According to the Hong Kong Code on Takeovers and Mergers, a mandatory general offer has specific, stringent requirements to ensure fair treatment of all shareholders. Firstly, the consideration offered must be in cash or be accompanied by a cash alternative, providing shareholders with a certain and liquid exit. Offering only securities is not permissible. Secondly, the offer price must be set at a level not less than the highest price paid by the offeror or any of its concert parties for shares of the offeree company during the offer period and within the six months preceding its commencement. This rule prevents an offeror from acquiring a controlling stake at a high price and then offering a lower price to the remaining minority shareholders. Thirdly, a mandatory offer is subject to a very specific condition: it can only be conditional upon the offeror receiving acceptances which, when combined with shares already held or acquired, result in the offeror and its concert parties holding more than 50% of the voting rights of the offeree company. No other conditions, such as financing or subsequent regulatory approvals, are permitted.

Under the Securities and Futures Ordinance (SFO) and the SFC’s Guidelines on Competence, individuals applying for a licence must demonstrate that they possess the necessary competence, which includes passing the relevant Licensing Examination (LE) papers. For Type 6 (advising on corporate finance) regulated activity, this is LE Paper 17. The SFC has a ‘re-entry’ requirement for individuals who were previously licensed but have left the industry. If an individual ceases to be licensed for a specific regulated activity for a continuous period of more than three years, their previous examination pass is considered outdated. To ensure their knowledge of the current legal and regulatory framework is up to date, they are required to re-take and pass the relevant LE paper before they can be licensed again for that activity. This rule applies regardless of prior experience or the reason for the absence. Continuous Professional Training (CPT) is an ongoing requirement for currently licensed individuals and cannot substitute for the re-examination requirement after such a prolonged absence.

Statement I is correct. Under Part XV of the Securities and Futures Ordinance (SFO), a person who acquires an interest of 5% or more in the voting shares of a listed company must disclose this interest to both the listed company and the Stock Exchange of Hong Kong (SEHK). This disclosure must typically be made within three business days of the relevant event. Statement II is incorrect. While Part XIVA of the SFO provides safe harbours for non-disclosure of inside information (such as ongoing negotiations), these are not automatic. The primary condition is that confidentiality must be strictly maintained. If there is a leak or a breach of confidentiality, the listed company may be required to make an immediate announcement to avoid a false market. Statement III is correct. A financial adviser in a takeovers and mergers transaction has a critical responsibility to ensure that all parties privy to inside information are aware of their legal and regulatory obligations, particularly concerning insider dealing and maintaining confidentiality, to comply with the SFO and the Codes on Takeovers and Mergers and Share Buy-backs. Statement IV is incorrect. The Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO) contains a specific carve-out in its Seventeenth Schedule. This provision exempts offer documents that comply with the requirements of the Takeovers Code from being treated as a prospectus under CWUMPO, thus avoiding the associated onerous requirements. Therefore, statements I and III are correct.

This question tests the understanding of rules governing the consideration for a voluntary offer under the Hong Kong Code on Takeovers and Mergers.

Statement I is correct. A voluntary offer at a discount of more than 50% to the market price is considered a ‘low ball’ offer. Such offers are generally not permitted to proceed without the consent of the Takeovers Executive, as they may be used to frustrate the offeree company’s business rather than being a genuine takeover attempt.

Statement II is incorrect. The standard look-back period for setting the minimum offer price is the three-month period prior to the commencement of the offer period. While the Executive has discretion to look back further, a purchase made four months prior would not automatically set the minimum offer price under the standard rule.

Statement III is correct. According to the Takeovers Code, if an offeror or its concert parties have purchased 10% or more of the voting rights of the offeree company for cash within the six-month period prior to the offer period’s commencement, the voluntary offer must be made in cash or include a cash alternative. The purchase of 12% five months ago clearly triggers this requirement.

Statement IV is incorrect. The rule states that if any shares are purchased for cash by the offeror or its concert parties during the offer period, a cash alternative must be included in the offer. There is no de minimis threshold; even a small purchase triggers this obligation. Therefore, statements I and III are correct.

