The Hong Kong Institute of Chartered Secretaries(Incorporated in Hong Kong with limited liability by guarantee)
The Hong Kong Institute of Chartered Secretaries (HKICS) is an independent professional body
dedicated to the promotion of its members’ role in the formulation and effective implementation
of good governance policies as well as the development of the profession of Chartered Secretary
in Hong Kong and throughout Mainland China.
HKICS was first established in 1949 as an association of Hong Kong members of the Institute of
Chartered Secretaries and Administrators (ICSA) of London. It became a branch of ICSA in 1990
before gaining local status in 1994.
HKICS is a founder member of Corporate Secretaries International Association (CSIA) which was
established in March 2010 in Geneva, Switzerland to give a global voice to corporate secretaries and
governance professionals.
HKICS has over 5,800 members and 3,200 students.
1Guidance Note on Connected Transactions | January 2016
Contents
1. Introduction
2. Types of CTs
3. Specified transactions with TPs: Financial assistance to commonly held entity.
LR14A.26
4. Specified transactions with TPs: Acquisition of target company & controller
relationship. LR14A.28
5. The main category: Transactions with CPs – Non-PRC listed issuers (Appendix A)
Step 1 – Is the person within the red boxes?
Step 2 – No other deemed CP relationship
Step 3 – No associates and other deemed CP relationship
Step 3. Box 1 – Immediate family member
Step 3. Box 2 – Family members
Step 3. Box 3 – Relatives
Step 3 – Majority controlled company
Step 3. Box 4 – Associate of a company
6. The main category: Transactions with CPs – PRC listed issuers (Appendix B)
Step 1 – Is the person within the red boxes?
Steps 2 and 3
7. Transactions
8. Compliance requirements
9. Exemptions
Exemption 1: De minimis exception. LR14A.76
Exemption 2: Transactions with connected persons at subsidiary level. LR14A.101
Exemption 3: Financial assistance exemption. LR 14A.87-91
Exemption 4: Issues of new securities by issuer or subsidiaries. LR14A.92
Exemption 5: Dealing in securities on stock exchanges. LR14A.93
Exemption 6: Repurchases of securities by listed issuer or subsidiary. LR14A.94
Exemption 7: Directors’ services contracts and insurances. LR14A.95 and 96
Exemption 8: Buying and selling consumer goods or services.LR14A.97
Exemption 9: Sharing of administrative services. LR14A.98
Exemption 10: Transactions with associates of passive investors. LR14A. 99-100
10. Waivers
11. Conclusion
Appendix A
Appendix B
Disclaimer and Copyright
4
5
6
7
9
20
22
23
24
37
38
40
42
44
Page no.
2
1. Hong Kong has its fair share of concentrated ownership companies, including family
and state-owned companies. The aim of the connected transaction (CT) rules is to
prevent those involved in such concentrated ownership companies from benefiting
from transactions between them and the listed issuers as part of shareholders’
protection, and otherwise for shareholders’ protection generally.
2. Hong Kong’s connected transaction rules which are set out in Chapter 14A of the
Listing Rules are amongst the most advanced globally, and precisely for this reason,
the most complex. It follows that no other area of the Listing Rules attracts more
vexed questions than that of the CT rules.
3. This Guidance Note is general in nature and is intended to provide an overview for
members to acquire a working knowledge of the main provisions of the CT rules. It
is not intended to be a substitute for the CT rules themselves. In addition to the CT
rules, there may be other compliance requirements which members should seek to
comply with.
4. We have used diagrams to make the subject of CT rules more comprehensible and
as quick references to various topics thereunder. We have assumed that the reader
has some knowledge of the Listing Rules and sought to keep explanations to a
manageable level.
5. The materials herein are updated to January 2016. The Main Board Listing Rules are
used as the basis for discussions. Please consult the equivalent GEM rules for a GEM
Board listed issuer.
6. The original version of this Guidance Note is in English. In case of discrepancy, as
and when the Chinese version is released, the English version will prevail.
7. Special gratitude is extended to the following persons from HKICS for their
contributions and suggestions during the preparation of this Guidance Note
(in surname alphabetical order):
April Chan FCIS FCS, Chairman of Technical Consultation Panel (TCP)
Jack Chow FCIS FCS, Chairman of Professional Development Committee (PDC) 2014/2015
Dr Maurice Ngai FCIS FCS(PE), Immediate Past President
Edith Shih FCIS FCS(PE), Past President
Paul Stafford FCIS FCS, Vice-President and Chairman of PDC 2015/2016
Samantha Suen FCIS FCS(PE), Chief Executive
Ivan Tam FCIS FCS, President
Wendy Yung FCIS FCS, member of TCP
PDC members 2014/2015
TCP members 2014/2015
Background
3Guidance Note on Connected Transactions | January 2016
8. Gratitude is also extended to The Stock Exchange of Hong Kong Limited (Exchange) for
permission to reproduce the Listing Rule diagrams (LR diagrams). HKEx has also issued
frequently asked questions (FAQs) and listing decisions relating to CTs (at www.hkex.
com.hk) which serve as useful reference materials.
Daniel Wan Mohan Datwani FCIS FCS (PE)LLB (First Class Honours) LLB LLM PCLL MBA (Iowa) (Distinction) CAMS
Solicitor Solicitor and Accredited Mediator
Joint Authors: (in alphabetical order)
Listing Rules (LR) Chapter 14A sets out 105 CT rules provisions. Why do we
need CT rules?
LR.14A.03 elaborates that there may need to be announcements, circulars, annual reports
disclosures and shareholders’ approvals. Continuing connected transactions (CCTs) further
requires annual reviews by INEDs and auditors
LR14A.04 acknowledges that these may be burdensome, and there will be exemptions and waivers where risk of
abuse by connected persons is low
LR.14A.01 explains CT rules are to protect shareholders as a whole where listed issuer’s
group enters into a CT. LR14A.02 makes it clear that they could include capital and revenue
transactions
4
1 Introduction1.1 Prior to becoming a director of a listed issuer1, an incumbent director would have
signed an undertaking to comply, and to ensure the director’s listed issuer comply
with the Listing Rules (LR). This undertaking extends to compliance with connected
transaction2 (CT) rules under LR Chapter 14A.
1.2 There are 105 CT rules under LR Chapter 14A. They are to protect shareholders
as a whole. Where CT rules apply they could lead to additional announcements,
circulars, annual reports disclosures and shareholders’ approvals requirements
for transactions3 which could be both capital and revenue nature transactions.
Additionally, for continuing connected transactions4 (CCTs), they may require
annual reviews by INEDs and auditors. These compliance requirements could be
burdensome and therefore exemptions are available where the risk of abuse by
connected persons5 (CPs) is low:
Rationale for CT Rules
1.3 Nevertheless, CT rules are complicated. For example, LR14A.06 set outs some 39
definitions relating to CT rules and some of them cross refer back to other LR
provisions. In the context of the complicated nature of CT rules, we hope to make the
topic more comprehensible and manageable.1 LR14A.06(21)2 LR14A.06(11) and 23 to 303 LR14A.06(38) and 244 LR14.06(12) and 315 LR14.06(7) and 7 to 11
Main Category: Transactions with connected persons
(CPs)
Transactions with third parties (TP) where CPs benefits from interests in
entities involved
These can be one off or continuing
connected transactions (CCT)
5Guidance Note on Connected Transactions | January 2016
2 Types of CTs2.1 The main category of CTs are (1) transactions between a listed issuer’s group6,
meaning the listed issuer and its subsidiaries or any of them, and a CP. In addition,
there are (2) transactions with third parties caught under CT rules because of
benefits to CPs from interests in entities involved in transactions. Finally, CTs could
be (3) one off or CCTs7.
