The correct answer is that the board must obtain the approval of its shareholders in a general meeting. Under the Code on Takeovers and Mergers, once an offer period has commenced, the board of an offeree company is prohibited from taking any action which could effectively result in any bona fide offer being frustrated or in the shareholders being denied an opportunity to decide on its merits. This is known as a ‘frustrating action’. The sale of a significant subsidiary, often referred to as a ‘crown jewel’, is a classic example of such an action. The Code stipulates that such actions are not permitted without the approval of shareholders at a general meeting. While the board must consult the Executive, securing the Executive’s prior consent is not the primary requirement for proceeding; the ultimate authority rests with the shareholders. Similarly, an opinion from the Independent Financial Adviser (IFA) is crucial for advising shareholders on the merits of the takeover offer itself, but it does not replace the need for a shareholder vote on a separate frustrating action. The consent of the potential offeror is not required, as the offeree board’s duty is to its own shareholders, not the bidder.

According to the Corporate Finance Adviser Code of Conduct and the ‘Guidelines on Competence’ issued by the SFC, a corporation seeking to act as a financial adviser on matters regulated by the Codes on Takeovers and Mergers and Share Buy-backs (a ‘TC Adviser’) must meet additional, specific competence requirements.

Statement I is correct. The firm must have at least two ‘Principals’ who are actively involved in the business and meet the individual competence requirements for advising on Takeovers Code matters. These Principals are responsible for supervising the transaction teams.

Statement II is correct. The firm must demonstrate substantial experience in this area. The SFC generally expects a firm to have completed at least two transactions regulated by the Takeovers Code in Hong Kong within the five years preceding its appointment as an adviser on a new transaction.

Statement III is incorrect. While a Type 6 licensed corporation has minimum capital requirements (e.g., HK$10 million paid-up share capital and HK$5 million liquid capital), there is no additional, specific requirement to increase this to HK$20 million just to qualify as a TC Adviser. The focus of the additional requirements is on experience and personnel competence, not elevated capital.

Statement IV is incorrect. The competence requirements focus on the Principals and the key transaction staff. There is no blanket requirement for all licensed representatives within the firm to have passed specific HKSI papers. The firm must ensure that the individuals assigned to the transaction are competent, but this is not a firm-wide mandate for all staff. Therefore, statements I and II are correct.

Statement I is correct. According to the Takeovers Code, following the commencement of an offer period, all entities within the same group as the financial adviser must stop issuing research reports on the offeree company. In the case of a securities exchange offer, where the offeror’s shares are part of the consideration, research reports on the offeror must also cease to avoid influencing the market for either security. Statement II is correct. As per Rule 8.3 of the Takeovers Code, if an offeror or offeree company holds meetings with the investment community, a representative of its financial adviser must be present. This representative is required to confirm in writing to the Executive by noon of the following business day that no material new information was provided. Statement III is correct. Under the presumptions of acting in concert, a financial adviser is presumed to be acting in concert with its client (the offeror in this case) under Class (5) of the definition. Statement IV is incorrect. The Takeovers Code requires that after an offer period commences, old research reports should no longer be circulated and should be removed from relevant websites to prevent them from influencing the market. The Executive normally regards reports issued within six months as ‘live’, but the general prohibition applies to the circulation of all old reports, not just those within a specific timeframe. Therefore, statements I, II and III are correct.

The correct answer is that the potential offeror and its concert parties are generally prohibited from announcing an offer or possible offer for the target company for a period of six months. This is a key provision under Rule 31.1 of the Hong Kong Code on Takeovers and Mergers. This ‘cooling-off’ period is designed to prevent a target company from being under a prolonged state of siege and to ensure that potential offers are made with serious intent. The restriction also applies to acquiring voting rights in the target company that would trigger a mandatory general offer obligation. The other options are incorrect. A twelve-month prohibition on acquiring any shares is incorrect; the standard restriction period is six months and it specifically relates to making another offer or triggering a mandatory offer, not a blanket ban on all share acquisitions. The requirement to obtain prior consent from the Takeovers Executive for directors to trade in any listed securities for three months is not a specific consequence of withdrawing a potential offer under the Takeovers Code. Finally, while handling of confidential information is critical, the Takeovers Code does not mandate the immediate destruction of all information and the provision of a certificate of destruction to the SFC as the primary sanction for withdrawing an offer.

