10 October 2024 Christine Xu  -  Donnelly Chan  -  Roger Cheng  -  Terri Poon  -  Carl Fernandes  -  Kishore Bhindi Capital Markets - Equity - Mergers and Acquisitions

Hong Kong to Introduce Statutory Scheme of Arrangement and Compulsory Acquisition Mechanism for REIT

This Tuesday (8 October 2024), the Securities and Futures Commission (“SFC”) published the conclusions to its March 2024 consultation and announced that the proposed changes to the REIT regime will be adopted largely as proposed. Our earlier client alert provides an overview of the original proposal.

Statutory Scheme of Arrangement

The SFC will introduce a statutory scheme of arrangement and compulsory acquisition mechanism for REITs (“REIT Proposal”) in the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong, “SFO”). These will be modelled on similar mechanisms available to companies as contained in the Companies Ordinance (Cap 622 of the Laws of Hong Kong, “CO”), subject to minor modifications to cater to the nature and unique features of REITs. For example, references to winding-up and liquidators of companies in Part 13 of CO (which contains provisions related to schemes of arrangement and compulsory acquisitions of shares following takeovers and share buy-backs applicable to Hong Kong companies) will not be included in the proposed legislative amendments to the SFO.

Treasury Units

Regarding the holding and treatment of treasury units in REITs, the SFC has indicated that it will keep in view any amendments that may be introduced to the CO for treasury shares and make appropriate refinements to the proposed legislative provisions to the SFO to align the treatments applicable to both companies and REITs.

Market Misconduct Regime and REITs

The SFC will extend the market misconduct regimes and other regulations in SFO to cover listed collective investment schemes as proposed (“Listed CIS Proposal”).

Timeline and Implementation

The SFC will work with the Government to introduce a bill into LegCo on the legislative amendments to implement the proposals, targeting to complete the legislative process before the end of December 2025.

The SFC intends that the REIT Proposal will become effective upon LegCo’s passage of the bill. The Listed CIS Proposal will become effective as soon as possible on a date to be appointed by a commencement notice.