | |a Public companies and their equity securities |b principles of regulation under Hong Kong law |c Betty M. Ho |
| 264 | 1 | |a The Hague [u.a.] |b Kluwer Law International |c 1998 | |
| 300 | |a XLVIII, 1156 S. | ||
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| 490 | 1 | |a Studies in comaprative corporate and financial law |v 2 | |
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PUBLIC COMPANIES AND THEIR
EQUITY SECURITIES
BY
BETTY M. HO
MA (BERKELEY), LLB (TORONTO), LLM (CAMBRIDGE), BARRISTER AND SOLICITOR,
ONTARIO; ATTORNEY AND COUNSELLOR-AT-LAW, NEW YORK; SOLICITOR, ENGLAND
AND WALES; SOLICITOR, HONG KONG; ASSOCIATE PROFESSOR, FACULTY OF LAW,
UNIVERSITY OF HONG KONG.
INTERNATIONAL THE HAGUE - LONDON - BOSTON
IMAGE 2
TABLE OF CONTENTS
PREFACE ACKNOWLEDGMENTS ABBREVIATIONS
XXXV XLIII
XLV
1. INTRODUCTION
1.1
1.2
AN OVERVIEW OF THE SECURITIES REGULATORY FRAMEWORK 1.1.1 HISTORICAL
DEVELOPMENT 1.1.1.1 BEFOREJULY 1997 1.1.1.2 AFTERJULY 1997 1.1.2
REGULATORY AGENCIES
1.1.2.1 SECURITIES AND FUTURES COMMISSION 1.1.2.2 STOCK EXCHANGE OF HONG
KONG LIMITED 1.1.2.2.1 STATUS OF THE SEHK 1.1.2.2.2 FUNCTIONS AND POWERS
OF THE SEHK
1.1.2.2.3 ORGANIZATION OF THE SEHK 1.1.2.3 HONG KONG FUTURES EXCHANGE
LIMITED 1.1.3 PRINCIPAL CORPORA TE AND SECURITIES NORMS .3.1 COMMON LAW
.3.2 STATUTORY LAW .3.3 NON-LEGAL NORMS .3.4 ADMINISTRATIVE DECISIONS
.3.5 RECENT DEVELOPMENTS 1.1.4 THE SCOPE OF CORPORATE AND SECURITIES
LAWS
1.1.4.1 DEFINITION OF SECURITIES .4.2 DEFINITION OF PUBLIC COMPANIES
PROBLEMS AND POTENTIAL 1.2.1 THE CRAFTING OF HONG KONG LAWS
1.2.2 THE ENABLING VERSUS THE REGULATORY DEBATE 1.2.3 CORPORATE AND
SECURITIES LAWS 1.2.4 REGULATOR) FRAGMENTATION 1.2.4.1 IVESSONS FROM THE
OCTOBER 1987 STOCKMARKET CRASH
1.2.4.2 THE CURIOUS STATUS OF THE SVG 1.2.4.3 THE ROLE OF THE SFC 1.2.5
LAW AND LIFE
1
1 1 1 3 4 4
6 6 7 7 8 9 9 9
9
10 12 12 12 16
17 17 18 19 20 20 21 23 23
IMAGE 3
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
1.2.6 ABOUT THE TERMINOLOGY 23
PART I. GOING PUBLIC
2. AN OVERVIEW OF THE PROCESS OF GOING PUBLIC 27
2.1 THE APPROVING AUTHORITIES 27
2.2 APPLICATION PROCEDURES 28
2.3 KEYPLAYERS 29
2.4 METHODSOF LISTING 30
3. QUALIFICATIONS OF ISSUERS 33
3.1 INCORPORATION OF ISSUER 33
3.1.1 INCORPORATION AND FLOTATION: ORDER OF EVENTS 3 3
3.1.2 INCORPORATION AS OF RIGHT 34
3.1.3 DEFECTIVE INCORPORATION 3 6
3.2 CAPITALIZATION 38
3.2.1 CONCEPT OFSHARECAPITAL 38
3.2.2 MINIMUM CAPITALIZATION UNDER THE COMPANIES ORDINANCE 40 3.2.3
ENSURING PAYMENT FOR SHARES 41
3.2.3.1 ISSUES OF SHARES AT A DISCOUNT 41
3.2.3.2 CONSIDERATION IN KIND 44
3.2.3.3 COMMISSIONS 47
3.2.3.4 FAILURE OF AN ISSUE 47
3.2.3.5 ISSUE OF SHARES FOR FAIR VALUE? 48
3.2.4 LIMITED LIABILITY 48
3.2.5 PROPOSALS FOR REFORM 50
3.3 DETERRENCE OF UNDERCAPITALIZATION 52
3.3.1 LIFTING THE CORPORATE VEIL 52
3.3.2 FRAUDULENT TRADING 54
3.3.3 DISQUALIFICATION OF DIRECTORS 58
3.4 POLICY IMPLICATIONS 59
3.4.1 INCORPORATION AS OF RIGHT 59
3.4.2 MINIMUM CAPITALIZATION REQUIREMENTS 60
3.4.3 SAFETY NET FOR EMPLOYEES 61
3.4.4 ABSOLUTE LIABILITY FOR WAGES 62
4. INITIAL DISCLOSURE 63
4.1 REASONS FOR MANDATORY DISCLOSURE 64
4.1.1 PROTECTION AGAINST FRAUD 64
4.1.2 PROMOTION OF PUBLIC CONFIDENCE IN MARKETS 65
4.1.3 RAISING OF CORPORATE STANDARDS 67
VI
IMAGE 4
TABLE OF CONTENTS
4.1.4 PUBLIC INTEREST IN GENERAL 68
4.1.5 PROMOTION OF INVESTMENT ANALYSIS 69
4.1.5.1 TENSION BETWEEN PROTECTIVE AND INFORMATIVE DIS- CLOSURE 69
4.1.5.2 TARGET AUDIENCE 69
4.1.5.3 FINANCE THEORIES 70
4.1.5.3.1 THE EFFICIENT CAPITAL MARKET THEORY AND THE MODERN PORTFOLIO
THEORY 71
4.1.5.3.2 CHALLENGES TO ECMH AND MPT 72 4.1.5.3.3 MERITS OF
FIRM-SPECIFIC DATA 74
4.1.5.4 IMPLICATIONS FOR HONG KONG 74
4.1.6 MANDATORY DISCLOSURE 75
4.1.6.1 OPTIMAL DISCLOSURE 75
4.1.6.2 SELECTIVE DISCLOSURE 76
4.1.6.3 RELIABILITY OF VOLUNTARY DISCLOSURE 76
4.1.6.4 COSTS AND BENEFITS OF MANDATORY DISCLOSURE 77 4.1.6.5 CONCLUDING
REMARKS 79
4.2 DISCLOSURE OBLIGATIONS AT COMMON LAW: PROMOTERS 80
4.2.1 WHO IS A PROMOTER 80
4.2.1.1 DEFINITIONS 80
4.2.1.2 COMMENCEMENT OF PROMOTION 81
4.2.1.3 PARTICIPATION IN THE FORMATION OF THE COMPANY 81 4.2.2 DUTIES OF
A PROMOTER 82
4.2.2.1 DUTY OF DISCLOSURE 82
4.2.2.2 REMEDIES OF THE COMPANY 83
4.2.3 PROMOTERS REMUNERATION 85
4.3 LIABILITY FOR MISREPRESENTATION AT COMMON LAW 86
4.3.1 DUTY TO DISCLOSE 86
4.3.2 TYPES OF STATEMENT AND MISREPRESENTATION 87
4.3.3 THE ISSUER AS REPRESENTOR 88
4.3.4 DIRECTORS, EXECUTIVES, AUDITORS AND OTHER EXPERTS AS REPRE-
SENTORS 89
4.3.4.1 DUTY OF CARE 89
4.3.4.1.1 IN GENERAL 89
4.3.4.1.2 FOR PROSPECTUSES 92
4.3.4.2 STANDARD OF CARE 93
4.3.5 INDUCEMENT 93
4.3.6 RESCISSION 94
4.3.7 OTHER REMEDIES 96
4.3.8 EXONERATION 97
4.4 ANTI-FRAUD LEGISLATION 98
4.5 DISCLOSURE LEGISLATION - ALL PUBLIC COMPANIES 100
4.5.1 WHEN IS DISCLOSURE REQUIRED 100
4.5.1.1 COMPANY REGISTRATION VS. SECURITIES REGISTRATION 100 4.5.1.2
PRIMARY DISTRIBUTION TO THE PUBLIC 101
4.5.1.3 MEANING OF PUBLIC OFFER 103
VU
IMAGE 5
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
4.5.1.4 SECONDARY DISTRIBUTION BY SUBSTANTIAL SHAREHOLDERS 105
4.5.1.5 EXEMPTIONS 106
4.5.1.6 REDISTRIBUTION 108
4.5.2 WHAT MUST BE DISCLOSED 108
4.5.2.1 THE MAIN PROVISIONS OF THE ORDINANCE 108
4.5.2.2 CONFUSION OF PURPOSES 109
4.5.2.3 COMMENTS ON DISCLOSURE REQUIREMENTS 110
4.5.3 REGISTRATION ANTI PUBLICATION OF PROSPECTUS 111
4.5.4 LIABILITY FOR PROSPECTUSES 113
4.5.4.1 STATUTORY PROVISIONS 113
4.5.4.2 WHOISLIABLE 114
4.5.4.3 FOR WHAT IS A RESPONSIBLE PERSON LIABLE? 116
4.5.4.4 MENS REA AND DEFENCES 118
4.5.4.5 WHOMAYSUE 119
4.5.4.6 REMEDIES 120
4.6 DISCLOSURE LEGISLATION - LISTED COMPANIES 121
4.6.1 THE MAIN PROVISIONS 121
4.6.2 CONTENTS OF DISCLOSURE REQUIREMENTS - A COMPARATIVE REVIEW 123
4.6.3 PERSONS RESPONSIBLE FOR PROSPECTUSES 125
4.7 CONCLUSIONS 126
5. MERIT REGULATIONS 127