Under the Hong Kong Code on Takeovers and Mergers, any conditions attached to an offer must be objective and not depend on the offeror’s subjective judgement. Statement I is a subjective condition, as it depends on the offeror’s board being ‘satisfied’ in its ‘sole discretion’, which is not permissible. Statement II is a financing condition. The Takeovers Code explicitly prohibits making an offer conditional on obtaining financing, as the offeror must have the financial resources confirmed before announcing a firm intention to make an offer (Rule 3.5). Statement III is an acceptable condition as it refers to a specific, material regulatory approval from a named authority (the Competition Commission), which is a standard and objective requirement for certain transactions. Statement IV is also an acceptable condition. An offeror is permitted to set a higher acceptance condition, such as 90% of the voting rights, which is commonly done when the offeror’s objective is to privatise the target company and exercise rights of compulsory acquisition. Therefore, statements III and IV are correct.

Under the Hong Kong Code on Takeovers and Mergers, a scheme of arrangement must satisfy two critical voting conditions to be approved. The correct answer is that the resolution fails because the votes cast against it exceed the permitted threshold. The first condition requires approval from at least 75% of the votes attaching to disinterested shares that are actually cast at the meeting. In this scenario, total votes cast were 83 million (70 million for + 13 million against). The percentage in favour was 70,000,000 / 83,000,000, which is approximately 84.3%, thus satisfying the 75% approval threshold. However, the second condition, which is a blocking mechanism, states that the number of votes cast against the resolution must not exceed 10% of the votes attaching to all disinterested shares, regardless of whether they were voted. Here, there are 120 million total disinterested shares, so the 10% threshold is 12 million shares. Since 13 million shares were voted against the scheme, this threshold was breached. Because both conditions must be met, the failure to meet the second condition causes the entire resolution to fail. An alternative conclusion that the resolution passes because it met the 75% approval level is incorrect as it ignores the second, equally important, blocking condition. A conclusion that the resolution passes because the ‘against’ votes were less than 10% of votes cast is wrong because it misapplies the 10% rule, which is based on all disinterested shares, not just those cast. Finally, suggesting the resolution fails because the ‘for’ votes were not 75% of all disinterested shares is also incorrect, as the 75% test is correctly applied only to the shares that were actually voted.

Statement I is incorrect. According to the TC Adviser Guidelines, the primary obligations and duties of a TC Adviser to its client cannot be delegated. While a TC Adviser may engage external experts like legal advisers, the TC Adviser ultimately remains responsible for the quality of its work and advice. Statement II is correct. A financial adviser undertaking TC Adviser work must allocate the task to a competent Transaction Team. This team must be subject to the supervision of a Responsible Officer (RO) or Executive Officer (EO), collectively referred to as TCROs. Statement III is correct. The guidelines specify that where more than one TCRO is assigned to a Transaction Team, they are jointly and severally responsible for performing their roles. Statement IV is incorrect. While being licensed for Type 6 regulated activity is a prerequisite, it is not the sole condition. The TC Adviser Guidelines explicitly state that the intermediary must also not be subject to a licensing condition which prohibits it from engaging in TC Adviser work. Therefore, statements II and III are correct.

