Kevin Wong (黃河)

-- China-Appointed Attesting Officer (中國委托公証人)

-- Hong Kong Solicitor

-- England & Wales Solicitor

-- Consultant of S.T. Cheng & Co., Solicitors

HK Mobile : 66500997

PRC Mobile : 13600469678

Email : con@stcheng.com / megashark2012@gmail.com

HIGHLIGHTS OF MAJOR CHANGES

IN NEW COMPANIES ORDINANCE

New Companies Ordinance

New Companies Ordinance

Chapter 622

Passed on 12 July 2012

Come into operation on

3 March 2014

921 Sections

367 Sections Current CO

Vs

11 Schedules

24 Schedules

Vs

21 Parts 12 Regulations

After the Change

Existing CO (Cap.32)

Provisions on “existing” companies e.g. Share Capital, Directors, Company Secretaries, Meetings

Insolvency provisions

Prospectus provisions

Companies Ordinance

(Cap 622)

Companies (Winding Up and

Miscellaneous Provisions)

Ordinance (Cap 32)

To Enhance Corporate Governance

To Ensure Better Regulation

To Facilitate Business

To Modernize the Law

vs

A . l imited company : (i) l imited by shares (S.8)

(i i) l imited by guarantee (S.9)

A company limited by guarantee must not have capital.

B. unlimited company (S.10)

Unlimited company must have share capital.

Types of Companies

(New CO)

Limited Liability Unlimited Liability

vs

A . Private company (S.11, New CO) :

(i) restrictions in connection with private company under

the Existing CO (S.29) retained;

(i i) it is not a company limited by guarantee.

B. Public company (S.12) (defined in New CO)

(i) it is not a private company; and

(i i) it is not a company limited by guarantee.

Types of Companies

(New CO)

Private Company Public Company

COMPANY FORMATION AND RELATED

MATTERS AND REGISTRATION OF COMPANY

Private company limited by shares

Public company limited by shares

Private unlimited companies with a

share capital

Public unlimited companies with a

share capital

Companies limited by

guarantee without a share capital

5 Types of companies formed in New CO

(S.66) :

FORMATION OF COMPANY (S.67)

A.A is the sole constitution [ No more MA]

Conditions of M.A of an existing company will be regarded as provisions of the company’s articles

5 mandatory articles

3 sets of model articles

• Public company limited by shares

• Private company limited by shares

• Companies limited by guarantee

Abolition of

Conditions of MA

Authorized Share Capital

Par Value of Share

PAR VALUE

Accounting for share issues under par value (“PV”) and no -par

value (“NPV”) mechanisms:

Issue 1 share at an issue price of $100

(a) Under a PV share mechanism where the PV of the share is $10

Dr CASH 100

Cr Share capital 10

Share

premium

90

(b) Under a NPV share mechanism

Dr CASH 100

Cr Share capital 100

ABOLITION OF PAR VALUE

Existing CO : shares issued by a Hong Kong company with a share capital must have a par value.

New CO –

(a) S.135(1) : shares in a company have no nominal value.

(b) S.135(2) : this applies to shares issued before, on or after the effective date of the New CO.

(c) S.37 of Schedule 11 : any amount in a company’s existing share premium account (and also capital redemption reserve) will become part of the company’s share capital.

(d) S.170 : alteration of capital : increase of capital, capitalization of profit, issue of bonus shares, consolidation or subdivision of shares are feasible.

(e) S.172 : redenomination of currency of its share capital.

Five mandatory articles

Company Name

S.81

Company’s objects

S.82

mandatory for companies licensed

to dispense with “Limited” in their

name

Members Liabilities

S.83

Limited Unlimited

Liabilities or contributions of

members of limited company (S.84)

Capital and initial shareholdings

S.85

S.8 of schedule 2-

Statement of capital and initial

shareholdings

S. 8 Schedule 2- Statement of Capital

and Initial Shareholdings

Total number of share proposed to issue

Total amount of share capital to be subscribed

by the founder members

Total amount to be paid up and to remain unpaid on the total number of shares proposed to be issued on formation and similar information for each class of shares (if any)

S.117 : Transaction or act binds company despite l imitation in

articles etc.

