The primary purposes of the New CO were to increase the standard of corporate governance in Hong Kong, improve regulation of Hong Kong’s companies, facilitate the conducting of business activities, and modernise Hong Kong’s business laws.
Parties Affected by the Implementation of the New CO
The implementation of the New CO has had a significant impact on various areas of Hong Kong businesses such as directors, officers, shareholders, and the companies themselves. Several charitable institutions in Hong Kong were also impacted by the introduction of the New CO because they had been previously incorporated as companies which had been limited by guarantee.
Enforcement and Standard of care for directors
The New CO has changed several corporate governance requirements in Hong Kong. Most of these changes are related to the enforcement regime as well as the standard of care to which directors are to adhere. The new requirements are crucial for directors in passive roles or with less business experience.
For example, according to the stipulations specified in the original version of the Companies Ordinance, there were certain offences which, when committed, exposed companies and their directors as well as other key figures within the companies alike to liability. Only the officers who deliberately authorized the offence committed would be officially charged.
According to the New CO, any omissions, reckless acts, deliberate violations, failures, and deliberate oversights committed by anyone deemed to be responsible may result in liability. The New CO extends liability to officers involved in an offence, not just those who authorized the act.
Therefore, every Hong Kong company must be aware of the regulatory obligations according to the New CO because the new requirements also make it easier for errant officers to be reported.
The New CO includes measures to clarify and update Hong Kong’s corporate laws from a CLG perspective. The New CO has done much to streamline and modernize the corporate procedures which take place in Hong Kong. If the New CO conflicts with the company’s articles, the articles of association must be changed.
A Hong Kong company must obtain IRD approval and 75% member consent before making such a change. It is not always easy or even possible for both circumstances to materialize. Therefore, Hong Kong companies must ensure that they are compliant with the New CO to avoid having to change their articles of association.
Expansion of Business Interests
There are several other changes in the New CO which have significant impacts on company directors all over Hong Kong. Directors must now disclose to the board any expansion of business interests. Directors’ reports must include a business review unless the company is allowed to submit a simplified report.
Punishments imposed on errant directors are now more severe than they had previously been. Directors can be indemnified by company assets for liabilities unless specific exceptions or disclosures take precedence.
Companies can now buy director’s insurance for liabilities incurred due to default, negligence, breach of duty, or trust. Due to reduced indemnity under the New CO, Hong Kong companies are advised to purchase director’s insurance.
If you’re a business owner concerned about the new CO, contact our specialists at Paul Hype Page. We would be happy to assist you as you navigate your responsibilities in your professional capacity.
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