New Hong Kong Companies Ordinance: Corporate directorship restrictions and shareholders' written resolution procedures

01 Nov 2013 | Newsletter/briefing

WHEN IN FORCE: 3 March 2014

1. RESTRICTION ON CORPORATE DIRECTORSHIP

COMPANIES AFFECTED: Private companies other than any private company that is a member of a group which includes a listed company

NEW PROVISIONS: Part 10, Division 1 of new CO: s457

SUMMARY OF CHANGES

  • under the existing legislation, a body corporate is permitted to be the sole director of a private company. This is subject to the private company not being a member of a group which includes a listed company
  • under the new CO, such a private company must have at least one director who is a natural person
  • a six-month grace period will apply from the commencement of the new CO for companies to comply with the new requirement
  • no change is made to the existing prohibition against corporate directorships for:
    • public companies
    • private companies which are members of a group which includes a listed company
  • to give context to the change - as at 31 August 2013 the number of corporate directors for Hong Kong companies was around 68,050 (being 3.7% of the total number of directors for Hong Kong companies)

IMPLICATIONS FOR PRACTICE

  • identify private companies within corporate group structures that currently have no natural person acting as director and identify appropriate individuals to be appointed
  • these individuals must be appointed before the expiry of the six-month grace period
  • appointment considerations may include directors’ insurance and indemnities to be paid for or provided by the company

2. CIRCULATION AND PASSING OF SHAREHOLDERS’ WRITTEN RESOLUTIONS

COMPANIES AFFECTED: All Hong Kong incorporated companies

NEW PROVISIONS: Part 12, Division 1 of new CO: ss548-561

SUMMARY OF CHANGES

The new CO requires new statutory rules to be followed for the circulation and passing of shareholders’ written resolutions. The most important points are:

  • directors or shareholders (representing not less than 5% of the total voting rights) may propose a resolution as a written resolution
  • once a written resolution is proposed (in accordance with the rights set out in the new CO and its articles of association), the company must circulate the resolution to every shareholder within 21 days after it has received the proposal. On or before the circulation date to shareholders, the company must also send the resolution to its auditor
  • the circulated written resolution must be accompanied by guidance as to:
    • how to signify agreement to the resolution
    • the date by which the resolution must be passed if it is not to lapse (the default position is that it will lapse 28 days after the circulation date)
  • once the written resolution has been passed, the company must notify this fact to every shareholder and its auditor within 15 days
  • failure to comply with the above requirements on circulation of written resolutions or subsequent notification of the passing of written resolutions is an offence punishable by way of fine

IMPLICATIONS FOR PRACTICE

  • companies should note that a proposed shareholders’ written resolution will lapse if not passed within 28 days after the circulation date (or such other period as provided for in the articles)
  • in order to make use of shareholders’ written resolutions, a company should update its template for shareholders’ written resolutions so that it complies with the new CO and the company’s articles
  • internal procedures should be put in place to ensure that shareholders’ written resolutions which are passed out of time are treated as lapsed (and not passed)
  • if you would like a standard template written resolution, please speak to your usual Slaughter and May contact


For related publications, see also: New Hong Kong Companies Ordinance Tool Kit.

Contacts

Peter Brien (partner), Lisa Chung (partner)


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