Under Rule 22 of the Hong Kong Code on Takeovers and Mergers, during an offer period, specific disclosure obligations apply. In the case of a securities exchange offer, where the consideration involves shares of the offeror, these ‘relevant securities’ include the offeror’s shares themselves. The rule mandates that an associate of either the offeror or the offeree company who deals in relevant securities for its own account must publicly disclose such dealings. The disclosure must be made by no later than 12:00 noon on the business day following the date of the dealing. This requirement is distinct from the private disclosure obligation, which applies to different parties or circumstances, and it is a common misconception that disclosure only applies to the offeree company’s shares. The obligation exists regardless of whether the dealing is for a proprietary account or a discretionary client’s account (for non-EFM associates).

This question tests the application of the mandatory offer obligation and the creeper threshold under the Hong Kong Code on Takeovers and Mergers, specifically in the context of concert parties.

Statement I is incorrect. Under Rule 26.1 of the Takeovers Code, the act of forming a concert party is not, in itself, an acquisition of voting rights that triggers a mandatory offer. The obligation arises from subsequent acquisitions after the party is formed. Since their combined holding of 32% was a result of an agreement and not an acquisition, no immediate obligation was triggered.

Statement II is correct. Once persons are deemed to be acting in concert, their holdings and subsequent acquisitions are aggregated and treated as if made by a single person for the purposes of the Code. Therefore, any purchases by either Mr. Chan or Ms. Lee must be combined to assess whether the creeper threshold has been breached.

Statement III is correct. The concert party’s holding began at 32%. This percentage becomes the ‘lowest percentage holding’ for the purpose of the 2% creeper rule (Rule 26.1(c)). Mr. Chan’s acquisition of 1.5% increased the concert party’s holding to 33.5%. As this 1.5% increase did not exceed the 2% allowance, it did not trigger a mandatory offer at that specific time.

Statement IV is correct. Following Mr. Chan’s acquisition, Ms. Lee acquired a further 1.0%. The total net acquisitions by the concert party within the 12-month period must be aggregated (1.5% + 1.0% = 2.5%). Since this cumulative acquisition of 2.5% is more than the 2% creeper allowance, Ms. Lee’s transaction triggered a mandatory general offer obligation for the concert party. Therefore, statements II, III and IV are correct.

Under Rule 3 of the Hong Kong Code on Takeovers and Mergers, when an offeree company is approached, its board has specific obligations. Statement I is incorrect; the board does not need to make an immediate announcement upon being approached. Instead, its primary duty is to maintain secrecy and closely monitor its share price and trading volume. An announcement is only triggered by specific events. Statement II is correct. An announcement is required if discussions are extended beyond a very restricted group of people (i.e., those who need to know, such as the board and immediate advisers), as this increases the risk of a leak. Statement III is also correct. A key trigger for an announcement is the presence of rumour or speculation, or if there is undue movement in the offeree company’s share price or trading volume. Statement IV is incorrect. The offeree company has its own independent announcement obligations under the Takeovers Code that are separate from and may arise well before any formal announcement (including a Rule 3.5 announcement) is made by the potential offeror. Therefore, statements II and III are correct.

Under the Hong Kong Code on Share Buy-backs, an off-market share buy-back requires a high level of disclosure to ensure that disinterested shareholders can make an informed decision. Statement I is correct because the circular must contain advice from an independent financial adviser and a recommendation from an independent committee of the board to provide an objective assessment of the transaction’s fairness. Statement II is correct as, for an off-market buy-back specifically, the identity of the offeree(s) and the detailed terms of the agreement are crucial information that must be disclosed to other shareholders. Statement IV is correct because, similar to a takeover offer, the circular must include a confirmation that the company has sufficient financial resources to complete the buy-back, ensuring the offer is credible and will not jeopardize the company’s financial stability. Statement III is incorrect because the Executive’s approval is normally conditional upon, among other things, the approval of disinterested shareholders at a general meeting. The circular is issued to obtain this shareholder approval; therefore, the Executive would not have granted unconditional approval at this stage. Therefore, statements I, II and IV are correct.

