Regulatory Changes - 2/24/2009

Posted on February 24, 2009 at 11:02 PM

The following is a summary of some key regulatory changes that have recently occurred across the international legal scene:

•    The Shanghai government has issued implementing rules meant to encourage multinational corporations to establish regional headquarters in the city.  The new implementing opinions, unlike the original Provisions issued in July of 2008, provide the actual amounts of financing and incentives to be given to out.  Issued in December of 2008, they include favorable financing and rewards from the government, including Rmb 5 billion (US $730.2 million) in financing for foreign-invested companies that choose to settle there.  Herbet Tse, head of Yuan Tai PRC attorneys, said the rules should prove to be beneficial to the city, as they would encourage the migration of more corporations to Shanghai.

•     The possibility continues to grow that provisions of Hong Kong’s forthcoming competition bill will not be ready to go to the Legislative Council by July, as originally targeted by Chief Executive Donald Tsang Yam-kuen.  Concerns have been raised that additional legal hurdles might overburden small and medium sized enterprises, and that regulations concerning merger review, anti-competitive cooperation, and abuse of market power could raise the costs of doing business.  Allen & Overy’s regional head of competition Francois Renard addressed many of these concerns in a recent AsiaLaw article.  He remained adamant that competition law should only be a hurdle if you find yourself under investigation.

•     Although various media reports have postulated that the Hong Kong government plans to boost its authority over the stock exchange’s listing committee, the government maintains its position that the alleged reforms are pure speculation.  The blackout period introduced by the listing committee but shortened after heavy pressure from the Securities and Futures Commission (SFC) appears to be the cause for such speculation.  A member of the listing committee was quoted by as saying, “I was not even aware that they [the directors] were meeting. And this is likely to simply be press speculation following the blackout incident,” the source stated, “If there are criticisms of the listing committee they should be directed at the SFC.”  In November the committee proposed a seven month blackout period which would have prevented directors and major shareholders from trading their company shares up to as much as four months for annual earnings and three months for interim results.  After being pressured by company directors however, the committee announced that it would reduce the blackout to 60 days before annual results and 30 days before interim results.

•    Many Asian economies, such as Singapore and China, have recently implemented antitrust rules.  Hong Kong will most likely join them later this year.  Korea and Japan have also chosen to amend, or are about to amend, their antitrust laws to more effectively mirror international standards.   Some observers object by saying that antitrust rules may create unnecessary administrative or legal hurdles, or that they interfere in the market and may limit potential growth.  However, problems such as these can be limited if the authorities are provided with the right staff and resources.   And by adopting international standards these laws will be made more effective by the economic experiences of others nations, and also increase the efficiency of multinational actions by allowing for a more uniform set of policies and regulations.

•    In Japan, under the Financial Instruments and Exchange Law, a company is liable to past and present shareholders for damages, if it files a securities report containing a material false statement.  By the end of 2008 several court decisions revealed methods by which the amount of damages may be plead and proven.  For a shareholder to claim compensation they must prove the amount of damages by providing evidence of the difference between the price at which the stock was purchased and the estimated market price of the stock if no false statement had been made.  The significant cases were In re Associant Technology Inc., where the company was responsible for the difference between the purchase price and disposal price of stock, Nippon Life Insurance Company v LDH Corporation, where the company is responsible for the difference in price but may prove an amount of excludable damage caused by factors other than the false statements, and the litigation involving both the institutional and retail shareholders of Seibu Railway Co Ltd, in which the company is responsible only for the damages caused to shareholders who had sell their stock at a loss after the revelation of false statements.  So while these decisions offer a path for shareholders attempting to plead and prove amounts of damages caused by false statements, they have not as of yet fully clarified the position of the law.

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