Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Highlights Of The New Companies Ordinance.

13 October, 2012

 

 

 On 12 July 2012, the new Companies Ordinance (CO) was passed by the Legislative Council, providing a modernized legal framework for the incorporation and operation of companies in Hong Kong. The new legislation aims to achieve four main objectives, namely to: enhance corporate governance, ensure better regulations, facilitate business and modernize the law.To facilitate its implementation, over ten regulations will have to be made in 2013-14. The new CO is expected to commence operation in 2014.  We set out below the major highlights of the new CO:

  
Abolishing Par Value for Shares
 
The new CO adopts a mandatory system of no-par for all companies with a share capital and retires the par value of shares, in line with international trends and to provide companies with more flexibility in structuring their share capital.
 
Restricting Corporate Directorship in Private Companies
 
Every private company is required to have at least one director who is a natural person, to enhance transparency and accountability. A grace period of six months from the commencement date of the new CO will be given for companies to comply with the new requirement.
 
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. The court is given a new discretion to dispense with the “headcount test” in cases where it is retained for members’ schemes
 
Clarifying Directors’ Duty of Care, Skill and Diligence
With a view to providing clear guidance to directors, the standard for company directors’ duty of care, skill and diligence is clarified in the new CO to incorporate a mixed objective and subjective test.
Strengthening the Enforcement Regime
 
The new CO strengthens the enforcement regime in relation to the liabilities of officers of companies for contravention of provisions in the Ordinance, including lowering the threshold for prosecuting a breach or contravention through a new definition of “responsible person”.
 
Facilitating Simplified Reporting
The new CO allows companies that meet specified size criteria to prepare simplified financial statements and directors’ reports. Larger private companies that do not meet the specified size criteria will also be entitled to prepare simplified financial statements and directors’ reports if their sizes do not exceed a higher threshold, provided that members holding
75% of the voting rights so resolve and no member objects.
Enhanced Reporting for Larger 
Companies
 
Public companies, as well as larger private companies and guarantee companies that do not qualify for simplified reporting, are required to prepare a more comprehensive directors’ report which includes an analytical and forward-looking “business review” and certain environmental 
and employee matters. However, private companies are allowed to opt out of this new requirement by special resolution.
 
Strengthening Auditors’ Rights
An auditor is empowered to require a wider range of persons, including the officers of a company’s Hong Kong subsidiary undertakings and any person holding or accountable for the accounting records of the company or its subsidiary undertakings, to provide information or explanations reasonably required for the performance of the auditor’s duties. The offence offailure to provide the information or explanation is extended to cover officers of the company and the wider range of persons
Facilitating Business Operations
 
The new CO makes the use of a common seal optional and relaxes the requirements for a company to have an official seal for use abroad. The new CO also permits a general meeting to be held at more than one location using electronic technology, as well as setting out the rules 
governing communications to and by companies in electronic form.
 
Streamlining Procedures
 
The new CO provides for various streamlining procedures, including:
 
• allowing companies to dispense with Annual General Meetings by unanimous shareholders’ consent; 
• introducing an alternative court-free procedure for reducing capital based on a solvency 
test; 
• allowing all types of companies (rather than just private companies, as in the current Companies Ordinance) to purchase their own shares out of capital, subject to a solvency test; 
• allowing all types of companies (whether listed or unlisted) to provide financial assistance to another party for the purpose of acquiring the company’s own shares or the shares of its holding company, subject to a solvency test (under the current Companies Ordinance, subject to certain specified exceptions, there is a broad prohibition on the giving of financial assistance to purchase the company’s own shares); 
• introducing a new court-free statutory amalgamation procedure for wholly-owned intragroup companies; 
• streamlining the procedures for the restoration of dissolved companies by court order; and
• introducing a new administrative restoration procedure for a company dissolved by the Registrar in straightforward cases, without the need for recourse to the court.
 
Improving the Registration of Charges
 
The new CO requires a certified copy of the charge instrument (in addition to the prescribed particulars of the charge) to be registered and available for public inspection. The new CO also requires written evidence of satisfaction/release of a charge to accompany a notification to the 
Registrar for registration of the satisfaction/release, thus making such documents available for public inspection.
 

 

For a copy of the new Companies Ordinance, please follow the link: http://www.cr.gov.hk/en/companies_ordinance/docs/full-e.pdf.

 

 

 

For further information, please contact:
 
Tony Grundy, Partner, Morrison Foerster
 
John Moore, Partner,  Morrison Foerster

 

 

 

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