5.1 STOCK EXCHANGE LISTING RULES 127
5.2 THE PROTECTION OF INVESTORS ORDINANCE 131
5.3 REASONS FOR MERIT REGULATION 131
5.3.1 COSTS AND BENEFITS OF MERIT REGULATION 131
5.3.2 IMPLICATIONS FOR HONG KONG 133
PART II. RETURNS TO INVESTORS
6. CORPORATE PURPOSES AND POWERS 137
6.1 THE DOCTRINE OF ULTRA VIRES 137
6.1.1 ORIGIN AND APPL ICATION OF DOCTRINE 138
6.1.2 REASONS FOR THE DOCTRINE 139
6.1.3 THE CORPORATE CONSTITUTION 140
6.1.4 CONSTRUCTION OF THE OBJECTS CLAUSE 142
6.1.5 EXTENSION OF OBJECTS BY PREVENTIVE DRAFTING 145
6.1.6 DISTINCTION BETWEEN OBJECTS AND POWERS 148
6.1.7 BENEFIT TO THE COMPANY 150
6.1.8 ABUSE OF POWERS BY CORPORATE EXECUTIVES 151
6.1.9 REMEDIES OF SHAREHOLDERS AND CREDITORS 152
6.1.10 EFFECT OF DOCTRINE 154
VIN
IMAGE 6
TABLE OFCONTENTS
6.1.11 REFORMS 155
6.1.11.1 HISTORY 155
6.1.11.2 REFORMS IN HONG KONG 157
6.2 CONSTITUENCIES OF A COMPANY 158
6.2.1 THE TRADITIONAL POSITION 158
6.2.1.1 THE SHAREHOLDER AS SOVEREIGN 158
6.2.1.2 CREDITORS 159
6.2.1.3 EMPLOYEES 160
6.2.2 RECENT DEVELOPMENTS 160
6.2.2.1 CREDITORS 160
6.2.2.2 EMPLOYEES 162
6.2.2.3 SOCIETAL INTERESTS 162
6.2.3 REASONS FOR A WIDER CONSTITUENCY 164
6.2.3.1 ARGUMENTS FOR A WIDER CONSTITUENCY 164
6.2.3.2 ARGUMENTS AGAINST A WIDER CONSTITUENCY 165
6.2.3.3 CONCLUDING REMARKS 167
6.3 LIMITS ON CORPORATE POWERS 167
7. TRANSFERS OF SHARES 169
7.1 SHARES AND SHAREHOLDERS 170
7.1.1 THE NATURE OF SHARES 170
7.1.2 MEMBERSHIP BY AGREEMENT AND REGISTRATION 171
7.1.3 THE REGISTER OF MEMBERS 172
7.1.4 SHARE CERTIFICATES 174
7.2 TRANSFERABILITY 175
7.3 ACQUISITION AND DISPOSAL OF UNLISTED SHARES 176
7.3.1 ACQUISITION FROM THE COMPANY 177
7.3.2 MODE OF TRANSFER OF SHARES BY SHAREHOLDER 179
7.3.3 COMPANY AND TRANSFEROR/TRANSFEREE 180
7.3.3.1 IN GENERAL 180
7.3.3.2 REASONABLE TIME FOR REGISTRATION 181
7.3.3.3 PROPERLY EXECUTED TRANSFERS 182
7.3.3.4 DEFECTS IN THE FORM OF TRANSFER 182
7.3.3.5 SHARE CERTIFICATES 183
7.3.3.6 STAMP DUTY 183
7.3.3.7 IMPENDING LIQUIDATION 183
7.3.3.8 ADVERSE CLAIMS 183
7.3.3.9 REMEDIES AGAINST THE COMPANY 184
7.3.4 TRANSFEROR AND TRANSFEREE 185
7.3.4.1 COMPLETION OF THE BARGAIN 185
7.3.4.2 RIGHTS PENDING REGISTRATION 185
7.3.4.3 DETERMINING THE PERSON ENTITLED 186
7.3.4.4 OBLIGATIONS 187
7.3.4.5 COMPLETION OF GIFT 187
7.3.5 UNAUTHORIZED TRANSFERS 188
IX
IMAGE 7
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
7.3.5.1 POSITION OF ORIGINAL LEGAL OWNER 188
7.3.5.2 OTHER COMPETING INTERESTS 190
7.3.5.2.1 WRONGFUL DISPOSITION BY LEGAL OWNER 190 7.3.5.2.2 COMPETING
EQUITABLE INTERESTS 191
7.3.5.2.3 ACQUISITION AND DISPOSITION OF STREET CERTIFICATES 192
7.3.5.3 COMPANY AND BONA FIDE PURCHASERS 192
7.3.5.3.1 STATEMENTS MADE BY THE COMPANY 192 7.3.5.3.2 AUTHORITY OF
EXECUTIVES 193
7.3.5.3.3 FORGED CERTIFICATES 194
7.3.5.3.4 ESTOPPEL BY CERTIFICATE: DIRECT VICTIM 194 7.3.5.3.5 ESTOPPEL
BY CERTIFICATE: SUBSEQUENT PUR- CHASERS 195
7.3.5.3.6 EFFECT OF ESTOPPEL 195
7.3.5.4 COMPENSATION BY COMPANY 196
7.3.5.5 LIABILITY OF PRESENTER OF FORGED TRANSFERS 196
7.3.6 RECTIFICATION 197
7.3.7 LOST CERTIFICATES 198
7.3.8 TRANSMISSION 199
7.3.9 CRITIQUE 200
7.3.9.1 ACQUISITION FROM THE COMPANY 200
7.3.9.2 UNAUTHORIZED TRANSFERS 201
7.4 ACQUISITION AND DISPOSAL OF LISTED SHARES 202
7.4.1 INTERNATIONAL STANDARD FOR CLEARANCE AND SETTLEMENT OF TRADES 202
7.4.2 THE HONG KONG SECURITIES CLEARING COMPANY LTD ( HKSCC ) 203
7.4.3 PARTICIPANTS 204
7.4.4 SETTLEMENT OF TRADES ON THE SEHK 205
7.4.5 DEPOSITORY SERVICES 206
7.4.6 NOMINEE SERVICES 208
7.4.7 INSOLVENCY AND DEFAULT OF PARTICIPANTS 208
7.4.8 CONFORMITY TO INTERNATIONAL STANDARDS 209
7.5 CRITIQUE 209
7.5.1 REASONS FOR DEMATERIALIZATION 209
7.5.2 IMPACT OF CCASS ON SHAREHOLDERS 211
7.5.2.1 LEGAL OWNERSHIP 211
7.5.2.2 INSOLVENCY OF BROKER 211
7.5.2.3 UNAUTHORIZED DEALINGS 212
7.5.2.4 PROPOSED DIRECT DEPOSITORY SERVICES 213
7.5.2.5 CONCLUDING COMMENTS 214
8. DIVIDENDS AND OTHER CURRENT DISTRIBUTIONS 215
8.1 CONTRACTUAL RIGHTS 215
8.1.1 SOURCE AND NATURE OF RIGHTS 215
8.1.2 WHAT ARE PROFITS 216
IMAGE 8
TABLE OFCONTENTS
1.3 1.4
8.1.3 8.1.4 8.1.5 8.1.6
8.1.7 LIMITS 8.2.1 8.2.2
8.2.3 8.2.4 8.2.5 BONUS
8.1.2.1 RESERVES 8.1.2.2 CAPITAL GAINS AND LOSSES 8.1.2.3 ACCUMULATED
TRADING LOSSES 8.1.2.4 UNREALIZED CAPITAL GAINS AND LOSSES 8.1.2.5 SHARE
PREMIA 8.1.2.6 GUARANTEED DIVIDENDS CURRENCY DIVISION OF PROFITS BY
SHARES PREFERENCE SHARES SOLVENCY OF THE COMPANY POWER OVER
DISTRIBUTIONS ; ON DISTRIBUTIONS
COVERAGE OF COMPANIES ORDINANCE REGULATIONS APPLICABLE TO ALL COMPANIES
(INCLUDING PUBLIC COMPANIES AND LISTED COMPANIES) REGULATIONS APPLICABLE
TO LISTED COMPANIES
REGULATIONS APPLICABLE TO INSURANCE COMPANIES DETERMINING THE LIMIT
ISSUES UNLAWFUL DISTRIBUTIONS 8.4.1
8.4.2 8.4.3
DIRECTORS LIABILITY SHAREHOLDERS LIABILITY INJUNCTIVE RELIEF PAYMENT
OF DIVIDENDS REMAINING PROBLEMS 8.6.1 8.6.2 8.6.3 8.6.4 8.6.5
UNLISTED COMPANIES LIQUIDITY ISSUES REVALUATION MERGERS RELIEF
IMPACT OF CCASS
216 217 218 218 219 219 220 221 222 224 225 226 226
227 228 228 229 230 232 232 233 234 234
234 235 235 235 236 236
PART III. SHAREHOLDER AND MANAGEMENT RELATIONS
9. MANAGEMENT OF COMPANIES 241
9.1 DIVISION OF POWERS 241
9.1.1 ALLOCATION OF POWERS, RESIDUAL POWERS AND DEFAULT POWERS 241
9.1.1.1 ALLOCATION OF POWERS 241
9.1.1.2 RESIDUAL POWERS 242
9.1.1.3 DEFAULT POWERS 243
9.1.2 DIRECTORS MANAGEMENT POWERS 245
9.1.2.1 SCOPE OF POWERS 245
9.1.2.2 DIRECTOR AUTONOMY 246
9.1.2.3 GOVERNING DIRECTORS AND MANAGING DIRECTORS 247 9.1.3 EXECUTIVES
248
9.2 QUALIFICATIONS OF DIRECTORS 250
XI
IMAGE 9
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
9.3
9.4
9.5
9.6
9.7
9.2.1 9.2.2 9.2.3 9.2.4
AGE CORPORATE DIRECTORS QUALIFYING SHARES PROBITY AND COMPETENCE
DISQUALIFICATION ORDERS 9.3.1
9.3.2
9.3.3 9.3.4
9.3.5 9.3.6 9.3.7
OBJECT AND NATURE OF PROCEEDINGS 9.3. 9.3. 9.3. 9.3. 9.3. 9.3. 9.3. 9.3.
9.3.
9.3.
