• Thu
  • Dec 18, 2014
  • Updated: 9:38am
Monitor
PUBLISHED : Tuesday, 29 January, 2013, 12:00am
UPDATED : Tuesday, 29 January, 2013, 4:51am

Directors' privacy is a direct attack on the public interest

Unique personal identifiers are essential to corporate due diligence, bank credit checks and the exposure of corruption and fraud

Yesterday's South China Morning Post carried a full page petition signed by 1,768 journalists protesting against the Hong Kong government's plans to restrict public access to information about company directors.

I signed the petition not so much because the government's proposal is a blatant attempt to limit press freedom - although it is that. I signed because in trying to conceal crucial details like the identity card numbers of company directors, the government is guilty of a gross betrayal of its public duty.

To see why that is, and to understand why the government's explanation that it merely wants to "enhance protection of the privacy of personal information" is utter hogwash, we need to remind ourselves just what companies are and why they exist.

If you or I take out a mortgage to buy a flat and find ourselves unable to make the monthly payments, the bank that granted us the mortgage will come after us for its money.

It would start by repossessing our flat. But that's not all. If prices had slumped since our purchase, we might be unlucky enough to be in negative equity, with the value of our mortgage exceeding the current market value of the property. (Incidentally, if Hong Kong property prices fall by half from their present level, negative equity is exactly where tens of thousands of homeowners will find themselves.)

In that case the bank, or more likely its thuggish debt collector, would seize anything else of ours it could get its hands on - bank deposits, shares, car, jewellery and so on - until our debt and its costs were paid in full.

But if you and I were to set up a company to buy our flat, the story would be different. Most of the one million companies registered in Hong Kong are established as limited liability concerns. As a result, the bank would be allowed under law to seize only assets directly owned by our company. Everything else we own would be safe from its predations.

In short, the shareholders and directors of limited companies (and for most small private companies they are either the same people or the directors are close affiliates of the owners) enjoy privileged public protection should their companies run into trouble.

This protection is so important that when historians scratch their heads over why the industrial revolution and the explosion of wealth it produced took place in the relative backwater of western Europe rather than somewhere else with more obvious advantages, like China, they often conclude that the deciding factor was the development in Europe of limited liability.

With the assurance that their potential losses would be restricted to no more than the money they originally staked, investors proved far more willing to risk their capital in new business ventures. Today, limited liability is regarded as one of the cornerstones of a functioning economy.

But limited liability cannot be granted unconditionally. In return for the privileged public protection they enjoy, companies must divulge unique details about the identities of the directors they appoint. In Hong Kong that means either a local identity card number or a passport number.

This disclosure is crucial. Without unique identifiers, banks cannot do credit checks, business counterparties cannot conduct essential due diligence and - yes - journalists cannot expose fraud and corruption.

The disclosure of company directors' ID card or passport numbers is in the vital public interest. And it is nothing more than the necessary corollary of the privileged public protection limited liability companies enjoy.

In seeking to declare company directors' details secret, the government is directly attacking not only Hong Kong's public interest but also the foundations of its economy.

I can only conclude that our officials have something really big they want to hide from us.

tom.holland@scmp.com

Share

More on this story

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive
 
 

 

5

This article is now closed to comments

whymak
I have no opinion on the privacy issue. But your argument using limited liability company is not valid.
The lenders should require a higher collateral and higher lending rates if the mortgagee is a limited liability concern.
Knowing the identification of principals of these concerns in case of default is not a good argument. The law protects them from the harassment of creditors and collection agencies.
lokuohsiung
I suspect one of the key reasons why there hasn't been more support for this petition from the public is the perception that journalists are simply trying to protect their livelihood. While journalists in their articles argue (with considerable conflict of interest) that this is an attack on the public good, investigative journalism by its nature requires infringement of privacy. From the public's perspective, the kind of news which has preoccupied the media for the last few years has been mostly a series of witch hunts and media lynchings. The media seems to have appointed itself up as judge, jury and executioner yet answers to no one.
chaz_hen
Your attack on the press and their unwritten "duty" to expose malfeasance in the name of the public interest leads one to believe that you really have no concept of the gist of the story here. Your comment smacks of the usual rebuttal from those that have the most to fear: the dirty and corrupt that are up to no good.
What evidence do you have that the public does not support such a petition? Do you not think that this is yet another affront and slap to the face to the average member of the public by the controlling handful that own cartels, pull the strings of government and play by a different set of rules?
Curious how you so quickly jumped to their defense...
rpasea
This idea goes hand in hand with Beijing's supposed crackdown on corruption. One one hand, Beijing is declaring war on corruption. On the other, they are enabling those corrupt officials, the same ones who now declare righteousness, to cover their tracks.
ianson
At best, it's the fruit of a brainless misconception about "privacy"; at worst, the biggest, most corrupt mainland officials (read the CCP leadership) want their ill-gotten gains, much of which is secreted here, better protected from scrutiny and have influenced the creation of this idea.
 
 
 
 
 

Login

SCMP.com Account

or