The Hong Kong Code on Takeovers and Mergers places significant emphasis on the independence and objectivity of the Independent Financial Adviser (IFA). The IFA’s primary role is to provide impartial advice to the independent shareholders of the offeree company, helping them decide whether an offer is fair and reasonable. A crucial aspect of maintaining this independence relates to the IFA’s remuneration. Fee arrangements that are contingent on the outcome of the offer, such as a success fee or a completion bonus payable only if the deal goes through, create a powerful financial incentive for the adviser to recommend the offer, irrespective of its merits for the shareholders. This directly conflicts with the duty to provide objective advice. Therefore, the Takeovers Code states that such contingent fee arrangements would normally disqualify a financial adviser from acting as an IFA. While an adviser with a potential conflict can attempt to satisfy the Takeovers Executive that it can still provide objective advice, a fee structure directly tied to the success of the offer presents a very high, and typically insurmountable, hurdle. Disclosure of the conflict alone is insufficient to remedy the fundamental impairment of objectivity. This principle applies independently of other potential conflicts, such as holding shares in the offeree company.

This question assesses the public disclosure obligations for an associate of an offeree company during a takeover period, as stipulated by Rule 22 of the Hong Kong Code on Takeovers and Mergers. Statement I is correct. The general deadline for disclosing dealings is noon on the business day following the transaction (T+1). Statement II is incorrect. Note 6 to Rule 22 specifies that where a dealing is done by a fund manager on behalf of discretionary clients, it is not necessary to name the clients in the disclosure. Statement III is incorrect. The disclosure must state the correct reason for the associate status. In this scenario, PAM is an associate because it holds more than 5% of the offeree’s shares, not because it manages accounts holding those shares. The reason provided is misleading and inaccurate for this specific case. Statement IV is correct. Note 8 to Rule 22 requires that if the disclosure is made by a person who is an associate by virtue of holding 5% or more of the shares of an offeror or offeree company, a statement to that effect must be included. Therefore, statements I and IV are correct.

A key distinction between a general offer and a scheme of arrangement lies in the procedural timetable and approval mechanism, which is heavily influenced by court involvement in a scheme. Statement I is correct because, unlike the strict 21-day deadline for posting an offer document in a general offer (Rule 8.2 of the Takeovers Code), the timetable for dispatching a scheme document is subject to the court’s schedule and must be agreed with the Executive. This often results in a longer period. Statement II is also correct. A scheme of arrangement is a court-supervised process under the Companies Ordinance, which requires a court-convened meeting for shareholders to vote on the proposal. This is a fundamental procedural step not present in a general offer, which relies on individual shareholders accepting the offer. Statement III is incorrect; it confuses the approval threshold for a scheme with the compulsory acquisition threshold for a general offer. A scheme requires approval by a majority in number of shareholders representing at least 75% in value of the shares voted at the court meeting, not a 90% acceptance level. Furthermore, effectiveness is achieved upon court sanction and registration of the court order, not merely upon reaching a shareholder approval threshold. Statement IV is incorrect because the timetable for a scheme is significantly dictated by the High Court’s schedule for hearings, not primarily by the Executive. Due to the necessary court proceedings, a scheme is often a more lengthy process than a typical general offer. Therefore, statements I and II are correct.

A financial adviser must conduct thorough due diligence before accepting an engagement for a transaction governed by the Codes on Takeovers and Mergers and Share Buy-backs. Statement I is correct as identifying and managing potential conflicts of interest is a fundamental preliminary step. An adviser cannot act if a conflict impairs its ability to provide impartial advice. Statement II is also correct; under the SFC’s Code of Conduct, a licensed corporation must ensure it has the necessary resources, staffing, and expertise to competently handle any mandate it accepts. A takeover is a highly complex process requiring specialist skills. Statement IV is correct because the adviser must be satisfied with the client’s commercial rationale and understanding of its regulatory obligations to ensure the offer is bona fide and to mitigate regulatory risk. Statement III is incorrect. While the financial adviser must have a reasonable basis to believe the offeror can meet its financial obligations (Rule 3.5 of the Takeovers Code), the requirement to secure a final, irrevocable confirmation of financial resources applies at the time of the formal offer announcement, not as a precondition for the adviser to simply accept the engagement. The initial assessment is one of reasonable belief, not final confirmation. Therefore, statements I, II and IV are correct.

