Hong Kong’s Corporate Governance Regime and Investor Protection

The paper is anchored on Budget Speech for financial year 2000/2001 delivered by Donald Tsang (Financial Secretary-FA) at n paragraph seventy-seven March 8, 2000. The FA was referring to the corporate governance standards in Hong Kong. It was stated that it was among the leading corporate governance in the region. The speaker acknowledged that the improvement in the standards of corporate governance was then globally trending.

The speaker acknowledged the need for Hong Kong to create sustained competitive edge in corporate governance to uphold it international financial entre status. Donald had requested the financial services secretary to undertake a detailed investigation towards enhancing Hong Kong’s corporate governance finance. The rationale for the study was to recognize and subsequently plug any disparity in the corporate governance regime. This would make Hong Kong the undisputed benchmark in the region.

The resolute inputs of the professional organizations, market entities and regulators remained crucial in enhancing standards of corporate governance in Hong Kong at the period. Seventeen years are down the line and Hong Kong has plugged and implemented various reforms following this landmark speech. It is upon this backdrop that this paper presents a comprehensive overview of Hong Kong’s corporate governance regime under various subheadings (Leung, Richardson and Jaggi 2014).  

The main objective of this Ordinance is the consolidation as well as amendments of the law associated with futures, securities and products market alongside the futures and securities industry. It also touches on activities of regulations alongside other issues linked to financial futures, products and securities market alongside futures and securities industry. It further speaks to the investors’ protection alongside other incidental issues thereto or linked therewith, as well as for associated purposes (Barker and Chiu 2014).

It has improved the standards of corporate governance by one piece of legislation for governing financial as well as investment products, regulating securities and future market, as well as protecting investors (Claessens and Yurtoglu 2013). The regulatory framework adopted by this Ordinance aligns to existing global standards with essential modifications to meet domestic market requirements. It has brought clarity alongside convenience in corporate governance standards thereby facilitating the enforcement and compliance.

It has particularly helped enhance the corporate governance standards of the Hong Kong’s listed companies. It has introduced various measures that directly contribute towards the improvement of corporate governance (Lin, Liu and Zhang 2016). The first measure is the plugging of ‘dual filing’ by listing applicants as well as listing companies to the Stock Exchange alongside the SFC. This has enabled SFC to stamp its investigatory authorities against individuals filing false alongside misleading information besides bringing such offenders to Court.  

Another measure is the criminalization of disclosure of false information enticing investors to make entry into the securities transactions with a penalty of ten years’ imprisonment alongside a fine of ten million dollars. The Ordinance has as well provided investors with a newfangled private right of action for seeking compensation for pecuniary losses emanating from dependence on misleading or false communications, integrating even the ones utilized by listed companies (Qi, Roth and Wald 2016).

Securities and Futures Ordinance, Cap 571

It has also provided auditors of various listed companies statutory protection from civil obligation for reporting mistrusted corporate misbehavior to the SFC. The above measures remain essential for Hong Kong to stay appealing to investors and issuers to continue selecting best quality issuers for guaranteeing listing in the Exchange.  

The listing rules has improved the standards of corporate governance in Hong Kong by giving particular requirements for listing to provide orderly, fair as well as efficient Exchange market for securities’ trading. It has been introduced under s23 of SFO allowing requirements for listing securities in this market. The requirements include both that must be fulfilled before listing securities alongside continuing obligations complied with by both issuer and guarantor.

It has acceptable standards in marketplace that are designed to make sure that investors have confidence that can be sustained in the market. The general principles adopted under these rules ensure that only suitable applicants are listed and that security issuance and marketing is performed both orderly and fairly. Thus, potential investors are provided with adequate information to allow them make rational and informed issuer and guarantor’s assessment.

The principles in these rules also ensure that both the public and investors are completely informed by listed issuers as well as guarantors. The principles also ensure that every holder of securities that are listed receive equal and fair treatment and that each director of listed issuer act purely on the shareholders’ interests in entirety and even in cases where public denotes merely a minority of shareholders. The rules also ensure that new equity securities issued by listed issuer must first be offered to the available shareholders through rights unless they have otherwise agreements.

