Administrative Measures for the Takeover of Listed Companies (Revised in 2014)

Administrative Measures for the Takeover of Listed Companies (Revised in 2014)

Order of the China Securities Regulatory Commission No.108

October 23, 2014

(Adopted upon deliberation at the 180th Chairman's Executive Meeting of the China Securities Regulatory Commission on May 17, 2006, revised on August 27, 2008 pursuant to the Decision of the China Securities Regulatory Commission on Revising Article 63 of the Administrative Measures for the Takeover of Listed Companies, revised on February 14, 2012 pursuant to the Decision of the China Securities Regulatory Commission on Revising Article 62 and Article 63 of the Administrative Measures for the Takeover of Listed Companies, and revised on October 23, 2014 pursuant to the Decision of the China Securities Regulatory Commission on Revising the Administrative Measures for the Takeover of Listed Companies promulgated under the Order of the China Securities Regulatory Commission No.108)

Chapter I General Provisions

Article 1 The Administrative Measures for the Takeover of Listed Companies (hereinafter referred to as the "Measures") are formulated pursuant to the Securities Law, the Company Law and other relevant laws and administrative regulations in order to standardize the takeover and the related activities in share equity change of listed companies, protect the legitimate rights and interests of listed companies and investors, safeguard the order of the securities market and the public interest, and promote optimal allocation of resources in the securities market.

Article 2 The takeover and the related activities in share equity change of listed companies must comply with the laws, administrative regulations and the provisions of the China Securities Regulatory Commission (hereinafter referred to as the "CSRC"). The parties concerned shall act in good faith, abide by social morals and business ethics, consciously safeguard the order of the securities market, and accept supervision from the government and the general public.

Article 3 The takeover and the related activities in share equity change of listed companies must comply with the principles of transparency, fairness and equality.
Persons subject to the obligation to make information disclosure for the takeover and the related activities in share equity change of listed companies shall adequately disclose their equities in any listed company and the changes thereof, and perform reporting, announcement and other statutory obligations strictly pursuant to the law. Prior to making the relevant information disclosure, such persons shall have the obligations to maintain confidentiality of such information.
The information reported or disclosed by persons subject to the obligation to make information disclosure must be true, accurate and complete and shall not contain any false record, misrepresentation or major omission.

Article 4 The takeover and the related activities in share equity change of listed companies may not undermine national security and public interest.
The takeover and the related activities in share equity change of listed companies which involve matters including state industrial policies, entry into industries, and transfer of state-owned shares shall be subject to the approval by the relevant state authorities and carried out only after such approval is granted.
Foreign investors carrying out the takeover and the related activities in share equity change of listed companies shall obtain the approval from the relevant state authorities, be governed by the Chinese laws, and be subject to the judicial and arbitration jurisdiction of China.

Article 5 An acquirer may become a controlling shareholder of a listed company by way of acquisition of shares, or may become the actual controlling party of a listed company by means of investment relationship, agreement or other arrangements, and may obtain the control of a listed company by adopting the aforesaid way and means simultaneously.
An acquirer shall include the investor and other parties acting in concert with such investor.

Article 6 No person shall use the takeover of any listed company to cause damage to the legitimate rights and interests of the target company and its shareholders.
The takeover of a listed company shall not be allowed under any of the following circumstances:
1. the acquirer bears heavy debt which is due and outstanding and such situation is ongoing;
2. the acquirer has committed or has been suspected of committing any major illegal act over the past three years;
3. the acquirer has committed any serious breach of trust in the securities market over the past three years;
4. where the acquirer is a natural person who falls under the circumstances stipulated in Article 146 of the Company Law; or
5. any other circumstances where the takeover of a listed company is not allowed as stipulated by laws and administrative regulations and as recognized by the CSRC.

Article 7 The controlling shareholders or the actual controlling party of a target company shall not abuse their shareholder's rights to cause damage to the legitimate rights and interests of the target company or other shareholders.
Where the controlling shareholders, the actual controlling party of a target company and their related parties have caused damage to the legitimate rights and interests of the target company and other shareholders, such controlling shareholders or actual controlling party shall eliminate the damage voluntarily before transferring the control of the target company; where the damage cannot be eliminated, such controlling shareholders or actual controlling party shall arrange for using the proceeds from transfer of the relevant shares to eliminate the damage in its entirety, in case that the proceeds are insufficient to eliminate the damage, such controlling shareholders or actual controlling party shall provide adequate and effective performance guarantee or arrangement, and obtain the approval of a shareholders' general meeting of the target company pursuant to the articles of association.