Under the Codes on Takeovers and Mergers and Share Buy-backs, a share buy-back by a company can have the effect of increasing the percentage of voting rights held by its remaining shareholders. This is a critical consideration for any shareholder or concert party group holding a significant stake. Specifically, Rule 26 of the Takeovers Code mandates a general offer if a person or concert party acquires 30% or more of a company’s voting rights. While an increase in a shareholding resulting purely from a company’s share buy-back is not normally treated as an ‘acquisition’ that triggers this obligation (as per the note to Rule 32 of the Share Buy-backs Code), this ‘whitewash’ is not absolute. The exemption does not apply if the shareholder or concert party knew or should have known that the buy-back would result in them crossing the 30% threshold. In such a case, the increase in their stake would trigger a mandatory general offer obligation. This principle also applies to the ‘creeper’ provision, where a holding between 30% and 50% increases by more than 2% in a 12-month period. It is important to distinguish this Takeovers Code requirement from other regulations, such as the pricing restrictions and the 10% general mandate limit for buy-backs, which are governed by the Rules Governing the Listing of Securities.

Under the Hong Kong Code on Takeovers and Mergers, when a company is subject to a privatisation offer via a scheme of arrangement, the board of the offeree company has a critical duty to protect the interests of its shareholders, particularly the minority or independent shareholders. To this end, Rule 2.1 of the Code mandates the establishment of an Independent Board Committee (IBC). The primary function of the IBC is to make a recommendation to the independent shareholders as to whether the offer is, or is not, fair and reasonable and whether they should vote in favour of it. To fulfill this duty, the IBC must appoint an Independent Financial Adviser (IFA) to provide impartial advice. The IFA’s opinion forms the basis of the IBC’s recommendation, which is then included in the scheme document sent to all shareholders. While the board may engage in discussions that could lead to a revised offer, its formal responsibility is to advise, not to directly negotiate. The responsibility for confirming the offeror’s financial resources lies with the offeror’s financial adviser. The preparation of the scheme document is a collective effort, but the IBC’s specific and most crucial contribution is its considered recommendation based on the IFA’s advice.

Under the Codes on Takeovers and Mergers and Share Buy-backs, the TC Adviser (also known as the financial adviser to the offeror) has specific and critical responsibilities. Statement I is correct because Rule 2.1 of the Takeovers Code explicitly requires that a financial adviser will not be considered appropriate to act in a takeover unless it can satisfy the Executive that it is independent. Statement II is also correct as the TC Adviser’s primary role is to guide its client (the offeror) and ensure, to the best of its ability, that the client and its concert parties understand and abide by the Code’s provisions. Statement III is incorrect; this describes the duty of the Independent Financial Adviser (IFA), who is appointed by the offeree company’s board to advise its independent shareholders on the fairness and reasonableness of the offer. The offeror’s TC Adviser does not perform this function for the target’s shareholders. Statement IV is incorrect because the mere appointment of a TC Adviser does not automatically trigger a public announcement. An announcement is typically required under Rule 3 when a firm intention to make an offer is notified to the offeree board, or earlier if there is a leak or untoward share price movement. Therefore, statements I and II are correct.

According to the Hong Kong Code on Takeovers and Mergers, once an offeror has announced a firm intention to make an offer, this announcement is treated as a binding commitment. The ability to withdraw the offer is severely restricted to maintain market certainty and protect the interests of the offeree company’s shareholders. The Takeovers Code specifies that an offer can only be withdrawn with the consent of the Takeovers Executive or if a pre-stated condition of the offer is not satisfied in a material way. The Executive will not grant consent for withdrawal based on general adverse changes in the economic, industrial, or political environment, or a fall in the market value of the target company. The offeror is expected to have secured its financing before making a firm announcement. The Executive may, however, consent to a withdrawal in exceptional circumstances, a key example being the announcement of a superior competing offer by a third party, as this provides the target shareholders with a better alternative.

This question assesses the specific prohibitions placed on an Exempt Principal Trader (EPT) that is connected with an offeror under the Hong Kong Code on Takeovers and Mergers. An EPT is connected with an offeror if it is in the same group of companies as the offeror’s financial adviser.

Statement I is correct. An EPT connected with the offeror is explicitly prohibited from exercising any votes associated with the relevant securities in the context of the offer.

Statement II is correct. An EPT connected with the offeror must not accept the offer until the offer is declared unconditional as to acceptances. Tendering shares before this condition is met is a breach of the Code.

