Hong Kong – New Companies Ordinance
New Companies OrdinanceIn our December 2012 issue, we have provided a brief summary of the main changes introduced by the new Companies Ordinance (Cap. 622) (the “Ordinance”). With the commencement of the new Ordinance expected in the first quarter of 2014, it is now time to review your Hong Kong companies (if any) to make sure they are in compliant with the new Ordinance. We highlight the changes that are of most significance and relevance to our clients in a series of issues to follow.
All changes we refer here are in relation to private companies which are not members of a group of companies of which a listed company is a member.
Directors (Part 10 of the Ordinance)
1.Requirement to have a natural person director (section 457)
Private companies are required to have at least one director who is a natural person to enhance transparency and accountability. The natural person should be above 18 and can be of any nationality. Corporate directorship is still allowed.
For existing companies with no natural person director, there will be a grace period of 6 months after the commencement of the Ordinance to comply with the new requirement. There is an exemption for existing dormant companies but they are required to comply with the requirement when they cease to be dormant.
Before September 2014, all existing companies are required to have an individual director. We recommend keeping the corporate director (if any) for ease of administration. Zetland offers individual directorship services. With more than 25 years’ experience in the industry, we can tailor a solution to suit your needs. Please contact us for further details.
2.Clarifying the standard of director’s duty of care, skill and diligence (sections 465 and 466)
Under the current Companies Ordinance (Cap. 32), there is no provision on director’s duty of care, skill and diligence and the common law position in Hong Kong is not entirely clear. With a view to providing clear guidance to directors, the standard is clarified in the Ordinance to incorporate a mixed objective and subjective test.
In deciding whether a director of a company has breached the duty of care, skill and diligence owed by him to the company, his conduct is compared to the standard that would be exercised by a reasonably diligent person having –
The general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company (objective test); and
The general knowledge, skill and experience that the director has (subjective test).
The duty has effect in place of the corresponding common law rules and equitable principles, and it applies to a shadow director. The existing civil consequences of breach of the duty are preserved. The remedies for breach of the duty will be exactly the same as those that are currently available following a breach of the common law rules and equitable principles that the said duty replaces.
3.Clarifying the rules on indemnification of directors against liabilities to third parties (sections 467 and 469-472)
The law regulating a director’s right to be indemnified against liabilities to third parties is currently found in case law, which is fairly difficult for lay directors to understand. The uncertainty over the right to be indemnified against liabilities to third parties may deter competent persons from accepting directorships.
The Ordinance permits a company to indemnify a director against liability incurred by the director to a third party if the specified conditions are met. Certain liabilities and costs must not be covered by the indemnity, such as criminal fines, penalties, defence costs of criminal proceedings where the director is found guilty. To enhance transparency, a company that provides any permitted indemnity must disclose the provision in the directors’ report available for inspection by any member on request.
Company Formation and related matters (Part 3 of the Ordinance)
Constitution – abolishing the Memorandum of Association (the “MA”) (Sections 67-70, 75-85 and 98)
The Ordinance states that a person may form a company by, amongst other things, delivering to the Registrar for registration an incorporation form in specified format and a copy of the company’s Articles of Association. These will include all information currently contained in the MA.
Common seal – making the keeping and use optional (Sections 124, 125 and 127)
In order to facilitate business and gives flexibility to companies and does not prejudice those companies which may still wish to keep and use their common seals, the Ordinance simplifies the mode of execution of documents by making the keeping and the use of a common seal optional. It allows a company to execute a document by having the document signed by the director or in case of a company having two or more directors, by two authorised signatories. A document signed in accordance with the sections and expressed to be executed by the company has effect as if the document had been executed under the company’s common seal.
With the deeming provisions set out in the Ordinance, it is not necessary for existing companies to do anything in this respect. However, you may wish to review the current constitutional documents to take advantages of some of the new initiatives set out in the Ordinance, such as making the company seal optional.
Zetland provides ongoing maintenance services for Hong Kong and offshore companies and we can make suggestions to the operations of your business according to your specific requirements.
Share Capital (Part 4 of the Ordinance)
Abolition of nominal value of shares (Section 135)
The par value of shares does not serve the original purpose of protecting creditors and shareholders and may be misleading as it does not necessarily give an indication of the real value of the shares. The Ordinance adopts the mandatory system of no-par and abolishes relevant concepts such as nominal value, share premium and requirement for authorised capital.
Upon the commencement of the Ordinance, all shares, including shares issued before that day, will have no nominal value. The share capital of a company is its issued share capital (including full proceeds the company actually received as capital contribution).
The share capital can be altered in a number of ways under a no-par environment, e.g. to allow a company to capitalize its profits without issuing new shares and to allot and issue bonus shares without increasing share capital.
Deeming provisions are introduced to ensure contractual rights defined by reference to par value and related concepts will not be affected by the abolition of par. Although the Ordinance provides comprehensive transitional provisions for existing companies, you may wish to review the particular situation to determine if specific changes are required as a result of the migration to no par regime, such as reviewing the constitutional documents, contracts, trust deeds and share certificates.
Please feel free to contact Zetland for any specific advice. Our team of professionals in Hong Kong, London, Singapore and Shanghai is ready to respond to your enquiries.
Company Administration and Procedure (Part 12 of the Ordinance)
1.AGM – allowing companies to dispense with AGM by unanimous shareholders’ consent (Sections 612 to 614)
A company is allowed to dispense with the requirement for holding of AGMs by passing a written resolution or a resolution at a general meeting by all members. After passing the resolution, the company will not be required to hold any AGMs for the financial year or for subsequent financial years to which the resolution relates. The company may revoke the resolution by passing an ordinary resolution to that effect. A single member company is not required to hold an AGM at all.
The financial statements and reports originally required to be laid before an AGM will still be required to be sent to the members.
2.Written resolution – introducing a comprehensive set of rules for proposing and passing (Sections 548 to 561)
The new procedures facilitate the use of written resolutions for decision-making, which is more expeditious and less costly than passing a resolution in a general meeting. The Articles of a company may set out alternative procedures for passing a resolution without a meeting, provided the resolution has been agreed by the members unanimously.
3.Keeping and inspection of company records – provisions updated
‘Company records’ is defined as any register, index, agreement, memorandum, minutes or other document required by the Ordinance to be kept by a company, but does not include accounting records. A company must keep its records at the company’s registered office or a prescribed place. Inspection of company records kept in electronic form to be inspected by electronic means is allows if so requested by the person inspecting the records.
The requirement to keep records of resolutions and meetings of members, etc. and entries relating to former members in the register of members for 10 years (30-year period in the existing ordinance) is provided. There is no time limit for adducing evidence to challenge the accuracy of an entry in the register.
１．基本定款の廃止（英語名：M&A、Memorandum of Association）
新会社条例の元で設立される会社において、基本定款の作成義務がなくなり、通常定款（英語名：A&A、Articles of Association）のみの作成となる。通常定款には今まで基本定款にあった情報が含まれることになる