Terence Lau and Donald Fung of Hogan Lovells unveil some novel provisions which have been incorporated into the new Hong Kong Companies Ordinance, and discuss their significance in the context of strengthening the city’s position as an international corporate centre.
 After a long and arduous process, the new Companies Ordinance (the New CO) was passed by the Hong Kong Legislative Council in July 2012. All indicators point towards it coming into full force sometime in 2014, forming the legal framework for the formation and operation of companies in Hong Kong, including overseas companies registered in Hong Kong. The New CO represents a major overhaul since the last major review of the Companies Ordinance in 1984. When the New CO is enacted, the existing Companies Ordinance (the Old CO) will be repealed, except for sections on the prospectus regime, corporate insolvency, and other provisions not covered in the New CO. This article highlights several significant changes brought about. Corporate governance Corporate governance was one of the main areas of significant change, with measures added to strengthen accountability of directors. A new requirement is for a private company to have at least one natural person as a director. The duties of a director to exercise reasonable care, skill and diligence were previously garnered from case law, but have now been codified. The New CO sets out a two-prong test that comprises a subjective element (the director’s own knowledge, skills and experience), as well as an objective test (knowledge, skills and experience of a director in a similar position). In contrast, the fiduciary duties were not codified, and will follow existing common law and equitable principles. The New CO replaces the term “officer who is in default” that requires the proof of “knowledge and wilfulness” with the concept of “responsible person”. A responsible person is any officer or shadow director that authorises or permits, or participates in, defaults. Contrasting with the standard of proof of “knowing and wilful” defaults under the Old CO, the new standard effectively lowers the burden of proof for the Registrar of Companies. Company administration |
 Share capital and capital maintenance The antiquated concept of nominal or par value of a share (that is, the minimum issue price for a share) has been abolished in the New CO. Similarly, the concept of authorised capital, meaning the maximum amount of share capital that a company may issue to shareholders, has also been removed. Companies may, therefore, issue shares without upper limit and at any price per share as may be determined by the board. The New CO also modifies rules regarding capital maintenance, introducing a uniform solvency test for (1) share redemptions and buy-backs, (2) giving of financial assistance by a company for acquisition of its own shares, and (3) capital reductions that do not require court approval. Takeovers and amalgamation Registration of charges Strong debate What lies ahead terence.lau@hoganlovells.com To read the ASIAN-MENA COUNSEL article Click Here (Note, if you are using an iPhone or iPad you can also download this article directly to your iBooks after it opens in Google Docs). |
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