(The Provisions of Shanghai Financial Court on Disposal of Stocks of Listed Companies in the Course of Enforcement (Trial) were discussed and adopted by the seventh meeting of the Judicial Committee of the Shanghai Financial Court on November 18, 2019 and amended by the ninth meeting of the Judicial Committee of the Shanghai Financial Court on December 29, 2020)
No.1 [2021]of Shanghai Financial Court
Chapter I General Provisions
Article 1 To further regulate the disposal of stocks of listed companies in the course of enforcement by Shanghai Financial Court, guard against financial risks, and optimize the business environment, these Provisions of Shanghai Financial Court on Disposal of Stocks of Listed Companies in the Course of Enforcement (Trial) (these “Provisions”) are formulated in accordance with the Civil Procedure Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, as well as other relevant laws, regulations, and judicial interpretations.
Article 2 The stocks of listed companies mentioned herein refer to tradable shares (both unrestricted and restricted) that are publicly issued by listed companies and traded on relevant stock exchanges. Stocks listed on the National Equities Exchange and Quotations (“NEEQ stocks”) and depository receipts may be disposed with reference to these Provisions.
Article 3 The disposal mentioned herein refers to that, after the right to dispose of the stocks of listed companies is established, the parties agree to sell the stocks on their own or reach a reconciliation to settle the debt with the stocks, or that the Court sell the stocks compulsorily in the secondary market through centralized bidding, provide judicial assistance for sale of stocks in block orders, organize online judicial auction, or take other compulsory measures.
The judicial assistance for sale of stocks in block orders (“JASSBO”) is a compulsory measure by which the Court, according to the needs of enforcement, issues an announcement on the judicial disposal of stocks in block orders via the information channel agreed with the stock exchange and completes relevant procedures such as bidding declaration, bidding matching, and bidding result publication through the enforcement platform provided by the exchange.
Chapter II Disposal Principles
Article 4 The stocks of listed companies shall be disposed according to laws, regulations and relevant judicial interpretations. The departmental regulations, normative documents and business rules related to the trading, registration, and transfer of stocks formally laid down by securities regulatory authorities and stock exchanges may be taken as a reference during the enforcement.
Article 5 The disposal of stocks of listed companies shall follow the principles of minimizing the impact on the securities market, effectively maintaining the stability of the securities market, and guarding against market risks.
Article 6 The disposal of stocks of listed companies shall adapt to the characteristics of securities trading, adopt the trading methods of the securities market, pursue maximized value of the stocks, and seek the lowest possible disposal cost and the highest possible disposal efficiency.
Article 7 In the disposal of stocks of listed companies, the lawful rights and interests of the parties shall be actively protected, and the legitimate interests of investors and listed companies shall be properly safeguarded.
Article 8 In the disposal of stocks of listed companies, the parties shall be urged to fulfill their obligations of information disclosure. Timely information exchange with securities regulatory authorities, stock exchanges, securities depository and clearing institutions, and other relevant departments shall be maintained to facilitate their supervision and regulation.
Article 9 In the disposal of stocks of listed companies, non-public information that involves the operation or finance of listed companies or that has a significant impact on the market price of these companies’ stocks shall be disclosed only on a need-to-know basis. The staff of Shanghai Financial Court, their relatives and other stakeholders shall not bid for or entrust others to bid for the stocks to be disposed of.
Chapter III Preliminary Work for Disposal
Article 10 Before the disposal of stocks of listed companies, other properties available for enforcement shall be identified, and the opinions of all parties on the disposal of stocks shall be considered to comprehensively assess the necessity of disposal and relevant market risks.
Article 11 If the party subjected to enforcement provides other properties that are convenient for enforcement, and such properties are sufficient to substantially satisfy the claims, the priority of disposal shall be given to such other properties, including but not limit to bank deposits, certificates of deposit, wealth management products, as well as other securities and properties that are easy to dispose of and realize.
Article 12 Before the disposal of stocks of listed companies, the ownership, quantity, nature, source, status of restriction, and encumbrances of the stocks to be disposed of shall be ascertained from the relevant stock exchange and securities depository and clearing institution.