Under the Hong Kong Code on Takeovers and Mergers, when an offeree company’s board receives a bona fide offer, it has several immediate and critical obligations to ensure shareholders are treated fairly. Statement I is correct because Rule 2.1 of the Takeovers Code mandates the establishment of an independent committee of the board (ICB). The purpose of the ICB is to provide an impartial assessment of the offer and make a recommendation to the shareholders, free from any potential conflicts of interest that other directors might have. Statement II is also correct as Rule 2.1 requires the board to appoint an independent financial adviser (IFA). The IFA’s role is to provide competent, independent advice to the ICB on whether the offer is fair and reasonable, which forms the basis of the ICB’s recommendation. Statement III is incorrect. While Rule 4 of the Takeovers Code restricts the offeree board from taking ‘frustrating actions’ without shareholder approval, paying a dividend that has already been declared before the offer period is generally considered to be in the ordinary course of business and not a frustrating action. The rule is designed to prevent the board from taking new actions to thwart an offer. Statement IV is incorrect because the timeline is wrong. The immediate requirement is for an announcement to be made. The detailed offeree board circular, which contains the board’s view and the IFA’s advice, is sent to shareholders later, specifically within 14 days of the offeror posting its formal offer document. Therefore, statements I and II are correct.

Statement I is incorrect. The Codes on Takeovers and Mergers and Share Buy-backs (the ‘Codes’) are not primary or subsidiary legislation. They are non-statutory codes administered by the Securities and Futures Commission (SFC). Their authority is derived from the broad powers granted to the SFC under the Securities and Futures Ordinance and the consensus of the financial community. Statement II is correct. This reflects General Principle 1 of the Takeovers Code, which states that all shareholders of the same class of a target company must be treated equitably. This is a cornerstone of the regulatory framework. Statement III is incorrect. The day-to-day administration of the Codes is the responsibility of the Takeovers Executive, which is a part of the SFC’s Corporate Finance Division. The Takeovers and Mergers Panel is a senior committee that primarily deals with disciplinary matters, reviews decisions made by the Executive, and considers novel or difficult points of interpretation. Statement IV is correct. Although the Codes are non-statutory, the SFC has significant disciplinary powers to enforce compliance. These sanctions can include public statements of criticism, public censures, and ‘cold shoulder’ orders, which effectively deny a person access to Hong Kong’s securities markets for a specified period. Therefore, statements II and IV are correct.

According to the Codes on Takeovers and Mergers and Share Buy-backs, a financial adviser must conduct a thorough assessment for potential conflicts of interest before accepting an engagement. This duty extends beyond the specific advisory entity to its entire group of companies, including its parent, subsidiaries, and fellow subsidiaries (i.e., its associates). The correct answer is that the adviser must assess whether any of its group companies have a material commercial relationship with the target company. Such a relationship could compromise the adviser’s ability to provide impartial and objective advice to the offeror, which is a fundamental requirement under the Codes. A material link to the target could create a situation where the adviser’s duties to the offeror are in conflict with the interests of its associate or the associate’s relationship with the target. While a past advisory role for the offeror is common and not an automatic conflict, the primary concern is a conflicting relationship with the other party in the transaction. A small personal shareholding by a junior employee is typically managed through internal compliance policies and is not usually considered a firm-level conflict that would prevent an engagement. Finally, the responsibility to identify conflicts lies with the adviser; consulting the Executive of the SFC is a step for guidance on complex or uncertain issues, not a preliminary requirement for every engagement.

Under the Hong Kong Code on Takeovers and Mergers, certain relationships and arrangements can lead to parties being considered as ‘acting in concert’. Statement I is incorrect because providing an irrevocable undertaking to accept an offer, in the absence of other factors, does not by itself lead to the presumption that the shareholder is acting in concert with the offeror. Statement II is correct; Class (8) of the concert party presumptions states that an individual and their close relatives (which includes a spouse) are presumed to be acting in concert. Additionally, Class (6) presumes directors and their close relatives are a concert party during an offer period. Statement III is incorrect because an authorised institution lending money in the ordinary course of its business on normal commercial terms is generally not considered to be acting in concert with the borrower. Statement IV is correct because while a standard underwriting arrangement does not create a concert party, the Executive will scrutinise the terms. Features such as an unusually high commission or a significant degree of involvement in the offer’s strategy can lead the underwriter to be deemed a concert party. Therefore, statements II and IV are correct.

