On 26 May 2021, the Hong Kong Chartered Governance Institute (“HKCGI”) issued a guidance note on mergers and acquisitions (“Guidance Note”).
The Guidance Note revisits the scenario of a split signing and closing situation, which is fairly common in many mergers and acquisitions (M&A) transactions, and walks the governance professional through the key aspects in relation to the signing stage to facilitate a smooth signing process.
The HKCGI made a number of recommendations including:
Internal Approval – Governance professionals are reminded to reference corporate entities’ constitutional documents, agreements among shareholders for identifying the necessary internal approvals. For Listed Companies, reference should be made to the compliance requirement of the Listing Rules.
Signing Logistics – Governance professionals should comply with legal formalities for execution of the M&A transaction documents. It is worth noting that, since 2014, a Hong Kong company is no longer required to have a common seal. If a Hong Kong company adopts a common seal and wishes to execute a document by affixing the seal, it must follow the procedures contained in the articles of association in authorising the use of the seal. It is also good practice to check that the signatories are duly authorised to execute the deed by requesting a copy of the company’s board resolutions. Please refer to the Guidance Note for other major requirements on execution of agreements.
Announcement – Listed Companies should be sensitive when entering into the M&A transaction as to whether it may constitute inside information and whether additional compliance requirements such as an announcement may need to be published. An M&A transaction may constitute a notifiable transaction and/ or a connected transaction pursuant to Chapters 14 and 14A of the Listing Rules which, among other compliance requirements, may need to be disclosed by issuing a deal announcement on the HKEXnews website and the listed company’s own website.
The Guidance Note represents an interesting, positive development in the role of the HKCGI. M&A transactions are often thought of as being within the sphere of legal professionals only – the fact is however that corporate governance professionals play a critical role in ensuring that such transactions are legally binding and effective, and do not cause issues for the parties down the road.
Companies wishing to ensure compliance with regulatory requirements such as the above should consider engaging a professional corporate governance advisor, such as Hauzen Services Limited.
For assistance with M&A transactions, please contact us today.