On 18 November 2022, the Executive of the Securities and Futures Commission in Hong Kong published a new Practice Note 24 (PN 24) on the appointment of receivers and liquidators and when to commence offer periods.
In Takeovers Bulletin No. 52 issued in March 2020, the Executive noted an increase in the number of cases where lenders enforced security over controlling stakes in listed companies. For enforcement, it is common for lenders to appoint independent receivers or seek to appoint liquidators to take over the secured assets. The Executive expected that the independent receivers or liquidators would normally be looking to dispose of the secured assets which might give rise to a possible offer. Therefore, the Executive took the view that an offer period would commence as soon as the independent receiver or liquidator took control of 30% or more of the voting rights of a company and an announcement under Rule 3.7 of the Takeovers Code would be expected to be published when this happened.
Subsequent to the issue of Takeovers Bulletin No. 52, the Executive observed that in a number of cases where receivers or liquidators were appointed in respect of controlling stakes in listed companies, such appointment did not result in any offer or change of control. In some cases, there had been little, if any, developments for over two years since the appointment. In many instances, the relevant receiver or liquidator might not have been actively seeking or negotiating with a potential purchaser, and in other instances, there might be settlement talks between the lender and the borrower.
Under the Takeovers Code, an offeree company in an offer period is subject to a range of restrictions to their normal operations and additional compliance restrictions including restrictions on frustrating actions and reporting on profit forecasts. The Executive considered it inappropriate to keep an offer period open or to commence an offer period when there is unlikely to be an imminent offer. There may also be possible false market concerns for an offeree company to be in an offer period when, in reality, there is unlikely to be an imminent offer.
As a result, PN 24 provides that the Executive will no longer expect an offer period to commence upon the appointment of a receiver or liquidator, even if this may result in a possible change of control, unless the receiver or liquidator indicates that: (i) it is actively looking for a potential purchaser for the controlling stake; or (ii) it is already in discussion with a potential purchaser over the controlling stake. In cases where the appointment of a receiver or liquidator did not initially result in the commencement of an offer period, the receiver or liquidator and any future potential purchaser should take all necessary steps to maintain confidentiality of information relating to a possible offer and to ensure there is no leakage of such information.
PN 24 expressly provides that it does not affect a party’s obligations to disclose inside information under the Securities and Futures Ordinance (CAP. 571 of Laws of Hong Kong) (SFO). It is expected that listed companies will continue to issue announcements if receivers or liquidators have been appointed over their controlling stakes. It should also be noted that when receivers or liquidators acquire shares of listed companies, notices disclosing their interests are usually filed under Part XV of the SFO, and it is expected that receivers and liquidators will continue to do so when they acquire interests in listed companies.