Statement III is correct. The Code prohibits an EPT connected with the offeror from dealing in relevant securities with the offeror or its concert parties.

Statement IV is incorrect. The very purpose of the EPT status is to allow the entity to continue its bona fide principal trading activities, such as derivative arbitrage or hedging, without being presumed to be a concert party. As long as these dealings are not carried out with the purpose of assisting the offeror, they are permitted. Therefore, statements I, II and III are correct.

According to the Hong Kong Code on Takeovers and Mergers, when an offeror or its advisers solicit shareholders to accept an offer, strict rules apply to ensure fairness and prevent the selective disclosure of information. Any communication with shareholders, particularly non-institutional ones, must be handled by staff of the financial adviser who are fully conversant with their responsibilities under the Code. The core principle is that only information that has already been made public, and which remains accurate and not misleading, may be used in these discussions. If any new material information or significant new opinion is inadvertently shared with a shareholder, it must be immediately disclosed to all other shareholders through a public announcement. Furthermore, the soliciting party must not exert undue pressure on shareholders and must actively encourage them to consult their own independent professional advisers before making a decision. Offering different terms to different shareholders would violate the principle of equal treatment for all shareholders. The financial adviser is also required to confirm in writing to the Executive by noon of the following business day that no new material information was provided during such meetings.

This question tests the understanding of the rights and obligations of the offeror and the offeree company’s board immediately following a takeover offer becoming unconditional in all respects, as governed by the Hong Kong Code on Takeovers and Mergers.

Statement I is correct. Once an offer is unconditional, the successful offeror has the right to requisition a general meeting of the offeree company’s shareholders. A primary reason for this is to exercise its new control by appointing its own nominees to the board of directors.

Statement II is correct. The Takeovers Code explicitly states that the offeree company’s board is expected to cooperate with such a request from the offeror and convene the general meeting as soon as possible.

Statement III is incorrect. The timeline for the offeror to confirm compliance with rules on subsequent purchases and special deals is not one month. According to the Takeovers Code, the offeror must make this confirmation within three business days of the expiry of six months from the end of the offer period.

Statement IV is incorrect. The restrictions on the offeree board undertaking frustrating actions (such as significant asset disposals) without shareholder approval continue to apply after an offer becomes unconditional. To proceed with such a disposal, the board would require the consent of the offeror or the approval of the offeree company’s shareholders. Therefore, statements I and II are correct.

The Codes on Takeovers and Mergers and Share Buy-backs (the ‘Takeovers Code’) establish strict rules regarding dealings in the securities of an offeree company before a potential offer is publicly announced. A core principle is to prevent the misuse of confidential, price-sensitive information. Specifically, any person who is privy to information that an offer is being contemplated is prohibited from dealing in the securities of the offeree company. This prohibition extends beyond the offeror itself to include its advisers, such as financial analysts, lawyers, and accountants, who gain access to this information in a professional capacity. The restriction is in place precisely during the pre-announcement phase, as this is when the information asymmetry is at its greatest. Furthermore, such actions are also governed by the Securities and Futures Ordinance (SFO). Possessing specific, non-public information about a potential takeover, such as the offer price and timing, constitutes ‘relevant information’ (or inside information). Dealing on the basis of such information would likely be considered insider dealing, which carries severe civil and criminal penalties under the SFO. The restrictions are not limited to the offeror and its concert parties but apply to any individual with confidential knowledge. The rules do not provide for a de minimis exemption for such dealings, as the principle is about preventing the use of privileged information, regardless of the transaction size.

This question tests the application of the ‘creeper’ provision under Rule 26 of the Hong Kong Code on Takeovers and Mergers. The creeper rule applies to a person or a concert party holding not less than 30% but not more than 50% of a company’s voting rights. A mandatory offer obligation is triggered if such a party acquires additional voting rights that increase their holding by more than 2% from their lowest percentage holding in the 12-month period ending on the date of the acquisition. In the scenario, the consortium’s holding is within the 30%-50% range. The key is to identify the lowest holding in the preceding 12 months, which was 33%. After the final 1.5% acquisition, their holding becomes 36.5%. The total increase from the lowest point (33%) is 3.5% (36.5% – 33%). Since this 3.5% increase exceeds the 2% creeper threshold, a mandatory general offer obligation is triggered. The size of the last individual acquisition (1.5%) is irrelevant; it is the cumulative increase from the lowest point within the 12-month look-back period that matters.