Types of CTs
2.2 Before turning to the main category of the regulation of transactions between listed
issuer’s group and CPs, we mention the TP transactions caught under CT rules.
6 LR14A.06(22)7 Please see LR14A.23 generally
X
Company ACompany A
X
The listed issuer
The listed issuer
Subsidiaryof the listed issuer
Scenario 1 Scenario 2
Any shareholding
Any shareholding
>50%
≥10% ≥10%
• Xisaconnectedpersonatthe issuer level
• Boththelistedissuer’sgroupandXareshareholders of Company A,andXholds10%(ormore) of shareholding in Company A.
Company A is a commonly held entity.
Financial assistance provided by the listed issuer’s group to, or received by the listed issuer’s group from, Company A is a connected transaction.
6
3 Specified transactions with TPs: Financial assistance to commonly held entity. LR14A.26
3.1 Where the listed issuer’s group provides or receives financial assistance8, that is,
“granting credit, lending money, or providing an indemnity against obligations under
a loan, or guaranteeing or providing security for a loan”, to or from a commonly
held entity9 (CHE), the CT rules may apply.
3.2 A CHE has amongst its shareholders (1) CPs at the issuer level, who individually or
togetherexerciseorcontrol10%ormoreofthevotingrights,and(2)amemberof
the listed issuer’s group, and hence the commonly held nature of the CHE.
3.3 For such purpose, interests indirectly held10 through the listed issuer’s group are
excluded. The relationship is shown in the LR diagram 17:
The Commonly Held Entity (CHE)
Note: If X held 30% or more of Company A, Company A will be an associate of X and
regarded as a CP to attract the operations of CT rules. The effect of LR14A.26 is to
lower this threshold to 10% or more to attract the operations of the CT rules because
Company A is commonly held by a CP at the issuer level and the listed issuer’s group. It
does not extend to situations where X is a CP at the subsidiary level.
3.4 Please remember to consider CT rules implications when you have transactions
involving financial assistance along with relevant exemptions, if any.
8 LR14A.06(17) and 24(4)9 LR14A.06(6) and 2710 LR14A.06(19)
LR diagram 17
XX
Target CompanyTarget Company
The listed issuerThe listed issuer
Thirdparty
Thirdparty
Subsidiariesof the listed issuer
Subsidiariesof the listed issuer
After the acquisitionBefore the acquisition
15%5% 20% 10%≥10%≥10%
• Xisacontrollerorproposed controller of the listed issuer.
• Xisasubstantialshareholder of the Target Company.
The acquisition of an interest in the Target Company by the listed issuer’s group from the third party is a connected transaction.
7Guidance Note on Connected Transactions | January 2016
LR diagram 18
4 Specified transactions with TPs: Acquisition of target company & controller relationship. LR14A.28
4.1 In acquisition type situations, where a person who is a non-CP is a substantial
shareholderholding10%ormoreofthetargetcompanybeingacquired,theCTrules
may apply. This applies where the person who is a non-CP is, or will be proposed to
be a controller11 of the listed issuer, or an associate12 of a controller. This is shown in
LR diagram 18:
Acquisition and the Controller Relationship
Note: If X held 30% or more of the Target Company, then the Target Company will
be an associate of X and regarded as a CP to attract the operations of CT rules. The
effect of LR14A.28 is to lower this threshold to 10% or more to attract the operation
of the CT rules because of the common ownership of the Target Company with the
listed issuer’s group. It does not extend to situations where X is, or will be proposed
controller, at the subsidiary level.
11 LR14A.06(13) and 28(1)12 LR14A.06(2) and 12 to 15
≥30%
≥10%
X
Target Company
The listed issuer/
its subsidiary
• Xisacontrollerofthelisted issuer.
• Xonlyhasanindirectinterest in the Target Company through the listed issuer’s group.
The acquisition of an interest in the Target Company by the listed issuer’s group from any third party (who is not a connected person) is not a connected transaction.
8
4.2 LR14A.28 defines a controller as a director, chief executive or controlling
shareholder13 of the listed issuer. Any interests indirectly held through the listed
issuer’s group are excluded. This is shown in LR diagram 19:
Exclusion for Indirectly Held Interests
13 LR1.01 defines “controlling
shareholder” as “ any person
(including a holder of depositary
receipts) who is or group of
persons (including any holder
of depositary receipts) who are
together entitled to exercise or
controltheexerciseof30%(or
such other amount as may from
time to time be specified in the
Takeovers Code as being the
level for triggering a mandatory
general offer) or more of
the voting power at general
meetings of the issuer or who
is or are in a position to control
the composition of a majority
of the board of directors of the
issuer; or in the case of a PRC
issuer, the meaning ascribed to
that phrase by rule 19A.14”
LR diagram 19
Director,chief executive,
substantialshareholder
Directorin the last12 months
Supervisor(PRC issuer
only)
Connectedsubsidiary
Deemedconnected
person
Connected person
Associate
9Guidance Note on Connected Transactions | January 2016
5 The main category: Transactions with CPs – Non-PRC listed issuers (Appendix A)
5.1 The main category of CTs are transactions between a listed issuer’s group with
CPs. LR diagram 1, under LR14A.07, sets out the persons who are to be regarded as
connected persons in respect of the listed issuer’s group:
The CP Relationship
Note: If you juxtapose within LR diagram 1 that (1) a substantial shareholder,
holding 10% or more of a member of the listed issuer’s group, could be a person or a
company, and (2) a subsidiary could be wholly or partially owned, and where partially
owned, could have other substantial shareholders at the subsidiary level as CPs, the
above diagram would probably be an over-simplification of the relationships. This
is especially as the relationships extend to (3) associates, and (4) the supervisor, as
defined under LR19A.04, of a PRC listed issuer. Additionally, there is a (5) special
exception for an insignificant subsidiary to brings persons, who would otherwise
be CPs, out of the connected person relationship, and (6) the addition of connected
subsidiaries as connected persons.
5.2 It is with an understanding of these relationships referred under the note to section
5.1 that we have created the two charts relating to CPs of non-PRC listed issuer and
PRC listed issuer under Appendix A and Appendix B respectively. We will go through
Appendix A for non-PRC listed issuers and highlight the additions under Appendix B
for PRC listed issuers.
LR diagram 1
First Wave Connected PersonsLR14A.07(1)&(2)
Connected subsidiaries
Insignificant subsidiary
Any connected person at the issuer
level
>50%
>50%>50%
≥10%
≥10% 100%
100%
≥10%
≥10%
≥10%
SS
SS
SS
Dir /ex Dir CE Dir /ex Dir CE Dir /ex Dir CE
Dir /ex Dir CEDir /ex Dir CE
Corporate shareholder
SS
Dir /ex Dir CE
Non- PRC Listed Issuer
Corporate shareholder
Note: subsidiaries could be partially owned (with or without its own SS); wholly owned (which will not have any other SS); connected (which must have CP at issuer level as SS); and insignificant subsidiary (which can be at any subsidiary level). The diagram is illustrative to bring out these themes
Main Box
10
5.3 Even after you have been through the steps below and determined that there is
unlikely to be any CP relationship in respect of a transaction, please still try to seek
for confirmations from the relevant third parties that the CT rules under Chapter
14A do not apply to them in relation to the proposed transaction as an additional
safeguard, where possible. Please however remember that in the Exchange has the
right to deem any persons as connected persons in relation to a transaction for the
CT rules to apply. The ultimate discretion and interpretations under the Listing Rules
are with the Exchange.
5.4 If you have to determine whether a person is a CP, please start by considering
whether the person is within any of the red boxes of the Main Box of the chart
in Appendix A. If so, the person is a CP. This takes into account the relationships
referred to under the note to section 5.1 above and the discussions under the further
notes below; and all such CPs are called “First Wave Connected Persons”
The Main Box
Step 1 – Is the person within the red boxes?
