Headcount of shareholders up for Legco debate

PUBLISHED : Saturday, 15 January, 2011, 12:00am
UPDATED : Saturday, 15 January, 2011, 12:00am

Despite opposition from businesspeople, the government will keep the 'headcount rule' in the Companies Bill, gazetted yesterday, as it sees the provision as vital for protecting the interest of small investors.

The Companies Bill, which has been five years in the making, will be tabled for its first reading on January 26. Lawmakers will then discuss the 900 clauses and 10 schedules.

It is expected to be cleared before the term of the current legislature ends in the middle of next year. After that, detailed subsidiary legislation will be drafted and the law could be implemented in 2014.

But it is likely to be an uphill battle as the bill, aimed at rewriting an outdated Companies Ordinance, contains a number of complex subjects, the most controversial being the headcount rule.

The rule, now contained in Section 166 of the Companies Ordinance, states that a privatisation deal must be approved by 50 per cent of the number of shareholders attending a shareholders' meeting. It is called the headcount rule because the majority it requires is based on the number of shareholders and not the value of their shareholdings.

The rule has been under the spotlight since the Court of Appeal in 2009 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 splitting up the shares to create a higher headcount.

Business organisations want the headcount rule out of the new Companies Bill.

'Many professional bodies and companies don't want it as it opens up room for manipulation,' said Mike Wong Ming-wai, the chief executive of the Chamber of Hong Kong Listed Companies. 'We believe counting the value of shareholding in a vote is fairer than counting the headcount.'

However, John Leung Chi-yan, a deputy secretary for financial services and the treasury, said Britain, Singapore and Australia had retained the rule. 'Keeping the headcount rule is in line with international practices and would safeguard the interests of small investors, who hold only a small number of shares,' he said.

But he said the government had proposed to add a provision in the new bill that would empower the court to overturn a ballot result based on the headcount when needed.

Under the bill, if a privatisation deal is approved or voted down at a shareholders' meeting but there is evidence that votes have been split to manipulate the result, a judge has the power to block or approve the deal.

Another potentially controversial subject was the privacy of company directors, Leung said. The present law requires directors to disclose their residential addresses and identity numbers to the public.

The new bill would allow them to hide part of their identity numbers and allow them to give only mailing addresses. Critics say directors would be hard to locate if this change goes through.