Hong Kong Takeovers Code and Public M&A: Mandatory Offers, Whitewash and Scheme of Arrangement

Hong Kong public M&A runs on two parallel regimes. The SFC Codes on Takeovers and Mergers and Share Buy-backs (the “Takeovers Code”) govern the offer process and the conduct of the parties. The Companies Ordinance (Cap. 622) sets out the statutory scheme of arrangement procedure that provides an alternative route to acquire a company. On a listed target, the Listing Rules add a third layer of announcement and shareholder approval requirements.

This guide covers the core Takeovers Code obligations that shape any public deal: the Rule 26 mandatory general offer at 30% control, the creeper rule for further acquisitions between 30 and 50%, the chain principle for indirect acquisitions, the Rule 8 announcement regime, and the whitewash waiver. It then compares a general offer to a scheme of arrangement under Cap. 622 section 674, including the 75% voting rights test, the 10% disinterested opposition ceiling for takeover schemes, and how each route reaches full ownership. For related deep-dives see the Slotine Scheme of arrangement complete guide, the M&A in Hong Kong guide, and the Acquisitions practice.

The SFC Codes on Takeovers and Mergers and Share Buy-backs, collectively known as the “Takeovers Code”, set the rules of engagement for public M&A in Hong Kong. Unlike the Companies Ordinance, the Code is not a statute. It is a non-statutory regulatory framework issued by the SFC under section 8 of the Securities and Futures Commission Ordinance. Non-compliance can still lead to public censure, cold shouldering (suspension of market access), or referral to disciplinary proceedings. In practice, Code compliance is treated as a hard requirement by all major participants in the Hong Kong market.

The Code sets out three core protections for minority shareholders: (i) equal treatment (all shareholders of the same class treated equally in an offer), (ii) full information (adequate disclosure so shareholders can make an informed decision), and (iii) equal opportunity (mandatory offer when a controlling stake changes hands).

The Code applies to “Code companies”, which fall into two broad categories.

Determining scope is the first step on any transaction involving a Hong Kong company. Where the target is unlisted but has any Hong Kong nexus (registered office, business operations, shareholders), the buyer should confirm the Code position with the Executive early. A late positive determination can force a full mandatory offer that was not budgeted for.

Rule 26.1 is the central rule of the Code. It requires a mandatory general offer to be made where a person, alone or with concert parties, acquires 30% or more of the voting rights in a Code company. The mandatory offer must be extended to all remaining shareholders on the same terms as the acquisition that triggered it.

The 30% trigger is a hard threshold. Once crossed, the acquirer has no discretion to avoid a general offer. The offer must be launched promptly and follow the strict Code timetable for announcement, offer document, response period, and closing.

Two extensions of Rule 26 catch acquirers who might otherwise avoid it.

Once a person (with concert parties) already holds between 30 and 50% of voting rights in a Code company, any further acquisition of more than 2% in any rolling 12-month period triggers Rule 26.1 again. This prevents a controlling shareholder from creeping up to full control without extending an offer to minorities. Every acquisition must be tracked and stamped against the 12-month window.

The chain principle applies where an acquirer buys control of a company (A) that itself holds a stake in a Code company (B). If the effect is that the acquirer gains indirect control of 30% or more of B, the Code may treat the transaction as a Rule 26.1 event in respect of B, forcing a downstream mandatory offer. The Code and Practice Notes set out the tests for when the principle bites, which turn on the relative size and importance of the interest in B.

Rule 8 governs when and what parties must announce during the offer period. Announcements are typically required at four moments:

• Possible offer. Where a rumour, price movement or market approach creates uncertainty about a potential offer, an announcement of a possible offer may be required to correct market misinformation.
• Firm intention to make an offer (Rule 3.5). Once the offeror is committed and the essential terms are known, a firm intention announcement is made.
• Revised offer terms. Any material change in offer terms triggers an announcement obligation.
• Outcome of the offer. Acceptance levels at each closing date, and the final outcome.

The Rule 8 window can accelerate suddenly. Preparing a template Rule 8 announcement pack in advance of any confidential approach is standard practice.

Not every acquisition that would trigger Rule 26.1 requires a full general offer. Where the trigger is an allotment of new shares (a placement or subscription), the incoming shareholder can seek a whitewash waiver from the Executive of the Takeovers Panel.

Whitewash waivers are common on strategic investments, PE minorities, and restructurings where new capital is raised. They require a carefully coordinated regulatory package: the Executive application, an IFA opinion, an independent board committee recommendation, and a shareholder circular. The process runs alongside the HKEX Listing Rules Chapter 14A connected transaction procedure where applicable.

Two routes reach full ownership of a Hong Kong target: a contractual takeover offer under the Code, or a statutory scheme of arrangement under Companies Ordinance (Cap. 622) sections 670 to 674. The choice is the most important structuring decision on any privatisation.

For schemes involving a takeover offer, Cap. 622 section 674(2)(a) sets a two-limb test that departs from the general 75% + majority-in-number rule for other schemes:

• Members representing at least 75% of the voting rights of the members present and voting, in person or by proxy, agree to the arrangement; and
• The votes cast against the arrangement do not exceed 10% of the total voting rights attached to all disinterested shares in the company.

Section 674(3) defines “disinterested shares” to exclude those held by the offeror, its associates, and acquisition agreement parties. The 10% headcount test that applies to non-takeover schemes is disapplied for takeover-related schemes, which was a legislative fix to remove the abuse potential of the older headcount test.

A takeover offeror reaches 100% ownership of the target only if it receives acceptances for 90% or more of the shares to which the offer relates. Cap. 622 sections 693 and 706 provide the compulsory acquisition mechanism at that threshold. Below 90%, the buyer is left holding a public company with a residual minority, which has to be managed alongside ongoing Code and Listing Rule obligations.

On a HKEX-listed target, the Code sits alongside the Listing Rules Chapter 14 (Notifiable Transactions) and Chapter 14A (Connected Transactions). Depending on the size percentage ratios (assets, consideration, revenue, profits, and equity capital), a transaction may be classified as a share transaction, discloseable transaction, major transaction, very substantial disposal, very substantial acquisition, or reverse takeover. Each classification triggers escalating announcement, circular, and independent shareholder approval requirements.

Chapter 14A adds connected party rules where the counterparty is a director, substantial shareholder, or their associate. Practical planning of a public M&A transaction integrates the Code and Chapter 14 workstreams from the first term sheet.

Slotine advises acquirers, targets, IFAs, PE sponsors, and financial advisers across the Hong Kong public M&A workflow:

• Structuring: assess concert party positions, model Rule 26 triggers, choose between contractual offer and scheme, integrate Chapter 14 Listing Rules workflows.
• Rule 8 announcements: draft possible offer, firm intention, and revised offer announcements. Advise on triggering events.
• Mandatory offer execution: offer document, response letter, acceptance mechanics, and the Code timetable.
• Whitewash waiver: Executive application, IFA opinion coordination, independent board committee governance, and shareholder circular.
• Scheme of arrangement: Cap. 622 section 670 court order for meeting, section 673 court sanction, section 674(2) voting test structuring, and Registrar filings. See the Scheme of arrangement complete guide.
• Cross-border: coordinate with international counsel via Legalmondo and Ursusnetwork where the offeror or target is domiciled outside Hong Kong.