Dir = Director CE = Chief Executive SS = Substantial Shareholder
Director,chief executive,
substantialshareholder
Directorin the last12 months
Supervisor(PRC issuer
only)
Connectedsubsidiary
Deemedconnected
person
Connected person
Associate
LR diagram 1
11Guidance Note on Connected Transactions | January 2016
Further notes:
The CP Relationship
(1) If you read LR14A.07, you will see that there are 5 types of CPs as set out under the LR
diagram 1 above. We will call the first two types on the left hand boxes corresponding
to LR14A.07(1) and (2) the “first wave connected persons”. That is, for the non-PRC
listed issuers and its subsidiaries, any director, chief executive, substantial shareholder,
and ex-director within the last 12 months. These are everyone within the red boxes in
the chart. As long as you can slot a person into one of the red boxes, the person is a CP.
For PRC listed issuers, the supervisor will be included, under the third box corresponding
to LR14A.07(3) as first wave connected persons. Please refer to Appendix B.
(2) You could also ascertain from the chart who are connected persons at the issuer
level14. These include the issuer’s directors, chief executive, substantial shareholders and
ex-directors within the last 12 months of the issuer and their respective associates.
(3) By the same token, you could ascertain from the chart who are connected person
at the subsidiary level15. These include the directors, chief executive, substantial
shareholders and ex-directors within the last 12 months of the issuer’s subsidiaries,
which could be wholly or partially owned by the issuer, and their respective associates.
(4) Where a person is connected at an insignificant subsidiary16 level, the person is
not to be regarded as a CP. That is, a subsidiary with whose total assets, profits and
revenue compared to that of the listed issuer’s group are less than: (1) 10% for each
of the latest 3 financial years; or (2) 5% for the latest financial year. If the person
is connected with two or more subsidiaries, the Exchange will aggregate them
14 LR14A.06(8)15 LR14A.06(9)16 LR14A.06(20) and 09
100%
The listed issuer
Subsidiary A
>50%
>50%
≥10%
Subsidiary A
Subsidiaryof the listed issuer
The listed issuer
>50%
>50% ≥30%
≥10%
Subsidiary A
Subsidiaryof the listed
issuer
The listed issuerX
LR diagram 13
LR diagram 14
• SubsidiaryAisasubstantial shareholder of another subsidiary of the listed issuer. However, this relationship will not make Subsidiary A a connected person of the listed issuer.
• SubsidiaryAisnotaconnected person.
• Xisasubstantialshareholder of a subsidiary of the listed issuer.
• Xholds30%(ormore)shareholding in Subsidiary A.
Subsidiary A is an associate of X.However,thisrelationship will not make Subsidiary A a connected person of the listed issuer becauseXisonlyaconnected person at the subsidiary level.
LR diagram 12
12
together, and it is 100% of the total assets, profits and revenue that will be used for
the purposes of calculations unless this produces an anomalous result whereby the
Exchange may consider alternative tests provided by the listed issuer.
(5) A subsidiary is not a connected person in general. For the avoidance of doubt,
LR14A.18 states that a subsidiary is not a CP where (1) it is a directly or indirectly
wholly-owned (100%) subsidiary (2) where its substantial shareholder is a subsidiary
of the listed issuer and/or (3) where the connection is with an associate of a
connected person at the subsidiary level. These are set out in LR diagrams 12 to 14:
The Subsidiary Relationship
>50%
>50%
X
Subsidiary E
The listed issuer
Subsidiary D
Scenario 1
≥10%
≥10%
>50%
>50%
X Y
Subsidiary E
The listed issuer
Subsidiary D
Scenario 2
≥10%
≥10%
• Xisaconnectedpersonat the issuer level, and he orithasa10%(ormore)shareholding in Subsidiary A.
Subsidiary A is a connected subsidiary. (See rule 14A.16(1))
• SubsidiariesBandCaresubsidiaries of Subsidiary A.
Subsidiaries B and C are also connected subsidiaries. (See rule 14A.16(2))
• Transactionsbetweenthelisted issuer or Subsidiary D with Subsidiary A/B/C are connected transactions.
• Transactionsbetweenany of Subsidiaries A, B and C are not connected transactions if Subsidiaries B and C are connected solely because of their relationship with Subsidiary A. (See rule 14A.17)
LR diagram 10
Subsidiary D Subsidiary A
Subsidiary B Subsidiary C
The listed issuer
X
>50% >50%
>50% >50%
≥10%
• XandYareconnectedpersons at the issuer level.
Subsidiaries D and E are connected subsidiaries.
• SubsidiaryEisasubsidiaryof Subsidiary D. However, the exemption in rule 14A.17 does not apply to transactions between them because Subsidiary E is a connected subsidiary not only because of its relationship with Subsidiary D but also its relationshipwithXorY.
LR diagram 11
13Guidance Note on Connected Transactions | January 2016
17 LR14A.06(10) and 16
(6) There is a special case in which a subsidiary has a substantial shareholder who
is a connected person at the issuer’s level. This subsidiary is called a connected
subsidiary17 and in itself regarded as a connected person. Please note that any
subsidiary of a connected subsidiary is also a connected subsidiary. These will be the
light blue shaded boxes in the chart. Even then, there is an exemption for transactions
between connected subsidiaries where the only CP relationship arises based on the
same connected person at the issuer level. Please see LR diagrams 10 and 11 for
further details as to the narrow scope of the exemption:
The Connected Subsidiaries Relationship
CONNECTED PERSONS (NON-PRC LISTED ISSUER)
M
“first wave” connected persons: LR14A.07
associates of the “first wave” connected persons such associates are connected persons: LR14A.07(4)
deemed connected persons: having agreement, arrangement, understanding or undertaking (whether formal or informal and whether express or implied) with (1) Dir, CE or SS of the listed issuer or any of its subsidiaries; and (2) ex-Dir of the listed issuer or any of its subsidiaries in the last 12 months: LR14A.20
deemed connected persons: LR14A.21
connected subsidiary and any subsidiary of such connected subsidiary: LR14A.16
chief executive, which is defined as a person who either alone or together with one or more other persons is or will be responsible under the immediate authority of the board of directors for the conduct of the business of a listed issuer. For example, CEO: LR1.01
director / former directors within the last 12 months
substantial shareholder, in relation to a company means a person (including a holder of depositary receipts) who is entitled to exercise, or control the exercise of, 10% or more of the voting power at any general meeting of the company
marriage
CE
SS
Dir /ex Dir
Any connected person at the issuer level (1) Dir, CE, SS of the listed Issuer; (2) ex-Dir of the listed issuer in the last 12 months; and (3) an associate of any of the above: LR14A.06(8)
Insignificant subsidiarysubsidiary whose total assets, profits and revenue compared to that of the listed issuer’s group are less than: (1) 10% for each of the latest 3 financial years; or (2) 5% for the latest financial year: LR14A.09
The Hong Kong Institute of Chartered SecretariesReproduce with suitable acknowledgement.
