Deadline to Appoint Additional Hong Kong Company Directors Approaches

July 8, 2013 Posted by China Briefing Reading Time: 3 minutes

The most urgent demand of the new law is to promptly appoint at least one director who is a natural person, failing which companies may be subject to legal liabilities and financial penalties.

Jul. 8 – With the aim of modernizing Hong Kong’s Company Law and further enhancing the region’s status as a major international business and financial center, a comprehensive rewrite to the existing Companies Ordinance (CO) was initiated in mid-2006. This long and arduous process began to bear fruit on July 12, 2012 as the Companies Bill was eventually passed by the Hong Kong Legislative Council.

One of the distinct features of the new CO is that it requires every private company to have at least one director who is a natural person, failing to comply may result in legal liabilities and financial penalties. Detailed information can be found below.

Restriction on Appointment of Directors
To enhance the transparency and accountability of directors, the new CO requires every private company (other than a private company that is a member of a group of companies of which a listed company is a member) to have at least one director who is a natural person. However, such restriction only applies to local private companies and does not apply to non-Hong Kong companies registered in Hong Kong.

Corporate Directorship
The new CO maintains the restriction on corporate directorship in the following entities:

Public companies
Companies limited by guarantee
Private companies which are members of a group of companies of which a listed company is a member

A body corporate cannot be appointed a director to the above-mentioned entities. This restriction, however, does not apply to other private companies which are required to have at least one director who is a natural person to enhance transparency and accountability.

A body corporate can continue to act or be appointed as the director of a private company after the implementation of the new CO, provided such company is not a member of a group of companies of which a listed company is a member. However, the requirement for having at least one director who is a natural person still applies.

Compliance Deadline
It is expected that the new CO will come into operation in 2014 after the enactment of all subsidiary legislation. After the commencement date of the new CO, there will be a grace period of six months for companies registered under the Companies Ordinance (Cap. 32) to comply with the new requirements, and the appointment of new directors of such companies should be reported to the Registrar of Companies in a specified form within 15 days.

However, the grace period is not available to private companies registered under the new CO, and such companies must have at least one natural person as director on incorporation.

Legal Consequences & Fines
The new CO provides that the Registrar of Companies may direct the company to appoint a director who is a natural person in compliance with the requirement. If a company fails to comply with the direction, the company and every responsible person within the company will be deemed to have committed an offense, and each is liable to a fine of HK$100,000. For a continuing offense, a further fine of HK$2,000 is applied for each day during the period.

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