Under the Hong Kong Listing Rules, an issuer listed on the Hong Kong Stock Exchange is required to seek approval from its shareholders, if it enters into a "major transaction", a "very substantial acquisition", or a "very substantial disposal".

Normally, the issuer will enter into an agreement, in which obtaining approval from its shareholders will be prescribed as one of the closing conditions. In some cases, the issuer will even seek approval from its shareholders before entering into the agreement in respect of a proposed transaction. One way or the other, full details of the transaction, or proposed transaction, will have to be set out in the circular to be despatched to the shareholders, including the parties to the transaction, the price involved and so on.

This may not always work, however. Typical examples would be bidding in a public tender or in a hostile takeover. In the past, there were uncertainties as to when approval should be sought from shareholders.

In a recent listing decision (LD6-2011, released and published in March 2011), the Hong Kong Stock Exchange has usefully clarified the position in two scenarios.

In scenario A, an issuer intended to bid for a piece of land in Mainland China from a government authority under a public tender. The proposed acquisition would be a possible major transaction for the issuer and would be subject to approval by its shareholders. The government authority could not accept any conditional submission of bids. The Hong Kong Stock Exchange accepted that the issuer could seek a prior mandate from its shareholders up to a certain maximum bidding price, by reason that it would be impossible for the issuer to seek approval from its shareholders except by a prior mandate and that the maximum bidding price set out in the circular would provide sufficient safeguard to its shareholders.

In scenario B, which was an unrelated matter involving another issuer, an issuer intended to sell an investment property located in Hong Kong. The proposed disposal would be a possible major transaction for the issuer and would be subject to approval by its shareholders. The issuer proposed to seek a prior mandate from its shareholders to sell the property to an independent purchaser, within a fixed period and at a minimum price. The Hong Kong Stock Exchange did not accept a prior mandate for the issuer's proposed disposal, by reason that it did not consider it impractical for the issuer to make the disposal conditional on approval by its shareholders.

While the Hong Kong Stock Exchange emphasises that each listing decision was based on its specific circumstances and is not a precedent for future cases, the determining factor, as it appears, as to whether the Hong Kong Stock Exchange would permit a prior mandate is one of practicality.