Last updated: 1 July 2015
Associates of Individual: Immediate Family Members
LR14A.12(1)(c)
LR14A.12(1)
≥30%
>50%
BOX 1
Trustee(s)
SS/Dir/exDir/CE
Beneficiary
Spouse
Child/Step-child (natural or adopted) under 18
M
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
30% - controlled company
Subsidiaries
Associates of company
LR14A.13(3)
LR14A.13
≥30%
>50%
Trustee(s)Holding
Companies
Fellows
Fellows
Corporate shareholder
Subsidiaries
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
BOX 4
>50% >50%
>50%>50%
beneficiary
SS
30% - controlled company
Subsidiaries
LR14A.12(2)(a)Associates of Individual: Family Members
BOX 2
Mother/ Step-mother
Father/ Step-Father
M
Brother/ Step-brother/
Sister/Step-sister
Person(s) cohabitingas a spouse
Son/Step-son/ Daughter/ Step-daughter aged 18 or above
SS/Dir/
exDir/CE
Spouse
M♥
= Already covered by Box 1[1]
[1][1]
First waveconnected person
BOX 3
LR14A.21(1)(a)Relatives
Grandfather Grandfather Grandmother Grandmother
M M
Grandson/Granddaughter = Already covered by Box 1[1] = Already covered by Box 2[2]
First waveconnected person
Spouse of Uncle/Aunt
Sister-in-law/ Brother-in-law
Spouse of Uncle/Aunt
Mother in law
Father in law
Uncle/Aunt
Uncle/Aunt
Cousin Cousin
Nephew/Niece
Daughter-in-law/
Son-in-law
Brother- in-law/
Sister-in-law
M
M M
M
M
Mother/ Step-
mother
Brother/ Step-brother/
Sister/ Step-sister
Son/Step-son/ Daughter/
Step-daughter aged 18 or above
Person(s) cohabitingas a spouse
Father/Step-father
M M[2]
[2] [2]
[2]
[2]
♥SS/Dir/
exDir/CE
[1] [1]Spouse
LR14A.12(2)(b)LR14A.21(1)(b)
>50%
>50%
Individually or together (directly or indirectly) exercise or control the exercise of more than 50% of the voting power at
general meetings or control the composition of a majority of the board of directors
Subsidiaries
Majority-controlled company
First Wave Connected PersonsLR14A.07(1)&(2)
Connected subsidiaries
Insignificant subsidiary
Any connected person at the issuer
level
>50%
>50%>50%
≥10%
≥10% 100%
100%
≥10%
≥10%
≥10%
SS
SS
SS
Dir /ex Dir CE Dir /ex Dir CE Dir /ex Dir CE
Dir /ex Dir CEDir /ex Dir CE
Corporate shareholder
SS
Dir /ex Dir CE
Non- PRC Listed Issuer
Corporate shareholder
Note: subsidiaries could be partially owned (with or without its own SS); wholly owned (which will not have any other SS); connected (which must have CP at issuer level as SS); and insignificant subsidiary (which can be at any subsidiary level). The diagram is illustrative to bring out these themes
Appendix A
Main Box
39
14
(7) A PRC Governmental Body18 is not normally treated as a CP19.
(8) A depository of the listing of a depository receipt will not be regarded as associate of the
holder of the depository receipt or SS or controlling shareholder of the listed issuer20.
(9) The Exchange has power to deem any person as a CP21.
18 LR14A.06(31) and 19A.0419 LR14A.1020 LR14A.1121 LR14A.19
5.5 If the person is not a CP under Step 1, please go on to consider if the person has
with any first wave CP (that is the red person in the Main Box) (1) any agreement,
arrangement, understanding or undertaking, whether formal or informal and whether
express of implied, to potentially be deemed a CP by the Exchange under LR14A.20.
These are the yellow persons under the chart to the first wave connected persons.
5.6 If a person has no CP relationship identified from Steps 1 and 2, you will still need
to go through the rest of the chart to see if the person is an “associate” or “deemed
connected person” and thereby regarded as a CP (which again is expanded from the
LR diagram 1 on pages 9 and 11 based on the LRs indicated). We will go through
each of the boxes in turn. Please note that persons within the red boxes are known
as “first wave connected persons”.
The Associate and Deemed CP Relationships Overview
Step 2 – No other deemed CP relationship
Step 3 – No associates and other deemed CP relationship
Associates of Individual: Immediate Family Members
LR14A.12(1)(c)
LR14A.12(1)
≥30%
>50%
BOX 1
Trustee(s)
SS/Dir/exDir/CE
Beneficiary
Spouse
Child/Step-child (natural or adopted) under 18
M
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
30% - controlled company
Subsidiaries
15Guidance Note on Connected Transactions | January 2016
(1) Step 3. Box 1 – Immediate family member22
The CP relationship extends to a first wave CP’s (that is, the red persons under the
Main Box) immediate family members as shown in the grey boxes. As could be
seen from the diagram, these include trustee, spouse, child, step-child, natural or
adopted, under 18, any 30%-controlled company23 and its subsidiaries. For detailed
definitions as to trustees24and30%-controlledcompany,pleaserefertoLR14A.12:
22 LR14A.12(1)(a)23 LR14A.06(1)24 LR14A.06(39) and 12(1)(b) or
13(2)
LR14A.12(2)(a)Associates of Individual: Family Members
BOX 2
Mother/ Step-mother
Father/ Step-Father
M
Brother/ Step-brother/
Sister/Step-sister
Person(s) cohabitingas a spouse
Son/Step-son/ Daughter/ Step-daughter aged 18 or above
SS/Dir/
exDir/CE
Spouse
M♥
= Already covered by Box 1[1]
[1][1]
First waveconnected person
16
(2) Step 3. Box 2 – Family members25
In addition to immediate family members already covered under Box 2 “[1]”,
the other family members under Box 2 within the grey boxes are also regarded
as associates of the first wave connected person (that is, the red persons under
the Main Box) and therefore CPs themselves. You will see these include a person
cohabiting as a spouse, etc. The grey boxes are self-explanatory:
25 LR14A.06 (16) and 12(2)(a)
BOX 3
LR14A.21(1)(a)Relatives
Grandfather Grandfather Grandmother Grandmother
M M
Grandson/Granddaughter = Already covered by Box 1[1] = Already covered by Box 2[2]
First waveconnected person
Spouse of Uncle/Aunt
Sister-in-law/ Brother-in-law
Spouse of Uncle/Aunt
Mother in law
Father in law
Uncle/Aunt
Uncle/Aunt
Cousin Cousin
Nephew/Niece
Daughter-in-law/
Son-in-law
Brother- in-law/
Sister-in-law
M
M M
M
M
Mother/ Step-
mother
Brother/ Step-brother/
Sister/ Step-sister
Son/Step-son/ Daughter/
Step-daughter aged 18 or above
Person(s) cohabitingas a spouse
Father/Step-father
M M[2]
[2] [2]
[2]
[2]
♥SS/Dir/
exDir/CE
[1] [1]Spouse
17Guidance Note on Connected Transactions | January 2016
(3) Step 3. Box 3 – Relatives26
In addition to immediate family members and family members already covered under
Box 3 “[1]” and “[2]”, the other relatives under Box 3 within the green boxes are
deemed CPs. The green boxes are self-explanatory:
26 LR14A.06(37) and 21(1)(a)
LR14A.12(2)(b)LR14A.21(1)(b)
>50%
>50%
Individually or together (directly or indirectly) exercise or control the exercise of more than 50% of the voting power at
general meetings or control the composition of a majority of the board of directors
Subsidiaries
Majority-controlled company
18
(4) Step 3 – Majority controlled company27
As seen in the bottom of Box 1, if any immediate family member of first wave CPs
(thatis,theredpersonsundertheMainBox)hasa30%-controlledcompanythen
the company is deemed an associate. Another case is where all persons in Boxes 1, 2
and/or 3 together control a majority-controlled company, then that company and its
subsidiaries are CPs:
27 LR14A.06(23) means “a
company held by a person
who can exercise or control
the exercise of more than
50%ofthevotingpowerat
general meetings, or control
the composition of a majority
of the board of directors”
Associates of company
LR14A.13(3)
LR14A.13
≥30%
>50%
Trustee(s)Holding
Companies
Fellows
Fellows
Corporate shareholder
Subsidiaries
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
BOX 4
>50% >50%
>50%>50%
beneficiary
SS
30% - controlled company
Subsidiaries
19Guidance Note on Connected Transactions | January 2016
(5) Step 3. Box 4 – Associate of a company28
Where the first wave connected person is a company, by necessity as it is not a
natural person, it cannot be a director, chief executive or former director, and it must
be a substantial shareholder. This is because under LR only natural persons could
be directors of listed issuers. LR14A.13 extends the concept of a CP to its associates
shown in the grey boxes, namely trustees, holding company, fellows, subsidiaries and
30%-controlledentitiesandtheirsubsidiaries:
28 LR14A.06 and 13
First Wave Connected PersonsLR14A.07(1)&(2)&(3)
Connected subsidiaries
Insignificant subsidiary
Main Box
>50%
>50%>50%
≥10%
≥10% 100%
100%
≥10%
≥10%
≥10%
SS
SS
SS
ex-Dir
Corporate shareholder
SS
Dir /exDirSP CE
PRC Listed Issuer
Corporate shareholder
Dir /exDirSP CEDir /exDirSP CE Dir /exDirSP CE
Dir /exDirSP CEDir /exDirSP CE
Note: subsidiaries could be partially owned (with or without its own SS); wholly owned (which will not have any other SS); connected (which must have CP at issuer level as SS); and insignificant subsidiary (which can be at any subsidiary level). The diagram is illustrative to bring out these themes
20
6 The main category: Transactions with CPs – PRC listed issuers (Appendix B)
6.1 Please refer to the analysis under Section 5 for non-PRC listed issuers. The only
difference for PRC listed issuers is that a supervisor of a PRC listed issuer and any of
its subsidiaries is to be considered and regarded within the first wave CP.
