The Dynamics of Shareholder Engagement and Activism
in Hong Kong and China 2017
Last year on November 11, the first ever substantive one-day Conference on Shareholder Engagement and Shareholder Activism was held in Hong Kong at the Conrad. Because of the success of this event, we are organizing a follow-up, full-day seminar exploring more deeply engagement and activist developments in the past year in Hong Kong (ONC Lawyers and Hong Kong friends and clients). We will also go beyond a strictly Hong Kong focus and investigate both certain Corporate Governance developments in Mainland China and delve into the tension between minority shareholder protection afforded by the Hong Kong Corporate Governance regime, as opposed to relatively weak such protections under the laws of the Cayman Islands and British Virgin Islands (BVI) legal regimes (analysis with the help of offshore expert firms – Mr Ian Mann of Harneys, Mr Oliver Payne of Ogier and Mr Nigel Meeson QC of Conyers, Dill & Pearman).
At the same time, we will report on local Hong Kong market developments and key legal strategies both from the perspective of institutional investor and hedge fund value investors on one hand, and controlling shareholders and their management representatives on the other. Again, just as last year, we have experienced Hong Kong and international experts giving insights into the different vantage points and perspectives of institutional investors (BlackRock), activist hedge funds (Pershing Square), attack (Olshan Frome Wolosky) and defense perspectives (Evercore), debt-equity swap, change-of-corporate-control developments in the PRC and informal reconciliation of the opposing interests between investors and controlling shareholders in both Hong Kong and Continental Europe (de Chapeaurouge + Partners)
The legal positions of minority shareholder protection in Hong Kong are to be viewed in light of the contradictory regulatory regimes between the places of incorporation and registration for most Hong Kong listcos – notably Cayman Islands and BVI - and the Hong Kong Stock Exchange (HKEx) Listing Rules, plus various Ordinances. This regulatory conundrum has its roots in the offshore nature of Hong Kong public company corporate life in that over 80 per cent of all companies listed on the HKEx are ‘non-Hong Kong companies’, not formed and registered under the Companies Ordinance (CO) (because they are incorporated in the PRC, Cayman Islands, BVI, or Bermuda for the most part). Consequently, they are not subject to the CO’s provisions, with the exception of Part XI and some other provisions, and can be regulated only by the non-statutory Listing Rules and Corporate Governance Code. In addition, they are subject to Parts XIII, XIV, XIVA and XV of the Securities and Futures Ordinance.
The deeper problem is the ensuing regulatory disconnect and dissonance, i.e. ascertainable lack of minority shareholder rights in these offshore jurisdictions, especially Cayman Islands and BVI, as opposed to fairly developed minority shareholder rights protection afforded under Hong Kong’s Corporate Governance regime, particularly the Listing Rules and various Ordinances. With these qualifications in mind, greater emphasis has to be placed on informal arrangements between engaged stakeholders and shareholders on one hand, and listco management and controllers on the other, in resolving their differences of assessment, opinions and disputes.