Article 13 If the value of the stocks to be disposed of is clearly greater than the debt amount of the party subjected to enforcement, the scope of stocks to be disposed of shall be determined as per the value of stocks that has been identified or appraised. If the value of the stocks to be disposed of is not greater than the debt amount, a split disposal may still be adopted if such method is more conductive to realize the stocks.
Chapter IV Determination of Disposal Methods
Article 14 When selecting the method for disposal of the stocks of listed companies, the opinions of the parties shall be considered first. If the parties agreed to dispose of the stocks by means of direct sale by the party subjected to enforcement or the surety for enforcement, or by means of settling debt with the stocks, and such agreed means comply with the laws, regulations, judicial interpretations, departmental regulations, and stock exchange rules while not harming the legitimate rights and interests of other creditors, investors and the public, the parties shall be allowed to conduct transactions on their own, and the Court shall inform the parties to handle the transfer formalities on their own.
Article 15 Where the parties fail to reach an agreement on the disposal method, a compulsory disposal method shall be selected taking account of the number and nature of the stocks to be disposed of, the influence of the disposal on the securities market, and the efficiency of disposal.
Article 16 Under the circumstances that the number of listed company stocks to be disposed of is less than 1% of the company’s total shares, and such stocks are not subject to share reduction restriction and could be sold on the secondary market through centralized bidding, the preferred disposal method shall be compulsory sale on the secondary market through centralized bidding. The selling period shall not exceed 30 trading days in principle.
Article 17 Under the circumstances that (1) the number of listed company stocks to be disposed of exceeds 1% of the company’s total shares; or (2) the number of listed company stocks to be disposed of is less than 1%, while the listed company stocks are subject to share reduction restriction and therefore may not be sold on the secondary market through centralized bidding, the preferred disposal method shall be the JASSBO.
Article 18 Under the circumstances that (1) the number of listed company stocks to be disposed of exceeds 1% of the company’s total shares; or (2) the number of listed company stocks to be disposed of is less than 1%, while the listed company stocks are subject to share reduction restriction and therefore may not be sold on the secondary market through centralized bidding or be disposed of by the JASSBO, the preferred disposal method shall be the online judicial auction.
For the disposal of restricted shares and depository receipts of listed companies, the method of JASSBO or the method of online judicial auction may be selected basing on the conditions of sales restriction, the conditions for lifting restrictions, and the situation of the cases.
For the disposal of listed company stocks by the online judicial auction, the Court may, as it deems necessary, entrust an auction auxiliary agency to assist the disposal.
Article 19 For the disposal of stocks that are publicly offered overseas by listed companies as issuers registered in the People’s Republic of China, or disposal of NEEQ stocks, or other stocks with poor liquidity, the preferred disposal method shall be online judicial auction.
Chapter V Judicial Assistance for Sale of Stocks in Block Orders
Article 20 Before the JASSBO is applied to dispose of stocks of listed companies, a decision shall be made on whether to adopt split disposal and if so, the minimum size of bidding declaration after the split, according to the number, nature, market price, shareholding ratio, and other relevant factors of the stocks to be disposed of. Unless justified by special circumstances, the shares in each split unit shall not exceed 1% of the total shares.
Article 21 Where the JASSBO is applied to dispose of stocks of listed companies, an announcement on judicial disposal, which states the name, ticker, quantity, ownership, and nature of the stocks to be disposed of, the payment period of deposit, the starting price of disposal, the minimum size of bidding declaration, the bidding time, etc. shall be published on the enforcement platform for such judicial assistance.
The announcement on judicial disposal, the bidding time and the biding matching results shall be released on the trading day immediately before a national legal holiday or a closing day announced by the relevant stock exchange.
The announcement on judicial disposal and biding matching results shall be released after the closing of the same trading day.
Article 22 The announcement on judicial disposal shall be released through the judicial enforcement platforms of stock exchanges, the “Judicial Services” column and Member Platform on the exchanges’ official websites, official market data pushing channels, and other channels determined by the Court.
The announcement on judicial disposal shall be released at least 15 calendar days prior to the bidding date.
Article 23 A bidder shall be a qualified investor for the stocks to be disposed of, and a winning bidder shall be subject to restrictions on sale or reduction of the listed company stocks, as well as applicable information disclosure obligations. Where the stocks transferred through bidding are restricted stocks, the sale restriction shall still apply till expiration of the restriction period.