The Main Box
Step 1 – Is the person within the red boxes?
Individually or together (directly or indirectly) hold 30% or more of the joint venture’s capital or assets
contributions or the share of its profits or income
X (the joint venture
partner)
LR14A.15
Cooperative or contractual
joint venture
Individually or together (directly or indirectly) hold 30% or more of the joint venture’s capital or assets
contributions or the share of its profits or income
X (the joint venture
partner)
LR14A.15
Cooperative or contractual
joint venture
21Guidance Note on Connected Transactions | January 2016
6.2 The similar thought process under Section 5 as with non-PRC listed issuers apply.
That is, you should go through the boxes in Appendix B. You will notice that there
is the additional need to consider the cooperative or contractual joint venture
relationships to identify if a joint venture partner would be regarded as an associate
of a first wave connected person. If it would, the joint venture partner is also a CP.
Steps 2 and 3
Acquisition, disposal, deemed
disposals (LR14A.06 and
LR14.29)
Granting, accepting, exercising,
transferring, or terminating
an option (except on
non-discretionary puts) over assets
or securities subscription,
or not exercising a call
Entering, terminating finance or
operating leases or sub-leases
Granting an indemnity or providing or
receiving financial assistance
Agreement, arrangement to set up joint
venture or joint venture arrangement
22
7 Transactions7.1 We have referred to the main category of CTs as transactions between the listed
issuer’s group and CPs. Thus, in addition to defining who is a CP, there is also the
need to consider what amounts to a transaction.
7.2 As to what constitutes a transaction is relatively straightforward. As set out under
LR14A.24, transactions could be of both capital and revenue nature, and whether in
the listed issuer group’s ordinary course of business or not and extends to:
Types of Transactions
7.3 We will not discuss the details of what amount to transactions, except to point out
that the more complicated area relates to options29, which you will in all likelihood,
be taking in professional advice. The Exchange is considering option pricing as part
of investor protection.
29 LR14A.61
Written Agreement
announcementISA and IBC
(with IFA) inputIssue circular
Disclosure in Annual Report
23Guidance Note on Connected Transactions | January 2016
8 Compliance requirements8.1 In accordance with LA14A.32 to 60, there are many additional compliance
requirements relating to CTs. Subject to exemptions, there may need to be written
agreement, announcement, independent shareholders’ approval with independent
board committee recommendations, usually based on independent financial adviser’s
advice, issue of circulars and disclosures in annual reports. The exemptions are
set out under section 9, and they relate to certain threshold amounts as well as
procedural safeguards for full or partial exemptions set out therein for exemption
from the onerous CT rules which would otherwise be applicable.
The Compliance Requirements Overview
Note: Under LR14A.81, the Exchange will aggregate a series of connected transactions
and treat them as one transaction if they were all entered into or completed within a
12-month period or otherwise related; and 24 months if the connected transactions
are a series of acquisitions of assets being aggregated which may constitute a reverse
takeover.
8.2 For CCTs, additionally, there are additional needs for the agreement to set out
the basis for calculation of the CCTs; not to exceed three years; and with pre-
approved annual caps30. There will be need for re-compliance with these CCT rules
requirements where the cap is exceeded or there is material change to the CCT.
Also auditors need to provide annual confirmation to the board to be filed with the
Exchange relating to compliance with the CCT rules.
8.3 Under LR14A.60, if a continuing transaction subsequently becomes a CCT, the listed
issuer must comply with the annual review and disclosure requirements including
the publishing an announcement and annual reporting, and upon renewal or
variation, comply with all requirements.
30 LR14A.06(4) and 53
Fully exempt from shareholders approval,
annual review by INEDs and auditors and all disclosure
requirements
Exempt from shareholders approval requirement only
Financial assistance
3Transactions with CPs at the subsidiary level
2De minimis
1
Repurchase of securities by issuer or subsidiaries
6Dealings in securities on
stock exchange
5Issues of new securities by issuer or subsidiaries
4
Sharing of administrative costs
9Buying or selling consumer
goods or services
8Directors service
contracts and insurances
7
Transactions with associates of passive investors
10
24
9 Exemptions9.1 Under the CT rules, there are various exemptions. These could range from full
exemptions to partial exemption from shareholders’ approval requirement only.
In most cases, your main task will be to identify if the person is a CP along
with applicable exemptions, if any, in relation to potential transactions with
CT implications. Please remember the need to comply with other compliance
requirements, including Chapter 14 on notifiable transactions.
The Extent of Exemptions
9.2 Under the LR, there are 10 types of exemptions, there are listed below:
Types of Exemptions
Assets ratioThe total assets which are the subject of the transaction divided by the total assets of the listed issuer (LR14.09 to 14.12, 14.16, 14.18 and 14.19)
Revenue ratioThe revenue attributable to the assets which are the subject of the transaction divided by the revenue of the listed issuer (LR14.14 and 14.17)
Consideration ratioThe consideration divided by the total market capitalisation of the listed issuer for the five business days immediately preceding the date of the transaction (LR14.15)
Equity capital ratioThe number of shares to be issued by the listed issuer as consideration divided by the total number of the listed issuer’s issued shares immediately before the transaction
25Guidance Note on Connected Transactions | January 2016
Note: The issuer may propose alternative tests where the above tests are not
applicable. The applicable percentage ratios31 should be worked out with the finance
team. Also, the “profits ratio” is not applicable to CTs/CCTs.
9.3 Under the various exemptions, you may need to consider the applicable tests. As a
reminder these are based on:
The Applicable Tests
31 LR14A.06(30) and LR14.04(9)
(LR 14A.76)De minimis
Partially exempt
normal commercial terms or better
<5%OR<25%and<$10m
LR14A.76(2)
Fully exempt
normal commercial terms or better:
<0.1%OR<1%withCP
atSubLevelOR <5%and<$3m
LR14A.76(1)
26
9.4 There could be full or partial exemption depending on the size tests and threshold
amounts involved with the CT. This exemption is commonly used in various instances
by listed issuers. Please see diagram below:
De minimis exemption
Note: The partial exemption under Rule 14A.76(2) is in respect of circular, including
independent financial advice and shareholders’ approval requirements.
