Corporate Governance 3 - Corporate Governance
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Questions and Answers

What is the aggregate value threshold for immediate announcement of a transaction under Rule 905?

  • 5% of the listed group's latest Audited Net Tangible Assets
  • 3% of the listed group's latest Audited Net Tangible Assets (correct)
  • 1% of the listed group's latest Audited Net Tangible Assets
  • 10% of the listed group's latest Audited Net Tangible Assets

Under which condition must a listed issuer obtain shareholders' approval for an IPT?

  • When it is equal to or more than 5% of NTA (correct)
  • When it is below $100,000
  • When it is valued at less than 5% of NTA
  • When it is part of a series of transactions exceeding $100,000

What is the purpose of the de minimis rule regarding transactions under $100,000?

  • To prevent aggregation of transactions by the stock exchange
  • To ensure that minor transactions do not require disclosure
  • To allow companies to circumvent reporting by splitting transactions
  • To exempt all small transactions from reporting (correct)

What does Rule 907 require an issuer to disclose?

<p>The aggregate value of IPTs entered into during the financial year (B)</p> Signup and view all the answers

What is one way companies try to evade the $100,000 materiality threshold?

<p>By splitting transactions into smaller amounts below $100,000 (D)</p> Signup and view all the answers

What authority does the stock exchange have regarding transactions below $100,000?

<p>To aggregate such transactions and treat them as one (B)</p> Signup and view all the answers

What is the materiality threshold set for IPTs to avoid disclosure if transactions are aggregated?

<p>$100,000 (D)</p> Signup and view all the answers

The listing rules apply to which of the following types of transactions?

<p>An inclusive list of various transaction types (D)</p> Signup and view all the answers

Which of the following transactions does not require immediate announcement under the listing rules?

<p>A transaction valued at $50,000 (A)</p> Signup and view all the answers

What type of transactions do not require shareholder approval according to listing rule 915?

<p>Pro-rata shares grants (A)</p> Signup and view all the answers

Which of the following transactions is considered a transaction requiring disclosure under rule 916?

<p>Lease of property for 2 years with an interested person (C)</p> Signup and view all the answers

Which of the following does NOT represent an exception in listing rule 915?

<p>Directors' annual bonuses (D)</p> Signup and view all the answers

What is the purpose of the general shareholders mandate allowed under Listing Rule 920?

<p>To provide general approval for recurrent transactions (C)</p> Signup and view all the answers

Which of the following statements correctly describes an IPT as outlined in the content?

<p>IPTs do not include transactions at publicly quoted rates (D)</p> Signup and view all the answers

Which of the following is NOT an exception for shareholder approval as discussed in the content?

<p>Mixed-use property acquisitions (A)</p> Signup and view all the answers

Under which condition can leases of property be exempt from getting shareholder approval?

<p>For leases with an interested person lasting no more than 3 years (D)</p> Signup and view all the answers

Which area is identified as needing announcement and disclosures under rule 916?

<p>Co-investment in joint ventures (C)</p> Signup and view all the answers

What type of remuneration is specifically mentioned as exempt from being categorized as IPT?

<p>Golden and Perishwood payments (D)</p> Signup and view all the answers

What obligation remains even when certain transactions do not require shareholder approval, according to rule 916?

<p>Announcement and report disclosures are still required (A)</p> Signup and view all the answers

What is required if a company deviates from the principles established in the code?

<p>The company must justify the deviation and explain compliance with applicable principles. (B)</p> Signup and view all the answers

How many provisions exist under the code, and what is their application basis?

<p>52 provisions applied on a comply or explain basis. (D)</p> Signup and view all the answers

What characterizes the practice guidance within the corporate governance framework?

<p>It consists of non-binding guidelines representing best practices. (A)</p> Signup and view all the answers

What are the 13 principles in the code meant to embody?

<p>Overarching and non-disputable statements for good corporate governance. (A)</p> Signup and view all the answers

Which entity issues the practice guidance for corporate governance?

<p>The MES and overseen by the Corporate Governance Advisory Committee. (D)</p> Signup and view all the answers

What is the primary concern related to Interested Person Transactions (IPTs)?

<p>They may lead to conflicts of interest. (B)</p> Signup and view all the answers

Which rule emphasizes the need to focus on the economic and commercial substance of IPTs?

