Q: Can a private company limited by shares and incorporated under the Companies Ordinance (Cap 622) appoint any corporate directors if it belongs to a group of companies, of which a member company incorporated overseas is listed on the Hong Kong stock exchange?
A: Under Section 457 of the Companies Ordinance, every private company (other than a private company which is a member of a group of companies, of which a listed company is a member) is required to have at least one natural person as director. This provision has been made on the basis that the accountability and transparency of directors can be strengthened as the interposing of a corporate director between individuals and the subject company can mean that the individuals can escape personal responsibility for compliance with the directors’ legal obligations. There have also been concerns that corporate directorships might be abused to facilitate money laundering as the identity of the individuals controlling the company can be concealed.
According to Section 458 of the Companies Ordinance, the Registrar of Companies may direct a company to appoint a natural person as director in compliance with the new requirement. If it fails to do so within the time period specified by the Registrar, the company and every ‘responsible person’ (this includes a director, manager and company secretary) will commit an offence and each of them is liable to a fine of HK$100,000 and a further fine of HK$2,000 for each day the offence continues. If the responsible person is a corporation, the liability would extend to its officers.
Relevant provisions of the Companies Ordinance
In addition to the above, Section 456(2) of the Companies Ordinance provides that:
- a public company
- a private company that is a member of a group ofcompanies, of which a listed company is a member, and
- a company limited by guaranteecannot appoint a body corporate as a director of the company.
Hence, to ascertain whether this restriction applies to any member of a group of companies, of which a member company incorporated overseas is listed on the Hong Kong stock exchange (overseas company), which is incorporated in Hong Kong as a private company, it is significant to assess whether the overseas company is a ‘listed company’ for the purpose of the Companies Ordinance.
A ‘listed company’ is defined under Section 2(1) of the Companies Ordinance as ‘a company that has any of its shares listed on a recognised stock exchange’. The terms stated below are also defined by the same section of the Companies Ordinance as follows:
(1.) A ‘body corporate’ is defined to:
(a.) include (i) a company; and (ii) a company incorporated outside Hong Kong; and (b.) exclude a corporate sole.
(2.) A ‘company’ is defined as:
(a.) a company formed and registered under the Companies Ordinance; or (b.) an existing company (that is, a company formed and registered under the former Companies Ordinance (Cap 32) as in force prior to the commencement date of the new Companies Ordinance).
(3.) A ‘recognised stock market’ has the meaning given by Section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap 571) (SFO), which means a stock market operated by a company recognised as an exchange company by the Securities and Futures Commission [of Hong Kong] according to Section 19(2) of the SFO. The Hong Kong stock exchange is considered as a recognised stock exchange under Section 19(1)(a)(i) of the SFO.
Although there is a separate definition of ‘company’ which includes a non-Hong Kong company in some parts of the Companies Ordinance, no identical or similar definition can
be found in Part 10 of the Companies Ordinance (in which Section 456 is located). It may be inferred that the definition of ‘company’ in Section 2(1) of the Companies Ordinance can be applied to the definition of ‘listed company’.
Analysis
The overseas company is a company incorporated outside Hong Kong and its issued shares are presently listed and traded on the Hong Kong stock exchange, whether the Main Board or the Growth Enterprise Market.
To be listed on the Hong Kong stock exchange, the overseas company with a principal place of business in Hong Kong must be registered as a non-Hong Kong company under Part 16 of the Companies Ordinance (or Part XI of the former Companies Ordinance). Therefore, it is a company not formed but registered under the Companies Ordinance.
Under Section 2(1) of the Companies Ordinance, a company must be both formed and registered under the Companies Ordinance. Since the overseas company was incorporated outside Hong Kong, it is not formed under the Companies Ordinance (or the former Companies Ordinance). The overseas company is only a company registered under the Companies Ordinance as a non-Hong Kong company. Therefore, it is not a ‘company’ within the meaning of Section 2(1) of the Companies Ordinance.
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A ‘listed company’ should not be construed to include a body corporate that has any of its shares listed on a recognised stock exchange as the term ‘body corporate’ has been used in a number of other places in the Companies Ordinance in order to include companies incorporated outside Hong Kong.
If it had been intended to catch non-Hong Kong incorporated listed companies by the Companies Ordinance, the legislation would have explicitly used the phrase ‘formed or registered under the Companies Ordinance’ in the definition for ‘company’ under Section 2(1) of the Companies Ordinance or defined the term ‘listed company’ to mean ‘a company or a body corporate that has any of its shares listed on a recognised stock exchange’.
Conclusion
From the analysis above made, it is reasonable and logical to assert that the overseas company is not regarded as a ‘listed company’ for the purposes of the Companies Ordinance. While a private company which is a member in a group with an overseas incorporated company listed in Hong Kong must have at least one natural person as a director, such a private company can have corporate director(s).
Seaman Kwok, Head of Corporate Secretarial Boardroom Corporate Services (HK) Ltd, Director of Share Registry, Boardroom Share Registrars (HK) Ltd, seaman.kwok@boardroomlimited.com, www.boardroomlimited.com