. 1 THE GENERAL STATUTORY PROVISION .2 PURPOSE OF DISQUALIFICATION .3
APPLICANTS .4 RESPONDENTS
.5 LIMITATIONS PERIOD .6 NATURAL JUSTICE .7 EVIDENCE
.8 PRECEDENTS 1.9 COSTS .10 APPEALS GROUNDS FOR DISQUALIFICATION:
CONVICTION OF INDICTABLE OFFENCE GROUNDS FOR DISQUALIFICATION: FRAUD
GROUNDS FOR DISQUALIFICATION: BREACHES OF COMPANIES ORDI- NANCE GROUNDS
FOR DISQUALIFICATION: UNFITNESS REGISTER OF DISQUALIFICATION ORDERS
ACTING IN BREACH OF DISQUALIFICATION ORDERS APPOINTMENT OF DIRECTORS
9.4.1
9.4.2
9.4.3 9.4.4
GENERAL PROCEDURE CONTROL OF APPOINTMENT 9.4.2.1 NOMINATIONS 9.4.2.2
CHOICE OF CANDIDATES
9.4.2.3 VOTING CUMULATIVE VOTING DEFECTS IN APPOINTMENT PROCEEDINGS OF
DIRECTORS 9.5.1 9.5.2 9.5.3 9.5.4 9.5.5 9.5.6
ACTING AS A BOARD QUORUM NOTICE OF MEETING CHAIRMAN
RIGHTS OF DIRECTOR IN RELATION TO MANAGEMENT RECORDS REMUNERATION OF
MANAGEMENT 9.6.1 9.6.2 9.6.3 9.6.4 9.6.5
WHO DETERMINES REMUNERATION OF DIRECTORS AND EXECUTIVES DISCLOSURE
SHAREHOLDER APPROVAL DISQUALIFICATION PROCEEDINGS NATURE OF REMUNERATION
TERMINATION OF OFFICE
9.7.1 REMOVAL BV THE COMNANV
250 251 251 252 253
254 254 254 255
255 256 257 258
259 259 260
260 261
262 262 266 267
267 267 268 268
269 272 272
273 274 274 275
276 277 277
278 279 279 280 281 282 282 282
282
XU
IMAGE 10
9.7.2
9.7.1.1 9.7.1.2 9.7.1.3 9.7.1.4 RESIGN;
TABLE OFCONTENTS
OVERRIDING RIGHT SERVICE UNDER ARTICLES OF ASSOCIATION SERVICE UNDER
CONTRACT ATTEMPTED ENTRENCHMENT ITION
282 284 286 286 287
10. COMPETENCE AND PROBITY OF MANAGEMENT 289
10.1
10.2
10.3 10.4
DUTY C 10.1.1 10.1.2 10.1.3
)F CARE TIME AND ATTENTION RELIANCE ON OTHERS STANDARD OF SKILL AND CARE
DUTY OF LOYALTY
10.2.1
10.2.2
10.2.3 10.2.4
10.2.5
10.2.6
10.2.7 10.2.8 REVIEW
DUTY TO EXERCISE DISCRETION PERSONALLY 10.2.1.1 DELEGATION 10.2.1.2
PUPPET AND SHADOW DIRECTORS 10.2.1.3 FETTERING DISCRETION DUTY TO ACT
HONESTLY IN THE BEST INTEREST OF THE COMPANY
10.2.2.1 SUBJECTIVE BELIEF 10.2.2.2 PERSONAL BENEFIT 10.2.2.3
DISCRIMINATION AMONG SHAREHOLDERS DUTY TO ACT FOR A PROPER PURPOSE DUTY
TO AVOID CONFLICT OF INTERESTS 10.2.4.1 SELF-DEALING IN GENERAL 10.2.4.2
FINANCIAL ASSISTANCE DUTY NOT TO PROFIT FROM POSITION 10.2.5.1 BRIBES
PROHIBITED 10.2.5.2 SALE OF OFFICE APPROPRIATING CORPORATE PROPERTY
(INCLUDING OPPORTUNITIES) PROHIBITED 10.2.6.1 IN GENERAL 10.2.6.2
MISAPPROPRIATION OF CORPORATE INFORMATION NO DUTY TO AVOID CONFLICT OF
DUTIES DUTY TO CONFESS? R OF MANAGEMENT DECISIONS REMEDIES FOR BREACH OF
DUTIES 10.4.1 10.4.2 10.4.3 10.4.4 10.4.5 10.4.6 10.4.7
INJUNCTIONS RESCISSION ACTION FOR DAMAGES ACCOUNTING FOR PROFITS
RECOVERY OF ASSETS MISAPPROPRIATED MISFEASANCE PROCEEDINGS LIMITATION OF
ACTIONS
289 289 293 296 300 300 300 302 303 305 305 305 307 307 310 310 316 317
317 318
320 320 323 324 326 327 328 328 328 329 329 330 333 334
XIII
IMAGE 11
PUBLIC COMPANIESAND THEIR EQUITY SECURITIES
11. CONTINUOUS DISCLOSURE 335
11.1
11.2
11.3
11.4 11.5
ANNUAL 11.1.1 11.1.2
11.1.3 11.1.4 11.1.5 11.1.6 INTERIM
11.2.1 11.2.2 11.2.3
REPORTS TO SHAREHOLDERS MAINTENANCE OF RECORDS FINANCIAL STATEMENTS
11.1.2.1 OBLIGATION TO PRESENT
11.1.2.2 STANDARDS 11.1.2.3 EXEMPTIONS DIRECTORS REPORT AUDITORS
REPORT PERSONAL COPIES PUBLICATION REPORTS INTERIM FINANCIAL REPORTS
INFORMING THE MARKET LIABILITY FOR MISINFORMATION
11.2.3.1 REPRESENTEE 11.2.3.2 REPRESENTOR 11.2.3.3 LIABILITY AUDITORS
11.3.1 11.3.2 11.3.3
11.3.4 11.3.5 11.3.6 11.3.7 11.3.8
QUALIFICATIONS OF AUDITORS APPOINTMENT OF AUDITORS REMOVAL OR NONRENEWAL
OF APPOINTMENT OF AN AUDITOR RESIGNATION
POWERS AND DUTIES OF AUDITORS STANDARD OF CARE DETECTION OF FRAUD AND
ILLEGAL ACTS CONTRIBUTORY NEGLIGENCE SHAREHOLDER ACCESS TO BOOKS AND
RECORDS OVERSEAS COMOANIES
335 335 337 337
338 340 341 342 342
343 343 344 344
345 345 345 346
346 347 348
348 349 350 351
352 354 355 357
12. GUARDING THE GUARD 359
12.1 THE PROBLEM STATED 359
12.1.1 INHERENT AGENCY PROBLEMS 359
12.1.2 DISENFRANCHISEMENT OF SHAREHOLDERS 360
12.1.3 DYSFUNCTION OF DIRECTORS 363
12.2 THE PROBLEM DENIED 368
12.2.1 MARKET FORCES 369
12.2.2 ABSENCE OF IN JURY 371
12.3 REFORMING THE BOARD 371
12.3.1 FUNCTION OF THE BOARD 371
12.3.2 INDEPENDENT DIRECTORS 373
12.3.2.1 BACKGROUND 373
12.3.2.2 INDEPENDENCE? 375
12.3.2.3 ABILITV 377
X IV
IMAGE 12
TABLE OFCONTENTS
12.3.2.4 INCENTIVES 378
12.3.2.5 STRUCTURAL BIAS 378
12.3.2.6 EASY WAY OUT 379
12.3.2.7 AMERICAN EXPERIENCE 380
12.3.3 PROFESSIONAL DIRECTORS 381
12.3.4 PUBLIC INTEREST DIRECTOR 382
12.3.5 CO-DETERMINATION 383
12.4 MANAGERIALISM 384
12.5 BACK TO THE SHAREHOLDER 385
12.6 ORGANIZATIONAL THEORIES 386
12.6.1 INFORMATION BLOCKAGES 387
12.6.2 SUBGOALS 387
12.6.3 PROPOSED SOLUTION 388
12.7 IMPLICATIONS FOR HONG KONG 389
12.7.1 BACKDROP TO REFORM PROPOSALS 389
12.7.2 INDEPENDENT DIRECTORS 391
12.7.2.1 THE REQUIREMENT AND ITS IMPLEMENTATION 391
12.7.2.2 ASSESSMENT 392
12.7.2.3 BENEFITS OF INDEPENDENT DIRECTORS IN HONG KONG 393 12.7.2.4
DISADVANTAGES OF INDEPENDENT DIRECTORS 395
12.7.3 OTHER REFORMS OF THE BOARD 396
12.7.4 DUTIES OF DIRECTORS AND EXECUTIVES 397
12.7.4.1 TIME AND ATTENTION 397
12.7.4.2 SELF-DEALING, EXCESSIVE REMUNERATION AND USURPA- TIONOF
CORPORATE OPPORTUNITIES 398
12.7.4.2.1 SELF-DEALING 398
12.7.4.2.2 EXCESSIVE REMUNERATION 399
12.7.4.2.3 CORPORATE OPPORTUNITIES 400
12.7.4.2.4 IMPLICATIONS FOR HONG KONG 401
12.7.4.3 MULTIPLE DIRECTORSHIPS 401
12.7.5 PROFESSIONALIZATION OF EXECUTIVES 402
12.7.5.1 ORGANIZATIONAL STRUCTURE OF MODERN AMERICAN ENTERPRISES 402
12.7.5.2 THE LEGAL STATUS OF OFFICERS 403
12.7.5.3 THE ORGANIZATIONAL STRUCTURE OF HONG KONG COM- PANIES 403
12.7.5.4 THE CASE FOR LAW REFORM 405
12.7.5.5 TWO MODEST PROPOSALS 407
12.7.6 REGULATION OF PROFESSIONAL ADVISERS 409
PART IV. SHAREHOLDER RELATIONS
13. SHAREHOLDERS PROCEEDINGS 413
13.1 TYPES OF PROCEEDINGS 414
13.2 NOTICE OF MEETING 414
XV
IMAGE 13
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
13.3 13.4
13.5 13.6
13.7
13.8
13.9 13.10 13.11 13.12 13.13
13.2.1 NOTICE BY WHOM 13.2.2 METHOD OF NOTIFICATION 13.2.3 LENGTH OF
NOTICE 13.2.4 CONTENTS OF NOTICE 13.2.5 CONSEQUENCES OF INVALID NOTICE
13.2.6 NOTICE TO WHOM AGENDA OF MEETING
PROXIES 13.4.1 SHAREHOLDERS RIGHTS 13.4.1.1 APPOINTING A PROXY 13.4.1.2
SOLICITING PROXIES 13.4.2 MANAGEMENT SOLICITATION 13.4.3 PROXY MATERIALS
13.4.4 CORPORATE REPRESENTATIVE DISTINGUISHED QUORUM CONDUCT OF
PROCEEDINGS
13.6.1 PHYSICAL PRESENCE? 13.6.2 THE CHAIRMAN 13.6.3 POWERS AND DUTIES
