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Procedure to effect a privatisation by way of scheme of arrangement in respect of a Hong Kong incorporated listed issuer
Charltons is a Hong Kong law firm, focusing on corporate finance law. A privatisation by way of scheme of arrangement would entail the following
(i) Application to the court and court hearing
To apply, the listed issuer must submit an originating summons to the court (with the scheme document and a supporting statement (affidavit) from a director of the listed issuer setting out the background) for directions to convene a meeting of shareholders for approval of the scheme and to seek the sanction of the court to the scheme once it is approved by the shareholders. The court will then hold a court hearing which shall ensure that all necessary or appropriate classes of holders of securities in the listed issuer have been recognised.
After the court hearing, the court will issue an order appointing the chairman of the shareholders meeting and directing him to report the results of the vote to the court and to advertise the notice of the meeting.
(ii) Approval of disinterested shareholders
Under the Companies Ordinance (“CO”), the scheme of arrangement needs to be approved by shareholders meeting by: (i) shareholders representing three-fourths of voting rights, present and voting either in person or by proxy; and (ii) over half (in number) of the shareholders present and voting either in person or by proxy.
The Code on Takeovers and Mergers (“Code”) further requires that, in addition to satisfying any voting requirements imposed by law (i.e. the CO), the scheme for a privatisation must be approved by at least 75% of the voting rights attached to the disinterested shares that are cast either in person or by proxy at a duly convened meeting of the holders of the disinterested shares. In addition, the number of votes cast against the resolution to approve the scheme at such meeting must not be more than 10% of the voting rights attached to all disinterested shares.
(iii) Sanction of the court
After the scheme has been approved by shareholders, it must then be presented for sanction by the court. The chairman of the shareholders meeting will report the results of the meeting and the court will consider the scheme, in particular, it will examine whether:
- the statutory provisions relating to the scheme (e.g. proper notice of court meeting and explanatory statement) have been given and the scheme has been properly approved;
- shareholders were fairly represented by those attending the meeting and that the statutory majority acted bona fide; and
- the approval of the scheme is reasonable, which means that, an intelligent and honest man, a member of the class concerned and acting in respect of his interests, might reasonably approve it.
Once the court sanctions the scheme, a copy of the court order must be filed with the Registrar of Companies and must be annexed to every copy of the company’s memorandum and articles of association issued after the order is made.
Where interests of members of the company have been adversely affected by the scheme of arrangement, the CO contains provisions allowing such members to seek remedies. In particular, any member of a company can make an application to the court by petition if he considers that his interests have been unfairly prejudiced. If the court consents to the petition, it may grant appropriate remedies, including making an order restraining the company concerned to continue such conduct, appointing a receiver to manage the company’s property or business and awarding damages to such members, etc. Resulting in a privatisation by way of scheme of arrangement.