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Hong Kong – What You Need To Know About The Companies Ordinance.

6 January, 2014

 

Legal News & Analysis – Asia Pacific – Hong Kong – Regulatory & Compliance

 

Key Changes Affecting Company Meetings, Resolutions, Execution Of Documents And Communications

 

Summary Of Key Changes

 

AGMs To Be Held By Reference To The Accounting Reference Date – under the new Companies Ordinance, the time periods for holding AGMs are to be set by reference to the company’s accounting reference date (a newly introduced concept which sets the period by which a company’s financial statements are to be prepared). Private companies and companies limited by guarantee are required to hold their AGMs within nine months of the end of the company’s accounting reference date, and other companies are required to hold their AGMs within 6 months of the end of their accounting reference dates.

 

Power To Dispense With AGMs By Unanimous Consent – under the new Companies Ordinance, a company, with unanimous shareholder approval, can dispense with the need to hold AGMs. Any such resolution passed can be revoked by members passing an ordinary resolution and any member can require an AGM to be held in any particular year by serving the requisite notice.

 

Threshold To Demand A Poll Reduced From 10% to 5% – the new Companies Ordinance reduces the threshold for demanding a poll from 10% to members holding at least 5% of the total voting rights of all members having the right to vote at the meeting. The chairperson of the meeting or at least 5 members having the right to vote can also request a poll.

 

Permitting Meetings To Be Held At Multiple Locations – where technology enables, under the new Companies Ordinance, companies may hold general meetings at multiple locations. The technology must permit members who are not physically together to listen, speak and vote at the meeting. Companies may set out procedures in their Articles of Association for meetings held in this way.

 

Clarifying Rights And Obligations Of Proxies – the new Companies Ordinance contains some useful amendments to the existing provisions relating to proxies which clarify the law and address some of the limitations under the current Companies Ordinance. The new Companies Ordinance provides that all members can appoint a proxy (as compared to the current regime where members of guarantee companies only have the right to appoint proxies if provided for in the company’s Articles of Association). For guarantee companies, the Articles of Association may require that proxies appointed are confined to members of the company. Multiple proxies are permitted, with the existing cap of two proxies (unless the Articles of Association provide otherwise) being removed. Multiple proxies can vote only on a poll.

 

The new Companies Ordinance expands the rights of a proxy, providing that a proxy may exercise all or any of the member’s rights to attend, speak, vote (including on a show of hands, multiple proxies excepted) and demand a poll at a general meeting. Subject to the company’s Articles of Association, proxies may be appointed chairperson of general meetings.

 

Under the new regime, there are express requirements that a proxy put forward by the company must vote in accordance with the way specified in the proxy’s appointment. If the appointer attends in person, the proxy is revoked.

 

New Statutory Procedure For Written Resolutions – Whilst written resolutions are permitted under the existing Companies Ordinance, the new Companies Ordinance now sets out a statutory procedure for proposing, passing and recording written resolutions (although alternative procedures can be set out in the company’s Articles of Association). The procedure provides that any member or director may propose a resolution as a written resolution. The company is obliged to circulate the resolution to all members if the request is received from a director or from members representing not less than 5% of the voting rights of the company (together with any accompanying statement of not more than 1,000 words). The resolution can be circulated in hard copy, electronic form or by making copies available on a website and may be returned by members in hard copy or electronic form. The new Ordinance sets a longstop period for agreeing to the proposed resolution of 28 days (unless the Articles of Association specify a different period).

 

Ratification Of Directors’ Conduct – the new Companies Ordinance includes new provisions to deal with the ratification of directors’ conduct amounting to negligence, default, breach of duty or breach of trust. Under the existing common law, ratification can generally be achieved by getting shareholders’ approval (save where the act is incapable of ratification). The new Companies Ordinance sets a stricter regime requiring approval by disinterested shareholders (by disregarding any votes by directors and connected persons). This is aimed at preventing conflicts of interests and possible abuse of power by directors.

 

Company Seal And Execution Of Documents – the new Companies Ordinance abolishes the requirement for a mandatory company seal which will be optional under the new regime. Where a seal is adopted, the seal must be affixed in accordance with the provisions of the Articles of Association.

 

The regime in relation to an official seal for use abroad is also relaxed and provides simply that a company may have a seal for use outside Hong Kong. Under the current regime, this is only permitted where authorised by the Articles of Association.

 

The new Companies Ordinance also provides that companies may execute documents by signing them in the prescribed fashion:

 

  • for companies with only one director, by that director signing on the company’s behalf; and
  • for companies with multiple directors, by either two directors or a director and the company secretary signing on the company’s behalf.

 

A company may execute a deed by executing the document as above, where the document is expressed to be executed by the company as a deed and is delivered as a deed.

 

Codifying The Indoor Management Rule – the new Companies Ordinance provides statutory protection for persons dealing with the company in good faith, codifying the existing common law position. The powers of the directors to bind the company are to be regarded as free of any limitations under the Articles of Association or other relevant document of the company. This means that persons dealing with the company in good faith can assume that the directors have the requisite authority and need not enquire further. This protection does not extend to directors of the company or its holding company or persons connected with them when they deal with the company.

 

Communication With The Company In Electronic And Hard
Copy Form
 – the new Companies Ordinance introduces new provisions governing communication to and from companies in electronic and hard copy form.

 

For communications in electronic form, if the company has agreed (either generally or specifically), natural persons can send communications to the company in electronic form. Companies can revoke any agreement to receive communications electronically by giving notice of not less than seven days. The new Companies Ordinance specifies that any electronic communication is deemed received 48 hours after it has been sent (or such other period as is set out in the Articles of Association).

 

For hard copy communications, the new Companies Ordinance sets out provisions on deemed receipt. If the document is sent by post, it is deemed to have been received on the second business day after posting (or as otherwise provided in the Articles of Association) and, if delivered by hand, it is deemed received when delivered.

 

The new Companies Ordinance also now contains default provisions for dealing with communication methods in specific circumstances, such as on the death or bankruptcy of a member and to joint holders.

 

What Do You Need To Do Now?

 

We would encourage Hong Kong companies to:

 

  • plan ahead for the next AGM to ensure that it is held in accordance with the new Companies Ordinance requirements;
  • review your Articles of Association to assess whether any changes are desirable to take account of the new provisions in the Companies Ordinance; and
  • consider whether to continue to use the company seal and review internal controls and policies on execution of documents.

 

herbert smith Freehills

 

For further information, please contact:

 

Austin Sweeney, Partner, Herbert Smith Freehills

[email protected]

 

Tommy Tong, Partner, Herbert Smith Freehills

[email protected]

 

Matt Emsley, Partner, Herbert Smith Freehills

[email protected]

 

Gary Lock, Partner, Herbert Smith Freehills

[email protected]

 

Jason Sung, Partner, Herbert Smith Freehills

[email protected]

 

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