OF THE CHAIRMAN 13.6.4 THE CHAIRMAN S VOTC 13.6.5 ADJOURNMENT DECISIONS
13.7.1 PROPOSALS FROM THE FLOOR 13.7.2 SEPARATE RESOLUTIONS 13.7.3
DETERMINING THE OWNER OF VOTING RIGHTS 13.7.4 MECHANICS OF VOTING 13.7.5
ABSTENTIONS 13.7.6 FINALITY RECORD AND PUBLICITY
13.8.1 MINUTES 13.8.2 PUBLICITY REQUISITION OF MEETING COURT-ORDERED
MEETINGS
CLASS MEETINGS CONSENT WITHOUT MEETING CENTRAL CLEARING AND SETTLEMENT
SYSTEM ( CCASS ) 13.13.1 CORPORATE COMMUNICATIONS TO SHAREHOLDERS
13.13.2 SHAREHOLDERS PROXIES 13.13.3 VOTING
414 415 415 416 419 420 422
423 423 423 426 426 428 431
431 433 433 433 434 434 435 436 436 438 438
440 442 442
444 444 445 445 446
447 447 448 448 451 452
14. FUNDAMENTAL BUSINESS CHANGES 455
14.1 POWER TO CHANGE 455
14.2 ALTERATION OF NATURE OF BUSINESS 456
14.2.1 ALTERATION OF THE OBJECTS OF THE COMPANY 456
14.2.2 SALE OF FIXED ASSETS 457
XVI
IMAGE 14
TABLE OFCONTENTS
14.2.3 LISTINGRULES 458
14.2.4 DISCLOSEABLE TRANSACTIONS 459
14.2.5 VERY SUBSTANTIAL ACQUISITIONS 460
14.2.6 MAJOR TRANSACTIONS 461
14.3 MAJORITY/MINORITY RELATIONS 461
14.3.1 MAJORITY S RIGHT TO VOTE AT LAW 461
14.3.2 MAJORITY S RIGHT TO VOTE UNDER LISTING RULES 462
14.3.2.1 DEFINITION 462
14.3.2.2 DISCLOSURE 464
14.3.2.3 SHAREHOLDER APPROVAL 465
14.3.2.4 TOTAL OR PARTIAL WAIVERS 465
14.4 LIQUIDATION 465
15. FUNDAMENTAL STRUCTURAL CHANGES 467
15.1 INCREASE OF AUTHORIZED SHARE CAPITA! 468
15.1.1 SHAREHOLDER APPROVAL GENERALLY 468
15.1.2 CONTROLLING SHAREHOLDER S RIGHT TO VOTE 470
15.2 ALLOTMENT AND ISSUE OF SHARES 470
15.2.1 TERMS OF ALLOTMENT 470
15.2.2 PRE-EMPTION 470
15.2.3 CONTROLLING SHAREHOLDER S RIGHT TO VOTE 472
15.3 FORMAL REDUCTION OF SHARE CAPITAL 473
15.3.1 CIRCUMSTANCES IN WHICH CAPITAL MAY BE REDUCED 473 15.3.2
PROCEDURE 474
15.3.3 PROTECTION OF CREDITORS 475
15.3.4 PROTECTION OF SHAREHOLDERS INTER SE 477
15.3.4.1 DISCLOSURE 477
15.3.4.2 FAIRNESS 478
15.3.4.3 CONTROLLING SHAREHOLDER S RIGHT TO VOTE 482 15.3.5 FINALITY 482
15.4 REDEMPTION AND REPURCHASE OF SHARES 482
15.4.1 CIRCUMSTANCES IN WHICH SHARES MAY BE REDEEMED OR PURCHASED 483
15.4.2 PROCEDURE 483
15.4.3 PROTECTION OF CREDITORS 484
15.4.4 PROTECTION OF SHAREHOLDERS INTER SE 485
15.4.4.1 REDEMPTION 485
15.4.4.2 REPURCHASES GENERALLY 485
15.4.4.3 REPURCHASE ON THE SEHK BY A LISTED COMPANY 486 15.4.4.4
REPURCHASE BY GENERAL OFFER BY A PUBLIC COMPANY IN HONG KONG 486
15.4.4.5 REPURCHASE BY PRIVATE CONTRACT 487
15.4.4.6 PUBLICITY 488
15.4.4.7 CONTROLLING SHAREHOLDER S RIGHT TO VOTE 489 15.5 AMALGAMATION
489
XVII
IMAGE 15
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
15.5.1 PROCEDURE 489
15.5.2 PROTECTION OF CREDITORS 490
15.5.3 PROTECTION OF SHAREHOLDERS INTER SE 490
15.6 CONSOLIDATION OR SUBDIVISION OF SHARE CAPITAL 492
15.6.1 ALTERATIONS PERMITTED 492
15.6.2 PROTECTION OF CREDITORS 492
15.6.3 PROTECTION OF SHAREHOLDERS INTER SE 493
15.7 SCHEME OF ARRANGEMENT 49 3
15.7.1 PROCEDURE 494
15.7.2 INFORMATION FOR CREDITORS AND SHAREHOLDERS 494
15.7.3 CLASS MEETINGS 495
15.7.4 CRITERIA FOR COURT S APPROVAL 498
15.7.5 CONTROLLING SHAREHOLDER S RIGHT TO VOTE 501
15.7.6 FINALITY 502
15.8 VARIATION OF CLASS RIGHTS 503
15.8.1 DEFINITION OF CLASS RIGHTS AND VARIATION 503
15.8.2 PROCEDURE 504
15.9 MODEST PROPOSALS FOR REFORM 505
16. TAKEOVERS 509
16.1 REASONS FOR REGULATION 510
16.1.1 TAKEOVERS AS A MEANS OF DISCIPLINING MANAGEMENT 510
16.1.2 OTHER EFFICIENCY GAINS OF TAKEOVERS 511
16.1.3 OVERPAYMENT BY BIDDER 512
16.1.4 DEFLECTING ATTENTION FROM EFFICIENT MONITORING MODELS 514 16.1.5
EFFECT OF TAKEOVERS ON MANAGERIAL BEHAVIOUR 514
16.1.6 OTHER DIS-ECONOMIES 515
16.1.7 IMPLICATIONS FOR HONG KONG 515
16.2 AN OVERVIEW OF HONG KONG REGULATIONS 516
16.2.1 UK TAKEOVERS REGULATIONS 516
16.2.2 AN OVERVIEW OF HONG KONG REGULATIONS 518
16.2.2.1 NATURE AND AMBIT OF THE CODES 519
16.2.2.2 ADMINISTRATION OF THE CODES 521
16.2.2.3 ENFORCEMENT AND SANCTIONS 523
16.3 INTEGRITY OF MARKET 524
16.3.1 FALSE OFFERS 524
16.3.2 CONFIDENTIALITY AND PROMPT DISCLOSURE 525
16.3.3 RESTRICTIONS ON DEALINGS 526
16.3.4 DISCLOSURE AND ANNOUNCEMENT OF RESULTS 527
16.4 ANTI-LOOTING 528
16.4.1 US CASE LAW 528
16.4.2 HISTORY OF UKPROVISION 529
16.4.3 MISCHIEF 530
16.4.4 THE CURRENT PROVISIONS 531
16.4.4.1 PROHIBITED FINANCIAL ASSISTANCE 532
XVM
IMAGE 16
TAB/E OFCONTENTS
16.4.4.2 EXCEPTIONS 16.4.4.3 CONSEQUENCES OF BREACH 16.5 INFORMED BID
16.5.1 INFORMATION 16.5.2 SHAREHOLDER APPROVAL 16.6 INFORMED CONSENT OF
TARGET SHAREHOLDERS 16.6.1 ADVANCED WARNING 16.6.2 DISCLOSURE
16.6.2.1 OBLIGATIONS TO DISCLOSE 16.6.2.2 LIABILITY 16.6.3 CONSENT
16.6.3.1 CONSENT BY SHAREHOLDERS AS A BODY
16.6.3.2 CONSENT BY ACCEPTING BID 16.6.3.3 PARTIAL BIDS 16.6.3.4 SECOND
CHANCE 16.6.3.5 SOLICITATION 16.7 EQUAL TREATMENT
16.7.1 COMMON LAW 16.7.2 TAKEOVERS CODE 16.7.2.1 APPROPRIATE OFFERS FOR
ALL 16.7.2.2 MATCHING PRICES AND TERMS
16.7.2.3 MANDATORY BID 16.7.2.4 CONCERT PARTIES AND CHAIN PRINCIPLE
16.7.2.5 WHITEWASH 16.7.2.6 PUZZLING PROVISIONS 16.7.3 WILLIAMS ACT 16.8
ROLE OF THE BOARD OF TARGET
16.8.1 COMPOSITION OF BOARD 16.8.2 DEFENCES 16.8.2.1 DEFENCES IN THE
FACE OF A BID 16.8.2.2 DEFENCES IN ADVANCE 16.8.3 DUTY TO ADVISE
16.8.3.1 THE LAW 16.8.3.2 THE TAKEOVERS CODE 16.8.4 A MORE PRO-ACTIVE
ROLE? 16.9 ROLE OF PROFESSIONALS 16.10 FREEZEOUT 16.10.1 NATURE OF AND
APPROACH TO PROVISION 16.10.2 BENEFICIARIES 16.10.3 THE BID 16.10.4
ACCEPTANCE BY 90 PER CENT 16.10.5 NOTICE REQUIRING SALE 16.10.6
OBJECTIONS BY DISSENTIENT 16.11 REPURCHASES 16.11.1 PARTIAL BIDS 16.11.2
ON-MARKET REPURCHASES 16.11.3 PRIVATE CONTRACTS
535 537 537 537 538 539 539 541 541 544 546 546 547 548 550 551 551 551
554 554 554 555 556 557 558 558 559 559 559 559 563 564 564 565 565 567
568 568 569 569 572 572 573 574 575 575 575
XIX
IMAGE 17
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
16.11.4 SHAREHOLDER APPROVAL 575
16.11.5 INDEPENDENT ADVICE 575
16.11.6 TAKEOVER IMPLICATIONS 576
16.12 LISTINGRULES 576
16.13 CRITIQUE 577
16.13.1 MANDATORY BIDS AND PARTIAL BIDS 577
16.13.1.1 SHARING OF THE CONTROL PREMIUM 577
16.13.1.1.1 CORPORATE ASSET THEORY 577
16.13.1.1.2 RISK OF INJURY TO MINORITY 578
16.13.1.1.3 ALTERNATIVE MEANS OF RESTRUCTURING 578 16.13.1.1.4 ARGUMENTS
AGAINST SHARING THE CONTROL PREMIUM 579
16.13.1.2 EFFECT OF RULES 580
16.13.1.3 OPPORTUNITY LOST 581
16.13.1.4 PROPOSALS FOR REFORM 582
16.13.2 INFORMED CONSENT OF THE SHAREHOLDERS OF TARGET 583
16.13.3 DEFENCES 584
16.13.4 FREEZE-OUTS 584
17. MAJORITY RULE AND MINORITY PROTECTION 585