Article 8 The directors, supervisors and senior management personnel of a target company bear the duties of loyalty and diligence to the company and shall treat all acquirers who take over of the company fairly.
The decision made and measures adopted by the board of directors of the target company in respect of a takeover shall be beneficial to the safeguarding of the interests of the company and its shareholders; the board of directors shall not abuse its official powers to create inappropriate obstacles for a takeover, shall not use company resources to provide any form of financial assistance to the acquirer, and shall not undermine the legitimate rights and interests of the company and its shareholders.

Article 9 An acquirer who proposes the takeover of a listed company shall engage a professional institution registered in China and qualified to engage in financial consultancy business to act as its financial consultant. Any acquirer who fails to engage a financial consultant pursuant to the provisions of the Measures shall not propose the takeover of any listed company.
A financial consultant shall be diligent and responsible, observe the code of practice and professional ethics, maintain independence, and ensure the veracity, accuracy and completeness of documents it has prepared and issued.
A financial consultant who believes that an acquirer uses a takeover of listed company to cause damage to the legitimate rights and interests of the target company and its shareholders shall refuse to provide financial consultancy services for such acquirer.
A financial consultant shall not instigate, assist or collude with the entrusting party to prepare or disclose a report or an announcement which contains any false record, misrepresentation or major omission, or engage in unfair competition or make use of the takeover of a listed company to seek improper gains.

Article 10 The takeover and the related activities in share equity change of listed companies shall be subject to supervision and administration of the CSRC pursuant to the law.
The CSRC shall establish a specialized committee comprising professionals and the relevant experts.
The specialized committee may, at the request of a functional department of the CSRC, provide advisory opinions on whether an act constitutes a takeover of listed company, whether there is any circumstance under which a takeover of listed company is prohibited and other related matters. The CSRC shall make a decision pursuant to the law.

Article 11 The stock exchanges shall, in accordance with the law, formulate business rules to organize trading and provide services for the takeover and the related activities in share equity change of listed companies, implement real-time monitoring of the related securities trading activities and supervise the performance of information disclosure obligation by persons subject to the obligations to make information disclosure for the takeover and the related activities in share equity change of listed companies.
The securities depository and clearing institution shall, in accordance with the law, formulate business rules to provide services in relation to registration, depository and clearing of securities, for the takeover and the related activities in share equity change of listed companies.

Chapter II Disclosure of Equities

Article 12 The equities held by an investor in a listed company include the shares registered in the name of the investor and the shares which are not registered in the name of the investor but whose voting rights thereon can be actually exercised by the investor. The equities held by an investor and persons acting in concert with the investor in a listed company shall be computed on a consolidation basis.

Article 13 Where the shares in which the investor and persons acting in concert with the investor own the equities attain 5% of the issued shares of a listed company through securities transactions on a stock exchange, the investor and persons acting in concert with the investor shall prepare a report on change in equities within three days as of the date of occurrence of the event and submit a written report to the CSRC and the stock exchange, notify the listed company and make an announcement; and shall not trade shares of the listed company during the aforesaid period.
After the shares in which the aforesaid investor and persons acting in concert with the investor own the equities have attained 5% of the issued shares of a listed company, the investor and persons acting in concert with the investor shall submit a report and make an announcement pursuant to the provisions of the preceding paragraph for every increase or decrease of 5% in the proportion of the shares in which the investor and persons acting in concert with the investor own the equities to the issued shares of the listed company through securities transactions on the stock exchange. The investor and persons acting in concert with the investor shall not trade shares of the listed company during the reporting period and within two days after the submission of report and making of announcement.

Article 14 Where the shares in which the investor and persons acting in concert with the investor own the equities in a listed company are to attain or exceed 5% of the issued shares of the listed company by way of a transfer agreement, the investor and persons acting in concert shall prepare a report on change in equities within three days as of the date of the occurrence of the event and submit a written report to the CSRC and the stock exchange, notify the listed company and make an announcement.
After the shares in which the investor and persons acting in concert with the investor own the equities have attained 5% of the issued shares of a listed company, the investor and persons acting in concert with the investor shall perform reporting and announcement obligations pursuant to the provisions of the preceding paragraph for every increase or decrease equal to or more than 5% in the proportion of the shares in which the investor and persons acting in concert with the investor own the equities to the issued shares of the listed company.
The investor and persons acting in concert with the investor stipulated in the preceding two paragraphs shall not trade shares of the listed company prior to submission of report and making of announcement. The relevant share transfer and registration formalities for such transfer shall be completed pursuant to the provisions of Chapter IV of the Measures and the provisions of the stock exchange and the securities depository and clearing institution.

