The comprehensive rewrite of the Hong Kong Companies Ordinance, which was launched in mid-2006 to modernise and enhance the law, has culminated in the enactment of a new Companies Ordinance, which is tentatively scheduled to become effective in 2014. We will focus on several of the more significant amendments: abolition of the headcount test; new rights and criminal liability for auditors; codification of the directors’ duty of care; and abolition of the par value concept for shares.
Impact on M&A and transactions
Abolition of headcount test. A person seeking to privatise a Hong Kong incorporated listed target by way of a members’ scheme of arrangement will no longer have to face the risk and uncertainty of the scheme being blocked by a number of shareholders with disproportionately small shareholdings in the target by virtue of the headcount test.
The loophole for possible artificial tactical share splitting (whether by proponents or opponents of the scheme) that existed under the headcount test will be closed. This is a welcome development that is conducive to a fairer and more predictable and efficient framework for such privatisations.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com