17.1 INTRODUCTION 585
17.1.1 COMMON TRANSACTIONS 585
17.1.2 THE LAW S RESPONSE 586
17.2 SHAREHOLDER APPROVAL 589
17.2.1 MINIMUM VOTING RIGHTS 589
17.2.1.1 ORDINARY SHARES 589
17.2.1.1.1 THE BACKGROUND OF THE RECENT ONE SHARE, ONE VOTE
CONTROVERSY 589
17.2.1.1.2 VALUE OF VOTING RIGHTS TO SHAREHOLDERS 591 17.2.1.1.3 MERITS
OF DUAL CLASS COMMON STOCK 5 91 17.2.1.1.4 SHAREHOLDER CHOICE 593
17.2.1.1.5 IMPLICATIONS FOR HONG KONG 593
17.2.1.2 MINIMUM VOTING RIGHTS FOR NON-VOTING SHARES 594 17.2.2
CONTROLLING THE EXERCISE OF VOTING RIGHTS BY CONTROLLING SHAREHOLDERS
594
17.2.2.1 ELECTION OF DIRECTORS 595
17.2.2.2 DEALING WITH CORPORATE ASSETS 596
17.2.2.3 DEALING WITH MINORITY S PROPERTY 599
17.2.2.4 RELIEF OF DIRECTORS DUTIES OR LIABILITIES 602
17.2.2.4.1 TRANSACTIONAL EXONERATION 602
17.2.2.4.2 ADVANCE EXONERATION AND INSURANCE 604 17.2.2.4.3 EXONERATION
BY THE COURT 604
17.2.2.5 US LAWS 606
17.2.2.5.1 FIDUCIARY OBLIGATIONS OF CONTROLLING SHAREHOLDERS 606
XX
IMAGE 18
TABLE OFCONTENTS
17.2.2.5.2 DEALING WITH CORPORATE ASSETS 607
17.2.2.5.3 DEALING WITH MINORITY S PROPERTY 608 17.2.2.5.4 RELIEF OF
DIRECTORS DUTIES OR LIABILITIES 610 17.2.2.6 CRITIQUE 611
17.2.2.6.1 SUMMARY OF THE LAW 611
17.2.2.6.2 DEALING WITH CORPORATE ASSETS 612
17.2.2.6.3 DEALING WITH MINORITY ASSETS 612
17.2.2.6.4 RELIEF OF DIRECTORS DUTIES OR LIABILITIES 613 17.3 PRIOR
EXTERNAL REVIEW 613
17.3.1 THE COURT S TRACK RECORD 613
17.3.2 CASE STUDY: RE-DOMICILIATION 614
17.3.2.1 THE PHENOMENON 614
17.3.2.2 DISCLOSURE 615
17.3.2.3 COSTS OF RE-DOMICILING 616
17.3.2.4 BENEFITS OF RE-DOMICILING 617
17.3.2.5 ALTERNATIVES TO RE-DOMICILING 619
17.3.2.6 FAIRNESS 619
17.3.2.7 THE COURT S TRACK RECORD 621
17.3.3 PRIOR EXTERNAL INDEPENDENT REVIEW 621
17.3.4 REGULATORY IMPLICATIONS 623
17.4 SUBSEQUENT EXTERNAL REVIEW: THE APPRAISAL REMEDY 624
17.4.1 AVAILABILITY OF REMEDY 624
17.4.2 VALUATION PRINCIPLES 625
17.4.2.1 FAIRVALUE 625
17.4.2.2 METHODOLOGY 626
17.4.2.3 REFERENT DATES OF VALUATION 626
17.4.2.4 DISPUTED AND SUBSEQUENT EVENTS 626
17.4.2.5 DISCOUNTS AND PREMIA 627
17.4.2.6 PROCEDURE AND FINALITY 628
17.4.3 CONCLUDING COMMENTS 629
17.5 DERIVATIVE ACTIONS 629
17.5.1 FOSS V. HARBOTTLE RULE 629
17.5.2 DISTINCTION BETWEEN PERSONAL ACTIONS AND DERIVATIVE ACTIONS 631
17.5.2.1 PERSONAL RIGHTS 631
17.5.2.2 PROCEDURAL IRREGULARITIES AND THE NATURE OF THE MAA 633
17.5.2.3 OVERLAP AND JOINDER 636
17.5.3 EXCEPTIONS TO THE FOSS V. HARBOTTLE RULE: ULTRA VIRES 636 17.5.4
EXCEPTIONS TO THE FOSS V. HARBOTTLE RULE: FRAUD ON THE MINORITY 637
17.5.4.1 RATIFICATION BY CONTROLLING SHAREHOLDERS 638
17.5.4.2 CONTROL 638
17.5.4.3 RELATIONSHIP WITH UNFAIR PREJUDICE 639
17.5.5 EXCEPTIONS TO THE FOSS V. HARBOTTLE RULE: SPECIAL MAJORITY 639
17.5.6 EXCEPTIONS TO THE FOSS V. HARBOTTLE RULE: JUSTICE 640
17.5.7 COMPARISON WITH OTHER JURISDICTIONS 640
17.5.7.1 THE RULE IN THE US 640
XXI
IMAGE 19
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
17.5.7.2 ACTION IN GERMANY 641
17.5.7.3 CONCLUDING COMMENT 642
17.5.8 PROSECUTING A DERIVATIVE ACTION IN HONG KONG 642
17.5.8.1 DEMAND 642
17.5.8.2 COMPANY AS DEFENDANT 643
17.5.8.3 SHAREHOLDING 643
17.5.8.4 TERMINATION OF ACTION 643
17.5.8.5 COSTS 645
17.5.9 PROSECUTING A DERIVATIVE ACTION IN THE US 646
17.5.9.1 DEMAND 646
17.5.9.2 COMPANY AS DEFENDANT 646
17.5.9.3 SHAREHOLDING 647
17.5.9.4 TERMINATION 648
17.5.9.5 SETTLEMENT 649
17.5.9.6 COSTS 649
17.5.10 COMPARISON OF PROCEDURAL RULES 650
17.6 UNFAIR PREJUDICE 652
17.6.1 HISTORYOFSECTIONL68A 652
17.6.1.1 JUST AND EQUITABLE WINDING-UP 652
17.6.1.2 OPPRESSION 655
17.6.2 UNFAIR PREJUDICE AND OPPRESSION 657
17.6.3 UNFAIR PREJUDICE: PROCEEDINGS 658
17.6.4 TEST OF UNFAIR PREJUDICE 660
17.6.5 CONDUCT CONSTITUTING UNFAIR PREJUDICE 660
17.6.5.1 DISREGARD OF LEGITIMATE EXPECTATIONS 661
17.6.5.2 PERSONAL WRONGS 662
17.6.5.3 CORPORATE WRONGS 664
17.6.6 REMEDIES 665
17.7 THE PROPER MIX FOR HONG KONG 666
17.7.1 MINORITY SHAREHOLDER APPROVAL 666
17.7.2 UNFAIR PREJUDICE 667
17.7.3 EX ANTE REVIEW OR EX POST SETTLING UP 668
17.7.3.1 RELATIVE MERITS 668
17.7.3.2 THE PROPER MIX 669
PART V. THE EXIT OPTION
18. FAIR TRADING 673
18.1 INSIDER TRADING REGULATION IN US 673
18.1.1 INSIDER REPORTING 674
18.1.1.1 REPORTING INSIDERS 674
18.1.1.2 SUBJECT SECURITIES 675
18.1.1.3 INITIAL REPORTING 676
18.1.1.4 SUBSEQUENT REPORTING 676
18.1.2 FORFEITURE OF SHORT-SWING PROFITS 677
XXU
IMAGE 20
TABLE OFCONTENTS
18.1.3 PROSCRIPTION OF INSIDER TRADING 679
18.1.3.1 COMMON LAW 679
18.1.3.2 STATUTORY SOURCE OF DISCLOSE-OR-ABSTAIN RULE 680 18.1.3.3
LANDMARK DECISIONS 681
18.1.3.3.1 CADY, ROBERTS 681
18.1.3.3.2 SEC V. TEXAS GULFSULPHUR CO 682
18.1.3.3.3 CHIARELLA V. UNITED STATES 683
18.1.3.3.4 DIRKSV. SEC 684
18.1.3.3.5 CARPENTER V. UNITED STATES 685
18.1.3.3.6 UNITED STATES V. O HAGAN 686
18.1.3.4 WHO IS SUBJECT TO INSIDER TRADING REGULATIONS 686 18.1.3.5
TIPPING PROHIBITED 689
18.1.3.6 USE OF MATERIAL NONPUBLIC INFORMATION PROHIBITED 690 18.1.3.6.1
MATERIALITY 690
18.1.3.6.2 NON-PUBLIC 691
18.1.3.6.3 USE 692
18.1.3.7 SCIENTER 693
18.1.3.8 CONNECTION WITH TRANSACTION OF SALE AND PURCHASE OF SECURITIES
693
18.1.3.9 SANCTIONS 694
18.1.3.10 CIVIL ACTION 695
18.1.3.10.1 IMPLIED RIGHT OF ACTION 695
18.1.3.10.2 PRIVITY, RELIANCE AND CAUSATION 695 18.1.3.10.3 EXPRESS
RIGHT OF ACTION 697
18.1.3.10.4 STANDING TOSUE 697
18.1.3.10.5 DEFENCES 698
18.1.3.10.6 MEASURE OF DAMAGES 699
18.2 INSIDER REPORTING IN HONG KONG 700
18.2.1 PURPOSE OF DISCLOSURE 700
18.2.2 REPORTING INSIDERS 701
18.2.2.1 MANAGEMENT 702
18.2.2.2 SUBSTANTIAL SHAREHOLDERS 702
18.2.2.3 CONCERT PARTIES CONTEMPLATING A TAKEOVER 703 18.2.3 DIRECTORS
AND CHIEF EXECUTIVES OBLIGATIONS 704
18.2.4 SUBSTANTIAL SHAREHOLDERS OBLIGATIONS 706
18.2.5 CONCERT PARTIES OBLIGATIONS 707
18.2.6 COMPANY S OBLIGATIONS 707
18.2.7 SEHK S OBLIGATIONS 708
18.2.8 INVESTIGATION OF SHARE OWNERSHIP 708
18.2.9 EXEMPTIONS FROM SDIO 711
18.3 PROSCRIPTION OF INSIDER DEALING IN HONG KONG 711
18.3.1 INSIDERS 712
18.3.1.1 PERSONS CONNECTED WITH A CORPORATION 712
18.3.1.2 PERSONS CONTEMPLATING A TAKEOVER 713
18.3.1.3 TIPPEES 713
18.3.1.4 GOVERNMENT OFFICERS 713
18.3.2 INSIDE INFORMATION 714
XXIN
IMAGE 21
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
18.3.3 TIPPING PROSCRIBED 715
18.3.4 TRADING PROSCRIBED 716
18.3.5 PERMITTED DEALINGS 718
18.4 REASONS FOR INSIDER TRADING REGULATIONS 720
18.4.1 FAIRNESS 720
18.4.1.1 WHO GAINS 721
