*The Companies (Amendment) Ordinance 2003 is different from the Companies (Amendment) Bill 2003 (which has not been enacted as law). The Companies (Amendment) Bill 2003, which was first published in the Gazette on 13 June 2003, seeks to amend the provisions of the Companies Ordinance regarding prospectuses, group accounts, registration system for overseas companies and shareholders’ remedies.
The Companies (Amendment) Ordinance 2003, which comes into operation on 13 February 2004, introduces significant changes to the Companies Ordinance. Below is a summary of some of the significant changes.
Reduction of Share Capital
Court’s confirmation for reducing solely the par value of the share capital of a company is no longer required provided that all the following conditions are satisfied:
- the company has only one class of shares;
- the issued shares are fully paid up and the amount of the net assets of the company is not less than its paid-up share capital;
- the reduction applies to and affects all shares equally;
- the amount arising from the reduction is not less than an amount representing the difference between the amount of the company’s fully paid-up share capital immediately before the reduction and the amount of its fully paid-up share capital immediately after the reduction; and
- the amount arising from the reduction is credited to the share premium account of the company.
Right to Cancel Resolutions for Alteration in Memorandum and Articles of Association
Members of public companies holding not less than 5% in the nominal value of the issued shares can no longer apply to the Court to cancel any special resolution for the alteration of the objects clause in the Memorandum.
Transfer of Shares
The time limit for the completion of a transfer of shares by a public company has been changed from 2 months to 10 business days.
Threshold for Shareholders’ Proposals
The threshold for shareholders’ proposal has been reduced to 2.5% of the voting rights or 50 members holding shares on which there has been paid up an average sum of not less than HK$2,000 per person.
Loans to Directors
The Companies Ordinance now extends the prohibition against a company making a loan to a director to cover more modern forms of credit, such as the supply of goods under a hire-purchase agreement or conditional sale agreement and the disposal of goods for which payment is to be deferred.
Formation of a "One-Man Company"
The Companies Ordinance now permits the formation of a one-member company and allows a private company to have one single director. The sole member present in person or by proxy constitutes a quorum for a meeting of the company and a written record shall be kept of any decision taken in such meetings. The minimum number of directors for a pubic company (i.e. at least 2 directors) remains unchanged.
"Shadow director" is now defined as the person in accordance with whose directions or instructions the directors or a majority of the directors are accustomed to act.
Directors are now vicariously liable for the wrongdoings of their alternates.
Removal of Director
It is much easier to remove a director from a company under the new regime because he may now be removed by an ordinary resolution (despite anything contained in the Memorandum or Articles) provided that special notice is duly served for the meeting.
Companies are now permitted to purchase liability insurance for directors and auditors except in certain specified circumstances.
Directorial Autonomy Rule
The directorial autonomy rule is removed under new regulation 82 of Part I of Table A. The directors’ power to manage the business and affairs of the company is now subject to the provisions of the Ordinance, the Memorandum and Articles of Association and any directions given by special resolution.
Communication in Electronic Form
Except for the appointment of a proxy, communication between the company, its directors or members can be given in the form of an electronic record if the person to whom the communication is given consents to it being given to him in that form.
Update on Enforcement under the SFO
The Securities and Futures Ordinance has come into operation on 1 April 2003. The SFC has indicated on a number of occasions that the priority in its enforcement work in the coming years is to tackle corporate misgovernance. With the expanded scope of the investigation powers of the SFC into listed companies, the SFC indicates that it anticipates conducting considerably more investigations of listed companies.
Enforcement Focus on Part XV of the SFO
The SFO has introduced the 5% notifiable threshold for disclosure and prescribed a more timely notification obligation on the shareholders of listed companies. The SFC has indicated that, from 1 July 2003, its prosecution efforts on Part XV of the SFO will focus on, in order of priority, the following:
- Non-disclosure of interests;
- False or misleading disclosure;
- Late disclosure (which might amount to non-disclosure in certain circumstances).
Failure to Assist SFC Investigation
The SFC has said that persons who are reasonably believed or suspected by an SFC investigator to have relevant information should give all reasonable assistance to the investigator. The SFC also indicates that it will not tolerate deliberate attempts to thwart its investigations and will not hesitate to prosecute offenders in this regard.
- The SFC has successfully prosecuted a dealer’s representative for failing to give all the assistance which he was reasonably able to give to the investigator in connection with the trades conducted by his clients. The dealer’s representative entered a guilty plea. The magistrate fined the dealer’s representative HK$10,000 and ordered him to pay the investigation costs of HK$17,699 to the SFC. In passing the sentence, the magistrate commented that the offence was not a minor one as it carries a maximum penalty of HK$100,000 and 6 months’ imprisonment. This principle applies equally to other people such as company directors who are asked to assist the SFC in its investigations.
Deacons has a strong team of lawyers who regularly advise listed company clients and their group companies on corporate commercial, regulatory and contentious matters. For further information, please contact the following partners in our Hong Kong office:
Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice.