Continuing disclosure on the New Third Board, explained

Introduction:

Merger and reorganisation activity and the investment market on the New Third Board remain brisk. To protect the lawful rights and interests of investors, the national equities system has tightened its supervision of companies quoted on the New Third Board, and in particular their continuing disclosure. Recently the national equities system has issued penalties against quoted companies that failed in their duty to disclose, reminding them once again of their statutory duty of disclosure and their duty to disclose as undertaken.

Under article 3 of the Rules for the Disclosure of Information by Companies Quoted on the National Equities Exchange and Quotations System (for trial implementation) (the Rules), a company quoted on the New Third Board must make continuing disclosure after it is quoted, in the form of periodic reports and ad hoc reports. Today Minton's lawyers explain in detail the system for disclosure after quotation on the New Third Board.

General principles

(1) timely and fair;

(2) covering all information that may have a considerable effect on the transfer price of the company's shares and other classes of securities;

(3) true, accurate and complete, with no false record, misleading statement or major omission;

(4) before major information is disclosed it must be reviewed by the sponsoring broker, and major information not so reviewed may not be disclosed;

(5) disclosure in other media may not be earlier than disclosure on the designated platform.

Periodic reports

The types of periodic report to be disclosed

Item

Whether

it must

be disclosed

Time

Financial report

Requirement

Note

Annual

report

Yes

within four months from the end of each accounting year

must be audited by an accounting firm qualified for securities and futures business

The quoted company shall agree the time for disclosing its periodic reports with the company operating the national equities transfer system.

Where the time for disclosure has to be changed, the company shall inform its sponsoring broker and apply to the company operating the national equities transfer system, which will decide in the circumstances whether to adjust it.

Half-year

report

Yes

within two months from the end of the first half of each accounting year

Quarterly

report

May

within one month after the end of the first three months and of the first nine months of each accounting year (and not earlier than the previous year's annual report)

Who is responsible for a periodic report

Responsible body

Scope of responsibility

Board of directors

1. to deliberate and approve the periodic report;

2. the directors to give their written confirmation;

3. to ensure that the periodic report is disclosed on time; where it cannot be, to disclose by announcement of the board the specific reasons and the risks involved;

4. to submit to the shareholders' meeting the change of accounting firm for deliberation;

5. where the certified public accountant gives a non-standard audit opinion on the financial report, to make a special explanation and issue the board resolution on that explanation together with the material on which the resolution is based.

Supervisory board

1. where the quoted company's financial report receives a non-standard audit opinion from the certified public accountant, to give its opinion and the relevant resolution on the explanation of the board;

2. to pass a resolution on the periodic report;

3. to give a written opinion on its review.

The broker

1. to review in advance the disclosure documents of the quoted company;

and, with the quoted company, to reply promptly to the comments of the NEEQ company on its review after the event of the periodic report;

2. the quoted company, before disclosing a periodic report, to deliver the following documents to its sponsoring broker;

(1) the full text of the periodic report and its summary (if any);

(2) the audit report (if applicable);

(3) the resolutions of the board and of the supervisory board and the texts of their announcements;

(4) the written confirmation of the company's directors and senior officers and the written opinion of the supervisory board on its review;

(5) the electronic files of the periodic report and financial data prepared as required by the NEEQ company;

(6) other documents required by the sponsoring broker and the NEEQ company.

3. Where any of the following occurs in the annual report, the sponsoring broker shall, no later than the transfer day before disclosure, report it to the NEEQ company:

(1) the financial report receives an audit report with a disclaimer of opinion or an adverse opinion;

(2) the audited net assets at the end of the period are negative.

4. Where the quoted company's financial report receives a non-standard audit opinion from the certified public accountant, the company shall deliver the following documents to its sponsoring broker:

(1) the special explanation made by the board on the matters to which the audit opinion relates, the board resolution deliberating that explanation, and the material on which the resolution is based;

(2) the opinion of the supervisory board on the board's explanation and the relevant resolution;

(3) the special explanation issued by the accounting firm responsible for the audit and by the certified public accountant;

(4) other documents required by the sponsoring broker and the NEEQ company.

