Director Liabilities

Date：Sept 16, 2019

Mr. Kong Wei, Partner

——言中伦 行中虑——

Catalogue

Appendix

Data Statistics

Director Liabilities

Laws and Regulations for CDRSection I ｜

Section II ｜

Section III｜

Section IV｜

2

Section I｜ Laws and Regulations for CDR

3

Promulgator Document No. Effective Date Name

Standing Committee

of the National

People's Congress

Order No. 14 of the President of

P.R.C.

31/08/2014 Securities Law of the People's Republic of China

（“Securities Law” ）

China Securities

Regulatory

Commission

(“CSRC”)

Order No. 143 of the CSRC 06/06/2018 Administrative Measures for the Issuance and Trading of

Depositary Receipts (for Trial Implementation)

Announcement [2018] No. 19 of the

CSRC

14/06/2018 Implementing Measures for Follow-up Supervision after the

Domestic Issuance of Stocks or Depository Receipts by Innovative

Enterprises (for Trial Implementation)

Announcement [2018] No. 30 of the

CSRC

12/10/2018 Regulatory Provisions on Interconnection and Interworking

between Shanghai Stock Exchange and London Stock Exchange in

Depositary Receipt Business (For Trial Implementation)

/ 17/06/2019 Joint Announcement by the China Securities Regulatory

Commission and the UK Financial Conduct Authority - Approving

the Launch of the Shanghai-London Stock Connect by the

Shanghai Stock Exchange and London Stock Exchange

◆ Laws and Regulations for CDR

4

Promulgator Document No. Effective Date Name

CSRC, China

Banking and

Insurance Regulatory

Commission

Announcement [2018] No. 21 of the

CSRC

15/06/2018 Provisions on Matters Concerning Commercial Banks Serving as

Depository Parties in the Pilot Program on Depository Receipts

General Office of the

State Council

Guo Ban Fa [2018] No.21 22/03/2018 Notice of the General Office of the State Council on Forwarding

the Several Opinions of the China Securities Regulatory

Commission on Allowing Innovative Enterprises to Issue Stocks or

Depository Receipts within the Mainland on a Pilot Basis

Shanghai Stock

Exchange

Shang Zheng Fa [2018] No.87 02/11/2018 Circular on Issuing the Interim Measures for the Listing and

Trading of Depositary Receipts under the Stock Connect Scheme

between the Shanghai Stock Exchange and London Stock

Exchange

People's Bank of

China; State

Administration of

Foreign Exchange

Announcement of the People's Bank

of China and the State

Administration of Foreign Exchange

[2019] No.8

25/05/2019 Administrative Measures for Cross-border Funds for Depository

Receipts (for Trial Implementation)

Ministry of Finance；CSRC

Cai Kuai [2019] No. 11 29/07/2019 Circular on Matters Concerning Accrediting British Accounting

Firms to Engage in the Audit Business Relating to Chinese

Depository Receipts under the Shanghai-London Stock Connect

◆ Laws and Regulations for CDR

5

Section II｜ Director Liabilities

6

Document Obligations

Administrative Measures for

the Issuance and Trading of

Depositary Receipts (for

Trial Implementation)

Directors, supervisors and senior executives of an overseas underlying securities issuer

shall perform their duties faithfully and diligently to ensure that the information

disclosed by the overseas underlying securities issuer is true, accurate and complete.

Directors and senior executives of an overseas underlying securities

issuer shall sign their written confirmation opinions on the prospectus.

Directors and senior executives of an overseas underlying securities

issuer shall sign their written confirmation opinions on periodic reports.

Circular on Issuing the

Interim Measures for the

Listing and Trading of

Depositary Receipts under

the Stock Connect Scheme

between the SSE and LSE

The board of directors and independent directors of an overseas issuer shall actively

perform their duties and express their opinions in accordance with the rules of

place where the overseas issuer is incorporated and of the LSE market as well as the

standards generally accepted in the LSE market in practice.

Make timely disclosure of change in equity, acquisition and change in the holding of

depositary receipts, and other pertinent information.

◆Main Director Obligations under CDR Listing Rules

7

Type of Director Liabilities Main Liabilities/Punishments

Number of

Liability/Punishment Cases

(involving foreign directors)*

Supervisory Measures and

Disciplinary Sanctions

Be issued a public reprimand, a notice of

criticism, a punitive penalty, etc. 0

Administrative Be imposed a warning and be fined by CSRC 1

CivilBe liable for compensation and shall take

several and joint liabilities 0

Criminal Be sentenced and be fined 0

* The statistic of Supervisory Measures and Disciplinary Sanctions was collected based on the SSE listed

companies which are listed after January 1, 2016.

The statistics of other types were collected based on all the SSE and Shenzhen Stock Exchange listed

companies.