“The power of the company’s directors to bind the company is to

be regarded as free of any l imitation under any relevant

document of the company.”

S.120 : No notice of any matter merely because it is disclosed in –

(a) the articles of a company kept by the Registrar; or

(b) a return or resolution kept by the Registrar.

LIMITATION OF DIRECTOR’S

POWER IN THE ARTICLES

Transactions in relation to Share

Capital

Modified and new provisions

Reduction of capital

Share redemptions

Buy-backs

Financial assistance to

acquire its own shares

Share Capital Reduction

The court free procedure can be summarized in the following time

frame

All the

directors

make a

solvency

statement

(S.216(1))

Within 15 days of

the date of the

solvency

statement, the

members must

pass a special

resolution i.e. at

least 75% of

those voting to

approve the

proposal

(S.216(2))

After the special

resolution, the

company must

publish a notice

of capital

reduction in

Gazette and the

newspapers

(S.218(1))

On the date of the publication of notice of

reduction or earlier, the company delivers to the

Registrar for registration the solvency statement

(S.218(5))

The company must allow a 5-week period

after the date of the special resolution for

members or creditors to raise objections

(S.220(1))

Assuming no

objections raised,

the company must

deliver, no earlier

than 5 weeks and

no later than 7

weeks after the

date of special

resolution, a return

(including a

statement of capital)

to the Registrar

stating reduction of

capital (S.224(1))

Reduction of

share capital

becomes

effective on

the return

registered by

the Registrar

(S.225(1))

Redemption / Buy -back of Shares

Existing CO:

- shares are to be repurchased/redeemed out of distributable

profits or the proceeds of a fresh issue of shares.

- only private companies are permitted to fund a buy -back by

payment out of capital based on a solvency statement made by

the directors, on which the auditors must report, as well as

publicizing the plan to allow time for creditors or members to

object (unless the court is involved).

New CO :

- S.257 : all companies may redeem/buy back its own shares out

of capital, provided the necessary procedures are followed.

- S.257(3) : Exception : a buy -back by a listed company of its own

shares from a recognized stock market or approved stock

exchange.

Redemption / Buy -back of Shares

S.259(1) : The statutory procedures are as follows :

- the solvency statement made by all directors,

- approval by special resolution passed by the members, within 15

days after the date of the solvency statement,

- payment out of capital to be made not earlier than 5 weeks and

no later than 7 weeks after the date of the special resolution,

- ( i) delivery to the Companies Registrar for registration of a

solvency statement,

- (i i) publication of a notice in the Gazette and newspaper,

- ( i i i) the 5-week period of allowing members or creditors to raise

objection,

- (iv) delivery to CR of a return of share redemption/buy -back

Financial Assistance for Acquisition of Own Shares

Existing CO:

- a company and its subsidiaries cannot give financial assistance directly or indirectly for the purpose of an acquisition of shares in the company.

New CO :

- The prohibition is retained.

- S.275(3) : No prohibition of financial assistance given for the purpose of an acquisition of shares in its holding company which is incorporated outside Hong Kong.

- S.276 : A financial assistance given in contravention of the New CO, the validity of such financial assistance and its related contracts remain effective but the company and every responsible person of the company is liable to a fine of HK$150,000 and to imprisonment for 12 months (s. 275 (4)).

- S.283-285 : to allow all types of companies (l isted or unlisted) to provide financial assistance, subject to satisfaction of the solvency test and one of the three procedures.

