HK Releases Consultation Results On Draft Companies Bill

by Mary Swire, for LawAndTax-News.com, Hong Kong

01 September 2010

Hong Kong’s government, releasing the conclusions of the first phase of consultation on the draft of the Companies Bill, has said that it is prepared to adopt a number of proposals regarding the issues highlighted for consultation.

In particular, it noted the divergent views on the abolition or retention of the headcount test used in company privatization or restructuring plans for approving a scheme of arrangement. On balance, it decided that there are merits in retaining the headcount test after considering the importance of protecting the interests of minority shareholders and small creditors.

However, it said, the court will retain the discretion to dispense with the test for members’ schemes in special circumstances, such as where there is evidence that parties opposing the scheme have unfairly influenced the result of the vote by share splitting.

With regard to another recommendation to restrict access to directors' residential addresses, and to the full identification numbers of directors and company secretaries kept at the public register of the Companies Registry, the government pointed to the rising concerns over the protection of personal privacy and information as reflected in the views of the majority of respondents.

It has therefore been agreed that those residential addresses and full identification numbers should not be automatically disclosed on the public register. Nevertheless, to strike a balance between protecting privacy and access to such information on bona fide grounds, it has also been agreed that certain organizations/persons, including public authorities, specified regulators, liquidators and provisional liquidators as well as those who have obtained a court order, can have access to those details.

Other accepted recommendations include subjecting private companies which are subsidiaries of a listed or public company to more stringent regulations, similar to public companies, for the purposes of the provisions on fair dealing by directors. This covers, for example, the prohibition on loans and credit transactions in favour of directors or directors of a holding company, or another company controlled by one or more of its directors.

In addition, the existing right for shareholders to take common law derivative action (CDA) on behalf of a company will be retained. Professional bodies supported the retention of CDA because it would provide necessary protection to shareholders in Hong Kong for obtaining remedies in relation to non-Hong Kong companies.

The government launched a major and comprehensive exercise of rewriting the Companies Ordinance in mid-2006, in order to facilitate the conduct of business to enhance Hong Kong's competitiveness and attractiveness as a major international business and financial centre. Public consultation on draft clauses of the Companies Bill is in two phases; the first phase commenced in December 2009 and second phase in May 2010.

The second phase consultation was completed early last month. The draft Companies Bill will be revised incorporating the above proposals and other comments received during both phases of public consultation. The government aims to introduce a final text into the Legislative Council as soon as possible, hopefully by the end of 2010.

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