Statement I is correct. The Takeovers Code establishes that the proceedings before the Takeovers Appeal Committee (TAC) are generally conducted in a similar way to those before the Takeovers and Mergers Panel, ensuring consistency in procedural fairness. Statement II is correct. Parties involved in TAC proceedings are subject to the same strict confidentiality requirements as those in Panel meetings. They are prohibited from making public announcements or comments about the ruling or the meeting’s details until the ruling is officially published by the Executive. Statement III is incorrect. While parties may be advised of the outcome verbally, the Takeovers Code specifies that the TAC’s ruling and the detailed reasons for it will be provided to the parties in writing. The written record is the formal communication of the decision. Statement IV is correct. The Executive’s practice is to normally publish its disciplinary rulings, and this practice extends to disciplinary rulings made by the TAC. This is to ensure transparency and provide guidance to the market. Therefore, statements I, II and IV are correct.

Under the Hong Kong Code on Takeovers and Mergers, when an offer involves a securities exchange, the offeror and its concert parties are generally prohibited from dealing in the securities of the offeror during the offer period without the consent of the Executive. This prohibition explicitly includes entering into or unwinding securities borrowing and lending (SBL) transactions. However, a specific exemption exists for an Exempt Principal Trader (EPT). An EPT, even if it is the offeror or a concert party, is not subject to this restriction on SBL activities, provided that these transactions are conducted in the ordinary course of its business. A breach of this rule by a non-exempt party, or an EPT acting outside its ordinary course of business, would be considered a serious breach of the Code and could lead to disciplinary action, including the potential suspension of the EPT’s exempt status.

This question assesses the understanding of the fundamental General Principles of the Hong Kong Code on Takeovers and Mergers.

Statement I is correct. It reflects the core of General Principle 3, which states that information provided to some shareholders (including a bona fide potential offeror) must be made available to all shareholders. While confidential information can be shared during due diligence, the offer document must contain this information to ensure all shareholders are equally informed.

Statement II is correct. This is a direct application of General Principle 1, which mandates that all shareholders are to be treated even-handedly and all shareholders of the same class are to be treated similarly. This is a cornerstone of takeover regulation.

Statement III is incorrect. This contradicts General Principle 4, which requires that an offer should only be announced after careful and responsible consideration, and the offeror must be satisfied that it can and will continue to be able to implement the offer in full. Announcing an offer before securing the necessary funding would be a breach of this principle.

Statement IV is incorrect. The Codes explicitly state that their spirit, as well as their letter, must be observed. The General Principles can apply even in situations not covered by a specific rule. Relying solely on the letter of the rules while ignoring the underlying principles is a misapplication of the Code, and consulting the Executive in cases of doubt is strongly encouraged, not optional. Therefore, statements I and II are correct.

According to the Hong Kong Code on Takeovers and Mergers, an offeror must carefully manage its actions prior to the announcement of a firm intention to make an offer. When seeking irrevocable commitments from shareholders of the offeree company, specific rules apply to ensure fairness and prevent the creation of a false market. The Takeovers Code provides a specific safe harbour allowing an offeror to approach a very limited group of shareholders without needing to obtain prior consent from the Takeovers Executive. This exception is narrowly defined: the offeror may approach no more than six shareholders, and these must be sophisticated investors who hold a controlling interest. Any plan to approach shareholders beyond this specific group, such as other institutional or retail shareholders, requires the prior consent of the Executive. When such consent is granted, the Executive will typically impose conditions, such as a strict time limit for the approaches and a cap on the total number of shareholders who can be contacted. The Executive may be more flexible with the number of shareholders if the offer is recommended by the board of the offeree company, but this flexibility is still subject to the Executive’s consent and does not override the initial rule for acting without consent.