When bidding for restricted stocks, despite that the Court has identified and publicized in the relevant announcement the reasons for imposing sales restriction and the conditions for lifting such restrictions, the bidder shall still ascertain such reasons, conditions, and the lifting time thereof on his own and any and all risks associated therewith shall be transferred to the bidder with the stocks.
Members of stock exchanges shall, prior to accepting the entrustment of and the bidding declaration submitted by a bidder, verify whether the bidder is a qualified investor. A bidder who is not a qualified investor shall bear all the consequences arising from the bidding.
Article 24 A bidder participating in the bidding must pay the deposit to the designated account before the date specified in the announcement on judicial disposal by the Court. The minimum deposit payable by the bidder shall be the product of the minimum size of bidding declaration of the stocks to be disposed of multiplied by 10%-20% of the average closing price of the twenty trading days before the release date of the announcement on judicial disposal. The amount of deposit payable by a bidder shall be determined according to the maximum number of stocks it intends to bid for.
The deposit shall be paid by remittance, and in the remittance bill the information of the actual bidder shall be indicated (including contact person, contact information, the number and name of the securities account and the number of stocks the bidder declared). Bids without payment or with insufficient payment of the deposit are shall be invalid.
After a bidder has paid the deposit in accordance with the announcement on judicial disposal, the Court shall confirm the eligibility and the maximum size of bidding declaration of the bidder timely, and enter the eligible bidders’ information (the number and name of the securities account and the number of stocks the bidder declared) into the judicial enforcement platform for the purpose of screening valid bids for matching. The Court will confirm the eligibility of each bidder separately using the information indicated in the remittance bill, and will not disclose the list of eligible bidders before the end of bidding matching.
Article 25 Members of stock exchanges and investors who own or rent trading units may submit their bidding declarations by logging in to the enforcement platform for judicial assistance through their accounts, or via the channels designated by stock exchanges. Investors who are eligible for offline subscription of new shares may submit their bidding declarations by logging in to the enforcement platform for judicial assistance their accounts. Other bidders may entrust members of stock exchanges to submit bidding declarations on their behalf.
The bidding declaration shall indicate the number and name of the securities account, the unit price of the stock being bid for, and the number of stocks the bidder declared. The last bid of each bidder within the valid bidding time shall be the final valid bid.
The disposal of B-shares by JASSBO shall be handled in accordance with applicable rules governing foreign exchange management.
Article 26 The inquiry bidding mode shall be adopted for JASSBO, i.e. the transactions shall be automatically matched in accordance of the principle of price precedence, quantity precedence, and then time precedence, and the matching results should be announced on the enforcement platform of judicial assistance for block orders.
The striking price of stocks traded through JASSBO shall not be lower than the retention price set for the stock disposal.
Article 27 Before the bidding matching result is confirmed, neither the payment of deposit nor the details of inquiry shall be made public. After the bidding matching result is announced, valid bidders may inquire about the payment of deposit and the details of inquiry bidding.
Article 28 The successful bidder (the “buyer”) shall transfer the striking priced deducting the deposit to the designated account within five working days after the bidding matching result is announced. If the payment is overdue, it shall be deemed that the disposal has failed, and another disposal or subsequent disposal measures shall be arranged. Under such a circumstance, the deposit paid by the buyer shall be non-refundable, and the buyer shall be disqualified for the second disposal or subsequent disposals.
The deposit paid by the unsuccessful bidders shall be returned according to the original payment methods within five working days after the bidding matching result is announced. The deposit shall be non-interest-bearing.
Article 29 For the disposal of stocks by JASSBO, no transaction fee should be collected.
Article 30 If the disposal of stocks by JASSBO fails as there is no bidding or for other reasons, a second disposal may be arranged, and shall be carried out in accordance with the above provisions except for the retention price.
Chapter VI Determination of Retention Price for Disposal
Article 31 Where the enforcement method of JASSBO or the method of online judicial auction is applied to dispose of the stocks of a listed company, the retention price for unrestricted negotiable stocks shall not be lower than 90% of the average closing price of the target stock in the last twenty trading days (or 80% for a company listed on the STAR market or Growth Enterprise Market (GEM)); that for restricted shares shall not be lower than 70% of the appraisal price; that for a NEEQ stock with trading records within three months shall not be lower than 90% of the latest trading price; and that for a NEEQ stock without trading records within three months shall not be lower than 70% of the appraisal price.
