Guidance NoteA practical guide to good governance

The Hong Kong Institute of Chartered Secretaries�� !"#$%

Annual General Meeting of a Listed Company

Reference number: 3March 2007

The Hong Kong Institute of Chartered Secretaries

Hong Kong Office3/F., Hong Kong Diamond Exchange Building8 Duddell Street, Central, Hong KongTel: (852) 2881 6177 Fax: (852) 2881 5050E-mail: ask@hkics.org.hk Website: www.hkics.org.hk

Beijing Representative OfficeRoom 1710, U-SPACE Building ANo. 8 Guangqumenwai StreetChaoyang District, Beijing, China, 100022Tel: (86 10) 5861 2050 Fax: (86 10) 5861 2051E-mail: bro@hkics.org.hk

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Annual General Meeting of a Listed Company

INTRODUCTION

Under the Companies Ordinance (Cap.32) (“Companies Ordinance”), every company incorporatedin Hong Kong (other than a dormant company under Section 344A of the Companies Ordinance)must hold its annual general meeting (“AGM”) in every calendar year (except the first AGM whichmay be held within 18 months of its incorporation) and not more than 15 months shall elapse betweenthe date of one AGM and the next. Similar provisions are generally provided in the law and theconstitutional documents of the listed companies incorporated in Bermuda, Cayman Islands and thePeople’s Republic of China (“PRC”)1.

The Rules Governing the Listing of Securities (“Listing Rules) on The Stock Exchange ofHong Kong Limited (“Stock Exchange”) prescribe continuing obligations on companies listed on themain board of the Stock Exchange (“Listed Companies”) and certain provisions in respect ofmeetings of shareholders. Such continuing obligations and provisions, subject to modificationsacceptable to the Stock Exchange, apply equally to Listed Companies incorporated in the PRC andoverseas.

This Guidance Note aims to provide company secretaries of the Listed Companies a practicalguidance on the essential elements for convening and conducting an AGM of a Listed Company. Forthe avoidance of doubt, reference to “meeting” and “company” herein are to “AGM” and “ListedCompany” respectively.

WHAT ARE THE SOURCES OF RULES AND REGULATIONS FOR AGM?

The applicable laws and regulations governing the AGM of a Listed Company include:

• company law of the jurisdiction in which the company is incorporated (e.g. CompaniesOrdinance, Companies Act 1981 of Bermuda, Companies Law of the Cayman Islands, PRCCompany Law etc.)

• constitutional documents i.e. Articles of Association, Bye-laws or equivalent document

• Listing Rules which are applicable to every Listed Company irrespective of the jurisdiction of itsincorporation

• common law that exist to regulate the conduct of meeting, if applicable

1 According to the “Joint Policy Statement Regarding the Listing of Overseas Companies” jointly issued by The Stock Exchange ofHong Kong Limited and the Securities and Futures Commission on 7 March 2007, overseas companies (other than those incorporatedin Australia, Canada (British Columbia), Bermuda, Cayman Islands and the PRC which are acceptable/recognized jurisdictions)seeking listing in Hong Kong are expected to adopt fair proceedings for general meetings similar to those provided under theCompanies Ordinance including without limitation to holding a general meeting each year as its AGM and that not more than 15months shall elapse between the last AGM and the next.

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In this Guidance Note, apart from the Listing Rules, the relevant provisions under theCompanies Ordinance are quoted for ease of reference. Company secretaries are reminded tocheck the rules and regulations of the jurisdiction applicable to their companies.

WHAT CONSTITUTES A VALID AGM?

• It must be properly called and convened in terms of authority, service of the notice, adequacy ofthe content and period of notice.

• The requisite quorum must be present and the meeting must be presided by a duly appointedchairman.

• It must be properly conducted in accordance with the procedural rules in all aspects includingthe proposing of motions, debate, voting and passing of resolutions.

• Minutes of the AGM must be properly prepared and kept.

WHAT ARE THE KEY RESPONSIBILITIES OF A COMPANY SECRETARY INPREPARING FOR AND CONDUCTING AN AGM?

The company secretary shall:-

• make arrangements for the calling and convening of the AGM

• assist and advise the chairman of the AGM in and provide guidance on the conduct and theproceedings of the meeting

• prepare the minutes and make arrangements for the implementation of the resolutions adoptedand ensure compliance with the post-meeting requirements such as the filing of the annual reportwith the Companies Registry and the Stock Exchange

WHAT ARE THE ESSENTIAL ELEMENTS OF A VALID NOTICE FOR AN AGM?

