New Hong Kong Companies Ordinance: Responsible persons

01 Dec 2013 | Newsletter/briefing

WHEN IN FORCE: 3 March 2014

COMPANIES AFFECTED: All companies, whether incorporated in or outside of Hong Kong

NEW PROVISIONS: Main provisions include ss3, 212, 267, 275, 426-428, 430, 433, 436

OVERVIEW

  • the new CO replaces the concept of an "officer in default" with the new concept of "responsible person"
  • the main purpose for making the change is to strengthen the enforcement regime, and to hold those truly responsible for the company’s contraventions to account

WHO IS A "RESPONSIBLE PERSON"?

  • the officers of the company (which includes directors, persons performing managerial functions and the company secretary) and any shadow directors may be responsible persons
  • where a company has a corporate officer responsible person, the corporate officer’s own officers and shadow directors may also be responsible persons
  • in order to be a responsible person, the relevant person must satisfy the mental element of authorising, permitting or participating in the relevant contravention. The required mental element is discussed further below

SUMMARY OF THE MAIN PROVISIONS AFFECTING RESPONSIBLE PERSONS

  • the provisions relating to responsible persons apply if: (i) the company contravenes a relevant provision under the new CO; and (ii) the responsible person authorises or permits, or participates (including by way of omission) in, that contravention
  • the vast majority of company contraventions for which responsible persons may be liable are procedural and regulatory in nature, and are summary offences punishable by fine.

COMPARISON AGAINST THE "OFFICER IN DEFAULT" PROVISIONS UNDER THE EXISTING LEGISLATION

  • three main changes brought about by the new CO’s definition of "responsible person" are:
    • the definition of "responsible person" is wider so that if the officer or shadow director is a body corporate (which includes both Hong Kong and overseas companies), the officers and shadow directors of that body corporate are also responsible persons
    • the scope of the offence has been expanded to include the responsible person "participating" in the contravention (which includes omissions by officers and shadow directors, and extends the liability to those responsible persons who assist others in committing offences)
    • the current Companies Ordinance defines "officers in default" as those who "knowingly and wilfully" authorise or permit the default or contravention of the relevant provision. The new CO removes the mental element of "knowingly and wilfully" so that reckless acts and omissions by officers, as well as intentional contraventions, failures and wilful blindness will be caught by the regime. However, the intention behind the drafting of the new CO provisions is that mere acts of negligence will not be caught by the definition of "responsible person"

IMPLICATIONS FOR PRACTICE

  • with the lowering of the required mental element to be a responsible person under the new CO, the Companies Registry will likely issue more prosecution actions in the future against directors, managers and company secretaries for procedural and regulatory infringements of the new CO

POTENTIAL OFFENCES RESPONSIBLE PERSONS SHOULD BE AWARE OF

  • if the company is in breach of the following provisions, the company and every responsible person of the company commit an offence (exposing the responsible persons to significant fines and custodial sentences):
    • general prohibition against reducing the share capital of the company
    • general prohibition against the company acquiring its own shares
    • general prohibition of financial assistance by the company or its subsidiaries for the purchase of its own shares
    • requirement to circulate a statement of circumstances to every shareholder of the company should an auditor resign from office
    • requirement to circulate reporting documents for the financial year to every shareholder of the company
    • requirements in relation to financial statements

Contacts

Peter Lake (partner), Lisa Chung (partner)


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