This question assesses understanding of the procedures governing a review by the Takeovers and Mergers Panel. Statement I is correct; the Introduction to the Codes on Takeovers and Mergers and Share Buy-backs specifies that, except in urgent cases, the Executive must be notified of a request for review within 14 days of the event giving rise to it. Statement II is incorrect; Panel hearings are explicitly informal and are not bound by formal rules of evidence, unlike court proceedings. The Panel determines what evidence it will receive. Statement III is incorrect; while a party may have advisers present, the Panel’s Rules of Procedure expect the party to answer questions directly without conferring with their advisers. Statement IV is correct; hearings are held in private due to the often confidential and price-sensitive nature of the information discussed. However, to promote transparency and understanding of the Codes, the Panel’s rulings are normally published on the SFC’s website. Therefore, statements I and IV are correct.

Statement I is correct. The Codes on Takeovers and Mergers and Share Buy-backs (the ‘Codes’) are non-statutory. They do not have the force of law. Their authority is derived from the voluntary agreement of market participants to abide by them, which is a condition for maintaining a listing or being licensed/registered with the SFC. The SFC can use its powers under the Securities and Futures Ordinance (SFO) to enforce compliance. Statement II is also correct. The day-to-day administration of the Codes is carried out by the Executive Director of the Corporate Finance Division of the SFC, often referred to simply as ‘the Executive’. Statement III is incorrect. Rulings by the Executive are subject to review by the Takeovers and Mergers Panel, not directly by the Hong Kong courts through judicial review. The Panel’s decisions are generally considered final. Statement IV is incorrect. The SFC Executive and the Takeovers Panel are responsible for interpreting and ruling on the Codes. The Hong Kong Exchanges and Clearing Limited (HKEX) is responsible for administering the Listing Rules, not the Takeovers Code. Therefore, statements I and II are correct.

The correct answer is that the Designated Compliance Officer (DCO) is responsible for supervising the compliance function, must report directly to senior management, and may carry out other functions or responsibilities within the firm. The Corporate Finance Adviser Code of Conduct (CFA Code) provides flexibility, recognizing that in smaller firms, it may not be practical for the DCO to be dedicated solely to compliance. The critical requirements are that the function is effective, has sufficient resources, is independent of other business functions, and has a direct reporting line to senior management to ensure that compliance issues are given appropriate attention at the highest level. The statement that the DCO must be an employee whose sole responsibility is compliance is incorrect because the CFA Code explicitly allows the DCO to hold other roles. The assertion that the DCO must report directly to the Securities and Futures Commission is also incorrect; the required reporting line is to the firm’s own senior management to ensure internal accountability. Finally, the idea that the entire compliance function and DCO role can be delegated to an external firm is a misinterpretation. While a firm can hire external consultants for support, the CFA Code requires the licensed corporation to maintain its own effective compliance function, with the ultimate responsibility resting internally with the DCO and senior management.

The correct answer is that the transaction requires approval by a resolution passed by shareholders at a general meeting, from which the selling shareholder and their concert parties are required to abstain from voting. This is a fundamental requirement under the Code on Share Buy-backs for an off-market share buy-back. The purpose of excluding the interested party from the vote is to ensure that the transaction is fair to the remaining, disinterested shareholders. A general mandate granted at an annual general meeting is typically used for on-market share buy-backs conducted through the exchange’s trading system, not for a specific, privately negotiated transaction with a particular shareholder. While the Executive of the SFC must approve the offer document for an off-market buy-back, this does not substitute for the required disinterested shareholder approval. Finally, simply obtaining a special resolution from all shareholders is incorrect because the specific rule for this type of transaction mandates the exclusion of the selling shareholder to prevent a conflict of interest.

