Originally published 8 March 2010
Keywords: company names, shadow companies, Companies Ordinance, Companies Registrar, adopting, trade marks, rights
The Government has recently tabled a bill before the Legislative Council introducing changes to the company names system. Among other reforms, the proposal gives the Companies Registrar a power to substitute company names which are adjudged by the court to be infringing another's rights. This will, pending any further reform that might be introduced once the wholesale review of the Companies Ordinance is completed, enhance the enforcement of court orders against unscrupulous "shadow companies".
Companies adopting other people's trade marks as part of their company names are conveniently referred to as "shadow companies". To tackle the surge of shadow companies in the past few years, the Government proposed changes to the Companies Ordinance back in 2008 as part of the rewrite exercise. JSM published a client alert on the consultation process: "Consultation Conclusions on Proposed Reform of Company Names Law" (9 January 2009).
Following the consultation, the Government gazetted and introduced the Companies (Amendment) Bill earlier this year. The bill, expected to become law this year, contains provisions on shadow company names as well as other changes to the company registration system, notably the introduction of electronic applications for company registrations.
On the shadow company front, the changes follow the consultation conclusions and focus on giving the Companies Registrar ("Registrar") a power to replace shadow company names on its own, without the need to have the shareholders' co-operation. This new power can be exercised mainly in two situations:
- Pursuant to an order by a Hong Kong court restraining the company from using its name, the Registrar can direct a name change and go on to replace the name if the company fails to comply with the direction; or
- The Registrar can direct a name change on the ground that the company name is "too like" an existing one (Section 22(2) of the Companies Ordinance). If the company does not obey, the Registrar can substitute the company name.
These reforms seek to address the problem that the Registrar has no power to effect a name change by itself under the existing law. At present, only the shareholders can change a company name by way of a special resolution. If the shareholders ignore a court order, the trade mark owners are essentially left with an empty court order.
Assuming the bill becomes law, there are several other points to note:
- It will be up to the plaintiff to report and provide a sealed copy of the court order to the Registrar; the Registrar will not actively search for court orders
- The Registrar's new power to direct a name change applies to court orders obtained before the amendment
- The Registrar will replace the company name with its company registration number, with the prefix "Company Registration Number"
- A company name replaced under the new power cannot be re-registered by anyone unless with the Registrar's consent
- As the wholesale review of the Companies Ordinance is continuing, there could be a chance that the shadow company issue might be re-visited
We have closely followed the developments in this area and have made submissions during the consultation process, advocating a pro-active screening process. With the experience and success that we have in helping local and overseas clients to tackle company name abuses, we are confident in offering an even more comprehensive and thorough action plan in light of the expected legislative changes.
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