LC Paper No. LS 121/98-99

Object of the Bill

To update and streamline the operation of the Companies Ordinance (Cap. 32) (the Ordinance), this Bill:

1. provides merger relief to companies upon their mergers and reconstructions;
   
   
2. introduces a new procedure for deregistering solvent, defunct private companies;
   
   
3. removes the requirement to record and report the nationality of directors and secretaries; and
   
   
4. introduces some miscellaneous amendments.

LegCo Brief Reference

2. LegCo Brief (File Ref.: C2/1/11C(99)XII) issued by the Financial Services Bureau dated 15 February 1999.

Date of First Reading

3. 10 March 1999.

Comments

Merger Relief

4. One of the major amendments introduced by this Bill is to provide the benefits of merger relief to companies that arise in certain acquisitions, mergers and reconstructions. Any share premiums arising need not be credited to the share premium account . The proposed new sections 48C - 48F are based on sections 130 to 134 of the United Kingdom Companies Act 1985. The effect of the new sections 48C - 48F will enable the entities to be accounted for as though they had always been combined. The pre-acquisition profits or reserves of the acquired company will not be capitalised but will be available to the group for distribution.

Nationality of company directors and secretaries

5. Clauses 11 and 28 amend sections 158 and 333 respectively. Locally incorporated companies and oversea companies are no longer required to record and report the nationalities of their directors and secretaries to the Registrar of Companies.

Deregistration of solvent, defunct private companies

6. Clause 22 adds new sections 291AA to 291AB (which are modelled on section 601AA - AH of the Australian Corporations Law) to provide for a new procedure for deregistration of solvent, defunct private companies. The Administration proposes to repeal section 290A and introduces a new deregistration procedure. A private company can no longer apply to the Registrar to strike off the company for failure to forward annual returns for 2 consecutive years. A solvent private company (except an authorised institution as defined in the Banking Ordinance (Cap. 155), authorised insurer, registered dealer and investment adviser, licensed leveraged foreign exchange trader and approved trustee) may now apply to the Registrar for deregistration at a fee of $420 if all members of the company agree to do so. This will be a much simpler procedure than formally winding up a company.

7. New section 291AB also provides for the circumstances in which a deregistered company may be reinstated. Criminal offences will be imposed on a person who makes false statement in connection with application for deregistration and on former director for failing to keep books and papers of dissolved company for not less than 5 years.

Miscellaneous amendments

8. The other clauses are miscellaneous amendments and mostly technical in nature such as requiring a private company to file a copy of its auditor's notice of resignation to the Registrar (Clause 8) and streamlining some procedures on liquidation of a company (Clause 16). The only other clause that imposes criminal liability is clause 3 which requires a company and every officer of the company to deliver to the Registrar documents within 15 days after alteration to its articles. On failing to comply with this new section 13(3) and (4), the company shall be liable to a maximum fine of $ 10,000 and for continued default, for a daily fine of $300.

Public consultation

9. According to paragraph 28 of the LegCo brief, the major proposals in the Bill have been discussed and supported by the Standing Committee on Company Law Reform. The Hong Kong Society of Accountants has been heavily involved in formulating the proposals to permit merger relief.

Consultation with the LegCo Panel

10. The policy aspects of the Bill have not been referred to the Economic Services Panel for discussion.

Conclusion

11. The Legal Service Division is still scrutinizing the Bill. In view of the fact that company law is an important piece of law and that these amendments have not been discussed in the relevant Panel, Members may wish to decide to set up a Bills Committee to study the Bill in detail.


Prepared by

HO Ying-chu, Anita
Assistant Legal Adviser
Legislative Council Secretariat
8 March 1999