Hong Kong - New Companies Ordinance


Following a comprehensive review of Hong Kong’s company legislation the Legislative Council has passed the Companies Bill. The new Companies Ordinance will come into force following the enactment of subsidiary legislation. The subsidiary legislation will include ten regulations to be passed in the next two years. Companies Registry will upgrade its IT system and will review its forms and internal procedures before the Ordinance and related legislation take effect. It is anticipated that the new Companies Ordinance will be effective in the course of 2014.

The new Ordinance is substantial, with over 900 sections, with the stated aim of providing ‘…a modern legal framework for the incorporation and operation of companies in Hong Kong. We summarise below the principal elements of the Ordinance which can be broken down into four measures to:

- Enhance Corporate Governance;
- Ensure better Regulation;
- Facilitate Business; and
- Modernise the Law.

Measures to Enhance Corporate Governance
To enhance corporate governance a number of measures will be enacted to provide for the greater accountability of company directors. It will be a requirement that all companies must have at least one natural person as a director, with the aim of increasing transparency and accountability. Companies will no longer be able to have only corporate directors. The legislation will also provide clear guidance as to the expected level of skill and diligence of directors, as well as clarifying the scope of their duty of care.

Measures will be introduced to involve shareholders more closely in the decision making process. Changes will be made affecting written resolutions, members’ statements to the AGM and a reduction to the numbers of members needed to demand a poll, from 10% to 5% of voting rights.

Provision has been made for greater shareholder protection with rules covering directors’ conflicts of interests and the requirement that approval by disinterested shareholders is obtained in defined circumstances. Furthermore, the legal remedy of ‘unfair prejudice’ has been extended.

Additional provisions include improving the disclosure of information by larger companies, promotion of  corporate social responsibility in accordance with international best practice and the strengthening auditors rights.

Measures to Ensure better Regulation
Measures to ensure the accuracy of the information on the public register include an extension of the powers of the Registrar of Companies on the registration of documents, including the requirement for the authentication of documents and the ability to refuse registration of documents that the Registrar considers unsatisfactory, unless further particulars are provided. The Registrar can require companies to provide updated information, including a return with a capital statement, to ensure the information on the capital structure is current, and to resolve inconsistencies in filed documents to ensure the accuracy and reliability of the Register. The Registrar will be given statutory powers to apply to the courts to remove inaccurate information and anything forged or ineffective or done without the authority of the company from the Companies Register.

The registration of charges will be improved with the list of registrable charges being revised to include a charge on an aircraft or share of an aircraft and removing the requirement of registration for the issue of debentures. Other changes include the requirement to register a certified copy of the charge instrument that will then be available for public inspection, a reduction to the time to file a charge instrument with the Registrar to one month, with the aim of reducing the period during which the charge does not appear on the Register. In future the Registrar will require written evidence of satisfaction or release of a charge that will also be available for public inspection.

A number of important changes have been made to the enforcement regime. Investigators will be able to require the preservation of records and the verification of statements made by statutory declaration. Better safeguards will be put in place to protect the confidentiality of information obtained during an investigation and to protect informers.

The Registrar will have the power to obtain information or documents, to ascertain whether offence has taken place through the use of false or misleading statements, and the power to compound offences for minor regulatory offences.

The enforcement regime against officers is strengthened for their company’s breaches of the new Ordinance. Officers’ liability will be extended to cover reckless acts through a new definition of a ‘responsible person’.

A new offence has been added for inaccurate auditor’s report in cases where an auditor has knowingly or recklessly caused two important statements to be omitted from the auditor’s report.

Three additional requirements have been added for the deregistration of companies, as part of a refinement of the deregistration scheme.

Measures to Facilitate Business
The measures to facilitate business consist of changes to streamline administrative procedures affecting AGM’s, the procedure by which companies can reduce capital, purchase their own shares, the provision of financial assistance by a company for the acquisition of its own shares and the amalgamation procedure for wholly owned intra-group companies.

Measures to Modernise the Law
Par value shares will be abolished, with a mandatory system adopted of no-par. The present power to issue share warrants to bearers will be removed.  Provision will also be made for the better protection of the personal data of directors by withholding the private address and passport and ID card numbers from public records. The uncertainties of the present rules on the indemnity of directors from liabilities to third parties have be clarified.

Our preliminary view is to welcome the introduction of these measures which we consider that after the long consultation process are well thought out and address the major concerns of professionals. The new Companies Ordinance will modernise Hong Kong company law, enhancing its reputation for good governance and continue to keep the jurisdiction at the forefront of international corporate law.

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