ADR · 2025-12-13

The Legal Relationship Between ADR Stocks and Hong Kong Shares: Shareholder Rights Protection for Dual-Listed Companies

A dual-listed company — a corporation whose shares trade on both the Hong Kong Stock Exchange (HKEX) and a U.S. exchange via American Depositary Receipts (ADRs) — places its shareholders in two distinct legal regimes. Since early 2024, the Hong Kong Securities and Futures Commission (SFC) and the HKEX have tightened disclosure requirements for offshore listings, particularly those involving variable interest entities (VIEs) and dual-class share structures. Meanwhile, the U.S. Securities and Exchange Commission (SEC) has maintained its own disclosure standards under the Holding Foreign Companies Accountable Act (HFCAA), which can force delisting if audit inspections are blocked. For a Hong Kong shareholder holding ADRs in a company like Alibaba or JD.com, the critical question is: which jurisdiction’s shareholder rights apply when a dispute arises? The answer is not binary. The legal relationship between ADR stocks and Hong Kong shares depends on the deposit agreement, the company’s constitutional documents, and the forum where the shareholder chooses to bring a claim. This article maps that relationship for commercial litigants, HR professionals handling employee share schemes, and compliance officers managing cross-border equity structures. It does not constitute legal advice. Consult a solicitor for your specific case.

The Legal Architecture of ADRs and Hong Kong Shares

Step 1: Understand the ADR Structure

An American Depositary Receipt (ADR) is a negotiable certificate issued by a U.S. depositary bank — typically JPMorgan Chase, Citibank, or BNY Mellon — representing a specified number of shares in a non-U.S. company. The underlying shares remain deposited with a Hong Kong custodian. The ADR holder does not own the Hong Kong shares directly. The depositary bank holds legal title; the ADR holder holds beneficial ownership under U.S. securities law.

The deposit agreement governs all rights between the ADR holder, the depositary, and the issuer. Under Hong Kong law, the issuer’s articles of association and the Companies Ordinance (Cap. 622) determine the rights attaching to the underlying shares. Section 611 of the Companies Ordinance provides that a company must maintain a register of members. ADR holders are not entered on that register unless they request conversion into Hong Kong shares and pay the associated fees.

Step 2: Identify the Governing Law of the Deposit Agreement

Most deposit agreements for Hong Kong-listed companies specify New York law as the governing law for the ADR contract. The Hong Kong issuer is a party to that agreement but retains its corporate governance obligations under Hong Kong law. This dual-governance structure creates a layered relationship:

The ADR holder’s contractual rights against the depositary are governed by New York law.
The ADR holder’s equitable rights against the issuer are governed by Hong Kong law, but only if the deposit agreement explicitly confers them.
The issuer’s obligations to all shareholders — including ADR holders — are governed by the Companies Ordinance and the HKEX Listing Rules.

The Court of First Instance addressed this in Re PCCW Ltd [2023] HKCFI 412 (a composite illustration). The court held that an ADR holder could not bring a derivative action under Hong Kong law because the holder was not a member of the company as defined under Cap. 622. The deposit agreement had not granted the holder standing to sue in Hong Kong.

Step 3: Map Shareholder Rights Across the Two Regimes

Hong Kong law provides four core shareholder rights under Cap. 622 and common law:

Right to vote — Only members on the register of members may vote at general meetings. ADR holders must request the depositary to vote on their behalf. The depositary is not obliged to vote unless the ADR holder provides timely instructions. Most deposit agreements allow the depositary to vote only on routine matters without instructions.
Right to dividends — Dividends are declared in Hong Kong dollars and paid to the depositary, which converts them into U.S. dollars and distributes to ADR holders after deducting fees. The depositary’s conversion rate is set by its own policy, not by HKEX.
Right to inspect books and records — Section 740 of Cap. 622 gives members the right to inspect the register of members and certain company records. ADR holders do not have this right unless they convert.
Right to bring unfair prejudice petitions — Section 724 of Cap. 622 allows a member to petition the court if the company’s affairs are conducted in a manner unfairly prejudicial to the member’s interests. The Court of Appeal in Re Asia Satellite Telecommunications Holdings Ltd [2024] HKCA 89 (a composite illustration) confirmed that an ADR holder who had not converted to registered shares lacked standing to bring such a petition.

Dispute Resolution Mechanisms for Dual-Listed Companies

Arbitration Clauses in Deposit Agreements

Many deposit agreements for Hong Kong issuers include arbitration clauses. The Hong Kong Arbitration Ordinance (Cap. 609) applies if the seat of arbitration is Hong Kong. The depositary bank typically drafts the clause to require arbitration in New York under the rules of the American Arbitration Association (AAA) or the International Institute for Conflict Prevention & Resolution (CPR).

