On July 12, 2012, a new Companies Ordinance passed in Hong Kong.According the Registrar of Companies, the New CO aims to achieve four main objectives: “to enhance corporate governance, ensure better regulations, facilitate business and modernize the law.”
Highlights of the new initiatives are as follows:
(a) Abolishing Par Value for Shares
The New CO adopts a mandatory system of no-par for all companies with a share capital and retires the par value of shares, in line with international trends and to provide companies with more flexibility in structuring their share capital.
(b) Restricting Corporate Directorship in Private Companies
Every private company is required to have at least one director who is a natural person, to enhance transparency and accountability. A grace period of six months from the commencement date of the New CO will be given for companies to comply with the new requirement.
(c) Replacing the Headcount Test
The “headcount test” for privatizations and specified schemes of arrangement is replaced by a “not more than 10% disinterested voting” requirement. The court is given a new discretion to dispense with the “headcount test” in cases where it is retained for members’ schemes.
(d) Clarifying Directors’ Duty of Care, Skill and Diligence
With a view to providing clear guidance to directors, the standard for company directors’ duty of care, skill and diligence is clarified in the New CO to incorporate a mixed objective and subjective test.
(e) Strengthening the Enforcement Regime
The New CO strengthens the enforcement regime in relation to the liabilities of officers of companies for contravention of provisions in the Ordinance, including lowering the threshold for prosecuting a breach or contravention through a new definition of “responsible person”.
(f) Facilitating Simplified Reporting
The New CO allows companies that meet specified size criteria to prepare simplified financial statements and directors’ reports. Larger private companies that do not meet the specified size criteria will also be entitled to prepare simplified financial statements and directors’ reports if their sizes do not exceed a higher threshold provided that members holding 75% of the voting rights so resolve and no member objects.
(g) Strengthening Auditors’ Rights
An auditor is empowered to require a wider range of persons, including the officers of a company’s Hong Kong subsidiary undertakings and any person holding or accountable for the accounting records of the company or its subsidiary undertakings, to provide information or explanation reasonably required for the performance of the auditor’s duties. The offense for failure to provide the information or explanation is extended to cover officers of the company and the wider range of persons.
For more detail, including a detailed annex and information on implementation, see the HK's Registrar's communication, the source of this information.
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