The Hong Kong Companies Legislation is on the verge of a major overhaul. The Hong Kong Companies Ordinance was last substantially reviewed and amended in 1984 and is largely based on the UK Companies Act 1948 and some of its subsequent reforms, such as those in the UK Companies Act 1976. A thorough review of the legislation is now overdue and it needs to be urgently updated and modernized.
A comprehensive exercise to rewrite the Ordinance was launched by the Hong Kong government in mid-2006 and since then, three public consultations in 2007 and 2008 had been conducted to gauge views on a number of complex subjects. The views gathered in the consultations had been incorporated into a draft Companies Bill which was introduced in December 2009.
The legislative changes that are proposed in the draft Companies Bill seek to enhance corporate governance and ensure that the regulatory regime is more effective and business-friendly. The changes will also facilitate businesses by simplifying accounting and reporting requirements and modernize the law by abolishing old concepts that no longer meet the needs of modern business. The government has embarked on a public consultation on the draft Companies Bill.
Due to the extensive nature of the rewrite exercise, the consultation on the Companies Bill is being conducted in phases. The first phase tackles the core company provisions which affect corporate governance comprising roughly half of the draft Companies Bill. The second phase will review the provisions relating to winding-up and insolvency and this will be launched after the Companies Bill has been enacted by the Legislative Council. A separate review will be conducted by the Securities and Futures Commission on the provisions relating to prospectus.
As part of the first phase, a round of public consultation was conducted from 17 December 2009 to 16 March 2010 to seek views on certain proposed reforms in the Companies Bill. Feedback was sought on whether, amongst others, the "headcount test" for approving a scheme of arrangement and the common law derivative action should be abolished.
A further round of public consultation was recently launched in May 2010 which will last until 6 August 2010. In this round of consultation, views are invited on the following issues :-
- whether the provisions on the financial assistance by a company
for the purpose of acquiring its own shares should be streamlined
or should be abolished for private companies;
- whether the requirement for all listed companies and unlisted
companies where members holding not less than 5% of the total
voting rights have so requested to prepare separate director's
remuneration reports be dropped;
- whether the provisions relating to the investigation of a
company's affairs and enquiries into a company's affairs
that may be exercised by the Financial Secretary be enhanced and
the investigative powers of the Registrar to obtain documents,
records and information be strengthened; and
- whether a company should give reasons to explain its refusal to
register a transfer of shares.
The draft Companies Bill will be revised taking into consideration comments received during these consultations and the Companies Bill is expected to be introduced for legislative debate by the end of 2010.
When implemented, the reforms will place Hong Kong on par with comparable jurisdictions such as the United Kingdom, Australia and Singapore and complement Hong Kong's role as an international business and financial centre.
Experienced lawyers in our corporate practice will be happy to assist you with any queries you may have on proposed legislative changes to the Companies Ordinance in Hong Kong or on any other corporate matter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.