Evolutionary Development in Hong Kong of Transplanted UK-Origin Takeover Rules

Hostile takeovers are usually conceived as open market transactions to dispersed shareholders, who have to make a decision on complex issues within a short timeframe. Aside from the simple fact that shareholders have a right to sell their shares, the risks takeovers present to market integrity are seen fully compensated by their contribution to corporate governance through providing a market for corporate control. Legal protections have been crafted to protect these benefits while countering risks. What role does a regulatory framework focusing on hostile bids play in an economy where shareholdings are generally concentrated into controlling blocks and hostile bids are all but non-existent? Very little role, as evidenced by Hong Kong during the 23 years of cases in which a UK origin takeover code has been applied. Provisions applicable to the reorganization and consolidation of groups, in particular rules on “acting in concert” in connection with acquiring packets of shares, find significant use while central aspects of the takeover code go unapplied. Moreover, the takeover has been made variant of traditional schemes of arrangement, and has recently been used to move one of Hong Kong's largest companies, Cheung Kong (Holdings) Ltd, offshore under court supervision. In Hong Kong, UK-origin takeover rules have taken on an evolutionary path that deviates significantly from that found in the UK. This provides a valuable example of variation through transplantation and a lesson for policy and lawmakers in developing countries