The new proposals have come about as a result of a joint review of the matter by the SFC and the Takeover Panel, which reflected concerns also identified by market practitioners.

In particular, the SFC has expressed alarm over the number of attempted ‘one-cent’ or ‘low-ball’ takeover offers in 2002 and 2003, seemingly undertaken with the intent of disrupting the target firm’s business rather than as a genuine attempt to seek control.

The paper consults the public on two options for change to address the risks to shareholders that arise from an incumbent board taking deliberate lawful action to frustrate the exercise of board control by a successful offeror, such as the issuing new shares or taking other action to reduce the overall value of the company.

The consultation also seeks views on changes to the vetting of documents, in response to concerns that the current process may encourage over-reliance by issuers and their advisers on the Takeover Panel's input.

"The SFC believes that to ensure continued fair treatment for shareholders who are affected by takeovers and mergers it is important to keep the Code up-to-date with market developments and international practice," noted Mr Peter Au-Yang, SFC's Executive Director of Corporate Finance.

The public are invited to submit comments in writing before close of business on 14 January 2005.