The correct answer is that the proposed action could breach the spirit of the General Principles, particularly the requirement to treat all shareholders even-handedly and avoid selective disclosure, and therefore the Executive should be consulted before proceeding. The Codes on Takeovers and Mergers and Share Buy-backs are not merely a set of prescriptive rules; they are underpinned by ten General Principles that must be observed in spirit as well as in letter. General Principle 1 states that all shareholders are to be treated even-handedly, and General Principle 3 explicitly prohibits providing information to some shareholders that is not made available to all during the contemplation of an offer. Selectively briefing a major shareholder, even with good intentions, creates an unequal playing field. The Codes frequently state that where there is any doubt about a course of action, the Executive should be consulted at an early stage. This is the most prudent and compliant approach. The suggestion that a non-disclosure agreement would make the briefing permissible is incorrect because such an agreement does not override the fundamental Takeovers Code principle of equal information for all shareholders. The assertion that the Codes do not apply before a formal offer announcement is also incorrect; the principles and rules apply from the moment an offer is in contemplation. Finally, while ensuring the offeror has sufficient financial resources is a critical requirement under General Principle 4, it is not the most immediate and relevant principle being challenged by the specific action of selective disclosure described in the scenario.

Statement I is correct. Under the Codes on Takeovers and Mergers, a voluntary offer must be made in cash or include a cash alternative if the offeror or any of its concert parties purchase shares for cash during the offer period or the six-month period prior to its commencement which represent 10% or more of the voting rights. The acquisition of 11% for cash five months ago exceeds this threshold, mandating a cash alternative.

Statement II is incorrect. Where a cash alternative is required, the consideration must be at not less than the highest price paid for cash by the offeror or its concert parties during the offer period and the six months prior. In this case, the highest cash price paid was $20.00. The $21.00 valuation was for a securities exchange, not a cash purchase, and therefore does not set the minimum for the cash alternative.

Statement III is correct. The Codes do not normally allow a voluntary offer at a discount of more than 50% to the market price (a “low ball” offer) to proceed without the Executive’s consent. The current market price is $45.00. A 50% discount would result in a price of $22.50. An offer at $22.00 is below this threshold, thus qualifying as a “low ball” offer that requires consent.

Statement IV is correct. This relates to the principle that an offer must not be on less favourable terms than shares purchased by the offeror or its concert parties during the offer period or the three-month period prior to its commencement. The acquisition valued at $21.00 per share occurred two months ago (within the three-month look-back period). Therefore, the overall value of the offer consideration must be at least $21.00 per share. Therefore, statements I, III and IV are correct.

This question assesses the understanding of senior management responsibilities under the SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (‘Code of Conduct’) and the Management, Supervision and Internal Control Guidelines (‘ICG’).

Statement I is correct. General Principle 9 of the Code of Conduct explicitly states that senior management of a licensed corporation bears primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the firm. The ICG further elaborates on this, requiring senior management to establish and maintain a robust internal control framework.

Statement II is correct. General Principle 6 of the Code of Conduct requires licensed corporations to avoid conflicts of interest and ensure their clients are fairly treated. In a corporate finance advisory context, implementing and enforcing effective Chinese Walls to manage the flow of confidential, price-sensitive information is a critical control for managing such conflicts.

Statement III is correct. General Principle 2 (acting with due skill, care and diligence) and General Principle 3 (Capabilities) require a firm to employ staff with the necessary skills, knowledge, and expertise. Senior management is responsible for ensuring that staff are adequately trained and supervised to perform their duties competently, which is a cornerstone of a sound internal control system.

Statement IV is incorrect. While senior management can delegate the performance of certain compliance functions, they cannot delegate their ultimate responsibility for the firm’s overall compliance. The ultimate accountability for the adequacy and effectiveness of the firm’s systems and controls remains with the senior management. Therefore, statements I, II and III are correct.

According to Rule 22 of the Hong Kong Code on Takeovers and Mergers, disclosure of dealings during an offer period is required for associates of the offeror or offeree. Statement I is incorrect because when a fund manager deals on behalf of discretionary clients, it is not necessary to name the underlying clients. Statement II is correct as the standard deadline for public disclosure is by noon on the business day following the date of the transaction. A transaction on Monday must be disclosed by noon on Tuesday. Statement III is correct because the disclosure must explain the basis on which the person is an associate. Statement IV is also correct because if there is more than one reason for the disclosure obligation (in this case, being an associate via a common director and also being a holder of more than 5% of the company’s shares), all reasons must be stated. Therefore, statements II, III and IV are correct.