• To ensure the validity of a notice, reference should always be made to the powers and therequirements for convening a meeting of shareholders. Such powers and requirements are usuallylaid down in the constitutional documents of the company.

Length of Notice Period

• An AGM shall be convened by giving at least 21 clear days’ written notice unless theconstitutional documents of the company provide for a longer period.

• For a PRC Listed Company, 45 days’ written notice must be given to all shareholders andshareholders who wish to attend the meeting must reply in writing at least 20 days before thedate of the meeting.

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• When calculating the length of notice for convening an AGM, it is essential:

to check the company’s constitutional documents to ascertain how and when service ofnotice is deemed effected.

Table A of the Companies Ordinance provides that where a notice is sent by post, service ofthe notice shall be deemed to be effected by properly addressing, prepaying, and posting aletter containing the notice, and to have been effected in the case of a notice of a meeting atthe expiration of 48 hours after the letter containing the same is posted, and in any othercase at the time at which the letter would be delivered in the ordinary course of post.

to allow for at least 14 days’ notice of closure and publication in the newspapers of such noticebefore closing the transfer books or register of members, if applicable. (Listing Rule 13.66)

to provide for buffer for publication of further announcement or despatch of supplementarycircular not less than 14 days before the AGM in the event of there being material informationon the subject matter to be considered at the AGM brought to the attention of the directorsafter the issue of the circular to the shareholders. (Listing Rule 13.73)

Content of Notice

• The constitutional documents of a company generally specify what the notice must contain. Thenotice of an AGM should state the following:

place, date and time of meeting

nature of businesses to be transactedThe nature of businesses to be conducted at the AGM is generally provided in theconstitutional documents of the company. According to Table A of the CompaniesOrdinance, all businesses conducted at the AGM other than the ordinary businessesincluding the declaration of a dividend, consideration of the accounts, balance sheets, andthe reports of the directors and auditors,election of directors in place of those retiring andappointment of, and fixing of the remuneration of, the auditors, are deemed special.

The most common special businesses include the obtaining of general mandates from theshareholders to allot shares, repurchase shares and grant share options.

For a special resolution to be proposed at an AGM, the notice must specify that it is aspecial resolution and must set out the exact text of the proposed resolution. It is a goodpractice to specify each resolution as ordinary or special.

rights and procedures with regard to the appointment of proxy by the shareholdersThe notice must clearly state the right of a member to appoint a proxy, the latest time andplace for lodging proxy forms and whether the proxy has to be a member of the company.

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Publication of Notice

• The company must publish the notice of its AGM in the newspapers on the same day as it isgiven to those entitled to receive it. (Listing Rules 13.37 and 13.73)

• In July 2006, the Stock Exchange announced its plans to implement the proposals for theabolition of the requirements for Main Board issuers to publish paid announcements in thenewspapers. Upon the proposed new rules on such abolition becoming effective, the notice ofAGM must be published on the website of the Stock Exchange and the company’s own website.A six-month transitional period will start in mid-2007, during which the Main Board issuerswill have to publish notifications of the notice of AGM in the newspapers and post the fullversion of the notice on the Stock Exchange website and their own websites, if any. A MainBoard issuer without its own website must publish the full notice in the newspapers as well ason the Stock Exchange website.

Information and Documents to be sent with the Notice

• The contents of the notice of AGM shall be adequate to enable its shareholders to decide whetherthey should attend the AGM to protect their interests and shall provide the following informationand documents to the shareholders at the same time as (or before) the company gives notice toapprove the relevant transaction (Listing Rules 13.73 and 13.74):

any material information on the subject matter to be considered at the AGM (e.g. biographicalinformation of directors proposed to be elected or re-elected at the AGM and explanatorystatement for obtaining share repurchase general mandate) and to be disclosed in asupplementary circular (or, where applicable, explanatory notes to the notice).

the procedure by which shareholders may demand a poll pursuant to its constitutionaldocuments (to be disclosed in a circular to shareholders convening the meeting).(Listing Rule 13.55(3))

two-way voting proxy forms to all persons entitled to vote at the meeting. (Listing Rule 13.38)

reply slip on attendance of the meeting (for PRC Listed Companies).

Method of Service

• A notice may be served in the manner as laid down in the constitutional documents of thecompany. According to Table A of the Companies Ordinance, a notice may be given toany shareholder either personally or by post to him or to his registered address, or (if he has noregistered address within Hong Kong) to the address, if any, within Hong Kongsupplied by him to the company for the giving of notice to him.

