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Financial Services Alert - August 2017
Submitted by // K Bowers, Partner / Solicitor Advocate
30 August 2017


BIG CHANGE IN HONG KONG'S CORPORATE REGULATORY REGIME

Companies (Amendment) Bill 2017 - Significant Control Register

The Hong Kong government has recently published the Companies (Amendment) Bill 2017 ("Bill") under which Hong Kong companies will be required to keep and maintain a register of significant controllers ("SCR"). The Bill is part of an effort by the government to strengthen Hong Kong's regulatory regime for combating money laundering and terrorist financing, and to bring Hong Kong more into line with international standards.

Register of Significant Controllers

Under the current proposals, an applicable company will be required to keep and maintain a register of people who have significant control over that company ("Significant Controllers"). The SCR must contain the prescribed content and be kept at the registered office of the applicable company, or at a prescribed place.

Scope of Application

The requirement to keep and maintain a SCR will only apply to a company as defined under the Bill ("Applicable Company"), which includes all Hong Kong companies, but does not include listed companies. Listed companies are not required to keep a SCR as the Securities and Futures Ordinance (Cap 571) already requires listed companies to keep a register of interests in shares.

The other notable exception to the new requirement is that a non-Hong Kong company will not be required to maintain a SCR, even if the company is registered (not incorporated) in Hong Kong.

In addition to the above exceptions, the Financial Secretary will also have the power to make further exceptions.

Definition of Significant Control

Both a natural person and a legal entity will be required to be registered in the SCR if they have significant control over the applicable company. A person or legal entity has significant control over an applicable company if the person or legal entity meets one or more of the following requirements:-

  • holding, directly or indirectly, more than 25% of: either the issued shares in that company if it has share capital; or the right to share in the capital or profits of that company if it does not have share capital;
  • holding, directly or indirectly, more than 25% of the voting rights in that company;
  • holding, directly or indirectly, the right to appoint or remove a majority of the board of directors of that company;
  • having the right to exercise, or actually exercises, significant influence or control over that company; or
  • having the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm, not being a legal person under the relevant governing law, whose trustee(s) or member(s) meet(s) one or more of the requirements specified above.
Under the proposals, only a "registrable person" is required to be recorded in the SCR.  Under the Bill, a natural person who has significant control but holds such interest though a listed company will not be a registrable person.  In addition, only a legal entity immediately above an applicable company in the chain of ownership is required to be entered into the SCR.

Duties and obligations of applicable companies
 
An applicable company has a number of duties under the Bill in relation to the SCR.  In addition to the duty to keep a SCR, an applicable company also has the duty to:-
 
  • carry out investigations and obtain information about its Significant Controllers;
  • keep information on the SCR up to date, including recording any registrable change. A registrable change occurs where a person ceases to be a significant controller or any other change which results in any particulars in the SCR being incorrect or incomplete; and 
  • notify the Registrar of Companies of the place at which the SCR is kept and any change in the place at which the register is kept, subject to certain exceptions.

Under the Bill, an applicable company is also required to give notice to a relevant person ("Notice") if the company knows, or has reasonable cause to believe that:-

  • the person is a Significant Controller;
  • the person knows the identity of another person who is Significant Controller; or
  • there is a registrable change with respect to that person, the details of which are required to be contained in the SCR.
A person who has received Notice must confirm or provide particulars relating to the registrable person or registrable legal entity.  Note that it is the company which has the duty and obligation to identify and give Notice.  The Bill does not contain any requirements that a Significant Controller must give notice to the company that it holds a controlling interest.
 
Inspection of the SCR
 
Whilst every applicable company will be required to keep a SCR, it is not a requirement for the SCR to be made open for inspection by the public. Under the Bill, only a Significant Controller whose name is entered in the SCR or a law enforcement officer have the right to inspect and obtain a copy of the SCR. A law enforcement officer is defined in the Bill, and includes an officer of the Companies Registry, Customs and Excise Department, Hong Kong Monetary Authority, Hong Kong Police Force, Securities and Futures Commission, and other government or statutory bodies. 
 
If a company fails to comply with a request by a law enforcement officer to inspect or make a copy of the SCR, the officer may apply for an order from the Court to allow inspection. 
 
Comment
 
The new requirement to keep and maintain a SCR is a very significant departure from the existing corporate transparency regime in Hong Kong. At present, a Hong Kong company is only required to disclose information about its members, directors and its company secretary. The new proposals will require applicable companies to take a far more active role in monitoring and identifying the beneficial ownership of the company shares.  
 
At this stage, the key issues businesses in Hong Kong should be aware of are the scope of application of the Bill and the relevant exemptions. Under the current proposals, non-Hong Kong companies and listed companies are exempt from keeping a SCR. Further, any interest held by a natural person through a listed company and any interest held by a legal entity which is not directly above the company in the chain of ownership is not required to be entered into the SCR.
 
Pending debate and approval by the Legislative Council, the Bill is intended to come into operation on 1 March 2018. As the law in this area is still developing, companies should keep a close eye on development in this area and begin preparing for compliance with the new statutory requirements.
 
 
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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.