The correct answer is that the Designated Compliance Officer should report directly to the firm’s senior management and operate independently from the business functions. The Corporate Finance Adviser (CFA) Code of Conduct mandates that a Type 6 licensed corporation must maintain an effective compliance function that is independent of other business operations. This independence is crucial to avoid conflicts of interest and ensure that compliance matters are given appropriate weight and are not suppressed by commercial pressures. The Designated Compliance Officer, who heads this function, must have a direct reporting line to senior management (such as the CEO or the Board) to facilitate unfiltered communication about regulatory risks and compliance issues. Assigning the Designated Compliance Officer to report to the head of a business unit, such as the Head of IPOs, would create a direct conflict of interest, as the compliance function would be subordinate to the very department it is meant to oversee. Making the role a part-time responsibility for a junior analyst involved in deal execution would fail the requirement for the function to have adequate competence, resources, and seniority. While certain compliance tasks can be outsourced, the firm cannot delegate the ultimate responsibility for oversight; it must still have a designated officer internally who supervises the function.

Statement I is incorrect. The primary duty of an Independent Financial Adviser (IFA) appointed by an offeree company is to advise the independent shareholders, not all stakeholders. The interests of management or employees may differ from those of the independent shareholders, and the IFA must focus exclusively on the latter. Statement II is correct. As per the Takeovers Code, an IFA must, as soon as possible after being appointed, send a confirmation of its independence to the Executive of the Securities and Futures Commission. Statement III is correct. A key role of the IFA is to provide competent independent advice to the Independent Board Committee (ICB). This advice, along with the reasons for it, must be provided in writing and included in the circular sent to shareholders. Statement IV is incorrect. The IFA’s role is to advise the ICB on the fairness and reasonableness of the offer’s terms. The responsibility for negotiating the commercial terms remains with the board and the ICB, not the IFA. Therefore, statements II and III are correct.

The correct answer is that the scheme fails because the number of votes cast against the resolution exceeds 10% of the total number of disinterested shares. Under the Hong Kong Code on Takeovers and Mergers, a scheme of arrangement is subject to a dual voting requirement. First, it must be approved by at least 75% of the votes attaching to the disinterested shares that are actually cast at the meeting. In this scenario, the total disinterested shares are 800 million (1,000 million total shares minus 200 million held by the offeror). Of the 500 million disinterested shares voted, 380 million were in favour, which is 76% (380m / 500m). This first condition is met. However, the second condition, often called the ‘blocking’ or ‘headcount’ test, stipulates that the number of votes cast against the resolution must not be more than 10% of the votes attaching to ALL disinterested shares. The 10% threshold is calculated on the total 800 million disinterested shares, which equals 80 million shares. Since 120 million votes were cast against the scheme, this number exceeds the 80 million share threshold, causing the resolution to fail. One incorrect option is wrong because while the 75% approval threshold was met, it ignores the second, equally critical blocking condition. Another option is incorrect because it misapplies the 75% threshold to all disinterested shares, whereas the Code specifies it applies only to the votes cast. The final incorrect option is wrong because votes from interested parties are explicitly excluded from the approval calculation for disinterested shareholders.

The explanation clarifies the stringent requirements for an off-market share buy-back under the Hong Kong Code on Share Buy-backs. The correct answer is that such a transaction requires approval by a supermajority, specifically at least 75% of the votes cast by disinterested shareholders at a general meeting. This high threshold ensures that the interests of independent minority shareholders are protected. The Executive’s approval is normally conditional upon this shareholder vote. One of the incorrect options suggests that the transaction is automatically approved if the price is at a discount to the market price; this is incorrect as the price is only one component, and shareholder and Executive approval are paramount regardless of the price. Another incorrect option states that only board approval is needed; this is insufficient as the Code mandates shareholder involvement to prevent potential abuse by management or major shareholders. The final incorrect option proposes that the offeree shareholder must not be a director; while a director being an offeree would require careful handling of conflicts of interest, the rules apply to any off-market buy-back from an identified shareholder, and the status of the offeree does not remove the fundamental requirement for a 75% disinterested shareholder vote.