Article 15 Where the shares in which the investor and persons acting in concert with the investor own equities attain the proportion as stipulated in the preceding Article by means of administrative allocation or change, enforcement of a court ruling, succession, or gift, the investor and persons acting in concert with the investor shall perform reporting and announcement obligations pursuant to the provisions of the preceding Article and complete formalities for registration of share transfer by referring to the provisions of the preceding Article.

Article 16 Where the investor and persons acting in concert with the investor are not the largest shareholder or actual controlling party of a listed company, and the shares in which the investor and persons acting in concert with the investor own the equities in the listed company attain or exceed 5% of the issued shares of the said company but do not attain 20%, the investor and persons acting in concert with the investor shall prepare a simplified report on changes in equities containing the following contents:
1. names and addresses of the investor and persons acting in concert with the investor; where the investor and persons acting in concert with the investor are legal persons, the names, places of registration and legal representatives of the investor and persons acting in concert with the investor;
2. purpose of shareholding and whether there is an intent to increase the equities held in the listed company continuously within the next 12 months;
3. name of the listed company, and type, quantity and proportion of its shares;
4. the time and methods for the shares in which the investor and persons acting in concert with the investor own the equities in the listed company to attain or exceed 5% of the issued shares of the listed company or the time and methods for increase or decrease in the shares in which the investor and persons acting in concert with the investor own the equities to attain 5%;
5. brief information on trading of shares of the listed company through securities transactions on the stock exchange within the six-month period prior to the date of occurrence of change in equities; and
6. any other disclosure contents required by the CSRC and the stock exchange.
Where the aforesaid investor and persons acting in concert with the investor are the largest shareholder or actual controlling party of the listed company, and the shares in which the investor and persons acting in concert with the investor own the equities attain or exceed 5% of the issued shares of the listed company but do not attain 20%, the contents stipulated in Paragraph 1 of Article 17 of the Measures shall be disclosed.

Article 17 Where the shares in which the investor and persons acting in concert with the investor own the equities attain or exceed 20% of the issued shares of the listed company but do not attain 30%, the investor and persons acting in concert with the investor shall prepare a detailed report on changes in equities which shall include the following disclosure contents in addition to disclosure of the information as stipulated in the preceding Article:
1. the controlling shareholders and actual controlling party of the investor and persons acting in concert with the investor and the equity control relationship chart;
2. the price at which the relevant shares are acquired, amount of funds required, source of funding or other payment arrangements;
3. whether business competition or potential business competition exists between the business of the investor and persons acting in concert with the investor and their controlling shareholders and actual controlling parties and the business of the listed company and whether there are ongoing related party transactions; where business competition or ongoing related party transactions exist(s), whether the corresponding arrangements have been made to ensure that the investor and persons acting in concert with the investor and their related parties avoid business competition with the listed company and to maintain the independence of the listed company;
4. follow-up plan to make adjustment to the assets, operation, personnel, organizational structure, articles of association of the listed company in the next 12 months;
5. significant transactions between the investor and persons acting in concert with the investor and the listed company in the past 24 months;
6. non-existence of the circumstances stipulated in Article 6 of the Measures; and
7. the capability to provide the relevant documents pursuant to the provisions of Article 50 of the Measures.
Where the aforesaid investor and persons acting in concert with the investor are the largest shareholder or actual controlling party of the listed company, the investor and persons acting in concert with the investor shall engage a financial consultant to issue a verification opinion on the disclosure contents in the aforesaid report on changes in equities, except where the shares are obtained by way of administrative allocation or change of state-owned shares, share transfer between different entities controlled by the same actual controlling party and succession. Where the investor and persons acting in concert with the investor undertake to waive the exercise of voting rights on the relevant shares for at least three years, they may be exempted from the requirement for engaging a financial consultant and provision of documents stipulated in Item 7 of the preceding paragraph.

Article 18 Where an investor and persons acting in concert with the investor who have made disclosure of report on changes in equities are required to report and announce the report on changes in equities again within six months as of the date of disclosure due to changes in equities in shares held by the investor and persons acting in concert with the investor, the investor and persons acting in concert with the investor may submit a report and make an announcement only on the differences from the previous report; where the interval between the disclosures of the previous report and the current report exceeds six months, the investor and persons acting in concert with the investor shall prepare a report on changes in equities and perform reporting and announcement obligations pursuant to the provisions of the present Chapter.

Article 19 Where a reduction of share capital of a listed company causes a change in equities in shares held by an investor and persons acting in concert with the investor as stipulated in Article 14 of the Measures, the investor and persons acting in concert with the investor shall be exempt from performing reporting and announcement obligations.
　　......