◆ Director Liabilities

8

Document Specific Clauses Notes

Circular on Issuing the Interim

Measures for the Listing and

Trading of Depositary Receipts

under the Stock Connect Scheme

between the SSE and LSE

(Article 92)

(1) issuing a verbal or written warning;

(2) holding a private supervisory meeting;

(3) recommending the overseas issuer to change

relevant employees;

(4) suspending the acceptance of documents issued

by the sponsor, securities service provider, or its

relevant staff member;

(5) circulating a notice of criticism;

(6) issuing a public reprimand;

(7) publicly identifying the domestic representative

for information disclosure of the overseas issuer as

being unsuitable for such position;

(8) imposing a punitive penalty; or

(9) others

Mainly concerning directors`

obligations of fidelity and

diligence to the company, the

obligation of timely

disclosure of information.

◆ Supervisory Measures and Disciplinary Sanctions Taken by SSE

9

Document Breach of Duty Administrative Liability

Securities Law

Sells or repurchases the shares in violation

of the time constraints. (Article 47)

A warning and may, in addition, be fined not less than 30,000 RMB

but not more than 100,000 RMB.

Fails to disclose information in accordance

with the relevant provisions, or where the

information disclosed thereby includes

any falsity, misleading statement or major

omission. (Article 193)

Any issuer, listed company or other party responsible for disclosing

information that fails to disclose information in accordance with the

relevant provisions, or where the information disclosed thereby

includes any falsity, misleading statement or major omission, the

securities regulatory body shall order the relevant party to make

rectification, issue it with a warning and fine it between 300,000

RMB and 600,000 RMB. The person directly in charge and any other

person directly responsible shall be given a warning and fined

between 30,000 RMB and 300,000 RMB.

Directors with inside information about

securities trading purchases or sells the

securities in question, divulges such

information, or suggests another person

purchase or sell such securities. (Article

202)

Be fined not less than one time but not more than five times the

illegal gains; if there are no illegal gains or the illegal gains are less

than 30,000 RMB, he shall be fined not less than 30,000 RMB but not

more than 600,000 RMB.

◆ Administrative Liability

10

Document Breach of Duty Civil Lliability

Securities Law

False entries, misleading statements

or major omissions in the disclosed

information released by an issuer or a

listed company, thus causing losses to

investors in securities trading.

(Article 69)

The issuer or listed company shall be liable for compensation;

the directors, supervisors, senior managers and other directly

accountable persons of the issuer or listed company as well as

the sponsors and securities companies engaged for

underwriting shall be jointly and severally liable for

compensation together with the issuer or listed company,

unless one can establish a lack of fault on one's part.

◆ Civil Liability

11

The Only Penalized Foreign Director of Listed Company in Chinese Capital Market

Company Name Shandong Molong Petroleum Machinery Co. Ltd. （“Molong”）

Stock Code Shenzhen Stock Exchange 002490

Date of IPO Oct 2010

The document of

penalty

The form of decision for administrative penalty issued by SEC ([2017]No.87), 21 Sep

2017

Info of penalized

director

John Paul Cameron UK residents

Independent Director of Molong (From May 2009 to June 2016)

The reason of

penalty

1、False records in periodic reports of the company.

2、Failing to disclose a major investment matter in a timely manner.

The penalty Be imposed a warning and a fine of 50,000 RMB by CSRC

◼ Case Study – Administration Liability

12

Type of

Lawsuit

Location of The

Trial Court and

the Casecode

Brief Description of the Case Relevant Results of Judgment

Misreprese

ntation

of listed

companies

Sichuan

(2017) Chuan 01 Min

Chu No. 1169

Based on the trust of the listed company

CHENGDU GEEYA TECHNOLOGY CO.,LTD,

Li Guangqun bought its stocks. After the

company’s and its chairman of the board Zhou

Xuhui’s misrepresentation was exposed, Li

Guangqun suffered losses.

The listed company should compensate for Li Guangqun’s economic

losses due to its misrepresentation. The chairman of the board Zhou

Xuhui shall take several and joint liabilities with the company.

The company and its chairman of the board Zhou Xuhui had received

the pre-notification of Administrative Penalty and Market Ban.

Beijing

(2017) Jing Min

Zhong No. 666

Because of the related party transaction was not

disclosed，the investor Li Shuangming of the

listed company Beijing Tianli Mobile Service

Integration, INC. sustained losses, so the

company and its chairman of the board Qian

Yongyao was sued.

The listed company should compensate for investors’ economic losses

due to its misrepresentation. The chairman of the board Qian

Yongyao shall take several and joint liabilities with the company.

The China Securities Regulatory Commission had found that the

behavior of the company constitute a false statement of major events.

Shanghai

(2016) Hu 01 Min

Chu No. 166

Based on the trust of the listed company P2P

Financial Information Service Co., Ltd. , the

plaintiff purchased the stocks of the company,

after the disclosure of the misrepresentation of

the company, the plaintiff suffered losses by

investing in the stocks.

The chairman of the board of the company Xian Yan shall compensate

the plaintiff for the loss of investment balance, commission, stamp

duty and interest, the listed company and its director and chief

financial officer Yun Yanhua shall be jointly and severally liable for

the above liability of Xian Yan.

