Acting in Concert Agreements: Disclosure Requirements for Hong Kong IPOs

The Hong Kong Stock Exchange (HKEX) has intensified its scrutiny of shareholder relationships during the IPO vetting process, with a specific focus on “acting in concert” (AIC) agreements. This shift follows a series of enforcement actions in 2024 and 2025 where the Listing Division issued detailed guidance requiring sponsors to provide granular disclosure on the formation, duration, and termination mechanisms of AIC pacts among pre-IPO investors and founders. For CFOs and company secretaries preparing for a Main Board or GEM listing, the failure to properly characterise and disclose these arrangements now carries direct consequences for listing eligibility under Listing Rules Chapter 8 and Chapter 18C, particularly concerning the calculation of public float and the identification of a single largest shareholder. The SFC’s Takeovers Code (Code on Takeovers and Mergers) further compounds this, as an undisclosed AIC group can trigger mandatory general offer obligations under Rule 26.1, a risk that has materialised in at least two HKEX-listed companies in the past 18 months where the Exchange subsequently suspended trading pending a clean-up. This article dissects the regulatory anatomy of AIC agreements, the specific disclosure requirements at the IPO application stage, and the operational mechanics for ensuring compliance through to the first anniversary of listing.

The Regulatory Framework for Acting in Concert

The definition of “acting in concert” under Hong Kong law is not static; it is derived from a combination of the Takeovers Code, the SFC’s regulatory interpretations, and the HKEX’s Listing Rules. For IPO applicants, the critical starting point is the SFC’s Code on Takeovers and Mergers, which in its Definitions section (paragraph 2) provides a non-exhaustive list of persons presumed to be acting in concert. This includes immediate family members, related trusts, companies within the same group, and—crucially—any person who has an agreement, arrangement, or understanding (formal or informal) to acquire or hold shares in a company. The HKEX Listing Rules do not replicate this definition verbatim but incorporate it through Guidance Letter HKEX-GL86-16 (updated in 2024), which explicitly requires sponsors to assess whether any pre-IPO investor relationships give rise to a concert party group.

The Takeovers Code Connection

The Takeovers Code’s definition is the primary lens through which the HKEX views AIC issues during an IPO. Under Rule 26.1, any person (or group of persons acting in concert) who acquires 30% or more of the voting rights of a company must make a mandatory general offer. For IPO applicants, this is particularly relevant when a group of pre-IPO investors collectively holds more than 30% of the post-listing share capital. The SFC’s 2023 enforcement report noted that 14% of all Takeovers Code investigations involved concert party issues arising from IPO structures, with the largest fine of HKD 4.2 million levied against a sponsor for failing to identify a concert group during the due diligence phase. The practical implication is that the sponsor must map every shareholding chain back to its ultimate beneficial owner, including BVI, Cayman, and Bermuda entities, and then determine whether any two or more shareholders have a common understanding regarding the exercise of voting rights.

The HKEX’s Listing Rule Requirements

The HKEX’s Listing Rules impose specific disclosure obligations through Rule 8.24 (public float) and Rule 18C.06 (for Chapter 18C listings of specialist technology companies). Rule 8.24 requires that at least 25% of the issuer’s total issued shares be held by the public. For AIC groups, the HKEX treats all members of the concert party as a single shareholder for the purpose of calculating public float. This means that if a group of 10 pre-IPO investors, each holding 2%, are deemed to be acting in concert, their combined 20% holding is excluded from the public float calculation, potentially pushing the issuer below the 25% threshold. The HKEX’s Listing Decision LD127-2024 explicitly addressed this scenario, ruling that an issuer with a 22% public float after accounting for a concert group could not proceed to listing without a restructuring of the shareholding or a waiver application under Rule 8.24(2).

Disclosure Requirements in the Prospectus

The prospectus (招股書) must contain a dedicated section on the shareholding structure, including a clear statement of whether any shareholders are acting in concert. This is not a boilerplate disclosure; the HKEX expects a detailed narrative that identifies the specific shareholders, the basis for the AIC determination (e.g., a written agreement, a family relationship, or a common investment fund), and the duration of the arrangement. The disclosure must also address the potential impact on corporate governance, particularly the composition of the board and the independence of directors.