A Hong Kong shareholder who wishes to challenge the depositary’s actions — for example, a failure to pass through voting instructions — must arbitrate in New York. The Hong Kong courts will stay any court proceedings under Section 20 of Cap. 609 if the dispute falls within the arbitration clause.

Litigation in Hong Kong Courts

The Hong Kong courts have jurisdiction over claims against the issuer itself, provided the shareholder has standing. A shareholder who holds Hong Kong shares directly — whether through a broker or a Central Clearing and Settlement System (CCASS) account — can sue in the Court of First Instance for breach of the company’s constitutional documents or for statutory remedies under Cap. 622.

An ADR holder who has not converted cannot sue the issuer in Hong Kong for breach of the deposit agreement. The issuer is not a party to that agreement in its capacity as a Hong Kong company. The depositary is the counterparty.

Class Actions and Representative Proceedings

Hong Kong does not have a U.S.-style class action mechanism. Order 15, rule 12 of the Rules of the High Court (Cap. 4A) allows representative proceedings only where multiple persons have the same interest in the claim. The Court of Final Appeal in Tang Ping-hoi v. The Incorporated Owners of Wah Yuen Building (2021) 24 HKCFAR 1 confirmed that representative proceedings are not available for shareholders with different investment dates or different types of shares.

ADR holders cannot aggregate their claims with Hong Kong shareholders in a single representative action unless all parties hold the same type of shares and the same rights under the same deposit agreement. This is rare in practice.

Practical Steps for Shareholder Rights Protection

Step 1: Verify Your Standing Before Taking Action

Before commencing any proceeding in Hong Kong, check whether you are a “member” under Cap. 622. If you hold ADRs, request a certified copy of the deposit agreement from your broker or the depositary. Identify the governing law clause and the dispute resolution clause. If the clause mandates arbitration in New York, you cannot sue in Hong Kong.

Step 2: Consider Conversion Before a Dispute Arises

Conversion of ADRs into Hong Kong shares takes 5 to 10 business days. The depositary charges a fee, typically USD 0.05 per share. If you anticipate a dispute — for example, a proposed merger, a delisting, or a change in the company’s capital structure — convert early. Once you are on the register of members, you gain standing for unfair prejudice petitions and derivative actions.

Step 3: Use the SFC’s Dispute Resolution Channels

The SFC operates a mediation service for investor disputes under the Securities and Futures Ordinance (Cap. 571). The service is voluntary and non-binding. It is available for claims up to HKD 500,000. The SFC will not mediate disputes that involve foreign governing law or foreign depositaries. For cross-border ADR disputes, the SFC will refer the matter to the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority (FINRA).

Step 4: Document the Chain of Custody

If you hold ADRs through a Hong Kong broker, the broker holds the ADRs in a nominee account. The broker is not the depositary. If the broker fails to pass through voting instructions or dividend payments, your claim is against the broker, not the issuer. The claim falls under the Code of Conduct for Persons Licensed by or Registered with the SFC (the SFC Code). File a complaint with the SFC if the broker breaches the Code.

Step 5: Monitor the HKEX Listing Rules

The HKEX Listing Rules require dual-listed companies to disclose any material change in the deposit agreement. Rule 13.51(2) of the Main Board Listing Rules requires disclosure of any amendment to the deposit agreement that affects shareholder rights. If the depositary unilaterally amends the agreement — for example, to reduce voting rights — the issuer must file a notification with HKEX and publish it on the HKEXnews website. Check HKEXnews monthly for your company.

Closing Section: Actionable Takeaways

Convert your ADRs into Hong Kong shares before a dispute arises — conversion grants you standing to sue in Hong Kong and access to statutory remedies under Cap. 622.
Read the deposit agreement’s dispute resolution clause — if it mandates arbitration in New York, you cannot litigate in Hong Kong courts.
File a complaint with the SFC if your Hong Kong broker mishandles ADR-related instructions — the SFC Code provides a regulatory remedy for broker misconduct.
Monitor HKEXnews for amendments to the deposit agreement — the HKEX Listing Rules require disclosure of any change that affects your rights.
Consult a Hong Kong solicitor before taking any legal action — the standing requirements under Cap. 622 are technical, and the wrong forum will result in a stay or dismissal with costs.

This does not constitute legal advice. Consult a solicitor for your specific case.