Ad hoc reports

Under article 21 of the Rules, an ad hoc report means an announcement other than a periodic report published by a quoted company in accordance with laws and regulations and the relevant provisions of the NEEQ company. An ad hoc report shall bear the official seal of the board and be published by the board.

The duty to disclose a major event for the first time

Event

Status

Condition for disclosure

Note

Major event

First reached

at any point in time

(condition for disclosure)

(1) when the board or the supervisory board passes a resolution;

(2) when a letter of intent or an agreement is signed (whether or not conditions or a time limit are attached);

(3) when the company (including any director, supervisor or senior officer) knows, or ought reasonably to know, that the major event has occurred.

Where the relevant facts have not yet occurred when the announcement is prepared, the facts as they stand shall be announced objectively, and once the facts have occurred the progress or change of the matter shall be disclosed.

Other major events

At the planning stage, before the point at which a major event is reached, but where the event may have a considerable effect on the transfer price of the shares

(1) the event is difficult to keep secret;

(2) the event has already leaked, or rumours about it have appeared in the market;

(3) abnormal fluctuations have already occurred in trading in the company's shares and their derivatives.

Note: major events include information arising in a controlled subsidiary of the quoted company that may have a considerable effect on the price of the quoted company's shares.

(2) Resolutions of the board, the supervisory board and the shareholders' meeting

Board of directors

Supervisory board

Shareholders' meeting

Whether reported to the sponsoring broker for the record

Yes

Yes

—

Time for disclosure

two transfer days

two transfer days

see "content of disclosure"

Content of disclosure

1. where the board resolution concerns major information that must be disclosed under the Rules;

2. where the board resolution concerns an acquisition or disposal of assets, or outbound investment (including entrusted wealth management, entrusted loans and investment in subsidiaries), which under the articles of association must be submitted to the shareholders' meeting for deliberation;

3. the minutes of the meeting (if required by the sponsoring broker and the equities system)

1. where it concerns major information that must be disclosed under the Rules;

2. the minutes of the meeting (if required by the sponsoring broker and the equities system)

1. notice of the annual general meeting (twenty days in advance);

2. notice of an extraordinary general meeting (fifteen days in advance);

3. the resolution of the shareholders' meeting (within two transfer days after the meeting ends)

Note: the announcement of the annual general meeting shall include the opinion of the lawyer who attended;

4. the minutes of the meeting (if required by the sponsoring broker and the equities system)

Related-party transactions

Type of related-party transaction

Time of disclosure

Content of disclosure

Form of disclosure

Ordinary related-party transactions

before the previous year's report is disclosed

1. reasonably estimating the total amount of related-party transactions expected in the current year, and disclosing their implementation in tabular form;

2. disclosure of any matter exceeding that amount

the annual report

the half-year report

Other related-party transactions

related-party transactions other than ordinary ones

an ad hoc announcement

Exempt from disclosure

—

1. one party subscribes in cash for shares, corporate bonds or enterprise bonds, convertible corporate bonds or other classes of securities issued by the other;

2. one party, as a member of an underwriting syndicate, underwrites shares, corporate bonds or enterprise bonds, convertible corporate bonds or other classes of securities publicly issued by the other;

3. one party receives dividends, bonuses or remuneration under a resolution of the other's shareholders' meeting;

4. a related-party transaction between the quoted company and a controlled subsidiary within the scope of its consolidated statements, or between such controlled subsidiaries.

—

Other major events requiring ad hoc disclosure

Major litigation and arbitration

Major litigation or arbitration in which the amount in dispute is 10 per cent or more of the absolute value of the company's audited net assets for the most recent period.

Litigation or arbitration that does not reach the standard in the preceding paragraph or has no specific amount in dispute, where the board considers that it may have a considerable effect on the transfer price of the company's shares and other classes of securities, or where the sponsoring broker or the NEEQ company considers it necessary.

