Lately, the Shanghai Stock Exchange (SSE) released the “No. 10 Memorandum of Information Disclosure of Significant Asset Reorganization of Listed Companies – Continuous Information Disclosure of Reorganized Companies” (the Memo for short).
It is learnt that the Memo further standardizes the verification, affirmation, and commitment of relevant matters before a listed company’s reorganization and trading suspension, as well as the continuous information disclosure during the period of reorganization and trading suspension and after disclosure of the reorganization scheme, and strengthens the duty fulfillment of the reorganized company’s directorate. The Memo, coupled with other reorganization memorandums previously released by the SSE, constitutes the overall requirements for the continuous information disclosure of reorganized companies.
Specifically, the Memo mainly includes the following aspects:
First, it standardizes the verification, affirmation, and commitment of relevant matters before a listed company’s significant asset reorganization and trading suspension. It requires that if the clarification announcement or the announcement on abnormal fluctuation of stock trading, issued by a listed company due to rumors of significant asset reorganization, involves affirmation of reorganization issues, the reply of the company’s controlling shareholder or actual controller should be disclosed at the same time as an annex for the announcement. If a listed company and related parties have not begun to plan for reorganization but cannot make sure whether they will start to plan for reorganization within 3 months, the Memo requires that the listed company and related parties should immediately hold a briefing for investors to explain the situation. With regard to the listed company and related parties promising not to plan for reorganization within 3 months, the Memo specifies the specific content of “planning for reorganization”.
Second, it strengthens the duty fulfillment of reorganized company’s directorate. In order to avoid the situation that a listed company terminates reorganization at will after releasing a reorganization scheme, the Memo requires that the reorganized company’s directorate should perform duty fulfillment. An intermediary should be commissioned to investigate the trading parties, and effective and feasible default-related compensation article and divulgation-related compensation article should be stipulated in the reorganization agreement attached with entry-into-force conditions. If abovementioned articles cannot be added in the reorganization agreement, specific reasons should be given. With regard to the situation that all trading parties decide upon discussion to terminate reorganization after having released a reorganization scheme, the Memo requires the relevant company’s directorate to demonstrate the reasons for approving the termination and the influence of the termination of reorganization on the listed company, to explain whether it will lead to economic loss, and to specify the measures (if applicable) that the directorate has taken or is to take to recover the losses in the announcement on termination of reorganization.
Third, it intensifies the information disclosure during reorganization and trading suspension. According to relevant rules including the “Notice of Strengthening Regulation on Abnormal Stock Trading Related to Significant Assets Reorganization of Listed Companies” issued by the SSE, the period for listed companies’ reorganization and trading suspension should not exceed 30 natural days, and if it is necessary to delay the trading resumption, the accumulative trading suspension period shall not exceed 3 months. In order to protect investors’ right to know and prevent listed companies from abusing the trading suspension system, the Memo requires listed companies to disclose the introduction of reorganization framework, current reorganization progress, specific reasons for failing to resume trading as schedule, and the predicted date of trading resumption in the announcement on delaying trading resumption. The introduction of reorganization framework should at least include the major trading counterpart, trading method, target asset, as well as the examination and approval that need to get from relevant government departments before holding the first directorate meeting (if applicable).
Fourth, it standardizes listed companies’ obligation of continuous information disclosure after disclosing the reorganization scheme, especially the timely disclosure of reorganization risks. The Memo requires that after disclosing the reorganization scheme or the draft report, listed companies should timely disclose any change or adjustment in market environment, trading counterpart, and target asset, and any problem in the communication among reorganization parties.
If listed companies, due to various reasons, terminate significant asset reorganization after disclosing the reorganization scheme, they should timely perform the decision-making process, hold a briefing for investors, and disclose relevant information in line with the Memo and the “No. 9 Memorandum of Information Disclosure of Significant Asset Reorganization of Listed Companies – Information Disclosure of Listed Companies Terminating Significant Asset Reorganization (Trial)” released by the SSE in July 2013.