Four years on from its implementation, amendments are about to be made to Hong Kong’s Companies Ordinance aimed at reducing compliance costs for companies, in particular small and medium-sized enterprises, and clarifying various procedural and technical requirements in the law. The amendments expand the scope of companies eligible for simplified accounting and align the legislation with the latest accounting standards. The revisions also clarify the policy intent behind certain provisions in the law where experience over the past four years has revealed ambiguities and inconsistencies. Most of the amendments will come into effect on 1 February 2019.

The Companies Registry has set up a thematic section on its website which provides a detailed explanation of the amendments. The changes provide welcome clarifications on the Companies Ordinance and ease the administrative burden in some areas which will aid compliance. 

Highlights of the key amendments

Set out below is a summary of the key changes to be introduced:

  • The scope of companies that will be able to take advantage of simplified accounting under the reporting exemption will be expanded to cover two additional types of corporate groups. These groups comprise mixed groups and groups with non-Hong Kong subsidiaries, where both the holding company and all of the subsidiaries meet the relevant size criteria. In addition, as an administrative change, where a group of eligible private companies wishes to adopt simplified reporting, only a resolution of the members of the holding company will be required rather than approval of each group company as currently.

  • Accounting-related provisions will be amended to update the law in line with current accounting standards and remove existing inconsistencies. For instance, the definitions of holding company and parent undertaking are being conformed and a definition of “control” is being adopted for the purposes of determining whether an entity is a subsidiary of a parent undertaking.

  • A clarification is being made to confirm that court-free horizontal amalgamation extends to subsidiaries of a holding company which is incorporated outside Hong Kong provided that the merging companies are Hong Kong companies. This is an important clarification to ensure the amalgamation procedures can be used by groups where the parent company is not incorporated in Hong Kong.

  • Where a variation of class rights is approved by all members of the class, the amendments provide that such a variation will take effect immediately or on the date specified in the resolution. This resolves a glitch in the current Companies Ordinance which provides that the variation can only take effect after a shareholder objection period has expired (which is not relevant to variations by unanimous approval).

  • The regime for displaying the name and disclosing the liability status of companies will be extended to non-Hong Kong companies to align the obligations with those for local companies. These changes will only be implemented at a later date. The regime for companies registered with both an English and Chinese name is also clarified requiring both names to be stated in the articles, but the company seal and display name can show the name in only one language.

  • The penalty for making a misleading, false or deceptive statement to an auditor in respect of revised financial statements is to be aligned with the penalty relevant to the original financial statements.

  • There are also a number of minor streamlining and clarification amendments including (among others):

    • stating expressly that a company’s articles can be in electronic form;

    • where a company changes its name, it will be exempt from the general registration requirements for altering its articles given the separate registration regime on a change of name;

    • clarifying that the statement of capital should be completed to reflect the position immediately after the relevant change in share capital necessitating the filing. Further, there is no need to give any particulars of class rights in a statement of capital unless a company’s share capital is divided into different class rights;

    • clarifying that the change of registered office notification (or change in principal place of business for a non-Hong Kong company) will suffice and a separate filing is not needed to record a corresponding change in the place where copies of instruments creating charges are kept;

    • permitting a holding company to disclose on its website or as a list available for public inspection at its registered office details of the directors of its subsidiary undertaking as an alternative to including the information in its directors’ report;

    • providing an option for a holding company which is also a wholly owned subsidiary to prepare consolidated financial statements; and

    • clarifying record-keeping and administrative requirements relating to records of directors’ resolutions and general meetings.

Implementation timetable

The amendments will mostly come into effect on 1 February 2019. Two amendments, which relate to the disclosure requirements on the name and liability status for non-Hong Kong companies and the related offences for breaches, will be implemented at a later date.