The Genesis of Hong Kong's Company Law Fuss
The heated debate of late about the Hong Kong government's attempt to rewrite the territory's Companies Ordinance seemed to come from out of nowhere. It was spurred largely by the public's sudden realization that the new Companies Bill had already passed in the Legislative Council without much media attention.
Learning of the bill's subsequent impact came as a rude awakening to many who saw a conspiracy afoot, with much of the media attention and public debate focused on the withholding of portions of the identification numbers and details of the residential addresses of company directors in Hong Kong from public company registration records.
This has raised concerns that Hong Kong's vaunted transparency in corporate governance is under assault. There has been considerable outcry and growing apprehension over the government possibly acting on behalf of China in making the changes.
The impact of the changes, however, runs much deeper than just details about directors. As we have discussed in a previous column, the damage extends to the pillars of the Hong Kong economy and its role as a global financial center.
How did this happen? It merits looking at the roots of this situation to put the fuss into perspective. Indeed the process has been ongoing for years, with public consultations held and the bill slowly winding its way through the Hong Kong system. The unanswered question is why it took so long for anyone to notice the ramifications of the new bill.
What follows below are summaries of related materials found in the public domain, particularly on the Companies Ordinance Rewrite Web site.
Timeline for a Rewrite:
1984: Last amendment of the Companies Ordinance.
1984: The Standing Committee on Companies Law Reform (SCCLR) was formed to | advise the Financial Secretary on necessary amendments to the ordinance on a | continuous basis.
1997: Review of the Companies Ordinance recommended only general principles for reform.
2000: Review of the Companies Ordinance accepted recommendations to be forwarded as amendments.
2003: Companies (Amendment) Ordinance 2003.
2004: Companies (Amendment) Ordinance 2004.
2006: Government launched a proposal to rewrite the Companies Ordinance and established four advisory groups to advise on specific issues, including Advisory Group 3 to focus on directors and officers.
2007-2008: Public consultations held on issues related to rewriting the ordinance.
December 2009 to March 2010: First phase consultations held on the draft clauses of the new Companies Bill.
Aug. 27, 2010: Conclusions on the first phase consultations issued.
May-August 2010: Second phase consultations held on the draft clauses of the Companies| Bill.
25 Oct 25, 2010: Second phase consultation conclusions issued.
Jan. 14, 2011: Companies Bill gazetted.
Jan. 26, 2011: Companies Bill introduced in the Legislative Council.
July 12, 2012: Companies Bill passed (Part 2-Division 7-Subdivision 1: General Protection and Subdivision 2: Protection of Residential Address and Identification Number Contained in Certain Documents).
The Hong Kong government, via the Financial Services and Treasury Bureau, in mid-2006 launched an ambitious exercise to rewrite the Companies Ordinance, one of the longest and most complex pieces of legislation in Hong Kong, which was inherited from the days of British colonial rule and was last amended in 1984 in line with the UK Companies Act of 1948 and 1976.
Up until the decision to rewrite the ordinance, it had only been amended on a piecemeal basis and given the pace of financial markets reforms witnessed worldwide, particularly in the areas of corporate governance over the past decade, the company laws in Hong Kong were perceived as being outdated.
Henceforth, after several amendment bills were filed in 2003 and 2004, the latest attempt was for "upgrading and modernizing" the ordinance to make it "more user-friendly and facilitate the conduct of business to enhance Hong Kong's competitiveness and attractiveness as a major international business and financial center," according to the Companies Ordinance Rewrite homepage.
The Standing Committee on Company Law Reforms (SCCLR), established in 1984 to advise the Financial Secretary on necessary amendments to the ordinance on a continuous basis, took in recommendations in 2008 from four advisory groups formed to advise on specific topics of the rewrite, including:
The guiding principles for the rewrite;
Incorporation of companies;
Share capital and debentures;
Directors and officers;
Company administration and procedures;
Charges;
Arrangements, reconstructions and takeovers;
Inspection and investigation of companies;
Functions of the Registrar of Companies; and
Offenses and punishment.
After initial public consultations in 2007-2008, two phrases of consultation on draft clauses followed in 2009-2010 that examined several issues, including the currently publicly disputed matter of whether the residential address of company directors and identification numbers of directors and company secretaries should continue to be disclosed on the public register.
The consultation papers were circulated to various stakeholders, including professional bodies, businesses, market practitioners, chambers of commerce, regulators and academics.
When the first phase of consultation on the draft Companies Bill ended on March 16, 2010, a total of 164 submissions were received (104 from companies, 30 from individuals and 30 from business and professional organizations). There were 68 submissions on the matter of listing the residential address and identification numbers of directors and company secretaries.
On the residential address issue, the majority, 46 submissions, was against the disclosure of residential addresses on the grounds of privacy and risk of abuse and suggested the service addresses of directors would suffice.
The 20 respondents who opted for maintaining the status quo argued that cases of abuse were rare in Hong Kong and stressed the need for law enforcement and creditors to access directors' residential addresses.
On the matter of identification numbers, the majority of submissions, 43, suggested that certain digits should be masked on privacy grounds, while 10 of the submissions said such information provide unique and effective identification information and that disclosure has not created any abuses.
The consultation conclusions on these two matters were:
"Under the proposed approach, every director will be given the option of providing a service address for the public register of the CR while the residential address may be kept on the confidential record to which access will be restricted to public authorities, specified regulators, liquidators and provisional liquidators. Any other person can only access the residential address pursuant to a court order or by inspection of the register of directors kept by the company."
"In view of the overwhelming support for better protection of personal data, we will mask certain digits of the identification numbers in new records of individuals on the public register… Like directors' residential addresses, access to the full identification numbers of individuals will be limited to public authorities, specified regulators, liquidators and provisional liquidators, and other persons pursuant to a court order."
The Companies Bill was subsequently gazetted on Jan. 14, 2011, introduced to the Legislative Council on Jan. 26, 2011 and eventually passed on July 12, 2012.
Vanson Soo runs an independent business intelligence and commercial investigations practice specialized in the Greater China region. Email: soovans@gmail.com
With research contribution from James Chan from the JMSC journalism program at the University of Hong Kong