The above code regulates the repurchase of shares, takeover, and privatization as well as merger activities in Hong Kong.  It is issued by the SFC after consulting with Mergers and Takeover panel. The codes by design remains affordable to shareholders’ fair treatment. The codes have ensure equality of shareholders’ treatment. It has also mandates the disclosure of adequate and timely information thereby allowing shareholders to arrive at informed decisions based on offers’ merits.

The code have also ensured fair and informed market in the takeover-affected companies’ shares. The code has provided the orderly framework upon which mergers, takeovers, and privatization alongside share purchase-backs activities are undertaken. It denotes a consensus of opinions among the market players and SFC in Hong Kong with respect to commercial behavior and conduct standard regarded acceptable for mergers and takeovers, share purchase-backs and privatization. 

The standards of corporate governance in Hong Kong have greatly enhanced and improved the corporate governance regime alongside protection of investors. However, more is needed to be done to ensure even better improved and enhanced standards. The government of Hong Kong should plug a new statutory corporate rescue procedure. A legislation is needed to be introduced to assist companies that have long-term business prospects but still face short-term financial challenges.    

The goal of the above statutory recue procedure is to balance the shareholders, employees as well as creditors interests. Moreover, the Hong Kong should further take steps to consider how best it can further enhance its corporate insolvency work which entails cross-border jurisdictional maters. The Hong Kong should also recognize that at a global level, the corporate ownership, transparency as well as sharing of data are extremely significant matters.

Listing Rules; AVD

Hong Kong government should take seriously the discussion of G8 and G20 and take active steps to plug in reforms for the implementation of several initiatives agreed at the leadership forum at CRF. Hong Kong should move faster and implement the measure to request firms to disclose their respective beneficial owners to enhance the competitiveness of its jurisdictions. Hong Kong should further embrace a close international cooperation to implement the disclosure of beneficial owners since it is never easy to both firms and authorities (Yeung 2017).

Hong Kong should also introduce a licensing regime for the trust as well as company service providers in which they will be needed to acquire a license as well as satisfy a “fit and proper’ test prior to provision of business to the public. While Hong Kong is doing this, it should spare no efforts to make sure that their corporate governance regime remains up to date as well as benchmarked against the global best practice.

Conclusion

Whereas Hong tops the rank tables as a global financial hub, the data, nevertheless, suggest that certain portions of its arrangements corporate governance likely undermine from-instead of contribute to-that prominent position. The role of Hong Kong as a worldwide financial hub is unknowingly being weakened by excessive shareholder concentration, perhaps self-defeating, inadequate marginal shareholder resources to machineries focused at investment protection and its close connection to various ‘tax havens (Tricker and Tricker 2015).

Nevertheless, Hong Kong government should urgently acknowledge that the only the quality of its corporate governance remains the undisputed determinant for the archipelago’s ranking among the global financial hubs in forthcoming years. Even though the corporate governance of Hong Kong undergoing substantial modifications and revisions since 2000, saves to Companies Ordinance revisions, newfangled Code on practices of Corporate Governance for listed corporations alongside additional legal alterations, more prospects are available to make it even better as indicated by scandals involving its business elites. The case involving Barry Cheung Chun-Yuen for, instance, has revealed the need for new reforms on legislative as well as regulatory to cut concentration alongside family control of its corporations and boost transparency as well as accountability in affairs of corporate (Michael. and Goo 2013).    

HKEx remains one of the stock exchange that has the largest capitalization as well as active trading in the globe. The HKEx’s remains an ideal podium for the enterprises to go public for the purposes of raising capital. An enterprise will obtain a desirable valuation as well as enhance its corporate governance by being listed in Hong Kong.

Moreover, comparatively shorter period to acquire listing approval or approval for the follow-up finance is able to assist an enterprise to quickly enlarge into foreign markets. The process of IPO is designed to facilitate the companies to easily eliminate all barriers to satisfy the requirements for listing.

Various intermediaries coordinate effectively to hasten the completion of the relevant task within a specified scheduled time during the process of listing thereby making sure that the company gets a successful listing. The services for follow-up finances alongside mergers as well as acquisitions are also given easily.

