The so-called headcount rule in the Companies Ordinance states that a privatisation deal must be approved by 50 per cent of shareholders attending a shareholders' meeting. The majority it requires is based on the number of shareholders, not their shareholding value.

The rule has been under the spotlight since 2009, when the Court of Appeal overturned an attempt by Pacific Century Regional Developments, controlled by Richard Li Tzar-kai, to privatise telecommunications firm PCCW. The court said the vote had been manipulated by distributing shares among various parties to create a higher headcount.

The government decision to scrap the headcount rule will remove the final hurdle to obtaining lawmakers' approval of the Companies Bill, which they have been discussing for 18 months. If the bill can be passed by the bills committee tomorrow and then by all lawmakers at the end of next month, detailed subsidiary legislation can be drafted and the law implemented in 2014.

The bill would also require a privatisation scheme to be endorsed by a court acting as a referee to ensure its fairness to all shareholders.

Business organisations have long opposed the headcount rule as curtailing their flexibility, but the government has retained it to protect small shareholders. The government official, who asked not to be named, said it had decided to abolish the rule now because it considered the 10 per cent objection rule, proposed by academic and shareholder activist David Webb, to be a better alternative.

'The proposal we put forward to replace the headcount test is a balanced and sensible statutory safeguard to protect minority shareholders under privatisation schemes,' the official said.

He said the 10 per cent objection rule is better than the headcount test because it upholds the 'one share, one vote' principle.

'It clearly puts the veto power in the hands of the minority shareholders only, and the 9:1 approval ratio is a high threshold reflecting the wish of the absolute majority view of minority shareholders,' the official said.

Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies, said: 'We welcome the scrapping of the headcount rule, which is outdated and not fair. We've always believed counting the value of shareholdings in a vote is fairer than counting heads.'

Louis Tse Ming-kwong, director of VC Brokerage, said the new proposal was an improvement.

'However, this is a new concept, and we have to wait until after its implementation to see if it can protect the small investors,' Tse said.

10%

A company's privatisation bid will fail if at least this proportion of shareholders reject it