According to the Hong Kong Code on Takeovers and Mergers, an offer document must describe how an offer is to be financed. There is an exception to this rule: disclosure of financing arrangements is not required if the offer is a cash offer and the offeror intends to privatise the offeree company. However, this exception has its own important condition. The correct answer is that full details of the financing arrangements must be disclosed. This is because the exception does not apply where the repayment of any financial arrangement depends to a significant extent on the business of the offeree company. In this scenario, the loan repayment is explicitly contingent on the future revenue targets of the target company, which directly links the financing to the offeree’s business performance. Therefore, the details of these arrangements must be included in the offer document. Stating that no disclosure is needed incorrectly applies the general exception without considering the specific condition related to the offeree’s business. Disclosing only the names of the lenders is insufficient because the Code requires disclosure of the arrangements themselves when repayment is tied to the offeree. A simple confirmation of financing is also inadequate as it fails to meet the specific disclosure requirements triggered by the loan’s terms.

Under Rule 32 of the Hong Kong Code on Takeovers and Mergers, a share buy-back by a company can increase the percentage of voting rights of its shareholders. If such an increase results in a shareholder’s holding crossing a trigger threshold (e.g., from 29% to 30% or more), it could trigger a mandatory general offer obligation. However, the Code provides specific exemptions for certain types of share buy-backs. Statement I is correct as a buy-back under an employee share scheme is a recognized exemption. Statement II is correct because a buy-back made in accordance with the terms of the shares being bought back (such as redeemable shares) without the need for prior agreement is exempt. Statement III is also correct as a buy-back made at the shareholders’ request in accordance with the terms of the shares is exempt. Statement IV is correct because a share buy-back required by the law of the place of the company’s incorporation is another specific exemption. Since all four scenarios describe situations that are exempt from the general offer obligation, all statements are valid. Therefore, all of the above statements are correct.

This question tests the understanding of the requirements for a compliance function within a corporate finance adviser as stipulated by the Corporate Finance Adviser Code of Conduct (CFA Code).

Statement I is correct. The CFA Code defines a ‘Designated Compliance Officer’ as the person supervising the compliance function, and explicitly states that this individual ‘may carry out other functions or responsibilities’. This allows for flexibility, especially in smaller firms.

Statement II is correct. A fundamental principle of the CFA Code is that the compliance function must be independent of other business functions to avoid conflicts of interest and ensure objective oversight. It must report directly to senior management to have the necessary authority and visibility.

Statement III is correct. The CFA Code requires that the compliance function must have the competence, resources, and experience to adequately monitor compliance with the firm’s internal policies and procedures, as well as all applicable laws and regulations.

Statement IV is incorrect. While independence is required, the CFA Code provides flexibility. It states that where necessary, the compliance function ‘may be assumed by senior management’. This acknowledges that in smaller firms, it may not be practical to have a completely separate department, as long as the principles of independence and effective oversight are maintained. The statement’s absolute requirement of a ‘completely separate and distinct department, regardless of the size’ is therefore inaccurate. Therefore, statements I, II and III are correct.