18.4.1.2 WHOLOSES 722
18.4.1.3 PARITY OF INFORMATION 723
18.4.2 EFFICIENCY 724
18.4.3 SOCIAL WELFARE 724
18.4.4 PURPOSES OF INSIDER TRADING REGULATION 726
18.4.5 EFFECTIVENESS OF REGULATION 727
18.5 CRITIQUE 727
18.5.1 NECESSITY FOR REGULATION 727
18.5.2 FLAGRANT INSIDER TRADING 728
18.5.2.1 RELEVANT INFORMATION 728
18.5.2.2 NO PROFIT MOTIVE AS DEFENCE 729
18.5.2.3 ABSOLUTE LIABILITY 730
18.5.3 THEBIGFISH 730
18.5.3.1 WHO ARE THE BIG FISH 730
18.5.3.2 HONG KONG LAWS IN GENERAL 731
18.5.3.3 SECURITIES REGULATIONS 732
18.5.3.3.1 PERSONS REGULATED 732
18.5.3.3.2 INSIDE INFORMATION 733
18.5.3.3.3 PROSCRIBED ACTIVITY 734
18.5.3.3.4 DISCLOSURE OBLIGATIONS 734
18.5.3.3.5 CONCLUDING REMARKS 735
18.5.4 DISCLOSURE THRESHOLD 735
18.6 OTHER FAIR TRADING REGULATIONS 736
18.6.1 SECURITIES OFFENCES 736
18.6.2 GENERAL CRIMINAL LAW 737
18.6.3 SHORT SELLING REGULATED 737
18.6.4 REMAINING PROBLEMS 738
18.6.4.1 PRICE MANIPULATION - IN GENERAL 738
18.6.4.2 STABILIZATION 738
PART VI. SECURING COMPLIANCE
19. SANCTIONS - FACTS AND LAW 743
19.1 SANCTIONS FOR BREACH OF LISTING RULES 743
19.1.1 SANCTIONS IMPOSED BY THE LISTING RULES 743
19.1.2 ENFORCEMENT RECORD 745
19.1.3 MINOR REFORMS 747
19.2 SANCTION FOR BREACH OF THE TAKEOVERS CODE 747
XXIV
IMAGE 22
TABLE OFCONTENTS
19.2.1 SANCTIONS FOR BREACH OF THE CODES ON TAKEOVERS AND MERGERS AND
SHARE REPURCHASES 747
19.2.2 ENFORCEMENT RECORD 748
19.3 SANCTIONS FOR BREACH OF INSIDER TRADING REGULATIONS 749
19.3.1 ENFORCEMENT FRAMEWORK AND SANCTIONS 749
19.3.2 CIVIL CONSEQUENCES 751
19.3.3 ENFORCEMENT RECORD 752
19.3.3.1 IN GENERAL 752
19.3.3.2 SHAREOWNERSHIP 752
19.3.3.2.1 HONGKEW HOLDINGS LIMITED 752
19.3.3.2.2 ASIA SECURITIES INTERNATIONAL LIMITED 752 19.3.3.2.3 CNPC
(HONG KONG) LIMITED 753
19.3.3.3 INSIDER TRADING 753
19.3.3.3.1 SUCCESS HOLDINGS LIMITED 753
19.3.3.3.2 PUBLIC INTERNATIONAL INVESTMENTS LIMITED 754
19.3.3.3.3 YANION INTERNATIONAL HOLDINGS LIMITED 754
19.3.3.3.4 HONG KONG PARKVIEW GROUP LIMITED 754 19.3.3.3.5 CHEVALIER
(OA) INTERNATIONAL LIMITED 754 19.4 INSPECTIONS AND INVESTIGATIONS 755
19.4.1 NATURE AND PURPOSE OF INVESTIGATION 755
19.4.2 AVAILABILITY OF INSPCCTION 757
19.4.2.1 ON ORDER OF THE FINANCIAL SECRETARY 757
19.4.2.2 ON ORDER OF THE SFC 757
19.4.2.3 ON ORDER OF THE COURT 757
19.4.3 SCOPE OF POWERS ON INSPECTION 758
19.4.3.1 INSPECTION ORDERED BY THE FINANCIAL SECRETARY 758 19.4.3.2
INSPECTION ORDERED BY THE SFC 759
19.4.3.3 INSPECTION BY COURT ORDER 760
19.4.4 EXERCISE OF POWERS ON INSPECTION 761
19.4.5 SANCTIONS 761
19.4.5.1 INSPECTIONS ORDERED BY THE FINANCIAL SECRETARY 761 19.4.5.2
INSPECTIONS ORDERED BY THE SFC 761
19.4.5.3 INSPECTIONS ORDERED BY THE COURT 762
19.4.6 DISPOSITION OF INSPECTION 762
19.4.6.1 INSPECTIONS ORDERED BY THE FINANCIAL SECRETARY 762 19.4.6.2
INSPECTIONS ORDERED BY THE SFC 762
19.4.7 AVAILABILITY OF INVESTIGATIONS 763
19.4.7.1 ON ORDER OF THE FINANCIAL SECRETARY 763
19.4.7.2 ON ORDER OF THE SFC 764
19.4.8 SCOPE OF POWERS 765
19.4.8.1 INVESTIGATIONS ORDERED BY THE FINANCIAL SECRETARY 765 19.4.8.2
INVESTIGATIONS ORDERED BY THE SFC 766
19.4.9 EXERCISE OF POWERS 767
19.4.9.1 INVESTIGATIONS ORDERED BY THE FINANCIAL SECRETARY 767 19.4.9.2
INVESTIGATIONS ORDERED BY THE SFC 768
XXV
IMAGE 23
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
19.4.10 SANCTIONS 769
19.4.11 DISPOSITION OF INVESTIGATION 769
19.4.11.1 INVESTIGATIONS ORDERED BY THE FINANCIAL SECRETARY 769
19.4.11.2 INVESTIGATIONS ORDERED BY THE SFC 770
19.4.12 USE OF DOCUMENTS AND TESTIMONY 770
19.4.12.1 INVESTIGATIONS ORDERED BY THE FINANCIAL SECRETARY 770
19.4.12.2 INVESTIGATIONS ORDERED BY THE SFC 771
19.4.12.3 REFERRALS TO OTHER DEPARTMENTS 772
19.4.13 COSTS 772
19.4.13.1 INVESTIGATIONS ORDERED BY THE FINANCIAL SECRETARY 772
19.4.13.2 INVESTIGATIONS ORDERED BY THE SFC 773
19.4.14 INVESTIGATION ORDERED BY COMPANY 773
19.4.15 UTILITY RECORD 773
19.4.15.1 ALLIED GROUP INVESTIGATION 773
19.4.15.2 TOMSON PACIFIC INVESTIGATION 776
19.4.15.3 REGULATORY IMPLICATIONS 776
19.5 ENFORCEMENT BY CIVIL ACTION 777
19.5.1 EXPRESS RIGHTS OF ACTION 777
19.5.2 IMPLICATION OF PRIVATE CAUSE OF ACTION FOR BREACH OF LAW 777
19.5.2.1 GENERAL LAW 777
19.5.2.2 CORPORATE AND SECURITIES LAW 781
19.5.3 IMPLICATION OF PRIVATE CAUSE OF ACTION FOR BREACH OF US
SECURITIES LAWS 783
19.5.4 IMPLICATION OF PRIVATE CAUSES OF ACTION FOR BREACH OF HONG KONG
LISTING RULES AND OTHER NON-LEGAL NORMS 788
19.5.5 IMPLICATION OF PRIVATE RIGHTS OF ACTION FOR BREACH OF US NON-
LEGAL RULES 789
19.6 CLASS ACTIONS 789
19.6.1 NUMEROUS INTERESTED PERSONS 790
19.6.2 SAME INTEREST 790
19.6.3 DISCONTINUANCE 792
19.6.4 CARRIAGE OF ACTION 792
19.6.5 DEFICIENCES 793
19.7 CRIMINAL SANCTIONS 793
19.7.1 GENERAL CRIMINALLAW 793
19.7.2 OFFENCES UNDER CORPORATE AND SECURITIES LAWS 793
19.7.3 BOUNTY HUNTERS 794
19.7.4 ENFORCEMENT RECORD 794
19.8 ORGANIZATIONAL WRONGS 795
19.8.1 MENS REA 795
19.8.2 LIABILITY OF AGENTS 796
20. SANCTIONS -- ANALYSIS 799
20.1 NON-LEGAL REGULATIONS 799
20.1.1 OLD ENGLISH-STYLE SELF-REGULATION 800
XXVI
IMAGE 24
TABLE OF CON TENTS
20.1.1.1 SANCTIONS UNDER NON-LEGAL REGIMES 800
20.1.1.1.1 LOSS OF PSYCHIC AND SOCIAL GOODS 801 20.1.1.1.2 LOSS OF
REPUTATION IN THE MARKET 801 20.1.1.2 LACK OF LEADERSHIP 805
20.1.1.3 CONCLUSION 806
20.1.2 SELF-REGULATION AND ITS MERITS 807
20.1.3 MERITS OF NON-LEGAL REGULATIONS 808
20.1.4 DISADVANTAGES OF NON-LEGAL REGULATIONS 809
20.1.5 PROPER ROLE OF NON-LEGAL REGULATIONS 811
20.2 UTILITY OF CIVIL ACTIONS 812
20.2.1 ANGLO-HONG KONG VIEW OF PRIVATE CIVIL ACTIONS 812
20.2.2 MERITS OF PRIVATE CIVIL ACTIONS 813
20.2.3 THEENFORCER 815
20.3 CRIMINAL SANCTIONS 816
20.3.1 DIFFERENT PURPOSES OF CIVIL AND CRIMINAL LAW 816
20.3.2 ARGUMENTS IN FAVOUR OF CRIMINAL SANCTIONS 817
20.3.3 DANGERS IN THE APPLICATION OF CRIMINAL SANCTIONS 818
20.3.3.1 TRIVIALIZING THE CRIMINAL LAW 818
20.3.3.2 IMPRISONING THE WRONG PERSON 819
20.3.3.3 FINING THE WRONG PERSON 820
20.3.4 ALTERNATIVE SANCTIONS 822
20.4 ENFORCEMENT 822
20.4.1 INVESTIGATION 822
20.4.1.1 THE ENGLISH EXPERIENCE 823
20.4.1.2 FAILURES OF THE HONG KONG MODEL 824
20.4.1.3 FRAGMENTATION OF AUTHORITY 825
20.4.1.4 CONFUSION OF PURPOSES 825
20.4.2 CIVIL ACTIONS BY THE SFC 827
20.4.3 INSIDER TRADING PROCEEDINGS 828
20.4.4 CRIMINAL PROCEEDINGS 830
PART VII. ADVANCED STAGES OF CAPITALISM OR SOCIALISM
21. GROUPS OF COMPANIES 833
21.1 LEGAL STATUS OF GROUPS 834
21.1.1 LEGAL UNIT PRINCIPLE REJECTED 834
21.1.2 EXCEPTION: IMPLIED CONSENT 836