Note: For CCT, the listed issuer must use the cap as the numerator. If the agreement
covers over one year, the transaction will be classified based on the largest cap during
the term of the agreement.”
9.5 You will see from the diagram that the extent of exemptions depends on the size
of the transactions, with relaxation for CTs at the subsidiary level. Please refer to
the applicable LR for further details where you have a relatively small CT as this
exemption may be applicable.
Exemption 1: De minimis exemption. LR14A.76
A CT between listed issuer’s group and CP at the subsidiary level
on normal commercial terms or better is exempt from the
circular, independent financial advice and
shareholders’ approval requirements if:
listed issuer’s board approved it, and INEDs confirmed the terms
are fair and reasonable on normal commercial
terms or better, and in the interests of the listed issuer and its
shareholders as a whole
Note: In the case of formation of a joint
venture by a qualified issuer and a qualified
connected person to make a qualified
property acquisition, the qualified issuer must announce the transaction as soon as practicable after
receiving notification of the success of the bid by
the joint venture
If any details of the acquisitions or the
joint venture required to be disclosed are not available when the qualified issuer publishes the initial
announcement, it must publish subsequent announcement(s) to
disclose the details as soon as practicable after
they have been agreed or finalized.
27Guidance Note on Connected Transactions | January 2016
9.6 Please remember that where a person is connected at an insignificant subsidiary
level the person is not to be regarded as a CP. This operates as an exclusion of the
person from being a CP. There will be no compliance requirements required under
CT rules. An insignificant subsidiary under LR14A.09 refers to a subsidiary whose
total assets, profits and revenue compared to that of the listed issuer’s group are
lessthan:(1)10%foreachofthelatest3financialyears;or(2)5%forthelatest
financial year.
9.7 Additionally, there is a partial exemption (from the circular, independent financial
advice and shareholders’ approval requirements) under the LR for a transaction with
CPs at the subsidiary level where the transaction is (1) on normal commercial terms
or better, and (2) independent non-executive directors (INEDs) have provided the
confirmation as set forth in the diagram below:
The Subsidiary Exemptions
9.8 In case of formation of joint venture by qualified issuer32 and a qualified
connected person33 to make a qualified property acquisition34, an announcement
will be required upon notification of the successful bid by the joint venture.
Note: Under the Exchange’s FAQ Series 28, FAQ No21B of 29th May 2015 the Exchange
clarifies that transactions or arrangements involving substantial shareholder of a
subsidiary and hence CP at subsidiary level in relation to placing of shares to such CP
is not exempt. Please see the FAQ for further analysis.
Exemption 2: Transactions with connected persons at subsidiary level. LR14A.101
32 LR14A.06(34) and 14.04(10B)33 LR14A.06(33) means a
connected person of the qualified issuer solely because he or it is a substantial shareholder (or its associate) in one or more of the qualified issuer’s non wholly-owned subsidiaries formed to participate in property projects, each of which is single purpose and project specific. This person may or may not have representation on the board of the subsidiary or subsidiaries.
34 LR14A.06(35) and 14.04(10C)
Corporate structure immediately after completion of the transactions
Listco
Target
Others
86% 14%
3 Vendors to sell their interests in Target to Listco (the 3 blue arrows)
Itisdiscloseabletransactionbecause%ratio>5%but<25%
It is connect transaction because the 3 Vendors are connected persons. It is subject to reporting and announcement requirements but not shareholders’ approval, because (a) Listco Board has approved, and (b) all INEDs gave confirmations that the terms of the transaction are fair and reasonable, on normal commercial terms and in the interests of the Listco and its shareholders as a whole
Corporate structure prior to completion of the transactions
Listco
Target
A
C D E F OthersB
Regular subsidiary
100%
6% 10% 10% 10% 14%
99.9%
100%
0.1%
50%
28
9.9 For example, this exemption was used in a recent transaction as follows:
An Illustrative Example
By BC to CP or CHE is fully exempt if on
OrdinaryTerms
By BC to CP or CHE is fully exemptifNOTonOrdinaryTerms but at <0.1%OR
<1%withCPatsublevelOR
<5%and<$3m
(inclusive of monetary advantage
(LR14A.06(25)))
By BC to CP or CHE is partially exempt from
circular ISA/IFA requirements
ifNOTonOrdinaryTerms
but<5%OR<25%and
<10m (inclusive of monetary advantage)
Received by a listed issuer’s group from a CP or CHE is fully exempt if on normal commercial
terms and not secured by the assets of the listed issuer’s
group
By listed issuer’s group
on normal commerical terms and in proportion
to its equity interest
directly held (LR14A.06(15))
in the CP or CHE, and in case of
guarantee on several basis
By listed issuer’s group
is fully exempt if as an indemnity for liabilities incurred in
the course of the director
performing his duties, and in
permitted form in Hong Kong
or place of incorporation
By Banking Companies
Received and Provided by Listed Issuers
29Guidance Note on Connected Transactions | January 2016
9.10 These range from financial assistance provided by a banking company35 (BC)
to CP or CHE; financial assistance provided by the listed issuer’s group to cover
certain liabilities to directors directly or through indemnities; financial assistance
provided by the listed issuer’s group to CP or CHE; and financial assistance received
by the listed issuer’s group from CP or CHE. Most of these have to be on normal
commercial terms or better36 and in ordinary and usual course of business37
(Ordinary Terms), and subject to certain size tests.
Types of Exemptions for Financial Assistance
Exemption 3: Financial assistance exemption. LR 14A.87-91
35 LR14A.06(3) and 8836 LR14A.06(26) 37 LR14A.06(28)
Fully exempt, if pro rata as shareholder,
or where the CP is an underwriter or sub-underwriter
in a rights issue or open offer
Fully exempt under top-up placings and
subscriptions
Fully exempt under apreorpostIPO
share option schemes
30
9.11 LR 14A.92 provides exemption for the issue of new securities by listed issuers and
its subsidiaries, and additionally for issues at the subsidiary level, the de minimis
exemption 1 above applies.
Types of Exemptions for New Securities
Exemption 4: Issues of new securities by issuer or subsidiaries. LR14A.92
Dealing by listed issuer’s group in
securities of a target company (acquired under
a LR14A.28 CT) is fully exempt
if in the listed issuer’s group’s ordinary and
usual course of business
The target company’s
securities are listed on HKSE or other recognised
exchanges
The dealings are carried out on market, or off
market with no consideration
moving to or from a connected
person
There is no direct or indirect
benefit to a CP who is a substantial
shareholder of the target company
31Guidance Note on Connected Transactions | January 2016
9.12 There is an exemption for dealing in securities acquired under an acquisition covered
under LRA14A.28 referred to in Section 4 above.
The Requirements for Securities Dealing Exemption
Exemption 5: Dealing in securities on stock exchanges. LR14A.93
Repurchases of own securities by a listed
issuer or its subsidiary from a connected person
is fully exempt if it is made:
(2) in a general offer made under the Code on Share Buy-backs.
(1) on HKSE or recognised stock
exchange (LR14A.06), except where the CP knowingly
sells the securities to the listed issuer’s group; or
32
9.13 There is an exemption for repurchases of securities under applicable rules. Please
refer to LR14A.94 for further details:
Types of Repurchases of Securities Exemption
Exemption 6: Repurchases of securities by listed issuer or subsidiary. LR14A.94
LR14A.95, a director entering into a service contract
with the listed issuer or its subsidiary is fully exempt
LR 14A.96, purchase and maintenance of insurance
for a director of the listed issuer or its subsidiaries against liabilities
to third parties that may be incurred in the course of
performing his duties are fully exempt if in
permitted form in Hong Kong or place of
incorporation
33Guidance Note on Connected Transactions | January 2016
9.14 The entering of service contract by directors with the listed issuer or its subsidiary
and purchase of insurances in permitted form under Hong Kong or place of
incorporation are fully exempt from operations of the CT rules.
