New companies law will boost Hong Kong's competitiveness
K.C. Chan says companies and the public will benefit from modern law
After years of joint efforts by the government and the market, the new Companies Ordinance will come into operation on Monday. It is the right time to revisit what it means to Hong Kong and to businesspeople looking to form a company, to a director, a shareholder or a member of the public.
The ordinance will bring about changes to enhance corporate governance, ensure better regulation, facilitate business and modernise the law.
Hong Kong is now home to well over 1.1 million companies, and an average of 700 are being formed each day.
All these companies, as well as countless members of the public dealing with them, will benefit from the modernised regime.
For a businessman looking to incorporate a company, the new ordinance will make the process more convenient. A common seal will no longer be mandatory, and there will be model articles of association for different types of companies to adopt. This will save time and effort for founders as they pursue business opportunities.
For existing and new companies, the legislation will reduce their compliance cost. For example, companies may dispense with annual general meetings with unanimous shareholders' consent. More companies will be eligible for simplified financial reporting. And there will be comprehensive rules to facilitate electronic communications between companies and their shareholders. There will be a new requirement for larger companies to feature an analytical and forward-looking business review in their directors' reports, to give shareholders more information on the significant issues, including environmental and staff matters.
Shareholders will also have more chances to participate in the decision-making process, as the threshold for them to demand a poll at annual general meetings will be lowered.
One significant change concerns the protection of minority shareholders' interests: the "headcount test" will be replaced by a new test for schemes of arrangement involving a general offer or a takeover offer.
The new test sets a high threshold for a scheme to be passed by shareholders - only if, disregarding the votes of the proponent and his associates, the votes against amount to not more than 10 per cent of the shares.
The new test will not only avoid the inherent deficiencies of the "headcount test", such as share-splitting, but will also provide effective protection for minority shareholders' interests.
As an additional safeguard, the new ordinance will allow a dissenting shareholder to challenge the scheme in court without worrying about the legal costs, unless the challenge is frivolous or vexatious.
For directors, the new ordinance will clarify the duty of care, skill and diligence expected of them to facilitate compliance. There will also be more effective rules on fair dealings by directors.
In particular, director employment contracts that exceed three years will have to be approved by shareholders. For directors of public companies, the duty to declare an interest to other directors will be extended.
All these changes will help enhance the accountability of directors and corporate governance and will, in turn, improve protection for shareholders.
The new ordinance will also benefit members of the public.
It will enhance the Companies Registry's power and ensure members of the public have access to accurate and updated information about companies.
The ordinance will mark a new era of Hong Kong's company law, and enhance the city's competitiveness as an international financial and business centre.
