3 minute read 6 Jul 2023

Exemptions and waivers from requirements of connected transactions

By LI Fai


Direct: +852 2629 1722 | Mobile: +852 6036 8593 | fai.li@eylaw.com.hk

3 minute read 6 Jul 2023

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The rules on connected transactions are set out in Chapter 14A of the Listing Rules. The objective of the connected transactions rules is to ensure that a listed issuer takes into account the interests of shareholders as a whole when it or one of its subsidiaries enters into connected transactions. Connected transactions include both capital and revenue nature transactions.

They may be one-off transactions or continuing transactions. The general requirements for connected transactions include disclosures in announcements, circulars and annual reports, and shareholders’ approval. Persons with material interests cannot vote on the resolution approving the transaction. Continuing connected transactions also require annual reviews by independent non-executive directors and the auditors. To reduce listed issuers’ compliance burden, exemptions and waivers from all or some of the connected transaction requirements are available for specific categories of connected transactions. These apply to connected transactions that are immaterial to the listed issuer’s group, or specific circumstances where the risk of abuse by connected persons is low. This article summarizes the exemptions and waivers with respect to the connected transactions requirements under the Listing Rules.

Connected persons and connected transactions

Generally speaking, a connected transaction is any transaction between a listed issuer or any of its subsidiaries and a “connected person”. “Connected persons” are defined to include:

  1. a director, chief executive or substantial shareholder (holding 10% or more of the voting rights) of the listed issuer or any of its subsidiaries, or an associate of any such persons;
  2. a person who was a director of the listed issuer or any of its subsidiaries in the past 12 months, or an associate of such a person; or
  3. a connected subsidiary, namely: (a) a non-wholly owned subsidiary of the listed issuer where any connected person(s) at the issuer lever are entitled to exercise, or control the exercise of, 10% of more of the voting power at general meetings of the non-wholly owned subsidiary. This excludes an indirect interest in the subsidiary which is held by the connected person(s) through the listed issuer; or (b) a subsidiary of such a non-wholly owned subsidiary.

Requirements for connected transactions

Additional requirements for continuing connected transactions

Exemptions from connected transactions requirements

The exemptions from connected transactions requirements are broadly divided into two categories: (1) fully exempt from shareholders’ approval, annual review and all disclosure requirements (fully exempt connected transactions); and (2) exempt from shareholders’ approval requirement (partially exempt connected transactions).

Fully exempt connected transactions include, but are limited to the following:

  1. intra-group transactions
  2. transactions with persons connected with insignificant subsidiaries
  3. de minimis transactions
  4. financial assistance
  5. certain issues of new securities
  6. purchases of own securities
  7. directors’ service contracts and insurance
  8. buying or selling of consumer goods or services
  9. sharing of administrative services
  10. transactions with associates of passive investors