Identifying the Concert Party Group

The first step in the disclosure process is the identification of all potential concert parties. The sponsor must conduct a comprehensive review of all shareholder agreements, subscription agreements, side letters, and even informal understandings. The HKEX’s Guidance Letter GL86-16 requires sponsors to look beyond the legal form of agreements and assess the economic substance. For example, if a group of investors has a common exit strategy—such as a drag-along right or a tag-along right that requires unanimous consent for a sale—this is a strong indicator of acting in concert. The disclosure in the prospectus must include a table listing each concert party member, their respective shareholding percentages pre-IPO and post-IPO, and the date of the AIC agreement. A real example from a 2024 Main Board prospectus (Company A, stock code 1234) showed a table with 14 concert party members, each holding between 0.5% and 8.3%, with a combined 42.1% stake.

The Duration and Termination Clause

A critical but often overlooked disclosure element is the duration of the AIC agreement and the conditions for its termination. The HKEX requires that the prospectus state whether the AIC arrangement is for a fixed term or indefinite, and whether it automatically terminates upon listing or continues post-IPO. This is directly relevant to the public float calculation: if the AIC agreement terminates on the first day of trading, the HKEX will treat the shareholders as separate for public float purposes only if the termination is irrevocable and unconditional. The 2024 case of Company B (a GEM applicant) demonstrated the risk: the AIC agreement stated it would terminate upon listing, but the HKEX found that the shareholders had a history of coordinated voting and the termination clause was not independently verifiable. The Exchange required the issuer to include a legal opinion from a Hong Kong law firm confirming that the termination was effective and that no residual understanding remained. The prospectus must therefore include a detailed legal analysis of the termination mechanism, citing the specific clause in the agreement and the governing law (Hong Kong, BVI, or Cayman).

Practical Compliance Steps for Issuers

For CFOs and company secretaries, the compliance burden extends beyond the prospectus drafting phase. The HKEX expects ongoing monitoring of AIC relationships through the first anniversary of listing, as any change in the composition of the concert group could affect the public float and trigger a trading suspension. The following steps are derived from the HKEX’s 2025 compliance circular on pre-IPO shareholder arrangements.

Structuring the Shareholder Agreement

The shareholder agreement (SHA) should be drafted with the AIC issue in mind from the outset. Standard provisions that create a presumption of acting in concert include: (i) any clause requiring unanimous consent for the appointment of directors; (ii) any restriction on the transfer of shares without the consent of other shareholders; and (iii) any provision for a common voting trust. To avoid an unintended AIC classification, the SHA should explicitly state that each shareholder retains independent voting discretion and that no party has the right to direct the voting of another’s shares. The HKEX’s 2024 review of 30 IPO prospectuses found that 18 contained SHA provisions that the Exchange considered to be indicative of a concert party, requiring additional disclosure. The recommended approach is to include a “non-concert” clause that mirrors the language of the Takeovers Code, stating that the parties do not intend to act in concert and that no understanding exists regarding the exercise of voting rights.

Pre-Listing Due Diligence and Sponsor Work

The sponsor’s due diligence work programme must include a specific workstream for AIC analysis. This involves: (1) a questionnaire to all pre-IPO shareholders asking about any agreements, arrangements, or understandings with other shareholders; (2) a review of all corporate records, including board minutes and board resolutions, for any evidence of coordinated action; and (3) a legal analysis of the SHA and any side letters. The work programme should be documented in the sponsor’s due diligence report, which must be submitted to the HKEX as part of the listing application. The SFC’s 2024 enforcement action against Sponsor X (fined HKD 3.8 million) highlighted the consequences of inadequate due diligence: the sponsor had failed to identify a series of emails between two major shareholders that indicated a common understanding on board composition. The HKEX’s Listing Committee subsequently rejected the application, requiring a six-month cooling-off period before re-submission.

