Companies win more freedom in ordinance overhaul
Significant changes to the Companies Ordinance came into force yesterday as part of moves to simplify laws governing corporate entities.
Provisions introduced in the Companies (Amendment) Ordinance 1997, gazetted last month, mean there will be far greater flexibility for companies to do deals than has been the case.
Requisite forms such as annual returns have also been simplified and made bilingual.
The added freedom for companies on deals arises from an amendment eliminating the requirement for entities to state objectives in their memorandums of understanding.
This provision has led to uncertainty in the corporate sector, because companies could do only deals that fell within their objectives.
Under the concept of ultra vires that has been applied until now, if a company did a deal in any area outside the terms of its objectives, that deal could be made void.
Third parties entering into transactions subsequently found void on these grounds had no legal recourse against the company breaching its objectives.
Under the revisions, companies no longer have to set objectives and will be able to make deals in any area.
Eamonn O'Connell, the secretary of the standing committee on Corporate Law Reform involved in drafting the legislation, said the move was largely a bid to protect 'unwary' third parties who might not know the objectives of companies they were dealing with.
'Now, when a deal is entered into, companies should be bound by that deal,' he said.
The change mirrored similar moves in a number of countries, including Canada, Australia and New Zealand.
Changes to corporate forms that must be filed with the Companies Registry will affect 11 types of documents, including returns, notification of board changes and registration of overseas companies in Hong Kong. They are now bilingual and simplified.
One change in the amendment ordinance involves insolvencies, with all creditors now entitled to interest in liquidations where there are surplus funds.
Until now, there have been no provisions allowing for payment of interest to creditors where there is an insolvency.