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Notice of China
Securities Regulatory Commission on the Relevant Issues
concerning the Regulation of Acts of Transferring Actual Controlling
Rights of Listed Companies
the China Securities Regulatory Commission
January 7, 2004
All the listed companies:
Since the promulgation of the Regulations on the Takeover of
Listed Companies (hereinafter referred to as the "Takeover
Regulations"), the corporate control market for listed companies has
developed further, and the takeover of listed companies is more
transparent and standardizing, which has accelerated the innovation
of the merger and acquisition (M&A) market. Because the transfer of
the actual controlling right of listed companies concerns the sound
management, sustainable development and the rights and interests of
the wide minority shareholders, touches the normal order of the
securities market, the Takeover Regulations have prescribed that the
controlling shareholders (including other actual controlling
parties) and purchasers shall have the fiduciary duty to listed
companies and other shareholders, and are prohibited from impairing
the legal rights and interests of the company being taken over and
other shareholders through the takeover of listed companies.
But recently, the controlling shareholders of some listed
companies have transferred the voting rights of the shares they hold
in advance to purchasers in the name of "share right trusteeship" or
"company trusteeship" through concluding share transfer agreements
with the purchasers or by other means violating legal procedures,
which leads to the purchasers'' actual control of the listed
companies through controlling the voting rights of relevant shares
before they become the shareholders of the listed companies. Under
such circumstances, the controlling shareholders do not perform
their duties of a controlling shareholder, and the purchasers are in
actual control of the listed companies but do not bear the
responsibility of a controlling shareholder, as a result, the
management of listed companies is in an terribly uncertain state,
and that provides conveniences for purchasers to willfully infringe
upon the rights and interests of listed companies and other
shareholders. Such acts have violated the relevant provisions of the
Company Law, the Takeover Regulations and the Guidelines for the
Governance of Listed Companies on the takeover of listed companies.
With a view to further regulating the act of transfer of actual
controlling right of a listed company, safeguarding the rights and
interests of the listed companies and minority investors, and
maintaining the normal order of the securities market, we hereby
make the following notice on the relevant issues:
I. The transfer of controlling right of a listed company shall be
made normatively according to the relevant provisions of the
Takeover Regulations, and since the date of the promulgation of this
Notice, no controlling shareholder of a listed company may transfer
the controlling right of the company in disguised form by way of so
called "share right trusteeship" or "company trusteeship" and any
other means violating legal procedures and evading legal
obligations.
II. In case the takeover of a listed company is made by agreement,
the controlling shareholders and the purchasers shall stipulate
clearly in the takeover agreement the rights and duties of the two
parties during the transition period after concluding the takeover
agreement and before transferring the relevant shares, and shall
take effective measures to ensure the sound transition of the
management of the listed company during the period of transferring
the controlling right.
During the transition period, the controlling shareholders or
purchasers may not impair the rights and interests of the listed
company and the minority shareholders thereof by the takeover act,
and they shall also observe the following provisions:
1. The controlling shareholders and the purchasers shall keep the
independence of the listed company strictly according to the
requirements of the Guidelines for Governance of Listed Company, and
improve the corporate governance. Before the transfer of the
relevant shares, the controlling shareholders shall seriously
perform their duties of a controlling shareholder, and the
purchasers shall seriously perform the fiduciary duties to the
company being taken over and other shareholders according to the
provisions of the "Takeover Regulations".
2. During the transition period, the purchasers are prohibited from
re-electing the board of directors of the listed company upon the
suggestion of the controlling shareholders in principle; in case
there are sufficient reasons to re-elect the board of directors, the
directors from the purchasers shall not exceed one third of the
members of the board of directors.
3. During the transition period, the controlling shareholders and
the purchasers shall ensure that the ordinary production and
management of the listed company not be influenced. No purchasers
may pledge the share right of the listed company. The listed company
is prohibited from financing again, or conducting acts of major
purchase, selling assets or great investment, unless there are
otherwise circumstances under which the purchasers have to save the
listed company facing serious financial difficulties.
4. The listed company and its controlling shareholders, purchasers
shall strictly observe the provisions of the Notice on Some Issues
concerning Regulating the Funds between Listed Companies and
Associated Parties and Regulating the Listed Companies'' Provision
of Guaranty to Other Parties (No.56 [2003] of China Securities
Regulatory Commission). The listed company is prohibited from
providing guaranty to purchasers and the associated parties, and the
purchasers and the associated parties are prohibited from
impropriating the capital and assets of the listed company.
5. After completing the takeover act, the purchasers shall make
self-examination, specifying the adjustment of assets, personnel,
businesses and management of the listed company, and the normative
operation of the company during the transition period, and whether
there are circumstances of impairing the interests of the listed
company such as providing guaranty or loans to the purchasers and
the associated parties, etc. by the listed company.
The board of directors of a listed company shall issue opinions
expressly on the self-examination report of the purchasers, and
engage a certified accountant firm, which has the qualifications of
practicing securities business, or financial counselors to make
special examination on the business status of the listed company
during the transition period, and issue opinions on the comparison
of the outstanding achievements of the company before and after the
transfer of actual controlling right, whether the purchasers have
failed to pay off the debts owed to the company, or failed to
rescind the guaranty provided by the company or other circumstances
of impairing the interests of the company; in case of any of the
above-mentioned circumstances, the board of directors of the listed
company shall take effective measures to protect the interests of
the listed company.
The self-examination report of the purchasers and the opinions of
the board of directors shall be publicized and submitted to the
detached offices of China Securities Regulatory Commission at the
place where the listed company is located.
III. Where any act of transfer of the actual controlling right of a
listed company by the controlling shareholders in violation of legal
procedures occurs before the promulgation of this Notice, it shall
be corrected within 6 months after the promulgation of this Notice.
If the takeover of the listed company is to be carried on
continually by agreement, it shall be regulated in accordance with
the provisions of Article 2 of this Notice. If the board of
directors has been re-elected, the directors of the listed company
shall earnestly perform their fiduciary duties, and handle the
relevant proposals cautiously. And all the proposals of the board of
directors shall be regarded as special proposals and approved by
over one third of the directors, and the independent directors shall
issue their opinions separately.
Where a purchaser fails to reveal the Report on the Takeover of
Listed Companies in accordance with the provisions of Takeover
Regulations, it shall make supplementary information disclosure
within 2 months after the promulgation of this Notice, and elaborate
on the purpose of the takeover, the adjustment of the purchasers on
the assets, businesses and personnel of the listed company, the
follow-up plan, and the handling of the formalities for share rights
transfer, etc..
After making correction or regulation according to the provisions
of the present Notice, the purchasers and the board of directors of
the company taken over shall issue self-examination report and the
check-up opinions by referring to the provisions of item (5),
Article 2 of this Notice, and submit them to the detached offices of
China Securities Regulatory Commission at the place where the listed
company is located and publish them.
IV. Where the acts of transferring the actual controlling right of a
listed company by the controlling shareholders violate legal
procedures, which have occurred before the promulgation of the
present Notice, and which the controlling shareholders of the listed
company and the purchasers fail to rectify or regulate according to
the present Notice, China Securities Regulatory Commission shall
order them to rectify pursuant to the Takeover Regulations and the
relevant provisions of Document No.56 (2003) of China Securities
Regulatory Commission.
V. The provisions of the present Notice shall
be applicable to the
companies other than those which entrust the state-owned assets
management entities to manage the state-owned share rights of a
listed company due to the authorized management implemented by the
department of state-owned assets management.
VI. The present Notice shall enter into force
as of the date of its
promulgation.
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