(i) company sends to each

member a copy of the

solvency statement and a

notice

(ii) financial assistance given

not more than 12 months after

the date of the solvency

statement

(iii) assistance given not less

than 28 days after the passage

of the resolution (S.285(1)(e)(i))

Directors’ Resolution to

approve the assistance

(S.283(1)(a), 284(1)(a),

285(1)(a))

The board resolution must

set out the basis for the

decision to approve the

provision of financial

assistance

Director’s voting in favour

make a solvency statement

(S.283(1)(b), 284(1)(b),

285(1)(b))

1) financial assistance (including previous

financial assistance granted under this

procedure that has not been repaid) not

exceeding 5% of share capital and reserves of

the company as disclosed in the most recent

audited financial statements of the company

(S.283(1)(c)); or

2) financial assistance

approved by written resolution

of all members (S.284(1)(c)); or

3) financial assistance with the

approval of members by ordinary

resolution (S.285(1)(d))

(i)

&

(ii)

(ii)

(i) ,

(ii)

&

(iii)

Solvency Test

New CO:

- S.205 : A company satisfies a solvency test in relation to a transaction if :

- (a) immediately af ter the transaction there wil l be no ground on which the company could be found to be unable to pay its debts; and

- (b) either

- ( i ) i f it is intended to commence winding up within 12 months, the company wil l be able to pay its debts in full 12 months of the commencement of the winding up; or

- ( i i ) in any other case the company wil l be able to pay its debts as they become due during 12 months af ter transaction.

Solvency Statement

- S.206(1) : A solvency statement is a statement that each of the directors making it has formed the opinion that the company satisfies the solvency test in relation to the transaction.

- A solvency statement must be made and signed by :

- al l directors for buy -backs and reductions of capital, and

- signed by a majority of directors for financial assistance.

Auditors are no longer required to give any assurance in connection with this statement.

Seal Existing CO: every company must have a common seal but i t is si lent on

execution requirements.

New CO:

S.124 : Adoption and use of common seal (which must be a metall ic seal) wil l

become optional.

Execution Procedure

S.127(2) : A company may execute a document under its common seal by af fixing

its common seal in accordance with the provisions of i ts ar t icles of association;

S.127(5) : A document has ef fect as i f executed under the company’s common

seal i f signed in accordance with S.127(3) and expressed to be executed by the

company.

S.127(3) : A company may execute a document by signing the document by any

two directors or any director and the company secretary or ( in the case of a

single-director company) i ts sole director.

S.128(1) : A company may execute a document as a deed where :

- execution of the document must be in accordance with S.127 outl ined above;

- the document must be expressed to be executed by the company as a deed;

and

- the document must be del ivered as a deed.

Registration of Charges

( Part 8 New CO)

Changes to the list of registrable charges

Adding a charge on instalments due, but not

paid, on the issue price of shares

Adding charge on an aircraft or share in an aircraft

Charges on bank accounts or cash deposit and a ship owner’s lien on subfreights for amounts due under a charter are not charges on book debts and are not registrable.

Registration of Charges

Existing CO: There are uncer tainties and ambiguit ies with the provisions.

New CO: New provisions to el iminate the unclear and redundant items.

- Replacing the automatic acceleration of repayment obligation

Existing CO: i f a charge becomes void due to non -registered with CR within prescribed t ime l imit, the money secured by it would automatical ly become immediately payable;

New CO : S.337(6) – replaces the word “automatic” by “discretionary”, so that the lender can determine if the secured amount is to become immediately payable;

- Requiring to register a certified copy of the charge instrument that is allowed to be inspected by the public

Existing CO: only prescribed par ticulars of the charge is avai lable for public inspection, but not the charge instrument itself ;

New CO: both a cer t ified copy of the charge instrument ( i f any) and the prescribed par ticulars of the charge are registrable and available for public inspection;

Registration of Charges

- Shorten the fi l ing period to CR of a certified copy of the charge

instrument and the prescribed particulars from 5 weeks to 1 month

Exist ing CO: has to fi le to CR within 5 weeks;

New CO : shorten the fi l ing period to 1 month;

"month" (月 ) means calendar month

(S. 3 Interpretation and General Clauses Ordinance)

Directors and company

secretaries

Two major changes

A private company (Not related to a public company)

Must have at least one director

who is a natural person

Codification of the common law on the standard of

care of a director

DIRECTOR’S DUTY OF CARE, SKILL

AND DILIGENCE - CODIFICATION

New CO S.465 : a director’s statutory duty to exercise

reasonable care, skill and diligence:

(i) objective test, and

(ii) subjective test.

