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Note: I have
made minor amendments to the following article to correct missing
words where absolutely necessary to make sense. Also it should be
noted that, contrary to what almost every article in the press
says, the Government did not acquire more than 10% of the votes
in Swire Pacific. Swire Pacific is unusual in having two classes
of voting shares, "A" and "B". Each share has
one vote, but 5 B-shares are equivalent to one A-share in equity,
so the B-shares are more powerful in voting terms. The government
acquired more than 10% of the lower-voting A-shares which, unlike
the B-shares, are in the Hang Seng Index, but did not acquire
more than 10% of the total votes. Secondly, please note that, as
the Takeover Code is not law, breaches of the code cannot in
themselves be prosecuted, only sanctioned.
From the
South China Morning Post
Monday November
16 1998
Regulation
Investor urges prosecution of Government
ENOCH YIU
A private investor has urged the Securities and Futures
Commission to prosecute the SAR Government for breaching the
Takeover and Mergers Code.
David Webb claims the Government breached Section 33 of the
Hong Kong Takeovers Code by not disclosing it had stakes
exceeding 10 per cent in three locally listed companies.
Last month, the Government announced it acquired stakes in
Swire Pacific, New World Development and Cheung Kong during its
market intervention in August.
The code states that "following an acquisition of
shares . . . a person must disclose that acquisition and his
holding to the company not later than 9.00 a.m. on the dealing
day following the date of the acquisition . . . if as a result of
the acquisition he comes to hold... shares... representing 10 per
cent or more of the voting rights in a company". The
Takeovers Code exempts a person from disclosure "if he
notifies his interest in a holding in compliance with the
Securities (Disclosure of Interests) Ordinance" within
the same time limit.
Mr Webb said the Government did not follow the ordinance,
claiming it was exempt according to Section 66 of the
Interpretation and General Clauses Ordinance.
Mr Webb said: "The beauty of the code is that it does not
have the force of law, therefore nobody can claim exemption from
it under the law.
"Any other investor in such a breach might expect a
public censure or reprimand."
SFC chairman Andrew Sheng said the Government was exempt from
the Takeovers Code and that the commission would not take any
action against it.
"The Takeovers Code is derived from the law. The SAR
Government is exempted from the law. It is also exempt from the
code as well," he said.
Mr Webb said SFC senior director Barbara Shiu had sent him a
written answer explaining the commission's position.
"The Government is not bound by the SFCO (Securities and
Futures Ordinance)," Mr Webb reported Ms Shiu saying.
Her letter continued: "There will be considerable
difficulty in arguing that the Government should be bound by a
code gazetted under the SFCO when it is not bound by that
ordinance itself."
Mr Webb rejected the SFC's view.
"The Takeovers Code is a voluntary code representing
standards of commercial conduct and behaviour considered
acceptable," he said.
"What I am saying is that the Government (like everyone)
is not bound by the code, but it chose not to abide by the code.
"It [the Government] breached the code the SFC should
consider appropriate sanction.
"Under Section 11 of the SFC Ordinance, the government
can direct the SFC not to take any action. But that would be a
conflict of interest, wouldn't it?"
He said the SFC, as the securities watchdog, should fulfil its
duty to ensure everybody abided by all ordinances and codes or it
would not be possible to "safeguard the interest of the
persons dealing in securities".
"The interests of pedestrians and motorists would not be
safeguarded if Government drivers had exemption from
drink-driving laws," he said.
"The purpose of such laws is to protect all persons. The
SAR Government should be bound by them and the same applies to
the securities laws."
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