Angel Wong, Partner, and Maxwell Chan, Senior Associate, ONC Lawyers, summarise a recent guidance letter on the qualification and experience requirements for company secretaries of Hong Kong listed companies.
On 28 August 2020, The Stock Exchange of Hong Kong Ltd (the Exchange) published a new guidance letter, HKEX-GL108-20 (Guidance Letter), in relation to the qualification and experience requirements for the company secretary of issuers listed in Hong Kong. This Guidance Letter reiterates the important role played by a company secretary in supporting the board in achieving good corporate governance, and provides guidance to issuers whose company secretary’s qualifications and experience do not meet the qualification and experience requirements set out in Rule 3.28 (Rule 3.28) of the Rules Governing the Listing of Securities on the Exchange (Listing Rules) (Rule 5.14 of the Rules Governing the Listing of Securities on GEM of the Exchange (the GEM Listing Rules)).
Relevant Listing Rules
Section F of the Corporate Governance Code and Corporate Governance Report under Appendix 14 to the Main Board Listing Rules (Appendix 14) (Appendix 15 to the GEM Rules) sets out the importance of the role of the company secretary, as an employee of the issuer with day-to-day knowledge of the issuer’s affairs, in ensuring good information flow within the board, compliance with board policies and procedures, and advising the board on corporate governance matters.
Rule 3.28 (GEM Listing Rule 5.14) requires a company secretary of an issuer to possess:
- certain academic or professional qualifications (Acceptable Qualification), or
- relevant experience (Relevant Experience) to be considered capable of discharging the functions of a company secretary.
The Acceptable Qualification includes being: (i) a member of The Hong Kong Institute of Chartered Secretaries; (ii) a solicitor or barrister under the Legal Practitioners Ordinance (Chapter 159 of the Laws of Hong Kong); or (iii) a certified public accountant under the Professional Accountants Ordinance (Chapter 50 of the Laws of Hong Kong).
The Exchange’s assessment criteria for Relevant Experience includes: (i) length of employment with the issuer and other issuers, and the roles the company secretary has played; (ii) familiarity with the Listing Rules and other relevant laws and regulations, including the securities and companies laws of Hong Kong and the Takeovers Code; (iii) relevant training taken and/or to be taken, in addition to the minimum requirement under Rule 3.29 of the Listing Rules (Rule 5.15 of the GEM Listing Rules) (ie 15 hours of training per financial year); and (iv) professional qualifications in other jurisdictions.
Background to the Guidance Letter
Rule 3.28 intends to ensure issuers appoint individuals who are adequately qualified to assist them in compliance with the Listing Rules, as well as the relevant laws and regulations in Hong Kong, and to achieve good corporate governance standards. However, issuers, especially those with principal business activities outside Hong Kong, may choose to appoint candidates who may not possess the Acceptable Qualification or Relevant Experience, but who are familiar with the issuers’ business through serving related roles for a period of time, or who have special knowledge in local laws or industry-specific experience as company secretaries.
Therefore, the Exchange has in the past granted waivers to issuers from strict compliance with Rule 3.28 in appointing a company secretary who does not possess the Acceptable Qualification or Relevant Experience (Rule 3.28 Waiver), for a specified period, on the condition that the proposed company secretary must be assisted by a person whose qualifications or experience do fulfil Rule 3.28 (Qualified Person).
In August 2019, the Exchange issued a consultation paper proposing to codify the factors to be considered when granting a Rule 3.28 Waiver (Proposal). Opposition to this Proposal was received from the market, citing concerns about a possible negative impact on corporate governance standards and investor protection in Hong Kong, with suggestions that Rule 3.28 Waiver should only be granted in exceptional cases. As a result, the Exchange did not proceed with the Proposal and instead issued the Guidance Letter to provide further guidance on the Rule 3.28 Waiver.
Rule 3.28 Waiver
The Guidance Letter provides that the Exchange will consider the following factors in determining whether or not to grant a Rule 3.28 Waiver:
- whether the issuer has principal business activities primarily outside Hong Kong
- whether the issuer is able to demonstrate the need to appoint a person who does not have the Acceptable Qualification or Relevant Experience as a company secretary, and
- why the directors consider the individual to be suitable to act as the issuer’s company secretary.
A Rule 3.28 Waiver, if granted, will be for a fixed period of time (Waiver Period) of not more than three years, and on the condition that the proposed company secretary must be assisted by a Qualified Person, who will be appointed as a joint company secretary throughout the Waiver Period. Compared with the Rule 3.28 Waiver granted prior to the issuance of the Guidance Letter, the Exchange has also tightened the conditions attached to a Rule 3.28 Waiver, as a Rule 3.28 Waiver can now be revoked if there are subsequent material breaches of the Listing Rules by the issuer.
The length of the Waiver Period is determined on a case-by-case basis, after the following factors have been taken into account: (i) the proposed company secretary’s experience in handling company secretarial matters and his/her relevant professional qualifications and/or academic background; (ii) the measures and systems in place to facilitate the proposed company secretary in discharging his/her duties as a company secretary; and (iii) the issuer’s regulatory compliance and/or material deficiencies/weaknesses in internal controls.
Applicants for a Rule 3.28 Waiver are also required to disclose, in the case of a new listing applicant, in the listing document and, in case of an issuer, the announcement (where applicable) the following information: (i) reasons for making a Rule 3.28 Waiver; (ii) details and conditions of the Rule 3.28 Waiver; and (iii) the qualifications and experience of both the proposed company secretary and the Qualified Person.
Prior to the lapse of the Waiver Period, the Exchange will not automatically deem the proposed company secretary to be qualified under Rule 3.28. The issuer is expected to demonstrate to the Exchange that the proposed company secretary, having had the benefit of the Qualified Person’s assistance during the Waiver Period, has acquired the Relevant Experience under Rule 3.28, such that a further Rule 3.28 Waiver is not necessary. The Exchange will assess whether the proposed company secretary has attained the Relevant Experience and is capable of discharging the functions of a company secretary by considering the following factors: (i) compliance history of the listed issuer during the Waiver Period; and (ii) the relevant training undertaken by the proposed company secretary during the Waiver Period.
Although the Guidance Letter sets out clear criteria under which the Exchange will consider whether or not to grant a Rule 3.28 Waiver, since each application is determined on a case-by-case basis, listed issuers or listing applicants are therefore advised to seek a professional opinion before appointing any person as the company secretary who does not possess the Acceptable Qualification or Relevant Experience.
Angel Wong, Partner, and Maxwell Chan, Senior Associate
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