Directors’ Related Exemptions
Exemption 7: Directors’ service contracts and insurances. LR14A.95 and 96
LR14A.97, a listed issuer’s group buying consumer goods or services as a customer from,
or selling consumer goods or services to, a connected person on normal
commercial terms or better in its ordinary and usual
course of business is fully exempt subject to a host of conditions
as set out therein
The examples are, Meals consumed by a director at a restaurant owned
by the listed issuer’s group, A director buying groceries for his
own use at a retail store operated by the listed issuer’s group, Utilities provided by the listed issuer’s
group to a director’s apartment, or provided by a connected
person to the listed issuer’s group where the prices are published or publicly quoted and apply
to other independent consumers
34
9.15 This is an exception to allow the CP to be in the position of any consumer in relation
to the goods or services of the listed issuer’s group.
The Consumer Exemption
Exemption 8: Buying and selling consumer goods or services. LR14A.97
LR14A.98 Administrative services shared between
the listed issuer’s group and a connected person on a
cost basis are fully exempt, provided
that the costs are identifiable and are allocated to the parties
involved on a fair and equitable basis.
Note: Examples of shared administrative services are shared secretarial,
legal and staff training services.
35Guidance Note on Connected Transactions | January 2016
9.16 This exemption allows the sharing of resources between a CP and a listed issuer’s
group at cost on fair and equitable basis, which is fully exempt from the operations
of the CT rules:
The Administrative Services Exemption
Exemption 9: Sharing of administrative services. LR14A.98
LR14A.100 “passive investor”
is a substantial shareholder of the listed issuer and/or any of its subsidiaries that
is a sovereign fund, or a unit trust or mutual fund authorised by the Securities and Futures
Commission or an appropriate overseas
authority
has a wide spread of investments other than
the securities of the listed issuer’s group and
the associate that enters into the
transaction with the listed issuer’s group
The passive investor (LR14A.06) is CP only as a substantial shareholder of the listed issuer and/or
any of its subsidiaries
It is not controlling shareholder, has no
board representative, not involved in management
or influence including through veto on material
matters of the listed issuer’s group
is independent of the directors, chief executive, controlling shareholder(s) and any other substantial
shareholder(s) of the listed issuer or its
subsidiaries
The transaction is of a revenue nature in
the ordinary and usual course of business of the listed issuer’s group, and
conducted on normal commercial terms or
better
36
9.17 This exemption allows CPs from a passive sovereign and other funds with wide
spread investments to deal with the listed issuer’s group. For example, GIC or
Temasek, etc. may be passive sovereign funds:
The Passive Investor Exemption
Exemption 10: Transactions with associates of passive investors. LR14A.99-100
37Guidance Note on Connected Transactions | January 2016
10 Waivers 9.18 Please note that the Exchange has wide discretion to waive the application of CT
rules under LR14A.102. This could apply to transactions connected only because
of a non-executive director as CP with the listed issuer’s group. The Exchange may
require auditors and financial adviser’s opinion that the transaction is fair and
reasonable to the shareholders a whole before considering to grant any waiver from
the operations of the CT rules.
9.19 The Exchange may also grant waivers for joint and several guarantee or indemnity
to a TP creditor for obligations of connected subsidiary or a CHE in connection with
public sector contracts awarded by tender where the other shareholders provide
similar guarantee or indemnity, along with an indemnity to the listed issuer to the
extent of the other shareholders’ equity interest in the subsidiary or entity.
9.20 The Exchange may waive the requirements for CCT for a new applicant or its
subsidiaries where the CCT is disclosed in the listing document with sponsor’s
opinion that the CCT is in the ordinary and usual course of business of the listed
issuer’s group, on normal commercial terms or better, are fair and reasonable and in
the interests of the shareholders as a whole.
38
11 Conclusion11.1 We have sought to explain the CT rules with the assistance of diagrams. The above
analysis should assist you to comply with the checklist for CTs in accordance with
LR14A.66. However, we have not been through the detailed drafting requirements
under the CT rules as these are transaction specific and there are ready examples
from the Exchange’s website from disclosures by other listed issuers under CT rules.
CONNECTED PERSONS (NON-PRC LISTED ISSUER)
M
“first wave” connected persons: LR14A.07
associates of the “first wave” connected persons such associates are connected persons: LR14A.07(4)
deemed connected persons: having agreement, arrangement, understanding or undertaking (whether formal or informal and whether express or implied) with (1) Dir, CE or SS of the listed issuer or any of its subsidiaries; and (2) ex-Dir of the listed issuer or any of its subsidiaries in the last 12 months: LR14A.20
deemed connected persons: LR14A.21
connected subsidiary and any subsidiary of such connected subsidiary: LR14A.16
chief executive, which is defined as a person who either alone or together with one or more other persons is or will be responsible under the immediate authority of the board of directors for the conduct of the business of a listed issuer. Forexample,CEO:LR1.01
director / former directors within the last 12 months
substantial shareholder, in relation to a company means a person (including a holder of depositary receipts) who is entitled to exercise, or control theexerciseof,10%ormoreofthevotingpower at any general meeting of the company
marriage
CE
SS
Dir /ex Dir
Any connected person at the issuer level (1) Dir, CE, SS of the listed Issuer; (2) ex-Dir of the listed issuer in the last 12 months; and (3) an associate of any of the above: LR14A.06(8)
Insignificant subsidiarysubsidiary whose total assets, profits and revenue compared to that of the listed issuer’s group are less than: (1)10%foreachofthelatest3financialyears;or(2)5%for the latest financial year: LR14A.09
Last updated: 1 July 2015
Associates of Individual: Immediate Family Members
LR14A.12(1)(c)
LR14A.12(1)
≥30%
>50%
BOX 1
Trustee(s)
SS/Dir/exDir/CE
Beneficiary
Spouse
Child/Step-child (natural or adopted) under 18
M
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
30% - controlled company
Subsidiaries
LR14A.12(2)(a)Associates of Individual: Family Members
BOX 2
Mother/ Step-mother
Father/ Step-Father
M
Brother/ Step-brother/
Sister/Step-sister
Person(s) cohabitingas a spouse
Son/Step-son/ Daughter/ Step-daughter aged 18 or above
SS/Dir/
exDir/CE
Spouse
M♥
= Already covered by Box 1[1]
[1][1]
First waveconnected person
First Wave Connected PersonsLR14A.07(1)&(2)
Connected subsidiaries
Insignificant subsidiary
Any connected person at the issuer
level
>50%
>50%>50%
≥10%
≥10% 100%
100%
≥10%
≥10%
≥10%
SS
SS
SS
Dir /ex Dir CE Dir /ex Dir CE Dir /ex Dir CE
Dir /ex Dir CEDir /ex Dir CE
Corporate shareholder
SS
Dir /ex Dir CE
Non- PRC Listed Issuer
Corporate shareholder
Note: subsidiaries could be partially owned (with or without its own SS); wholly owned (which will not have any other SS); connected (which must have CP at issuer level as SS); and insignificant subsidiary (which can be at any subsidiary level). The diagram is illustrative to bring out these themes
Appendix A
Main Box
CONNECTED PERSONS (NON-PRC LISTED ISSUER) All Rights Reserved.The Hong Kong Institute of Chartered Secretaries
Reproduce with suitable acknowledgement.