Reasonable care, skill and diligence means :

- one which would be exercised by a reasonably diligent person

with

DIRECTOR’S DUTY OF CARE, SKILL

AND DILIGENCE - CODIFICATION

Objective test :

“the general knowledge, skill and experience that may

reasonably be expected of a person carrying out the

functions carried out by the director;”

Subjective test :

“the general knowledge, skill and experience that the

director has”

S.465 (New CO) applies to a shadow director.

New indemnity provisions

Relieving offices from liability and provision of director’s liability insurance

New CO

S.468(3) : A Company’s indemnity for its directors or its associated company’s directors against such director’s liability for negligence, default, breach of

duty or breach of trust in relation to the Company or its associated company is void.

S.468(4): this section does not prevent a

company from taking out an insurance (for

the directors).

S.469 : the indemnity is a permitted indemnity provision if it provides for indemnity against liability incurred by a director to a 3rd party provided no indemnity against

directors’ liability to pay for penalty for regulatory non-compliance, to defend criminal or civil proceedings for which judgment is obtained against the director.

Existing CO

A Company’s indemnity against directors’ liability in the Company’s articles is void, unless in compliance with the requirements under S.165(2) i.e. for paying the costs incurred for defending proceedings (civil or criminal).

S.473

Ratification of conduct of directors involving negligence, default,

breach of duty or breach of trust in relation to the company

Can only be ratified by resolution of the

members of a company

Chart 24

Fair Dealing by Directors

Perceived to have a conflict of

interest situation

Extend the prohibition

on loans

directors to cover a wider category of

persons connected with a director

New exemptions

from the

prohibition

approval of members

s.496 s.486 -488

Fair Dealing by Directors

new exceptions

small loans

↓5%

called up

capital

net

assets

expenditure on

defending

proceedings etc

criminal penalties

Existing CO s.157J have

been abolished

But transaction is

voidable

or

Fair Dealing by Directors

prohibitions on payments

directors for loss of office

extended

to payments to

entities connected

with a director or

former director

payment by a

company to a

director of its

holding company

s.517

not exceeding

$100,000

small payments

new exception

Fair Dealing by Directors

to the current "contract” and “extent” to

the current “nature”

transaction arrangement

adds

s.536(1)

widens the ambit of disclosure of material interest (Existing CO s.162)

for public companies

includes

disclosure by a

director of any

material interest

entities

extended to

shadow

directors

procedures for

declaration of

interest to other

directors clarified

Company Administration and Procedure

resolutions

meetings

company records

the registered office

the annual return

Important change

the expansion of the single provision as to

written resolutions in the Existing CO s.116B

ss.548–561

who may

propose a

written

resolution?

company’s duty to

circulate written

resolutions

procedure for

signifying

agreement

period for agreeing

to a proposed

written resolution

The articles of the

company may provide

alternative procedures

Court may intervene if rights of

circulation are abused

Company Administration and Procedure

Notice of Meeting

Publication on website

s.573

Change in number of days

S.571

New Period of Notice

AGM 21 Days

14 days for limited co

7 days for unlimited co

Enhanced powers for members to require

the circulation of members’ resolution

and statements

s.580-583

s.615

Company Administration and Procedure

A company may hold a general meeting

At two or more places

Using any technology

Listen Speak Vote

Enable Members

New provisions with regard to

the right to demand a poll

Reduce threshold

10% Existing CO

s.114D

5%

New CO

s.591

Rights of

proxies

Clarifying

Removed current

requirement of one-

tenth of the paid up

capital

Existing CO s.111(6)

New CO

AGM

A company is not required to hold an AGM if it has only

one member

s.612 (2) (a)

AGM is dispensed with by unanimous members’ consent

s.612 (2) (b)

Miscellaneous

Offences

Relief to officers or auditors of a

company in proceedings for

misconduct and security for costs

New power for the Registrar of

Companies to compound specified

offences : Companies Registrar may offer

not to prosecute a person in breach

provided he/she/it pays and remedies

the breach within a specified period.

Thank you !