<p>Rule 902 (A)</p> Signup and view all the answers

Which of the following statements accurately defines a controlling shareholder?

<p>Someone who exercises control over the listed issuer, regardless of ownership percentage. (C)</p> Signup and view all the answers

Who is classified as an associate in the context of IPTs?

<p>Immediate family members of directors and controlling shareholders. (B)</p> Signup and view all the answers

What does listing rule 904 empower the stock exchange to do?

<p>Deem any person as an interested person regardless of their formal classification. (C)</p> Signup and view all the answers

Why is the definition of an interested person significant in corporate governance?

<p>It defines who can influence financial decisions impacting shareholders. (B)</p> Signup and view all the answers

What is the intended purpose of Chapter 9 in the Listing Manual?

<p>To regulate the conduct and risk of IPTs. (B)</p> Signup and view all the answers

What is the primary purpose of obtaining a general mandate from shareholders?

<p>To lay out control measures for safeguarding shareholders' interests (D)</p> Signup and view all the answers

What necessitated the revisions of the Corporate Governance Code through its iterations?

<p>The need to align with global best practices (C)</p> Signup and view all the answers

What distinguishes the principles of the Code from its provisions?

<p>Principles must always be followed, while provisions can be explained if not followed (D)</p> Signup and view all the answers

What advantage does the comply or explain approach provide?

<p>It allows flexibility in adopting governance practices while ensuring accountability (A)</p> Signup and view all the answers

How often must the general mandate be renewed?

<p>Annually (B)</p> Signup and view all the answers

Under rule 710, what information is a listed issuer required to provide about its governance practices?

<p>A description of practices with specific reference to the code's provisions (B)</p> Signup and view all the answers

Which of the following is true about the compliance requirements of the Corporate Governance Code?

<p>The code's provisions offer a choice between compliance and detailed explanations (D)</p> Signup and view all the answers

What was the primary inspiration behind the development of the Corporate Governance Code?

<p>The UK combined code developed from the Cadbury report (A)</p> Signup and view all the answers

What characteristic defines the comply or explain governance approach?

<p>A balancing method between strict laws and voluntary practices (C)</p> Signup and view all the answers

What happens if a listed issuer chooses not to comply with some provisions of the Code?

<p>They must provide an explanation and describe alternative practices followed (A)</p> Signup and view all the answers

Flashcards

Interested Person Transaction (IPT)

A transaction between a listed company (and subsidiaries/associated companies) and a person with a significant interest (e.g., director, controlling shareholder, or their associates).

Entity at Risk

A listed company, its subsidiaries, and associated companies that are subject to IPT regulations.

Interested Person

A person with a significant interest in a listed company, such as a director, controlling shareholder, or their associates.

Associate (IPT)

Immediate family members (spouse, children, etc.) and companies where they hold 30% or more interest.

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Controlling Shareholder

A person who owns 15% or more of a listed company's shares, or has control over it.

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Listing Rule 904

A listing rule that expands the definition of an interested person to include anyone potentially involved in a transaction with an entity at risk (even if not meeting the initial definition).

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Comply or Explain Regime

A system that requires companies to either follow governance rules or explain why they deviate.

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IPT Materiality Threshold

Transactions below $100,000 aren't subject to specific IPT rules.

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IPT (Interested Party Transaction)

Financial transactions between a listed company and a closely related party.

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Corporate Governance Principles

Overarching and mandatory statements outlining fundamental principles of good corporate governance. Companies must comply and explain how.

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Rule 905 Announcement Threshold (NTA)

Transactions exceeding 3% of a company's latest Audited Net Tangible Assets (NTA) must be immediately announced.

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Corporate Governance Provisions

Practical and actionable steps that guide companies in complying with the principles. Companies comply or explain their deviation.

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Rule 906 Shareholder Approval (IPT)

Transactions above 5% of NTA require shareholder approval.

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Rule 907 Annual IPT Disclosure

Companies must disclose the total value of IPTs in their annual report.

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Practice Guidance

Non-binding guidelines representing best practices for companies. Completely voluntary.

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Transaction Aggregation

The stock exchange can combine small transactions below $100,000 to determine if the sum of multiple deals, not individual transactions, is material.

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What is the difference between principles and provisions?

Principles are the fundamental rules that companies must follow. Provisions are detailed, actionable steps that guide companies in complying with the principles. Companies must either comply with the provisions or explain why they deviate.