Takeovers Code

The decision by a private company to go public remains extremely significant and has to be made after a thorough assessment of the entire implications. The firm must carefully weigh both cons and pros of going public in light of the plans as well as goals set for the company. Once the private company has made a decision, it will have to follow a set of procedures for the conversion into a public listed company (Wong 2017).  

This step is undertaken to assemble meetings of director as well as shareholders to make a decision on IPO in Hong Kong in accordance with forthcoming strategy for development for the selection as well as engagement with foremost intermediaries.

The firm holds the first IPO seminar with the underwriters, solicitor, accountants as well as evaluators, alongside collaborates with every intermediary in concentrated efforts, till IPO.

This is the process of analyzing and evaluating the company that is performed by professional accountancy firm. It basically examines whether the company’s operational ability, the company’s corporate governance policies, the company’s internal control environment, the company’s financial reporting procedure alongside other aspects of business are aligned with the listing requirements (Michael and Goo 2016).

The underwater, accountant as well as solicitor will then undertake careful probe of business, financial status, forthcoming prospects, main risk dynamics, legal matters as well as others, to make sure that correct procedures besides that zero is left out in details of every pubic document (Low, Roberts and Whiting 2015).  

This step helps in the identification of any potential shortfalls to enable the company to take corrective actions before listing. Every report prepared in the process of due diligence procedure has to be prepared by professional accountants with qualifications under the Professional Accountants Ordinance (PAO) (Wu et al. 2015).

Such report has to be prepared as well as according to the relevant accounting standards as well as regulatory guidelines. The company requires to appoint a lawyer who will oversee the legal aspects of the entire process of listing (Hasan, Kadapakkam and Kumar 2015).

The accountant, solicitor and the underwriter, will give professional assistance to firm in order to recognize business, and structure as well as financial conditions of the firm in reflection of course of the forthcoming growth thus making a firm a new-fangled entry compliant to the IPO guidelines, to appeal to the stockholders (Lin, Liu and Zhang 2016).

The accountant, underwriters together with solicitors shall then write every document essential for every kind of IPO, encompassing brochure, accountants’ reports alongside legal view.

The underwriters will then assist the business to submit the initial request for the IPO to the IPO partition of exchange.

Upon the submission of Form A1, the HK Exchange shall ask various queries for the corporation to give answers, and underwriters alongside every intermediary will assist the company in completing this chore (Ho and Wong 2011).

The Exchange committee of IPO shall then arrange for court hearing to decide whether the projected public corporation meets the eligibility requirements for the IPO, and then once it is approved, the company alongside the underwriter will begin a successions of propaganda for the shares’ issuance (Cheng, Lui and Shum 2015).

Enhancing and Improving Corporate Governance Regime and Investor Protection

This report is written in most cases by the industrial analysts who is working for a particular underwriter.  The industrial analysts will prepare this report that is then recommended to the investors as well as fund managers. This is done by a visit to the top management of the firm for the business underwriting as well as financial as well as other conditions of the company (Biddle et al. 2015). These people work fully independently of the due diligence of that underwriter. It is commonly organized upon the Form A1’s submission as well as printed before roadshow. 

The roadshow recommendations which is arranged by the underwriter on behalf of the company is commonly in 2 kinds: the lunch advertising conference alongside one on one conference. The underwriter shall generally supplement top management of the firm to visit the Tokyo, Singapore, Hong Kong as well as occidental chief cities. 

This process is undertaken to determine the price range in accordance with market situation in delivering, subsequently to invite stakeholders to showcase their respective subscription determined prior within given range of price, and eventually to arrive at the ultimate price for issuance by the final consequences of subscription (Ho and Ting 2014).

The share issuance is usually subdivided into 2 sections: placing as well as public offering in HK IPO. The placing describes the directional sales to international capitals as well as additional recognized investors; alongside public offering which describes sales to the HK public.

This is done to pursue an appropriate point of equilibrium in accordance with the accumulative subscription order outcomes as well as market conditions in issuing, for the determination of concluding shares issue price. A simple as well as intermittent IPO celebration shall then be convened in the Exchange Trading Hall conventionally on IPO’s day.

Conclusion

The complete of the above processes and procedures successfully allows a private company turned public issue its initial public offer into the market and starts its business operation in the Exchange market. 

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