Hong Kong fully rewrites its Companies Ordinance (Chapter 32 of the Laws of Hong Kong) with the aim to enhance corporate governance, ensure better regulation, facilitate business and modernize its company law. The new Companies Ordinance is expected to commence operation in 2014. Meanwhile, over ten regulations will have to be made to facilitate implementation of the new Ordinance.
(Hong Kong, 2012-10-12) In July 2012, the new Companies Bill was passed by the Hong Kong Legislative Council. The new Companies Ordinance, which consists of more than 900 sections and 10 schedules, aims to achieve four main objectives, namely: to enhance corporate governance, ensure better regulation, facilitate business and modernize the law.
1. Measures for Enhancing Corporate Governance
- Restricting Corporate Directorship in Private Companies: at least one director must be a natural person – to enhance transparency and accountability.
- Replacing the Headcount Test: the “headcount test” for privatizations and specified schemes of arrangement is replaced by a “not more than 10% disinterested voting” requirement.
- Clarifying Directors’ Duty of Care, Skill and Diligence: new standards for directors’ duty of care, skill and diligence is clarified - to provide clear guidance to directors.
- Strengthening Auditors’ Powers: auditors are now empowered to require a much wider range of persons to provide information or explanation reasonably required for the performance of the auditor’s duties. Failing to provide requested information or explanation to the auditor may commit a criminal offence.
- Fostering Shareholder Protection: scope of unfair prejudice remedy is extended in the new Companies Ordinance to cover “proposed acts and omissions” – even if they are not yet effected. More effective rules are introduced to deal with directors’ conflicts of interests and his employment contract, if long termed.
- Enhancing Shareholder Engagement in the Decision-Making Process: the threshold requirement for members of a HK company to demand a poll is reduced from 10% to 5% of the total voting rights.
2. Measures for Ensuring Better Regulation
- Strengthening the Enforcement Regime and Criminal Liability for Auditors: the liabilities of officers of companies for contravention of provisions are increased, including lowering the threshold for prosecuting a breach or contravention and extending it to cover reckless acts through a new definition of “responsible person”. There is introduced a new offence in relation to inaccurate auditor’s reports.
- Increasing Powers of the Registrar of Companies: provides new powers for the Registrar of Companies (the “Registrar”) to obtain documents or information to ascertain whether any conduct that could constitute an offence in relation to the provision of false or misleading statement to the Registrar has taken place.
3. Measures for Facilitating Business
- Facilitating Simplified Reporting: HK companies that meet specified size criteria are allowed to prepare simplified financial statements and directors’ reports. Statement and report requirements are also simplified for larger HK companies, if they fall under specific criteria.
- Streamlining Procedures: allowance to dispense with Annual General Meetings by unanimous shareholders’ consent. A court-free procedure to reduce the share capital is introduced, based on a solvency test. All types of HK companies are now allowed to purchase their own shares out of capital – they can also provide now financial assistance to another party for the purpose of acquiring its own shares or the shares of its holding company.
- Facilitating Business Operations: the use of a common seal is now optional and the requirement to have an official seal for use abroad is relaxed. General Meetings are permitted to be held at more than one location using electronic technology. New rules governing communications to and by HK companies in electronic form are being settled.
4. Measures for Modernizing the Law
- Withholding Personal Details from Public: new provisions to withhold directors’ residential addresses and full identity card/passport numbers of individuals from public view.
- Abolishing Par Value for Shares: a mandatory system of no-par for all HK companies with a share capital is adopted, which retires the par value of shares. This is in line with international trends and to provide HK companies with more flexibility in structuring their share capital.
- Removing the Power to Issue Share Warrants: power of HK companies to issue share warrants to bearers is removed.
The Hong Kong Companies Registry published a full abstract about the “New Companies Ordinance” Major Initiatives, which can be downloaded here.
A dedicated thematic section on the “New Companies Ordinance” has been set up on the website of the Companies Registry to provide information and updates on the implementation of the new Companies Ordinance. It is expected that the Companies Registry will continue to issue briefing materials and guidelines on the new Ordinance, and organize seminars and briefing sessions before its implementation.