LegCo Paper No. CB(1) 202/96-97
Ref : CB1/BC/35/95/2

>Bills Committee on Companies (Amendment) Bill 1996

Minutes of Meeting held on Tuesday, 8 October 1996 at 8:30 am in Conference Room B of the Legislative Council Building

Members present :
    Hon Mrs Miriam LAU Kin-yee, OBE, JP (Chairman)
    Hon CHAN Kam-lam
    Hon Ambrose LAU Hon-chuen, JP
    Hon SIN Chung-kai
Members absent :
    Dr Hon HUANG Chen-ya, MBE
    Hon Eric LI Ka-cheung, OBE, JP
    Hon Paul CHENG Ming-fun
Clerk in attendance :
    Ms Estella CHAN
    Chief Assistant Secretary (1)4
Staff in attendance :
    Ms Kitty CHENG
    Assistant Legal Adviser 2
    Mr Daniel HUI
    Senior Assistant Secretary (1)7

I Discussion among members

1. The Chairman said that the purpose of the meeting was to have a discussion among members on the representations so far received and the Administration’s responses to them. Members agreed to proceed discussion on the basis of the Summary of Principal Representations and Responses on the Companies (Amendment) bill 1996 prepared by the Administration and circulated to members vide LegCo Paper No. CB(1) 42/96-97(01).

2. The Chairman requested the clerk to check whether the Summary of Principal Representations prepared by the Administration had included all the main points in the representations received.

(Post-meeting note: The LegCo Secretariat has checked the Summary of Principal Representations and confirm that the Summary has included all the main points relating to the issues of deregulation of forms and the abolition of the ultra vires doctrine expressed in the representations received up to the date of the meeting.)

Deregulation of Forms

3. Members noted that the main concern of the parties making the representations was that clauses 4 and 31 (which empowers the Registrar to specify forms for any purpose of the Ordinance) of the Bill would give too much discretion to the Registrar in requiring additional information.

4. Members agreed that in order to cater for the evolving need of the community the Registrar should be given discretionary power to revise the forms used. They noted the Administration’s response that the powers of the Registrar to specify forms were circumscribed by the purpose of the Ordinance and functions of the Registrar. However, the discretionary power given to the Registrar should have a limit and the question was where to draw the line.

5. Members found acceptable in principle the proposed amendment by the Hong Kong Association of Banks (HKAB) that the Registrar’s powers in specifying forms should be restricted to the format but not the substance of the form. However, members considered that limiting the Registrar’s power to revising the format was too restrictive because revising the format would only amount to revising the layout of the forms.

6. To strike a balance between allowing the Registrar to have discretionary power to revise forms on the one hand and having adequate checks on the Registrar’s power on the other, members agreed that the Registrar’s power to revise forms should be restricted to the form but not the substance of the forms. Form but not the substance was regarded to provide a wider scope than format but not the substance. Moreover, there were established legal cases in differentiating between form and substance. Members agreed to put forward this proposal to the Administration for consideration.Admin

Abolition of the Ultra Vires Doctrine

Section 5A

7. Members noted comments of the Hong Kong Society of Accountants (HKSA) which highlighted the difficulties in equating a legal entity with a living individual. The HKSA also queried the need to grant rights and privileges to companies. However, having regard to the Administration’s clarification that similar legislation in Canada and New Zealand adopted the same formulation, i.e. granting rights and privileges to companies, and had not given rise to any difficulties in those jurisdictions, members did not dispute section 5A.

Section 5B

8. The Chairman drew Members’ attention to a proposed Committee Stage Amendment (CSA) by the Administration on S.5B(1)(a), as follows:-

Where the memorandum of a company states its objects, it shall not carry on any business or do any other act that it is restricted by the memorandum from carrying out or doing or not authorized by the memorandum to carry out or do.

The Chairman said that she was still concerned about the use of a double negative in the proposed CSA. Companies, in order to play safe, would continue to try to list out an exhaustive list of objects in the objects clause in order not to be caught by the provision not authorized by its memorandum to carry out.

9. Members expressed concern that the current drafting of the proposed CSA (see para 8 above) was ambiguous and subject to interpretation. One way of interpretation would be that if there was no objects clause in the memorandum of a company, there was no restriction on the legal capacity of the company. Another way of interpretation would be if there was no objects clause, the company would be caught by S.5B(1)(a) (not to carry on business which it is not authorized by its memorandum to carry on) because there was no specific authorization for the company to carry on any business.

10. Members expressed that the proposed abolition of the ultra vires doctrine had a very wide ranging effect on Hong Kong because it would affect both the existing companies and companies to be incorporated after enactment of the bill. It would affect commercial companies as well as not-for-profit organizations. The needs of different types of organization under different scenarios should be given good care under the proposed legislation.

11. Members agreed that the proposal by the Law Society (that section 5B(1) be revised to make it clear that where the memorandum of a company states it objects, it shall carry on only those business and do only those acts that are authorised by the memorandum) could address the concerns raised by interested parties as follows:

- Firstly, if companies set up after the passage of the Bill as amended did not state its objects, then the restrictions under section 5B(1) would not be applicable.

- Secondly, existing companies, which invariably would have had stated its objects in its memorandum, could still take advantage of the suggested provision if it changed its memorandum by stating at the end of its objects clause something to the effect of what was being proposed in section 5A(1), e.g. and to carry all business and shall have the capacity and the rights, powers and privileges of a natural person.

- Thirdly, if it was necessary to state some restrictions on a company, such as for the case of not-for-profit organization, then its memorandum should contain an objects clause with wordings like, and to carry all business and shall have the capacity and the rights, powers and privileges of a natural person, except so far as the following power should not be exercised......

Members agreed to put forward the above proposals to the Administration for consideration.Admin

12. ALA2 noted that the extract of the relevant legislation from Canada provided by the Administration was the Business Corporation Act and it was not apparent from those legislation extracted from Australia and New Zealand that not-for-profit organisations were also covered. Members agreed that the Administration should be requested to provide information on the following:Admin
  1. How did the legislations of these countries deal with the provision for not-for-profit organisations? and
  2. Whether in these countries, the not-for-profit organisations were covered by separate legislation?

Section 5C

13. Members noted the legal note prepared by the Administration on the difference between actual knowledge and actual notice. However the basic question as regards whether a contract between a company and a person having actual knowledge of breach of section 5B(1) was void or voidable remained unanswered. The Administration’s response that a contract under such circumstances would be vulnerable to challenge was ambiguous.

14. Members agreed that the Administration should be asked to clarify whether a contract between a company and a person having actual knowledge of the breach of section 5B(1) was void or voidable. If the contract was voidable, then by whom could it be avoided? If the transaction was void, then who should be liable for loss, the directors, shareholders or the third parties?

15. Members pointed out that the operational experience of other Commonwealth countries which had abolished the ultra vires doctrine should be useful input for Hong Kong. Members agreed that the Administration should be asked to prepare a summary table showing the approaches of other Commonwealth countries in dealing with abolition of the ultra vires doctrine, and precedent cases and judicial interpretation of legal cases in this aspect built up so far.Admin

II Date of next meeting

16. Members agreed to leave open the date of next meeting pending the receipt of further information/clarification from the Administration which should preferably be available in three weeks. Members agreed that the next meeting should also be a meeting for discussion amongst members.

17. The meeting ended at 10:35 am.
Legislative Council Secretariat
28 October 1996

Last Updated on 10 December 1998