Under the Hong Kong Code on Takeovers and Mergers, an increase in a shareholder’s voting rights resulting from a company’s share buy-back is treated as an acquisition by that shareholder. If such an increase causes a shareholder (or a group of shareholders acting in concert) to cross a trigger threshold, such as 30%, it will normally result in an obligation to make a mandatory general offer for all other shares. However, the Takeovers Executive may grant a waiver from this obligation, commonly known as a ‘whitewash waiver’. The fundamental condition for granting this waiver is to ensure that the shareholders who are not involved in the transaction have the opportunity to approve it. Therefore, the waiver is conditional upon approval by a vote of the independent shareholders at a general meeting. These are shareholders other than the person (and their concert parties) whose shareholding increase would otherwise trigger the mandatory offer. The company must issue a circular to shareholders containing, among other things, the advice of an independent financial adviser on the share buy-back and the waiver.

According to Schedule I of the Hong Kong Code on Takeovers and Mergers, an offer document must contain a description of how the offer is to be financed, including the sources of finance and the names of principal lenders. A critical aspect of this rule is the level of detail required, which depends on the nature of the financing. Specifically, if the repayment of any loan or financial arrangement is contingent to a significant degree on the business or assets of the offeree company, full details of these arrangements must be disclosed. This is to ensure that the offeree company’s shareholders can make an informed assessment of the potential impact of the acquisition financing on the company’s future financial stability and operations. A simple confirmation of sufficient resources from a financial adviser does not substitute this specific disclosure requirement. If no such arrangements exist, an appropriate negative statement must be included.

Statement I is correct. Under Rule 21.4 of the Hong Kong Code on Takeovers and Mergers, no person who is privy to information that an offer is being contemplated may deal in the securities of the offeror if the offer is price-sensitive. The Exempt Principal Trader (EPT) desk, being part of the advisory firm, is considered privy to this information. Securities borrowing and lending (SBL) is a form of dealing, and thus it is prohibited before the offer is publicly announced. Statement II is correct. This reflects a specific exemption noted in the Takeovers Code. While Rule 21.2 generally restricts dealings by an offeror or its concert parties in the offeror’s securities during a securities exchange offer, a specific note clarifies that an EPT carrying out SBL transactions in the ordinary course of its business is not subject to this particular restriction. Statement III is correct. The Takeovers Code treats breaches of dealing restrictions very seriously. A breach by an EPT can lead to disciplinary action by the Takeovers Executive, which includes the potential suspension of the firm’s exempt status. Statement IV is incorrect. While EPTs have disclosure obligations for their dealings, disclosure does not grant an exemption from a fundamental prohibition. The prohibition on dealing based on price-sensitive, non-public information (as in the pre-offer period) cannot be cured simply by disclosing the transaction. Therefore, statements I, II and III are correct.

Under the Securities and Futures Ordinance (SFO), a person is required to comply with requests for information or documents made by an SFC investigator. Failure to do so without a ‘reasonable excuse’ constitutes an offence. If a person is genuinely unable to produce the required evidence (for example, if it has been irretrievably lost or destroyed through no fault of their own), they cannot simply ignore the request or provide an informal explanation. The prescribed legal procedure to establish a reasonable excuse in such a situation is to make a statutory declaration. This is a formal, sworn statement made before a person legally authorised to take such declarations (like a commissioner for oaths), which outlines the specific reasons for the inability to provide the evidence. This formal act serves as a proper response to the investigator’s request and can be used as a defense against an accusation of non-compliance. Simply writing a letter lacks the legal weight of a sworn statement, while involving other authorities like the police is generally not the required procedure unless a crime is suspected. Refusing to cooperate would be a direct breach of the SFO.

According to the Hong Kong Code on Takeovers and Mergers, the independence and objectivity of an Independent Financial Adviser (IFA) are paramount. A fee structure that is contingent on the outcome of the offer, such as a ‘success fee’ payable only if the offer proceeds, creates a significant potential conflict of interest. This is because the adviser’s financial incentive becomes aligned with a specific outcome, which could compromise its ability to provide impartial advice to the independent shareholders. The Code establishes a high bar for any firm with such a potential conflict. The primary obligation is not merely to disclose the conflict, nor is it to seek shareholder approval, which cannot override regulatory requirements. While such an arrangement would normally disqualify a firm, it is not an absolute prohibition without recourse. The core principle is that the adviser must proactively engage with the Executive (the Director of the Corporate Finance Division of the SFC or any delegate) and bear the onus of proving that it can overcome this conflict and provide genuinely objective advice. The Executive will then determine if the adviser is suitable to act as the IFA in the specific circumstances.