October 03 2000
The Companies (Amendment) Bill 2000 was drafted in response to recommendations by the Law Reform Commission (LRC) and the Standing Committee on Company Law Reform (SCCLR).
The LRC proposes to implement a statutory corporate rescue procedure together with provisions concerning insolvent trading that would cause certain persons in a company to be responsible for its debts. The SCCLR's recommendations include making the Companies Ordinance more 'user-friendly' by streamlining certain provisions, including filing requirements.
The basis of the LRC's proposal is to extend the Companies Ordinance provision that allows for companies in financial difficulties to enter into restructuring negotiations with their creditors. This provision is not legally binding on creditors. The result is that a company may be forced to wind-up before a restructuring agreement is reached - based simply on the decision of a single creditor to do so - when in fact the company could have been rescued.
The statutory corporate rescue procedure recommended by the LRC would allow for companies that are subject to a winding-up application (but are actually financially viable or simply facing short-term financial difficulties), to be given the opportunity to restructure. The rescue procedure is in the form of a 30-day moratorium (extendible to six months on approval by the court) that can be initiated by the company or a director in order to delay a winding-up application. The moratorium would allow an independent third party (a practitioner selected by the Official Receiver) to prepare a restructuring proposal for the company.
The provisions with regard to insolvent trading aim to place the onus on those persons in a company who are responsible for engaging in such activity to compensate the company. Leniency would be afforded to those who warn the company of the likelihood of problems and who take preventative measures. The provisions seem to be largely directed at senior management or company directors who would normally be responsible for the actions of the company.
The SCCLR's recommendations intend to reduce certain filing requirements, in particular those for local and overseas companies. Smaller companies would benefit from a clause repealing Section 116B of the Companies Ordinance. The new section would remove doubt with regard to a company being able to pass a resolution without holding a meeting as long as all the shareholders agree. The proposed new section states that anything that may be done by a company by resolution in general meeting may be done - without a meeting and without the requirement of previous notice - by a written resolution signed by or on behalf of all the members who would be entitled to attend and vote at the meeting. However, the new Section 116B would require a company director or secretary to notify the company's auditors of such a resolution.
Further, the current requirement for convening an extraordinary general meeting is that members must hold not less than one-tenth of the paid-up share capital in order to do so. It has been proposed that in order to protect the interests of minority shareholders, this shareholding requirement should be reduced to one-twentieth of paid-up share capital.
The bill was gazetted on January 7 2000. The first reading in LegCo was on January 19 2000. The acting secretary for financial services has moved that the bill be read a second time. The secretary has yet to set the date that the ordinance will come into effect.
For further information on this topic please contact Noeleen Farrell at Deacons Graham & James by telephone (+852 2825 9211) or by fax (+852 2810 0431) or by e-mail (email@example.com).
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