Hong Kong Companies Ordinance: Virtual Company Meetings
Companies Ordinance amendments facilitate virtual company meetings
Amendments to the Securities and Futures (Professional Investor) Rules relaxing evidential requirements to establish whether a person qualifies as a non-institutional professional investor will facilitate dealings with persons on the basis of professional investor exemptions. However, the passage of these amendments through the Legislative Council suggests that the legislative climate for the sale of investment products to persons other than institutional professional investors remains hostile, despite a number of measures already taken to raise standards in this regard. A broad review of the professional investor regime would not be unexpected.
Whilst amendments to the Securities and Futures (Professional Investor) Rules (”Professional Investor Rules”) relaxing evidential requirements came into effect on December 16, 2011, the passage of these amendments through the Legislative Council highlights political difficulties for the financial industry going forward.
Broadly, the Securities and Futures Ordinance (“SFO”) establishes 2 categories of professional investors, namely (i) institutional professional investors, which, in lay terms, includes regulated banks, insurance companies, brokers, asset managers, pension and certain other investment funds and government bodies (other than municipal governments), and (ii) non-institutional professional investors. The Professional Investor Rules prescribe who qualifies as a non-institutional professional investor, setting out 3 classes of persons:
Securities laws exempt professional investors from a number of regulatory requirements on the basis that such investors are more sophisticated, better able to bear losses or adequately resourced to seek professional advice. Most significantly, offers of securities in Hong Kong to professional investors are exempt from authorization by a Hong Kong regulator.
The amendments to the Professional Investor Rules facilitate dealings on the basis of professional investor exemptions, making 2 changes.
First, they dispense with the express requirement for custodian statements or audited financial statements to evidence that a person meets the portfolio or asset thresholds to qualify as a non-institutional professional investor. Consequently, a person who meets the relevant portfolio or asset thresholds will no longer be disqualified from being treated as a non-institutional professional investor on the basis that he fails to produce custodian statements or audited financial statements to evidence compliance with such thresholds.
Secondly, the amendments include as non-institutional professional investors investment holding corporations wholly owned by substantial corporations, partnerships or trust corporations. Previously, only investment holding corporations wholly owned by high net worth individuals qualified.
The Securities and Futures Commission (“SFC”) has the power to make subsidiary legislation, such as the Professional Investor Rules, but subject to the power of the Legislative Council to amend such subsidiary legislation.
Whilst the amendments to the Professional Investor Rules ultimately passed as originally drafted by the SFC, members of the Legislative Council looked at additional hurdles for a person to qualify as a non-institutional professional investor. In particular:
The Legislative Council debate suggests that even 3 years after the Lehman mini-bond crisis and despite measures taken by the SFC and the Hong Kong Monetary Authority to raise standards in the sale of investment products, the legislative climate for the sale of investment products to anyone other than institutional professional investors remains hostile. In light of the debate, a further review of the Professional Investor Rules and, possibly, the wider framework for the sale of investment products would not be unexpected.
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