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1、Nanning Sugar settles high profile securities dispute with Martin Currie2 August 2010FAI HUNG CHEUNGPartner, China and Hong KongJANE JIANGHead of PRC Regulatory Group, China and Hong KongNORMAN LIAssociate, China and Hong KongMITCHELL SILKPartner, United StatesHUAWEI SUNSenior Associate, China and H
2、ong KongPETER THORPPartner, China and Hong KongOn 14 July 2010, the board of directors of Nanning Sugar Manufacturing Co., Ltd (Nanning Sugar) issued a public announcement stating that the company had settled its long-running legal dispute with UK-based investment manager Martin Currie Ltd (MCL) and
3、 its two wholly-owned subsidiaries, Martin Currie Investment Management Ltd. (MCIM) and Martin Currie Inc (MCI; collectively, the MCL Subsidiaries).MCL and the MCL Subsidiaries settled the case by agreeing to pay Nanning Sugar a lump sum amount equivalent to RMB40 million. As the first dispute invol
4、ving a Qualified Foreign Institutional Investor (QFII) under the PRC securities regulatory regime, the court proceedings initiated by Nanning Sugar had attracted significant public interest. The settlement of the case prior to the courts ruling ensures that the legal issues arising from the dispute
5、will continue to be the subject of debate.Nanning Sugars ClaimNanning Sugar is a company listed on the Shenzhen Stock Exchange. In a suit brought before the Nanning Intermediate Peoples Court of Guangxi Province in June 2008, Nanning Sugar claimed that MCL, MCIM and MCI had breached Article 47 of th
6、e PRC Securities Law by failing to account to Nanning Sugar for the proceeds of the sale by the MCL Subsidiaries of shares in Nanning Sugar that had been purchased less than six months earlier. Article 47 holds that if a shareholder holding a stake of more than 5% in a listed company sells its share
7、s in the company within six months of purchasing them, the proceeds arising from the sale will belong to the listed company and will be recovered by the listed companys board of directors. This is commonly referred to in the PRC as the short swing profit rule.The fact that the MCL Subsidiaries had e
8、ngaged in the purchase and sale of shares in Nanning Sugar within a period of less than six months was not disputed, having been reported by MCL in a series of public announcements. According to those announcements, MCIM and MCI had, through a series of transactions occurring in August 2007, acquire
9、d shares in Nanning Sugar of 2.5% and 3.4% respectively. Then, approximately five months later, the MCL Subsidiaries proceeded to sell the majority of these shares, with MCIM selling all of its shares in Nanning Sugar and MCI being left with only an 0.8% share in the listed company.QFII Regime and t
10、he Shares Held by the MCI SubsidiariesUnder the PRC QFII Regime, a QFII may purchase shares listed on a PRC stock exchange, subject to the limit of its investment quota granted by SAFE. Further, foreign investors that have not obtained a QFII licence may obtain access to the Chinese A share market b
11、y investing through a QFII within its quota.MCIM has obtained QFII qualification. Nanning Sugars claims concerned share market investments that the MCL Subsidiaries managed for their clients who had made investments both through MCIMs own QFII quota and through the QFII quotas of other third parties
12、.Disclosure of Interests RequirementsUnder the PRC securities and QFII regulatory regime, there are detailed requirements on disclosure by investors and QFIIs of their shareholdings in publicly traded companies. According to Article 86 of the Securities Law and Article 13 of the Measures for the Adm
13、inistration of the Takeover of Listed Companies (the Takeover Measures), disclosure is required each time an investor:acquires an interest of 5% or more in the total issued shares of an issuer; orholds 5% or more of the total issued shares of an issuer and there is an increase or decrease of 5% in i
14、ts holding.Detailed provisions regarding shares held by QFIIs on behalf of their clients are set out in various measures, provisions and circulars (collectively the QFII Regime) issued by the CSRC, PBOC and SAFE. Under the QFII Regime, the securities accounts that a QFII may open include: (i) accoun
15、ts opened in its own name for the purposes of proprietary trading; and (ii) client account(s) opened in its name as nominee or fund manager. A QFII is obliged to report to the CSRC the identity and investments of the beneficiary owners of its client accounts. In particular, it should report to the C
16、SRC and to the relevant exchange details of the actual investors or funds (including their names, places of incorporation, assets and securities investments) within eight business days following the end of each quarter.Thus, where it holds 5% or more of the total issued shares of an issuer through a QFII, an offshore investor (rather than the QFII managing the investment on behalf of its investor) is under a primary obligation to disclose its holdings in the issuer. However,