• The company must send written notice to all shareholders whether or not their registeredaddresses are in Hong Kong and where a notice is sent outside Hong Kong, it shall be sent,where pract icable, by airmail or an equivalent service that is no slower.(Listing Rules 13.71 and 13.76)

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• Subject to permission under the applicable laws and regulations, the constitutionaldocuments of the company and express written consent of shareholders, the company maysend the AGM notice using electronic means. (Listing Rule 2.07A(1) and (2))

WHAT ARE THE CONSIDERATIONS FOR CHOOSING THE VENUE?

• The venue of the meeting should be convenient and accessible.

• The venue should be suitable in size for the expected number of people attending theAGM, with adequate equipment and facilities.

• The company should ensure that the venue is set up appropriately taking into account anypossible disturbances.

• A separate room may be required for meeting with media or analysts by the boardmembers or in case of the chairman and/or the board members offering to have a privatediscussion with a disruptive shareholder to address any issues of concern.

WHAT ARE THE KEY PROCEEDINGS OF AN AGM?

Quorum

• The quorum for a meeting is usually set out in the constitutional documents of the company.The quorum must be present in person unless the constitutional documents provide forproxies to be counted in determining the required number.

• The meeting shall be dissolved or adjourned in accordance with the constitutional documentsif a quorum is not present.

• For PRC Listed Companies, the meeting may only be held if the company receives writtenconfirmation of attendance from shareholders representing half or more of the company’stotal voting shares at least 20 days before the date of the meeting, failing which thecompany shall within 5 days notify the shareholders by public notice for the meeting to beadjourned.

Chairman

• It is the duty of the chairman of the meeting to ensure that the meeting is conducted andtransacted in an efficient and proper manner. The chairman should ensure that differentopinions on the matter under consideration are expressed and, in doing so, should maintainthe order and manage the proceedings of the meeting.

• Subject to the provisions of the constitutional documents of the company, the chairman of theboard shall preside as chairman at the AGM.

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• The Code on Corporate Governance Practices (“CG Code”) (i.e. Appendix 14) of the ListingRules requires that the chairman of the board should attend the AGM and arrange for thechairmen of the audit, remuneration and nomination committees (as appropriate) or theirrespective delegates to be available to answer questions at the AGM. (CG Code E.1.2)

• The chairman of the meeting should at the commencement of the meeting explain:(a) the procedures for demanding a poll by shareholders before putting a resolution to the

vote on a show of hands; and(b) the detailed procedures for conducting a poll and then answer any questions from

shareholders whenever voting by a poll is required.(CG Code E.2.3)

Voting - A Show of Hands

• Unless otherwise provided in the constitutional documents of the company or prescribed bythe Listing Rules, a resolution put to the vote at an AGM would normally be decided on ashow of hands (except for PRC companies) unless a poll is (before or on the declaration of theresult of the show of hands) effectively demanded.

• Unless otherwise provided in the constitutional documents of the company, a proxy may notvote on a show of hands.

• The chairman of a meeting and/or director who, individually or collectively, hold proxies inrespect of shares representing 5% or more of the total voting rights at such meeting shalldemand a poll in circumstances where, on a show of hands, a meeting votes in the oppositemanner to that instructed in those proxies. If a poll is required under such circumstances, thechairman should also disclose to the meeting the total number of votes represented by allproxies held by directors indicating an opposite vote to the votes cast at the meeting on a showof hands. (Listing Rule 13.39 (3) and CG Code E.2.1)

• The company should count all proxy votes and, except where a poll is required, the chairmanof a meeting should indicate to the meeting the level of proxies lodged on each resolution, andthe balance for and against the resolution, after it has been dealt with on a show of hands.(CG Code E.2.2)

Voting - Poll

• Right to demand a poll and procedure for demanding a poll are set out in the constitutionaldocuments of the company.

• Votes on the following matters must be taken on a poll (Listing Rule 13.39(4)):connected transactionstransactions subject to independent shareholders’ approvalgranting of options to substantial shareholders or independent non-executive directors ortheir associates, which exceed the prescribed limitsany other transactions in which a shareholder has a material interest and is thus required toabstain from voting

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• The company shall appoint its auditors, share registrar or external accountants who arequalified to serve as auditors for the company as scrutineer for the vote-taking. (ListingRule 13.39(5))

• The company shall announce the poll results (including the identity of the scrutineer) on thebusiness day following the AGM. (Listing Rule 13.39(5))

• For PRC companies, all matters transacted at an AGM shall be decided on an “one share onevote” basis.

