Take Private Transactions: Possible New Pitfalls for Private Equity

Under current Hong Kong law, take private transactions may be effected by asset purchases to exploit lower regulatory hurdles for asset purchases compared with share purchases and schemes of arrangement. The Securities and Futures Commission ("SFC") has recently proposed increasing regulatory hurdles for asset purchases with a view to harmonizing the minority shareholder position for all 3 methods of effecting a take private transaction.

Background

Share purchases and schemes of arrangement are governed by the Code on Takeovers and Mergers ("Takeovers Code"). Under the Takeovers Code, minority shareholders of companies ("target companies") which are the subject of a take private transaction enjoy certain veto rights designed to prevent them from being squeezed out without fair compensation.