In the SFC’s Takeovers Bulletin published in September 2021, the Securities and Futures Commission (the “SFC”) reminded the public of the importance of seeking the takeover executive’s (the “Executive”) approval of special deals. The SFC has drawn the public’s attention to a recent case BIT Mining Limited case and Loto Interactive Limited case, in which the targeted companies failed to obtain the Executive’s approval of special deals, hence breaching Rule 25 of the Takeovers Code.
Practice Note 17 of the Takeovers Code makes it clear that under Rule 25 of the Takeovers Code, special deals are generally not permitted unless the Executive provides the requisite consent. Furthermore, “any commitment or arrangement to make payment or settle the consideration for certain shareholders at a particular time may constitute a special deal” under Practice Note to Rule 20 of the Takeovers Code.
In the Loto Interactive Limited case, Loto Interactive Limited announced a proposed share subscription by BIT Mining Limited that would trigger a mandatory general offer upon completion. During the offer period, BIT Mining Limited issued 85,572,963 class A ordinary shares to its director and shareholder, Mr. Law who was also a shareholder of Loto Interactive Limited. This in effect would increase Mr. Law’s voting power in BIT Mining Limited from 3.78% to 19.9%. Loto Interactive Limited subsequently issued 65,000 class A preference shares to Mr. Law in April 2021, further increasing his voting rights to 61.72%. While this arrangement was to settle the consideration for a particular shareholder (Mr. Law), it constituted a special deal, but the SFC found that all these were done without the consent of the Executive.
In light of the above, the SFC reminded companies that are considering a special deal to conduct themselves in accordance with the Takeovers Code and to seek professional advice as needed.
If you have any concerns in relation to application of the Takeovers Code, please contact us today for a discussion.