Abstentions

• Where a party is required to abstain from voting in favour at an AGM under certaincircumstances stipulated in the Listing Rules, that party may vote against the resolutionprovided that their intention to do so is stated in the relevant listing document or circular toshareholders (Listing Rule 13.40), in which event, the company must have an appropriateprocedure in place to record that any parties that must abstain or have stated their intention tovote against the relevant resolution in the listing document, circular or announcement havedone so at the meeting. (Listing Rule 13.42)

Adjournment of Meeting

• The provisions relating to the adjournment of a general meeting are usually laid down in theconstitutional documents of the company. The chairman of the meeting may adjourn themeeting if there is disorder or, subject to consent of the meeting, adjourn the meeting for aspecified time or sine die (without a fixed date).

• Table A of the Companies Ordinance provides that if a meeting is adjourned for 30 days ormore, a notice must be given as in the case of an original meeting.

• The adjourned meeting can only deal with business left unfinished at the meeting from whichthe adjournment took place.

• It is a common practice to adjourn the AGM for counting of poll votes (in particular, wherethere is a high attendance rate and a long agenda) and to announce the results at the adjournedmeeting.

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CHECKLIST FOR PREPARING AND CONDUCTING AN AGM

The following sample checklist provides the common key points for preparing andrunning an AGM:

CHECKLIST FOR AGM Done (✔ ) / Remarks

Before the meeting

• To check through the constitutional documents of the company,Listing Rules and other applicable laws and regulations andprovisions.

• To ascertain the resolutions to be transacted and votingmechanism, fix the AGM date and prepare a timetable orchecklist for events or work entailed and the parties involved.

• To co-ordinate works among different parties, e.g.management, auditors, legal advisors, printer, share registrarand venue management.

• To prepare and arrange for the printing of the AGM notice,proxy form and where applicable, reply slip and the relatedcircular.

• To arrange for booking of the venue (convenient, adequatein size and with appropriate audio and video facilities).

• To check availability of chairmen of the board and boardcommittees and arrange for appointment of delegates toattend the AGM and adjourned AGM, where necessary.

• To check the availability of the auditors and scrutineers forattending the AGM.

• To arrange for the publication of the AGM notice (includingthe notice of closure of register of members) in thenewspapers, where applicable, and to ensure the sufficiencyof notice period.

• To prepare and send the related circular to shareholders atthe same time as giving the AGM notice.

• To arrange for the publication of the AGM notice, proxyform and circular on the websites of the Stock Exchangeand the company respectively.

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• To arrange for the opening of a dividend account, wherenecessary.

• To ensure sufficient manpower is provided in managing theAGM on the day.

• To arrange for the banner, head-table and cateringarrangements for the AGM and any press briefing sessionimmediately after the AGM.

• To prepare the chairman’s script and do rehearsal, wherenecessary.

• To provide a rundown of the AGM (and adjournment, wherenecessary) and prepare for possible circumstances(e.g. demand for poll and short adjournment for disorder).

• To prepare line-to-take on topical issues and answers forpotential questions.

• To identify potential protesters from the share register andestablish procedures for dealing with disturbances at theAGM.

• To ascertain if sufficient quorum for the AGM will bepresent.

• To check proxy forms or reply slips deposited byshareholders and prepare proxy summary.

• To prepare attendance sheets, voting cards or papers for useat the AGM.

At the meeting

• To check the identities of shareholders and proxies.

• To provide information booth outside the meeting room toanswer any queries to avoid embarrassing questions arisingin the meeting.

• To check whether the necessary quorum is present for theAGM.

• To assist the Chairman in conducting the meeting.

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• To check the validity of a poll if demanded.

• To ensure all votes are counted, indicated to the meeting(except for poll voting) and properly recorded.

• To ensure the availability of relevant documents andregisters (e.g. registers of directors’ and substantialshareholders’ interests) for inspection.

• To ensure that matters discussed and resolved at themeeting are properly recorded.

After the meeting

• To prepare the minutes of the meeting and arrange forsigning by the chairman of the AGM.

• To prepare and arrange for publication of the poll results inthe newspapers and the website of the Stock Exchange,where applicable.

• To attend to filing and submission of necessary resolutions,returns and documents to the relevant authorities and theStock Exchange.

• To arrange for despatch of dividend warrants and/or sharecertificates to shareholders where cash dividend and/orscrip dividend is declared and approved at the AGM.

• To thank every party who has contributed to the success ofthe AGM.

This guidance note is only intended to provide a general guide on the subject matter and should not be regarded as a

substitute for detailed advice in individual cases. HKICS does not accept any liability for loss or damage sustainedby any person or organization as a result of reliance on the information or views stated herein.

March 2007