The company had received the Decision on Administrative

Supervision Measures and the Decision on Administrative Punishment

from the Shanghai Regulatory Bureau of the China Securities

Regulatory Commission.

◼ Case Study – Civil Lawsuit (no foreign directors involved)

13

Section III｜Data Statistics

14

Listed Company Of Shanghai Stock Exchange —— During the period from 01/01/2016 to 31/08/2019

18.2%

81.8%

Companies with foreign directorsCompanies without foreign directors

82.6%

17.4%

Domestic companies Foreign invested companies

The total number: 413

No foreign directors of SSE listed companies have been subject to any penalty

during this period. 15

11

14

19

8

23

6 6

3

0

2

4

6

8

10

12

14

16

18

20

1%-10% 10%-20% 20%-30% 30%-40% 40%-50% 50%-60% 60%-70% 70%-80% 80%-90%

Num

ber

Of

Com

pan

ies

The Proportion Of Foreign Capital

The Percentage Distribution Of Joint Ventures

16

Section IV｜ Appendix

17

Where a depositary receipt taking stocks as underlying securities is offered to the public, the overseas underlying

securities issuer shall meet the following conditions:

(1) Basic requirements on public issuance of stocks specified in Items (1) to (3), Article 13 of the Securities Law;

“1. have a sound, well-operated corporate governance structure;

2. have a sustainable profitability and sound financial status;

3. do not have any false record in the financial and accounting documents or any other major illegal activity in the previous 3 years.”

(2) It is a company which is formed in accordance with the law and has conducted sustainable business operation for three years or

more, and there is no significant ownership dispute over the company's major assets.

(3) The actual controller has not changed in the last three years, and there is no major ownership dispute over the shares of the overseas

underlying securities issuer held by the controlling shareholder and the shareholders controlled by the controlling shareholder or actual

controller.

(4) The overseas underlying securities issuer and its controlling shareholder or actual controller do not have any major violation of law

that damaged the lawful rights and interests of investors and social and public interest in the last three years.

(5) The basic accounting work rules and internal control rules are sound.

(6) Directors, supervisors and senior executives shall have a good reputation, meet the office requirements prescribed by the laws of

the place of registration of the company, and have no record of major violation of law or dishonest act in the recent period.

(7) Other conditions prescribed by the CSRC.

◼ Conditions For Overseas Underlying Securities Issuer

Directorinvolved

18

Any overseas issuer who applies for the listing of CDRs on the SSE for the first time shall:

(1) meet the requirements of the Administrative Measures of Depositary Receipts and the Supervision and Administration

Provisions on the public offering of CDRs and have the public offering approved by the China Securities Regulatory

Commission (the “CSRC”);

(2) have an average market capitalization of no less than RMB 20 billion, per the closing price of the underlying shares,

over the 120 trading days prior to the offering application date, calculated at the middle price of RMB exchange rate

announced by the People's Bank of China on the day prior to the offering application date;

(3) have been listed on the LSE for at least 3 years and have obtained the premium listing for at least 1 year;

(4) seek the listing of no less than 50 million units of CDRs representing no less than RMB 500 million of corresponding

underlying shares at market value (calculated at the latest closing price of the underlying shares and the middle price of

RMB exchange rate announced by the People's Bank of China on the day prior to the offering application date);

(5) meet any other requirements as required by the SSE.

◼ Requirements for the Listing of CDRs on the SSE

19

Where a depositary receipt is offered to the public within China taking a non-new stock as the underlying

securities, the overseas underlying securities issuer shall submit the following application documents as required:

(1) The prospectus and confirmation opinions signed by the director authorized by the overseas underlying

securities issuer.

(2) The application report of the overseas underlying securities issuer.

(3) The relevant resolutions of the overseas underlying securities issuer on the current offering.

(4) Offering sponsorship letter and sponsor work report.

(5) Financial reports and audit reports in the last three years and the financial report in the most recent period.

(6) The legal opinion issued by a domestic lawyer and the lawyer's work report.

(7) Company registration documents and the company's bylaws.

(8) The deposit agreement and custody agreement.

(9) Sponsorship agreement.

(10) Other documents required by the CSRC.

Director

involved

◼ Required Application Documents – General Rules

20

Any overseas issuer applying for the initial listing of CDRs on the SSE shall submit the following documents:

(1) the listing application;

(2) the approval document of the CSRC for the current public offering;

(3) the document certifying that the CDRs have been placed under the custody of the CSDC;

(4) (if applicable) any required additional financial materials and statements regarding relevant material events for the

period following the pre-listing review and before the listing

application;

(5) declarations and letters of undertaking of directors and senior executives;

(6) relevant materials on the domestic office for securities affairs and the domestic representative(s) for information

disclosure;

(7) the listing sponsorship letter;

(8) the listing announcement; and

(9) other documents required by the SSE.

◼ Required Application Documents-Initial Listing of CDRs

Directors confirm there are no false entries, misleading statements or major omissions on the prospectus, otherwise they shall be jointly and severally liable for compensation together.

21

THANK YOU！

——言中伦 行中虑——