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Disclosure of IPTs (relationship)

Companies must disclose the aggregate value of Interested Party Transactions (IPTs) with a specific person, considering their relationship to the issuer.

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Shareholder Mandate

A general approval from shareholders to cover specific kinds of transactions.

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Materiality Threshold Avoidance

Companies trying to avoid rules by splitting large transactions into multiple smaller ones.

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Listing Rule 915 Exceptions

Specific transactions that don't require shareholder approval or announcements under Listing Rule 915.

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General Mandate (IPT)

Pre-approval from shareholders allowing a listed company to conduct multiple Interested Person Transactions (IPTs) without requiring individual approvals each time.

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Dividend/Bonus/Preferred Offers

No shareholder announcement needed for these common share offerings.

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Control Measures (IPT)

Steps taken by a listed company to ensure shareholder interests are protected and the interested person's benefit doesn't outweigh the company's needs.

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Stock Options/Employee Schemes

Grants of stock options, other employee share option schemes do not necessitate shareholder approval under rule 915

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Code of Corporate Governance (Hong Kong)

A set of guidelines for good corporate practices in Hong Kong, updated periodically, with a focus on transparency and shareholder rights.

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916 Exceptions

Certain transactions under Listing Rule 916 don't require shareholder approval.

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Cadbury Report (UK)

A seminal report in the UK that prompted the development of the first Code of Corporate Governance in 1992.

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Publicly Quoted Fixed Scales

Purchasing goods or services at fixed public prices from publicly traded companies is an exception under Listing Rules.

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Financial Services

Transactions with licensed banks or financial institutions on normal commercial terms are exempt from Listing Rule 915 or 916.

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Mandatory Principles (Code of Corporate Governance)

Essential rules within the Code that all listed companies must follow.

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Provisions (Code of Corporate Governance)

Specific recommendations within the Code that companies can choose to follow or deviate from.

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Director/Employment Remuneration

Most director and employment pay is not considered an Investment Public Transaction (IPT).

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Rule 710 (Hong Kong)

A listing rule requiring companies to explain their corporate governance practices in their annual report, referencing the Code.

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Joint Venture Co-investments

Co-investing with interested parties in a joint venture. Exceptions apply.

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Alternative Practices (Code of Corporate Governance)

The methods companies use to comply with the mandatory principles when they choose not to follow a specific provision in the Code.

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Annual General Meeting (AGM)

A regular meeting where shareholders vote on matters like the general mandate for IPTs and the approval of the annual report.

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Study Notes

Corporate Governance: Interested Person Transactions (IPTs)

  • IPTs can influence an issuer and its subsidiaries/associated companies to engage in transactions with interested persons
  • Interested persons may:
    • Be directors
    • Be CEOs
    • Be controlling shareholders
    • Or their associates
  • Chapter 9 of the Listing Manual outlines rules for regulating IPTs
  • The economic and commercial substance of an IPT matters, not just the legal form
  • An associate includes:
    • Spouse
    • Child
    • Adopted child
    • Stepchild
    • Sibling
    • Parent
    • Trustee for immediate family members
    • Any company in which the controlling shareholder has a stake of 30% or more
  • A controlling shareholder holds 15% or more voting shares or has control
  • A transaction reaching 3% of the latest audited net tangible assets (NTA) of the listed group requires immediate announcement
  • An IPT exceeding 5% of the listed group's NTA requires shareholder approval
  • Transactions below $100,000 are exempt from these rules
  • Disclosure of the aggregate value of all IPTs in a financial year is required in the annual report, unless the transactions are below $100,000 or under a shareholder mandate

Comply or Explain Regime

  • A compromise approach to corporate governance
  • Companies must comply with mandatory principles
  • If variation from principles, the company must explain the rationale for the variation
  • Provides flexibility
  • Principles are separate from provisions of Code; principles are mandatory, provisions are "comply or explain"
  • This regime is detailed by rules, principles, and practice guidance in Chapter 9

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Related Documents

Corporate Governance 3 - Corporate Governance Code PDF

Description

This quiz covers the regulations and implications of Interested Person Transactions (IPTs) as outlined in Chapter 9 of the Listing Manual. It includes definitions of interested persons, the significance of transaction substance, and the thresholds for disclosure and approval. Test your understanding of how IPTs influence corporate governance.

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