Litigation seeking to set aside or declare invalid a resolution of the shareholders' meeting or of the board.

A scheme for profit distribution or for increasing capital from capital reserve

After the board has deliberated and approved a scheme for profit distribution or for increasing capital from capital reserve, the specific content of the scheme shall be disclosed, and an announcement of implementation shall be disclosed before the record date for implementing it.

Abnormal fluctuations in the transfer of shares

Where the transfer of a company's shares is determined by the NEEQ company to have fluctuated abnormally, the quoted company shall disclose an announcement of the abnormal fluctuation on the next share transfer day. If it cannot disclose on that day, it shall apply to the NEEQ company to suspend the transfer of its shares until disclosure is made, when transfer resumes.

Reports in the public media

Where a report in the public media (a rumour) may have, or has had, a considerable effect on the transfer price of the company's shares, the quoted company shall promptly provide its sponsoring broker with the material that helps to test the rumour, and decide whether to publish a clarifying announcement.

Implementation of an equity incentive scheme.

Before shares subject to a lock-up are released from the restriction on transfer, the quoted company shall disclose the relevant announcement or complete the relevant formalities in accordance with the provisions of the NEEQ company.

A change in the interests of a shareholder and its actual controller

Where a shareholder holding 5 per cent of the total share capital of the quoted company, or its actual controller, has a change in the shares carrying interests that reaches the standard set by the NEEQ company, it shall promptly notify the quoted company as required and disclose an announcement of the change of interests.

Matters undertaken to be disclosed

Where a quoted company and the persons under the relevant duty of disclosure disclose matters undertaken, they shall strictly observe the undertakings disclosed. Where the company does not perform an undertaking, it shall promptly disclose the reason and the legal liability the persons concerned may bear; where a person under the duty of disclosure does not perform an undertaking, the company shall inquire of its own motion and promptly disclose the reason and the measures the board proposes to take.

A quoted company being placed under risk warning, or a decision to terminate the quotation of its shares.

Where any of the following occurs in a quoted company, it shall disclose within two transfer days from the date of the fact: (1) a change in the controlling shareholder or the actual controller;

(2) occupation of funds by the controlling shareholder, the actual controller or a party related to them;

(3) a court ruling prohibiting a major shareholder with control from transferring the shares it holds in the company;

(4) 5 per cent or more of the shares held by any shareholder being pledged, frozen, judicially auctioned, placed in custody, made subject to a trust, or restricted by law in voting rights;

(5) a change among the company's directors, supervisors or senior officers; the chairman or the general manager being unable to perform his duties;

(6) a decision on reduction of capital, merger, division, dissolution or application for bankruptcy; or entry into bankruptcy proceedings in accordance with law, or being ordered to close;

(7) a resolution of the board on merger or reorganisation, distribution of dividends, repurchase of shares, a private placement or other scheme of securities financing, or an equity incentive scheme;

(8) a change of accounting firm, accounting policy or accounting estimate;

(9) the giving of a guarantee to an outside party (other than a guarantee given by the quoted company to a controlled subsidiary);

(10) the company, its directors, supervisors or senior officers, its controlling shareholder or its actual controller being under investigation by an authority with competence to do so during the reporting period, being subjected to compulsory measures by a judicial or disciplinary inspection body, being transferred to a judicial organ or pursued for criminal responsibility, being investigated by the CSRC, being subjected to an administrative penalty by the CSRC, being banned from the securities market, being determined to be an unsuitable person, or receiving a penalty from another administrative department that has a major effect on the company's production and business;

(11) rectification being ordered by a relevant body, or correction being decided by the board, because information previously disclosed contained an error, was not disclosed as required, or contained a false record;

(12) other circumstances determined by the sponsoring broker or the NEEQ company. A company that has given an irregular guarantee to an outside party, or whose controlling shareholder or a party related to it has occupied its funds, shall publish a reminder announcement at least once a month, disclosing progress in resolving the irregular guarantee or the occupation of funds.