A new HKICS guidance note seeks to bring some clarity to the complex due diligence required to successfully manage merger and acquisition transactions, and to highlight the role the company secretary can play in the process.

Mergers and acquisitions (M&A) are highly regulated corporate transactions and they are usually handled by a team of top executives, including the company secretary, and external advisers. A new guidance note published by The HKICS Takeovers, Mergers and Acquisitions Interest Group (see ‘The HKICS Interest Groups’ below) this month finds that many aspects of M&A transactions call upon the unique skills of the company secretary.

Regulatory compliance

M&A transactions are anything but routine corporate transactions. Depending of course on the scale of the transaction, they will typically involve complex negotiations between the parties involved, as well as substantial areas of legal compliance which need to be professionally managed. During the M&A process, regulatory compliance will often be handled by specialist legal advisors, but when an M&A transaction is under consideration by the board, the company secretary will need to ensure directors are adequately informed about the regulatory compliance implications. The guidance note suggests that the board and management should consider the following.

  • Are the records of the company (both statutory and financial) sufficiently clear and complete for the due diligence process?
  • Are the board and management sufficiently aware of the M&A process and their responsibilities throughout?
  • Is the company sufficiently aware of its obligations to third parties (for example shareholders of the company, banks, suppliers, customers) in terms of confidentiality, pre-emptive rights and change of control restrictions that may be relevant in an M&A transaction?
  • Is the company subject to restrictions on merger control or other restrictions under any applicable competition law?

Facilitation and record keeping

The company secretary has substantial experience, in the context of their board support work, in facilitating board meetings, providing information and advice to the board and record keeping, and these skills are called upon during M&A transactions. ‘The role of the company secretary will be to assist in the collation of documents, arranging meetings, and, importantly, providing advice and collating the paper trail for the board and management,’ the guidance note says.
Company secretaries also have very specific duties regarding record keeping during an M&A transaction. ‘The company secretary must ensure that there is a proper paper trail as there could be regulatory and other issues that arise during or after the transaction,’ the guidance note points out.


The guidance note devotes a lot of attention to the question of confidentiality. ‘Once the board and management start to engage in discussion with other parties, both within and outside the company, all members of the board and management should be highly alert to confidentiality issues and proper measures should be put in place to maintain the confidentiality of information and documents relating to the potential M&A project,’ the guidance note says.

The company secretary will typically have substantial experience in confidentiality protocols from their work ensuring compliance with disclosure requirements. The guidance note points out that the company secretary will usually be responsible for setting up a strong-room and to facilitate confidentiality internal controls.

‘Failure to abide by such obligations and comply with the relevant requirements may have negative consequences. On the other hand, good management of confidential information will help ensure a smooth M&A deal which is beneficial to all parties involved. In this connection, the company secretary will have to assist the board and management in the orderly dissemination of information,’ the guidance note states.

Inside information

A related area is the question of ensuring compliance with Hong Kong’s inside information regime. ‘The board and management should be aware of any inside information that may come into their possession during an M&A transaction, and the company secretary must help manage compliance and, where necessary, disclosure of the inside information as soon as practically possible,’ the guidance states.

Under the Securities and Futures Ordinance (SFO), companies are obliged to disclose as soon as reasonably practical any relevant information which would be likely to materially affect the price of the listed securities. Persons who obtain inside information during an M&A transaction must also take precautions to avoid dealing in the relevant securities, or disclosing such information to other parties who may deal in the relevant securities, as such conduct may constitute insider dealing in contravention of the prohibitions under the SFO.
The Takeover Codes (which apply to both public companies in Hong Kong as well as companies with a primary listing of their equity securities in Hong Kong) and the listing rules also restrict dealings in a target company’s securities in certain specified circumstances.

Please contact Mohan Datwani FCIS FCS(PE), Senior Director and Head of Technical & Research, HKICS, if you have any suggestions about topics relevant to this Interest Group, or generally at: mohan.datwani@hkics.org.hk.


SIDEBAR: The HKICS Interest Groups

The HKICS Takeovers, Mergers and Acquisitions Interest Group is one of seven groups set up last year under the Technical Consultation Panel to look into key areas of corporate governance and company secretarial practice with a view to producing guidance to HKICS members and the wider profession and community. The members of the Interest Group are: Michelle Hung FCIS FCS (Chairman), Member of Technical Consultation Panel, HKICS; Dr David Ng FCIS FCS; Henry Fung; Kevin Hoi; Lisa Chung; and Philip Pong.

The six other Interest Groups cover the following areas:

  • company law
  • competition law
  • ethics, bribery and corruption
  • public governance
  • securities law and regulation, and
  • technology.

Three Interest Group guidance notes (on public governance, technology and competition law) have already been published and are available from the Publications section of the Institute’s website: www.hkics.org.hk. The next guidance note in this series, on company law, is scheduled to be published in early 2017.