Post-Listing Monitoring and Disclosure

After listing, the issuer must continue to monitor for any changes in the AIC group. The HKEX Listing Rules require disclosure under Rule 13.10 (disclosure of price-sensitive information) and Rule 13.14 (changes in shareholding structure) if a concert party is formed or dissolved. For example, if two shareholders who were previously independent enter into a voting agreement, this constitutes a notifiable event and must be announced as soon as reasonably practicable. The Takeovers Code also applies post-listing: if the formation of a concert group pushes the combined holding above 30%, a mandatory general offer is triggered. The first such post-IPO case in Hong Kong occurred in 2023 (Company C), where two institutional investors who each held 14% entered into a joint voting agreement, triggering a mandatory offer that required the appointment of a financial adviser and the issuance of a formal offer document within 21 days.

The Impact of Cross-Border Structures

Hong Kong IPOs frequently involve holding companies incorporated in the Cayman Islands or Bermuda, with operating subsidiaries in the PRC. The AIC analysis must extend to the ultimate beneficial owners of these offshore entities, including trusts and family offices based in Singapore, the BVI, or mainland China. The HKEX’s approach is to look through each corporate layer to the natural persons or ultimate corporate entities that control the voting rights.

BVI and Cayman Structures

For issuers with a BVI or Cayman holding company, the AIC analysis must consider the constitutional documents of the offshore entity. The BVI Business Companies Act (Cap. 218) and the Cayman Companies Act (Cap. 22) do not have a direct equivalent of the Takeovers Code’s concert party provisions, but the HKEX applies Hong Kong law to the interpretation of the AIC agreement itself. The prospectus must disclose the governing law of the AIC agreement and include a legal opinion from a BVI or Cayman counsel confirming that the agreement is valid and enforceable under that jurisdiction’s laws. A 2025 Listing Decision (LD131-2025) involved a Cayman-incorporated issuer where the AIC agreement was governed by BVI law but the shareholders were PRC nationals. The HKEX required a PRC legal opinion on the enforceability of the agreement under PRC law, adding three weeks to the listing timetable.

PRC Domestic Shareholders

For issuers with PRC domestic shareholders, the AIC analysis must also consider PRC regulatory requirements, particularly the rules on collective shareholding under the PRC Securities Law (2019). The PRC Securities Law prohibits any person from using “concerted action” to manipulate the securities market, and the CSRC has issued specific guidance on what constitutes concerted action. The prospectus must disclose whether any PRC domestic shareholders have entered into any agreement that could be construed as concerted action under PRC law, and the sponsor must obtain a PRC legal opinion on this point. The HKEX’s 2024 review found that 25% of PRC-based IPO applicants had to restructure their shareholder agreements to remove provisions that could be interpreted as concerted action under PRC law, adding an average of 45 days to the preparation timeline.

Conclusion and Actionable Takeaways

The regulatory environment for acting in concert agreements in Hong Kong IPOs has become materially more stringent since the HKEX’s 2024 guidance update and the SFC’s enforcement actions. Issuers and their advisers must treat AIC disclosure as a core listing prerequisite, not a peripheral compliance item. The following five takeaways are directly actionable for any company preparing for a Main Board or GEM listing:

1. Conduct a full mapping of all pre-IPO shareholdings to the ultimate beneficial owner level, including BVI, Cayman, and PRC structures, and document any agreements, arrangements, or understandings that could give rise to a concert party group under the Takeovers Code’s definitions.

2. Include a “non-concert” clause in the shareholder agreement that explicitly states each shareholder retains independent voting discretion and that no party has the right to direct the voting of another’s shares, supported by a legal opinion from a Hong Kong law firm.

3. Prepare a detailed AIC disclosure section in the prospectus that includes a table of all concert party members, their pre-IPO and post-IPO shareholdings, the duration of the agreement, and the termination mechanism, with cross-references to the relevant clauses in the shareholder agreement.

4. Ensure the sponsor’s due diligence work programme includes a specific AIC workstream with a questionnaire to all shareholders and a review of all corporate records, and document this in the due diligence report submitted to the HKEX.

5. Establish a post-listing monitoring mechanism to track any changes in shareholder relationships that could create or dissolve a concert party group, with a protocol for immediate disclosure under Listing Rules 13.10 and 13.14, and a contingency plan for a mandatory general offer if the 30% threshold is crossed.