This question assesses understanding of the obligations of both the offeror and the offeree company immediately following a takeover offer becoming unconditional, as governed by the Hong Kong Code on Takeovers and Mergers. Statement I is correct. Under Rule 3.8 of the Takeovers Code, an offeror and its concert parties must confirm to the Executive their compliance with the rules on subsequent acquisitions (Rule 31.1) and special deals (Rule 25) within three business days of the expiry of six months from the end of the offer period. Statement II is also correct. Note 1 to Rule 8 of the Takeovers Code explicitly states that once an offer is unconditional, the offeror may requisition a general meeting, and the offeree board is expected to cooperate and convene it as soon as possible, typically to facilitate changes to the board of directors. Statement III is incorrect. The restrictions on the offeree board against taking frustrating actions (as detailed in Rule 4) continue to apply even after the offer becomes unconditional, unless the offeror consents or the offeree’s shareholders approve. Selling a significant subsidiary would constitute such an action. Statement IV is incorrect. While an offeror will have an integration plan, the Takeovers Code does not mandate the submission of a detailed report on this plan to the offeree’s shareholders within a specific one-month timeframe post-offer. The primary confirmation requirement relates to compliance with specific Takeovers Code rules. Therefore, statements I and II are correct.

Statement I is correct. Under the Prevention of Bribery Ordinance (POBO), a Takeovers Code (TC) Adviser and its staff are considered agents of their client. Section 9 of POBO makes it an offence for an agent to solicit or accept an advantage as an inducement or reward for doing or forbearing to do any act in relation to his principal’s affairs. Bernard’s consideration of a personal payment to act against his client’s interest falls under this provision. Statement II is correct. Conspiracy to defraud is a common law offence involving two or more persons acting dishonestly to cause economic loss to a victim. By agreeing to manipulate financial data, Bernard and the analyst would be acting together dishonestly to defraud their client. Statement IV is correct. Section 101E of the Criminal Procedure Ordinance states that where an offence committed by a corporation is proved to have been committed with the consent or connivance of a director or other officer, that person is also guilty of the offence. Chloe’s awareness and deliberate inaction could be construed as connivance. Statement III is incorrect. Following a superior’s orders is not a valid legal defence for committing a criminal act. The junior analyst, by knowingly participating in the manipulation of data, could be found liable for aiding and abetting an offence under Section 89 of the Criminal Procedure Ordinance. Therefore, statements I, II and IV are correct.

This question assesses the understanding of the General Principles of the Code on Takeovers and Mergers.

Statement I is correct. General Principle 5 states that an offer should only be announced after the most careful and responsible consideration and after the offeror has every reason to believe that it can and will continue to be able to implement the offer in full. The TC Adviser must satisfy itself that the offeror can meet its financial obligations.

Statement II is incorrect. This action would directly violate General Principle 1, which mandates that all shareholders of the same class of an offeree company must be treated equally. Offering special deals or preferential terms to certain shareholders is prohibited.

Statement III is correct. General Principle 4 requires that all documents and advertisements issued in connection with a takeover must be prepared with the highest possible degree of care, responsibility, and accuracy. The TC Adviser plays a crucial role in ensuring this standard is met for all communications.

Statement IV is incorrect. This would breach the fundamental principles of secrecy and creating a false market. General Principle 3 stipulates that information about a proposed offer must be made available to all shareholders at the same time and in the same manner. Selective disclosure to analysts before a public announcement is a serious breach of the Code. Therefore, statements I and III are correct.

The correct answer is that Mr. Chan and Ms. Lee are jointly and severally responsible, as the TC Adviser’s primary duties cannot be delegated. The TC Adviser Guidelines, which supplement the SFO’s fit and proper requirements, establish that a TC Adviser’s primary obligations to its client are non-delegable. This means that while a TC Adviser can engage external experts like legal advisers to assist, the ultimate responsibility for the quality of the work and compliance with the Takeovers Code remains with the TC Adviser. Furthermore, when a Transaction Team is headed by more than one TCRO, they are jointly and severally responsible for performing their roles. Therefore, both TCROs share the accountability for the breach. The responsibility cannot be fully transferred to the external law firm, as they were engaged as assistants, not as the primary obligor. The concept of joint and several liability means that responsibility is not confined to only the most senior TCRO. While the licensed corporation as an entity bears responsibility, the guidelines specifically place accountability on the TCROs overseeing the transaction, meaning they are not absolved of personal accountability.