China Securities Regulatory Commission, Issues Relevant to Regulating the Acts of Transferring the Actual Controlling Power of Listed Companies Circular

Issued: January 7 2004
Effective: as of date of issue

Main contents: The Circular is issued in view of the current issue of controlling shareholders of listed companies transferring the voting rights represented by the shares they hold to the purchaser so that the purchaser is already holding actual controlling power of the listed company before the purchaser becomes a shareholder of the listed company. The Circular prohibits a purchaser from proposing through the controlling shareholder a re-election of the board of directors of the listed company during the transition period. If there are adequate reasons to re-elect the board, directors from the purchaser shall not exceed one-third of the board (Item Two). During the transition period the purchaser is also prohibited from pledging the equity of the listed company. The listed company is prohibited from financing again nor can it carry out any major purchase, major sale of assets or major investments during this period unless the purchaser is trying to solve the severe financial difficulty of the listed company (Item Three). The listed company is also prohibited from providing security for the purchaser or its affiliates. The purchaser and its affiliates are not allowed to appropriate funds or assets of the listed company for their own use (Item Four).
Related legislation: PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21; Administration of the Takeover of Listed Companies Procedures (Revised), Aug 27 2008, CLP 2008 No.8 p98; Listed Company Governance Guidelines, Jan 7 2002, CLP 2002 No.1 p6 and Several Issues Concerning the Regulation of Cash Flows Between Listed Companies and Their Affiliates and Security Provided to Outside Parties by Listed Companies Circular, Aug 28 2003, CLP 2003 No.8 p62