The aforesaid last twenty trading days refer to the twenty trading days immediately prior to the bidding date or the auction date.
Article 32 If the disposal of tradable stocks by JASSBO fails, and a new disposal is needed, the retention price for the second disposal shall not be lower than 81% of the average closing price of the target stock in the last twenty trading days, while that for the third disposal shall be not lower than 72% of the average closing price of the target stock in the last twenty trading days. For the tradable stocks of a company listed on the STAR market or GEM, the retention price for the second disposal shall not be lower than 72% of the average closing price of the target stock in the last twenty trading days, while that for the third disposal shall be not lower than 63% of the average closing price of the target stock in the last twenty trading days.
If the disposal of restricted stocks by JASSBO or online judicial auction fails, and a new disposal is needed, the retention price for the new disposal shall not lower than 80% of that for the previous disposal.
Article 33 The price to sell off the tradable stocks of listed companies shall not be lower than the retention price for the third disposal. The price to sell off the restricted stocks of listed companies or the NEEQ stocks shall in principle not be lower than the retention price for the second disposal; if the plan to sell off the stocks fails due to special reasons, the sell-off price may be further lowered but shall in no event be lower than 50% of the appraisal price.
Article 34 In the event of disposal of restricted stocks or of NEEQ stocks without transaction records within three months, an asset appraisal institution with securities practice qualifications shall be entrusted to appraise the value of the stocks.
Chapter VII Follow-up Work for Disposal
Article 35 If any disposal by JASSBO or online judicial auction fails, the applicant for enforcement may apply for compensation in kind by such stocks. However, the stock price applied in such compensation in kind shall not be lower than the retention price for such failed disposal.
Article 36 If the disposal by JASSBO fails for three times, the applicant for enforcement shall be compensated by the stocks to be disposed of at the retention price for the third disposal.
Article 37 If the disposal by online judicial auction fails for twice, the applicant for enforcement shall be compensated by the stocks to be disposed of at the retention price for the second auction.
Article 38 If the applicant for enforcement refuses to or is unable to accept the compensation in kind according to law, the Court may issue a sell-off announcement. The sell-off shall be handled in accordance with relevant judicial interpretations.
Article 39 In the disposal of stocks of listed companies, information such as judicial seizures and disposal results shall be notified to securities regulatory authorities, securities exchanges, and securities depository and clearing institutions in a timely manner, so that they may supervise the compliance of the disposal results.
Article 40 The stamp duty or transaction fees arising from the disposal of stocks by JASSBO or online judicial auction shall be borne by the transferor and the buyer in accordance with relevant rules and regulations.
If the stocks are successfully disposed of by JASSBO, online judicial auction, or other compulsory measures, or are compensated in kind to the applicant for enforcement, corresponding legal documents shall be issued, the change of ownership shall be completed within fifteen days from the date on which the transaction or the compensation is confirmed, and the relevant legal documents shall be delivered to the party subjected to enforcement or the surety for enforcement.
The stocks successfully disposed of by JASSBO shall be transferred to the stock account of the winning bidder.
Article 41 If the disposal of stock by compulsory sale on the secondary market through centralized bidding, JASSBO, or online judicial auction is likely to lead to shareholding reduction by the effective controller, major shareholders, directors, supervisors, and senior managers, or change of the effective controller and major shareholders, relevant disposal information shall be notified to the relevant securities regulatory authorities, stock exchange and securities depository and clearing institution, which shall conduct a compliance review within three days after the change of stock ownership.
In the event that, after the change of stock ownership, the buyer or the applicant for enforcement who obtain the stocks according to the agreement on compensation in kind decides to dispose of the stocks of a listed company, it shall abide by the provisions on sales restriction and shareholding reduction as set out in relevant laws and regulations, judicial interpretations, departmental regulations of securities regulators, applicable normative documents, and rules of stock exchanges.
Chapter VIII Supplementary Provisions
Article 42 The Adjudicative Committee of the Court is responsible for the interpretation of these Provisions.
Article 43 These Provisions shall be implemented from the date of promulgation.
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