21.1.3 EXCEPTION: AGENCY 837
21.1.4 EXCEPTION: SHAM OR ALTER EGO 838
21.1.5 EXCEPTION: IMPUTATION OF KNOWLEDGE 839
21.1.6 STATUTORY EXCEPTIONS 840
21.1.6.1 FINANCIAL REPORTING 840
21.1.6.2 WRONGFUL TRADING 842
21.1.6.3 MISCELLANEOUS 843
21.1.7 CRITIQUE 844
XXVII
IMAGE 25
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
21.1.7.1 EFFECT OF REJECTION OF LEGAL UNIT PRINCIPLE 844 21.1.7.2
HISTORICAL AND JURISPRUDENTIAL ERRORS 845
21.1.7.3 MERITS OF EXISTING SYSTEM 846
21.1.7.4 IMPLICATIONS FOR HONG KONG 848
21.2 POSITION OF DIRECTORS 848
21.2.1 DIRECTORS OF THE GROUP 848
21.2.2 DIRECTOR OF A HOLDING COMPANY 850
21.2.3 DIRECTOR OF A SUBSIDIARY COMPANY 851
21.3 FORMATION OF SUBSIDIARY 854
21.3.1 CAPACITY 854
21.3.2 SHAREHOLDER APPROVAL 854
21.3.3 IMPLICATIONS FOR HONG KONG 856
21.4 GOVERNANCE OF SUBSIDIARIES 857
21.4.1 WHOLLY-OWNED SUBSIDIARIES 857
21.4.1.1 EXERCISE OF SHAREHOLDER RIGHTS WITHIN CORPORATE GROUPS 857
21.4.1.2 THE PASS-THROUGH SOLUTION 859
21.4.2 GOVERNANCE OF CONTROLLED SUBSIDIARIES 859
21.4.2.1 MINORITY SHAREHOLDERS OF THE PARENT 860
21.4.2.2 MINORITY SHAREHOLDERS OF SUBSIDIARIES 862
21.4.3 GERMAN MODEL 866
21.5 COMPLEX GROUPS 868
22. COLLECTIVE INVESTMENT UNDERTAKINGS 871
22.1 AN OVERVIEW OF REGULATORY FRAMEWORK 872
22.1.1 ESSENTIAL CHARACTERISTICS OF COLLECTIVE INVESTMENT UNDERTAKINGS
872
22.1.2 APPLICABLE REGULATIONS 872
22.1.3 ADMINISTRATION 873
22.2 MUTUAL FUNDS CODE 874
22.2.1 APPLICATION OF THE CODE 874
22.2.2 QUALIFICATION OF ISSUERS 875
22.2.2.1 AUTHORIZATION REQUIRED 875
22.2.2.2 VETTING OF PARTICIPANTS 875
22.2.2.3 APPLICATION OF PROCEEDS 877
22.2.3 INITIAL DISCLOSURE 877
22.2.3.1 REQUIREMENTS 877
22.2.3.2 LIABILITY 879
22.2.3.3 COMMENTS 880
22.2.4 QUALITY OF INVESTMENT PRODUCTS 880
22.2.5 DEALING IN FUNDS 882
22.2.6 DISTRIBUTIONS 883
22.2.7 APPOINTMENT, REMOVAL AND REMUNERATION OF PARTICIPANTS 883 22.2.8
COMPETENCE AND PROBITY OF PARTICIPANTS 884
22.2.8.1 INDEPENDENCE 885
XXVIII
IMAGE 26
TABLE OFCONTENTS
22.2.8.2 OBLIGATIONS 885
22.2.8.3 CONFLICT OF INTERESTS 886
22.2.8.4 RETIREMENTOF TRUSTEE/CUSTODIAN 888
22.2.9 REPORTING 888
22.2.10 PROCEEDINGS OF INVESTORS 889
22.2.11 PUBLIC INFORMATION 890
22.2.12 UMBRELLA FUNDS 890
22.2.13 JURISDICTION 891
22.2.14 ENFORCEMENT RECORD 892
22.3 CODE ON INVESTMENT-IINKED ASSURANCE SCHEMES AND SAVINGS PLANS 892
22.3.1 APPLICATION OF THE CODE 892
22.3.2 QUALIFICATION OF ISSUERS 893
22.3.2.1 AUTHORIZATION REQUIRED 893
22.3.2.2 VETTING OF PARTICIPANTS 893
22.3.2.3 OTHER MERIT REQUIREMENTS 893
22.3.3 INITIAL DISCLOSURE 894
22.3.3.1 REQUIREMENTS 894
22.3.3.2 LIABILITY 895
22.3.4 QUALITY OF INVESTMENT PRODUCTS 895
22.3.5 DEALINGS 895
22.3.6 DISTRIBUTIONS 895
22.3.7 APPOINTMENT, REMOVAL AND REMUNERATION OF PARTICIPANTS 895 22.3.8
COMPETENCE AND PROBITY OF PARTICIPANTS 896
22.3.8.1 INDEPENDENCE 896
22.3.8.2 OBLIGATIONS 896
22.3.8.3 CONFLICT OF INTERESTS 896
22.3.8.4 RETIREMENTOF TRUSTEE 897
22.3.9 REPORTING 897
22.3.10 PROCEEDINGS OF INVESTORS 897
22.3.11 PUBLIC INFORMATION 897
22.3.12 UMBRELLA FUNDS 897
22.3.13 ENFORCEMENT RECORD 897
22.4 CODE ON POOLED RETIREMENT FUNDS 898
2 2.4.1 APPLICATION OF THE CODE 898
22.4.2 QUALIFICATION OF ISSUERS 898
22.4.3 INITIAL DISCLOSURE 898
22.4.4 QUALITY OF INVESTMENT PRODUCTS 899
22.4.5 DEALING IN FUNDS 899
22.4.6 DISTRIBUTIONS 899
22.4.7 APPOINTMENT, REMOVAL AND REMUNERATION OF PARTICIPANTS 899 22.4.8
COMPETENCE AND PROBITY OF PARTICIPANTS 899
22.4.8.1 INDEPENDENCE 899
22.4.8.2 OBLIGATIONS 899
22.4.8.3 CONFLICT OF INTERESTS 900
22.4.8.4 RETIREMENT OF TRUSTEE 900
22.4.9 REPORTING 900
22.4.10 PROCEEDINGS OF INVESTORS 900
XXIX
IMAGE 27
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
22.4.11 PUBLIC INFORMATION 900
22.4.12 UMBRELLA FUNDS 900
22.4.13 ENFORCEMENT RECORD 900
22.5 CODE ON IMMIGRATION-LINKED INVESTMENT SCHEMES 900
22.6 CRITIQUE 902
22.6.1 DEFICIENCIES IN CONTENTS 902
22.6.1.1 DUTIES OF INVESTMENT ADVISERS AND FUND MANAGERS 902 22.6.1.2
INSIDER TRADING 903
22.6.2 LEGAL STATUS 903
22.6.2.1 HISTORY OF THE REGULATORY FRAMEWORK 903
22.6.2.2 CONSEQUENCES OF THE CODES NON-LEGAL STATUS 906 22.7
INSTITUTIONAL INVESTORS AS MONITORS OF PORTFOLIO COMPANIES 907 22.7.1
ABILITY TO MONITOR 907
22.7.2 INCENTIVES 908
22.7.3 EFFECTIVENESS 909
22.7.4 DESIRABILITY 909
22.7.5 IMPLICATIONS FOR HONG KONG 910
23. BROKER-DEALERS 911
23.1 EXISTING REGIME OF ADMISSIONS 911
23.1.1 DEALERS 911
23.1.1.1 LICENSING AS DEALER REQUIRED 912
23.1.1.2 QUALIFICATIONS FOR LICENCE 913
23.1.1.3 SUBSTANTIAL SHAREHOLDING IN REGISTERED PERSONS 915 23.1.1.4
ADMISSION TO THE SEHK 916
23.1.2 DEALER S REPRESENTATIVE 917
23.1.3 INVESTMENT ADVISERS 917
23.1.3.1 REGISTRATION AS ADVISERS REQUIRED 917
23.1.3.2 QUALIFICATION REQUIREMENTS 918
23.1.4 INVESTMENT REPRESENTATIVES 919
23.2 TYPES OF BROKER-CLIENT RELATIONSHIP AND THEIR FORMATION 919
23.2.1 TYPES OF SERVICE 919
23.2.2 DISCLOSURE BY BROKER 920
23.2.3 THE CLIENT AGREEMENT 922
23.3 BROKER INSOLVENCY 923
23.3.1 PROTECTION OF ASSETS 923
23.3.1.1 RECORDS AND SEGREGATION 923
23.3.1.2 AUDITING 924
23.3.1.3 PREVENTIVE AND PROTECTIVE MEASURES BY THE SFC 92 I 23.3.2
COMPENSATION FUNDS 926
23.3.3 DISTRIBUTION RULES BEFORE CCASS 927
23.3.3.1 MONEY 928
23.3.3.2 INCOMPLETE CONTRACTS 929
23.3.3.3 SECURITIES 929
23.3.3.4 MARGIN CLIENTS 930
XXX
IMAGE 28
TABLE OF CONTENTS
23.3.3.5 COMMENTS 932
23.3.4 DISTRIBUTION RULES AFTER CCASS 932
23.3.4.1 APPLICATION OF RULES OF CCASS 932
23.3.4.2 POSSIBLE CLAIMS AND SOLUTIONS: CASE NO 1 934
23.3.4.2.1 SECURITIES 934
23.3.4.2.2 MONEY 935
23.3.4.3 POSSIBLE CLAIMS AND POSSIBLE SOLUTIONS: CASE NO 2 935 23.3.4.4
POSSIBLE CLAIMS AND SOLUTIONS: CASE NO 3 936
23.3.4.4.1 SECURITIES 936
23.3.4.4.2 MONEY 936
23.3.4.5 COMMENTS 937
23.3.5 REFORM PROPOSALS 939
23.4 REGULATORY IMPLICATIONS OF CCASS 941
23.4.1 DISCLOSURE 942
23.4.2 SOUNDNESS OF BROKERS 944
23.4.3 MARGIN TRADING 946
23.5 DUTY OF CARE 947
23.5.1 ADVICE 947
23.5.2 EXECUTION OF TRADES 948
23.5.3 AFTER-SALE SERVICES 950
23.5.3.1 MARGIN ACCOUNTS 950
23.5.3.2 NON-DISCRETIONARY ACCOUNTS 950
23.5.3.3 DISCRETIONARY ACCOUNTS 950
23.5.3.4 RATIFICATION BY CLIENT 950
23.5.4 INTERNAL CONTROLS 9 51
23.6 DUTYOFLOYALTY 951
23.6.1 IN GENERAL 951
23.6.2 PROPRIETARY TRADING 952
23.6.2.1 SELF-DEALING 952
23.6.2.2 COMPETITION WITH CLIENT 953
23.6.2.3 SCALPING 954
23.6.2.4 NO DISCLOSURE 955
23.6.3 CHURNING 956
23.6.4 MULTI-CLIENT 956
23.6.5 MULTI-SERVICES 957
23.6.5.1 THE PROBLEM AND ATTEMPTED SOLUTIONS 957