Associates of company
LR14A.13(3)
LR14A.13
≥30%
>50%
Trustee(s)Holding
Companies
Fellows
Fellows
Corporate shareholder
Subsidiaries
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
BOX 4
>50% >50%
>50%>50%
beneficiary
SS
30% - controlled company
Subsidiaries
BOX 3
LR14A.21(1)(a)Relatives
Grandfather Grandfather Grandmother Grandmother
M M
Grandson/Granddaughter = Already covered by Box 1[1] = Already covered by Box 2[2]
First waveconnected person
Spouse of Uncle/Aunt
Sister-in-law/ Brother-in-law
Spouse of Uncle/Aunt
Mother in law
Father in law
Uncle/Aunt
Uncle/Aunt
Cousin Cousin
Nephew/Niece
Daughter-in-law/
Son-in-law
Brother- in-law/
Sister-in-law
M
M M
M
M
Mother/ Step-
mother
Brother/ Step-brother/
Sister/ Step-sister
Son/Step-son/ Daughter/
Step-daughter aged 18 or above
Person(s) cohabitingas a spouse
Father/Step-father
M M[2]
[2] [2]
[2]
[2]
♥SS/Dir/
exDir/CE
[1] [1]Spouse
LR14A.12(2)(b)LR14A.21(1)(b)
>50%
>50%
Individually or together (directly or indirectly) exercise or control the exercise of more than 50% of the voting power at
general meetings or control the composition of a majority of the board of directors
Subsidiaries
Majority-controlled company
41
Associates of Individual: Immediate Family Members
LR14A.12(1)(c)
LR14A.12(2)(a)LR14A.12(1)Associates of Individual: Family Members
≥30%
>50%
BOX 1
Trustee(s)
SS/SP/Dir/exDir/CE
Beneficiary
Spouse
Child/Step-child (natural or adopted) under 18
M
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
30% - controlled company
Subsidiaries
“first wave” connected persons: LR14A.07
associates of the “first wave” connected persons such associates are connected persons: LR14A.07(4)
deemed connected persons: having agreement, arrangement, understanding or undertaking (whether formal or informal and whether express or implied) with (1) Dir, CE or SS of the listed issuer or any of its subsidiaries; and (2) ex-Dir of the listed issuer or any of its subsidiaries in the last 12 months: LR14A.20
deemed connected persons: LR14A.21
connected subsidiary and any subsidiary of such connected subsidiary: LR14A.16
chief executive, which is defined as a person who either alone or together with one or more other persons is or will be responsible under the immediate authority of the board of directors for the conduct of the business of a listed issuer. Forexample,CEO:LR1.01
director / former directors within the last 12 months
supervisor
substantial shareholder, in relation to a company means a person (including a holder of depositary receipts) who is entitled to exercise, or control theexerciseof,10%ormoreofthevotingpower at any general meeting of the company
marriageM
CE
SSSP
Dir /ex Dir
Any connected person at the issuer level (1) Dir, CE, SS of the listed Issuer; (2) SP of a PRC issuer; (3) ex-Dir of the listed issuer in the last 12 months; and (4) an associate of any of the above: LR14A.06(8)
Insignificant subsidiarysubsidiary whose total assets, profits and revenue compared to that of the listed issuer’s group are less than: (1)10%foreachofthelatest3financialyears;or(2)5%for the latest financial year: LR14A.09
Individually or together (directly or indirectly) hold 30% or more of the joint venture’s capital or assets
contributions or the share of its profits or income
X (the joint venture
partner)
LR14A.15
Cooperative or contractual joint venture
BOX 2
Mother/ Step-mother
Father/ Step-Father
M
Brother/ Step-brother/
Sister/Step-sister
Person(s) cohabitingas a spouse
Son/Step-son/ Daughter/ Step-daughter aged 18 or above
SS/SP/Dir/
exDir/CE
Spouse
M♥
= Already covered by Box 1[1]
[1][1]
First waveconnected person
First Wave Connected PersonsLR14A.07(1)&(2)&(3)
Connected subsidiaries
Insignificant subsidiary
Any connected person at the issuer
level
>50%
>50%>50%
≥10%
≥10% 100%
100%
≥10%
≥10%
≥10%
SS
SS
SS
ex-Dir
Corporate shareholder
SS
Dir /exDirSP CE
PRC Listed Issuer
Corporate shareholder
Dir /exDirSP CEDir /exDirSP CE Dir /exDirSP CE
Dir /exDirSP CEDir /exDirSP CE
Note: subsidiaries could be partially owned (with or without its own SS); wholly owned (which will not have any other SS); connected (which must have CP at issuer level as SS); and insignificant subsidiary (which can be at any subsidiary level). The diagram is illustrative to bring out these themes
Last updated: 1 July 2015
Main Box
CONNECTED PERSONS (PRC LISTED ISSUER)Appendix B
BOX 3
LR14A.21(1)(a)Relatives
Grandfather Grandfather Grandmother Grandmother
M M
Grandson/Granddaughter
LR14A.12(2)(b)LR14A.21(1)(b)
>50%
>50%
Associates of company
LR14A.13(3)
LR14A.13
≥30%
>50%
Trustee(s)Holding
Companies
Fellows
Fellows
Corporate shareholder
Subsidiaries
Individually or together (directly or indirectly) exercise or control the exercise of 30% or more of the voting power at general
meetings or control the composition of a majority of the board of directors
BOX 4
>50% >50%
>50%>50%
beneficiary
SS
30% - controlled company
Subsidiaries
= Already covered by Box 1[1] = Already covered by Box 2[2]
Spouse of Uncle/Aunt
Sister-in-law/ Brother-in-law
Spouse of Uncle/Aunt
Mother in law
Father in law
Uncle/Aunt
Uncle/Aunt
Cousin Cousin
Nephew/Niece
Daughter-in-law/
Son-in-law
Brother- in-law/
Sister-in-law
M
M M
M
M
Mother/ Step-
mother
Brother/ Step-brother/
Sister/ Step-sister
Son/Step-son/ Daughter/
Step-daughter aged 18 or above
Person(s) cohabitingas a spouse
Father/Step-father
M M[2]
[2] [2]
[2]
[2]
♥SS/SP/Dir/exDir/CE
[1] [1]
Individually or together (directly or indirectly) exercise or control the exercise of more than 50% of the voting power at
general meetings or control the composition of a majority of the board of directors
Individually or together (directly or indirectly) hold 30% or more of the joint venture’s capital or assets
contributions or the share of its profits or income
X (the joint venture
partner)
LR14A.15
Cooperative or contractual joint venture
First waveconnected person
Spouse
Subsidiaries
Majority-controlled company
All Rights Reserved.The Hong Kong Institute of Chartered Secretaries
Reproduce with suitable acknowledgement.
43
CONNECTED PERSONS (PRC LISTED ISSUER)
44
Disclaimer and Copyright
Notwithstanding the recommendations herein, this Guidance Note is not intended to constitute legal advice or to
derogate from the responsibility of HKICS members or any persons to comply with the relevant rules and regulations.
Members and readers should be aware that this Guidance Note is for reference only and they should form their own
opinions on each individual case. In case of doubt, they should consult their own legal or professional advisers, as
they deem appropriate. The views expressed herein do not necessarily represent those of HKICS and/or the joint
authors. It is also not intended to be exhaustive in nature, but to provide guidance in understanding the topic
involved. The Institute and/or the joint authors shall not be responsible to any person or organisation by reason
of reliance upon any information or viewpoint set forth under this Guidance Note, including any losses or adverse
consequences consequent therefrom.
The copyright of this Guidance Note is owned by HKICS. This Guidance Note is intended for public dissemination and
any reference thereto, or reproduction in whole or in part thereof, should be suitably acknowledged.
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Chartered Secretaries. More than meets the eye.