The new Companies Ordinance
This month we launch a new column dedicated to answering your questions on key regulatory and governance issues. In this first Q&A in the series, Wendy Yung, Executive Director and Company Secretary of Hysan Development Company, and a panellist in session three of the Corporate Governance Conference 2014, answers questions raised by attendees at her seminar ‘The new Companies Ordinance: priorities for the next six months’.
Q: Does a company with a ‘bilingual’ name have to disclose both names under the new Companies Ordinance?
A: The Companies Registry clarified this matter in its circular on 24 July 2014 (www.cr.gov.hk/en/publications/docs/ ec13-2014-e.pdf). For the purposes of compliance in ensuring that a company is properly identified, in respect of a company registered by bilingual names, the Companies Registry considers that it is sufficient for the company to display or state either its English or its Chinese name in the manner described in the relevant new Companies Ordinance provisions. The provisions will also be complied with if a company with bilingual names displays or states both the English name and the Chinese name. The Companies Registry will enforce the provisions accordingly.’
Q: Does the new Companies Ordinance court-free procedure for the reduction of capital apply to listed companies?
A: Hong Kong-incorporated companies, whether listed or not, can use the new Companies Ordinance court-free procedure for the reduction of capital, but listed companies need to check whether the proposed reduction will have implications under the listing rules.
Q: What’s the difference between capital reduction and share buy-back out of capital?
A: ‘Capital reduction’ and ‘share buy- back out of capital’ may serve different purposes. One important difference is that, for the reduction of capital, the amount does not have to be returned to shareholders immediately. It can be treated as ‘realised profit’ which can be distributed later. This enhances the ability to make distributions in the future.
Q: Regarding the court-free capital reduction: (i) after the capital has been reduced, does the number of shares remain unchanged as it only reduces the nominal value of the shares; and (ii) if the company has two classes of shares (say, HKD and USD) how should the reduction be allocated across these two classes – for example, can we just cancel the USD shares by the whole reduced amount?
A: Under a reduction of capital: (i) the number of shares can remain unchanged but the amount of share capital is reduced (the concept of ‘nominal value’ of the shares has been abolished under new Companies Ordinance in any event); and (ii) if the company has more than one class of shares, you have to check whether they have the same rights. If so, you may not return capital to one class of shares only.
Q: Regarding horizontal amalgamations, must the parent company of the amalgamating subsidiaries be a Hong Kong- incorporated company?
A: A strict reading of new Companies Ordinance suggests that the parent company has to be a Hong Kong company – Section 681 refers to the wholly-owned subsidiaries of a ‘company’ amalgamating, and a ‘company’ is, in turn, defined as a company formed and registered under the new Companies Ordinance or an existing company. However, if the parent company is nota Hong Kong company, there is an option to do a simple share re-structuring (for example a share swap) with a Hong Kong company.
Q: To redeem shares with the proceeds of new shares, must the amount of the new proceeds be exactly the same as the redemption amount?
A: If the redemption of shares is financed solely by the issuance of new shares, the proceeds must be sufficient to finance this but it does not have to be ‘exactly the same’. For example, you can have a buffer for expenses.
Q: Does the requirement for a business review under the new Companies Ordinance apply to non- Hong Kong companies that are listed in Hong Kong?
A: No. The relevant new Companies Ordinance provisions only apply to Hong Kong-incorporated companies. However, listed companies have to comply with Appendix 16 of the listing rules and there are requirements regarding disclosures in the ‘management’s discussion and analysis’ sections of corporate reports that are very similar.
Q: The new Companies Ordinance allows companies to dispense with an AGM. If the articles of the company contain provisions about convening an AGM, is the company still required to convene AGM unless it amends the articles to remove such provisions, or by passing a shareholders’ resolution to dispense with the AGM?
A: Yes. If the Articles provide for the convening of an AGM the company must comply with this unless the Articles are amended. Of course, the AGM can be conducted by way of written resolutions. Moreover, a simple way to amend the Articles is to add the qualifying words ‘subject to law’. This allows flexibility for future changes in the law as well.
Q: The new Companies Ordinance requires certain rules to be followed for the circulation and passing of shareholders’ written resolutions. Do these rules apply to resolutions proposed and passed by a sole member?
A: If there is only one shareholder it is not necessary to circulate written resolutions as there are no other shareholders involved.
Q: For an existing company that has a maximum share capital condition in its Memorandum, does the stated maximum capital (expressed as share capital divided into a number of shares of a nominal value) automatically become the maximum share capital under new Companies Ordinance?
A: No. Section 98(4)(b) of the new Companies Ordinance expressly refers to such a situation. If a condition in the Memorandum refers to the amount of capital, or the division of the share capital into shares of a nominal value, that condition is deemed to be deleted. If you still want to have a maximum share capital (which is optional), you need to pass a resolution to insert a new provision in the Articles.
Wendy Yung is a panellist in session three of the Corporate Governance Conference 2014. Her biography is available in the Conference Guide section of this month’s journal (see page 32). In the next Q&A in this series, to be published in next month’s CSj, the SFC answers questions relating to Hong Kong’s inside information regime