23.6.5.2 WHY A CONGLOMERATE 959
23.6.6 REBATES 960
23.7 ENFORCEMENT 960
23.7.1 POWERS OF THE SFC 960
23.7.2 RECORD OF THE SFC 961
23.7.3 POWERS OF THE SEHK 962
23.7.4 RECORD OF SEHK 963
23.8 CONCLUDING COMMENTS 963
XXXI
IMAGE 29
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
24. DERIVATIVES 965
24.1 INTRODUCTION 965
24.1.1 DESCRIPTIONS 965
24.1.2 RATIONALE AND HISTORY OF DERIVATIVES 967
24.1.3 PLACE IN REGULATORY FRAMEWORK 968
24.1.4 RISKS 970
24.2 DERIVATIVES TRADED ON THE SEHK 971
24.2.1 EQUITY WARRANTS 971
24.2.2 DERIVATIVE WARRANTS 972
24.2.2.1 DESCRIPTIONS 972
24.2.2.2 QUALIFICATIONS OF ISSUER 972
24.2.2.3 INITIAL DISCLOSURE 973
24.2.2.4 QUALIFICATIONS OF WARRANTS 974
24.2.2.5 EXERCISE OR TRADING OF WARRANTS 975
24.2.2.6 WARRANT-HOLDERS AND MANAGERS 976
24.2.2.7 FAIR TRADING 977
24.2.3 STOCK OPTIONS 978
24.2.3.1 DESCRIPTIONS 978
24.2.3.2 QUALIFICATIONS OF THE ISSUER AND QUALIFICATIONS OF OPTIONS 979
24.2.3.3 QUALIFICATIONS OF OPTIONS TRADING MEMBERS 979 24.2.3.4 OPTIONS
TRADING MEMBERS AND CLIENTS 980
24.2.3.5 FAIR TRADING RULES 982
24.2.3.6 CLEARING HOUSE MEMBERSHIP 982
24.2.3.7 OPERATIONS OF TRADING, CLEARING AND SETTLEMENT 984 24.2.3.8
RISK MANAGEMENT 985
24.2.3.9 DEFAULT OF SEOCH MEMBER 986
24.3 DERIVATIVES TRADED ON THE FUTURES EXCHANGE 986
24.3.1 PRODUCTS 986
24.3.2 QUALIFICATION OF PARTICIPANTS 987
24.3.2.1 LICENSING UNDER THE COMMODITIES TRADING ORDI- NANCE 987
24.3.2.2 MEMBERSHIP IN THE HKFE 988
24.3.2.3 MEMBERSHIP IN HKCC 990
24.3.3 DEALER AND CLIENT 991
24.3.3.1 OPENING OF ACCOUNTS 991
24.3.3.2 GUARDING AGAINST CLIENT DEFAULTS 992
24.3.3.3 FAIR TRADING RULES 992
24.3.4 TRADING, CLEARING AND SETTLEMENT 993
24.3.4.1 OPERATIONS 993
24.3.4.2 RISK MANAGEMENT 994
24.3.5 DEFAULT 995
24.3.6 INSIDER TRADING 996
24.4 OVER-THE-COUNTER DERIVATIVES 996
24.4.1 PRODUCTS 996
24.4.2 REGULATIONS 996
XXXII
IMAGE 30
TABLE OF CONTENTS
24.4.3 LEGAL RISKS 998
24.4.3.1 FORMAL REQUIREMENTS 998
24.4.3.2 ULTRA VIRES 999
24.4.3.3 ENFORCEMENT OF SET-OFF IN INSOLVENCY 999
24.4.3.4 GAMING 999
24.5 THE REGULATORY CHALLENGE OF DERIVATIVES 1000
24.5.1 DISCLOSURE 1000
24.5.2 CONSTITUENCIES OF A COMPANY * 1001
24.5.3 A DUTY TO HEDGE? 1001
24.5.4 AVOIDANCE OF RESTRAINTS 1002
24.5.5 BROKER-DEALERS 1003
24.5.6 COORDINATED REGULATION 1003
24.5.7 INFORMATIONAL FAILURE 1004
25. INTERNATIONALIZATION OF CORPORATIONS AND OF SECURITIES MARKETS 1005
25.1 BASES OF JURISDICTION 1006
25.1.1 TERRITORY PRINCIPLE 1006
25.1.1.1 SUBJECTIVE PRINCIPLE 1007
25.1.1.2 OBJECTIVE PRINCIPLE 1010
25.1.2 CITIZENSHIP 1011
25.1.3 PROTECTIVE PRINCIPLE 1012
25.1.4 PASSIVE PERSONALITY PRINCIPLE 1014
25.1.5 UNIVERSALITY 1014
25.2 CORPORATE AND SECURITIES OFFENCES 1014
25.2.1 JURISDICTION ASSERTED 1014
25.2.2 JURISDICTIONAL GAPS 1016
25.2.3 SECURING THE PRESENCE OF THE ACCUSED 1016
25.2.4 DETECTION AND PROOF 1019
25.3 PERSONAL JURISDICTION IN CIVIL PROCEEDINGS 1023
25.3.1 SERVICE WITHIN THE JURISDICTION 1023
25.3.2 FORUM NON CONVENIENS 1028
25.3.3 SERVICE OUT OF THE JURISDICTION 1029
25.3.3.1 GENERAL PRINCIPLES 1029
25.3.3.2 TORT 1030
25.3.3.3 CONTRACT 1032
25.3.3.4 INJUNCTIONS 1032
25.3.3.5 NECESSARY PARTY 1033
25.3.3.6 DISQUALIFICATION PROCEEDINGS 1033
25.3.3.7 FORUM CONVENIENS 1033
25.3.4 THE ANTI-SUIT INJUNCTION 1034
25.3.5 JURISDICTIONAL GAPS 1036
25.4 PRESCRIPTIVE JURISDICTION IN CIVIL MATTERS 1037
25.4.1 JURISDICTION ASSERTED 1037
25.4.1.1 STATUTORY CONSTRUCTION IN GENERAL 1037
25.4.1.2 CORPORATE EXISTENCE AND ORGANIZATION 1041
XXXIN
IMAGE 31
PUBLIC COMPANIES AND THEIR EQUITY SECURITIES
25.4.1.3 CORPORATE ACTIVITIES 1043
25.4.1.4 DISTINGUISHING CORPORATE ORGANIZATION AND CORPO- RATE
ACTIVITIES IN SECURITIES MARTERS 1045
25.4.2 MERITS OF EXCLUSIVITY OF LAW OF THE INCORPORATING STATE 1050
25.4.2.1 NATIONALITY OF CORPORATIONS 1050
25.4.2.2 COSTS AND BENEFITS 1051
25.4.2.3 STATE PRACTICE 1053
25.4.3 JURISDICTIONAL GAPS . 1055
25.4.3.1 THE CASE FOR REFORM 1055
25.4.3.2 PROPOSED REFORMS 1056
25AA RECOGNITION OF STATELESS CORPORATIONS 1056
25.5 ENFORCEMENT JURISDICTION 1057
25.5.1 DISCOVERY 1057
25.5.2 EVIDENCE 1058
25.5.3 REMEDIES 1059
25.5.4 RECOGNITION OF FOREIGN JUDGMENT 1059
25.5.5 JUDICIAL COOPERATION 1060
25.5.6 BLOCKING LEGISLATION 1061
25.6 SOVEREIGNTY OF NATIONS 1063
25.7 CONCLUDING COMMENTS 1064
TABLE OF CASES 1067
TABLE OF LEGISLATION 1123
INDEX 1145
XXXIV
|
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| series | Studies in comaprative corporate and financial law |
| series2 | Studies in comaprative corporate and financial law |
| spelling | Ho, Betty M. Verfasser aut Public companies and their equity securities principles of regulation under Hong Kong law Betty M. Ho The Hague [u.a.] Kluwer Law International 1998 XLVIII, 1156 S. txt rdacontent n rdamedia nc rdacarrier Studies in comaprative corporate and financial law 2 Studies in comaprative corporate and financial law 2 (DE-604)BV012416591 2 GBV Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=021949495&sequence=000001&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Ho, Betty M. Public companies and their equity securities principles of regulation under Hong Kong law Studies in comaprative corporate and financial law |
| title | Public companies and their equity securities principles of regulation under Hong Kong law |
| title_auth | Public companies and their equity securities principles of regulation under Hong Kong law |
| title_exact_search | Public companies and their equity securities principles of regulation under Hong Kong law |
| title_full | Public companies and their equity securities principles of regulation under Hong Kong law Betty M. Ho |
| title_fullStr | Public companies and their equity securities principles of regulation under Hong Kong law Betty M. Ho |
| title_full_unstemmed | Public companies and their equity securities principles of regulation under Hong Kong law Betty M. Ho |
| title_short | Public companies and their equity securities |
| title_sort | public companies and their equity securities principles of regulation under hong kong law |
| title_sub | principles of regulation under Hong Kong law |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=021949495&sequence=000001&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
| volume_link | (DE-604)BV012416591 |
| work_keys_str_mv | AT hobettym publiccompaniesandtheirequitysecuritiesprinciplesofregulationunderhongkonglaw |