Press Release

 

 

Speech by the Registrar of Companies

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Following is the full text of a speech (English only) delivered by the Registrar of Companies, Mr Gordon W E Jones, at the Annual Dinner of the Hong Kong Institute of Company Secretaries tonight (Thursday):

Rebecca, Ladies and Gentlemen,

I am delighted to have the opportunity to address members of the HKICS at the Institute's Annual Dinner tonight and to report that the Companies Registry's computer systems passed the Y2K test with flying colours. In fact, I doubt if I would have been able to face you had they failed! Last year, the HKICS celebrated the 50th anniversary of the existence of a body representing the interests of chartered secretaries in Hong Kong while the ICSA, as a professional body, was founded in 1891. However, just to get things into perspective, please remember that Registrars of Companies have been around slightly longer than chartered secretaries as the office was first created by Gladstone's Company Act of 1844! 156 years later, as we enter the 21st century, I believe that it is very appropriate for me to focus on the role and functions of the Companies Registry together with a number of major initiatives both technical and legal which will come to fruition, very appropriately, this year and have an impact on your work.

Most of you here tonight, are aware of the core functions of the CR namely -

* Incorporating and registering companies;

* Registering documentation required by the various ordinances administered by the Companies Registry;

* Providing the public with facilities to search for the information held by the Registry on the various statutory registers, microfilm and computerized indices;

* Administering and enforcing the provisions of the Companies Ordinance and related legislation with particular reference to the regulatory offences such as filing of statutory returns and striking-off action;

* And, finally, advising the Government on policy and legislative issues regarding company law and related legislation.

In a nutshell, the Registry has two distinct, but complementary roles. First, facilitating business and commerce by providing a vehicle for the incorporation of companies, the registration of documents and charges, and the provision of public search facilities. And, secondly, assisting the regulation of business and commerce by striking-off and prosecuting companies which fail to comply with their statutory obligations under the Companies Ordinance. These roles, as I see them, will continue into the 21st century but in a different form.

First, take company incorporations. As at 1 January 2000, there were 490,888 registered companies in Hong Kong of which 6,058 were public and 484,830 were private. This gives the SAR one of the highest ratios of companies to head of population in the world with one company for every 13 people: a statistic which should feature in the Guinness Book of Records if it does not do so already. These companies are involved in a huge variety of enterprises spanning most aspects of human activity, ranging from financial services, manufacturing and transport on the one hand to cultural and sports organizations, school, churches and pubs on the other. The range of company names also reflects the sheer inventiveness of the human mind and never ceases to amaze me. At one end of the spectrum we have companies whose names and histories are inextricably linked with that of Hong Kong: HSBC, Jardine, Swire and Wheelock. At the other, there are companies rejoicing with names like 'Bang Bang Ltd', 'Body, Mind & Soul Ltd', 'Wally Ltd' and 'Wonky Ltd'. For those who are concerned about their investments, we have the 'Bull & Bear Investment Ltd'. And, irrespective of whether the market goes up or down, elated or depressed investors can always go and celebrate or drown their sorrows in the 'Bull and Bear Pub Ltd'.

In short, companies - and the ability to form companies quickly and cheaply - play a critically important role in Hong Kong's commercial life. At present, the Companies Registry takes only six working days on average to incorporate a company and we aim to improve on our already high service standards in this area. Under proposals in our Strategic Change Plan (on which I shall say more later on), we envisage drastic streamlining of the incorporation process. A specified form for application for incorporation will be introduced; the memorandum and articles for private companies will require filing only if they adopt object clauses and if the articles deviate from the model articles in Table A whose contents will be brought into the 21st century; consideration will be given to replacing the statutory declaration of compliance by a statement of compliance; and it will be possible to incorporate companies electronically.

However, forming a company is, in fact, the relatively easy bit for, once it has been formed, the continuous disclosure requirements of the Companies Ordinance automatically apply. And this can prove a pitfall for unwary entrepreneurs who form limited liability companies without thinking through the consequences. Disclosure and transparency are, and must be, at the heart of company law as they provide protection to persons having dealing with companies which are protected by limited liability. However, how much of the information required is actually necessary? During a panel group discussion at the International Conference on Corporate Governance in November 1998, one of the participants suggested that a lot of the data required by the Registry is never looked at and is, in fact, unnecessary. In response, I stated that much of the data is important in order to enable third parties to find out basic information such as a company's registered office address, its level of indebtedness and the identities of its directors and secretary. Furthermore, it is also alleged that the disclosure requirements of the Companies Ordinance impose an unnecessary burden on companies - particularly small private companies - and adversely affect their competitiveness. So, if you will bear with me, I shall try to address these issues.

At the outset, I would agree that the Companies Ordinance mandates the filing of a fair number of specified forms by companies with the Companies Registry. However, it should be remembered that virtually all of these need to be filed only if and when there has been a change in a company's circumstances, for example changes of registered capital, directors, company secretary and registered office. In the cases of a large number of private companies, these changes will occur not too frequently, if at all. This then leaves the filing of an annual return and the preparation of audited accounts as the two major items of compliance (and expense) with which private companies must concern themselves from year to year. In the case of the former, all the specified forms used to file information with the Companies Registry have now been completely revised since 1998. The new form of annual return (Form AR1), which has been in force since 1 May 1997, contains only 13 sections and is particularly user friendly to private companies. If filed on time, the filing fee is only $105. Furthermore, in the case of those private companies where there has been no change in the information filed in the previous year's annual return, all they need to do is file a very simple certificate of no change. As regards audited accounts, the need for properly compiled and checked financial data is part of the price to be paid for having limited liability. While I accept that the level of auditors' fees may be an issue, it is important that this does not confuse the argument about having audited accounts in the first place. However, private companies can currently opt to prepare simplified versions of accounts under section 141D of the Companies Ordinance. Furthermore, consideration will be given in the context of the overall review of the Companies Ordinance on possible further reform of section 141D commensurate with the need to maintain an appropriate level of disclosure.

In fact, there is a continuous need to review the disclosure requirements and regulatory regime imposed by the Companies Ordinance to ensure that a reasonable balance is struck between reducing the cost of compliance on the part of companies on the one hand and the need to protect third parties having dealings with those companies on the other. As the latest element in this continuous process, the Companies (Amendment) Ordinance 1999 implemented on 11 November 1999 has abolished the need for the directors of listed companies to report details of all their other directorships, a measure which was warmly welcomed by many company secretaries. The same Ordinance also introduced, amongst many other reforms, a statutory deregistration procedure for defunct, solvent private companies on which HKICS members seem to have an insatiable thirst for briefings by my staff. And, in this respect, you will be pleased to learn that a further briefing session on the procedure will be held during the Regulatory Update which the Institute will be organizing on 17 and 18 March. Right now, the Companies (Amendment) Bill 2000, which received its first and adjourned second readings in LegCo on 19 January, contains a number of reform measures which should be welcomed by HKICS members. However, as they are hidden away in a massive bill largely concerned with the provisional supervision and corporate rescue proposals, I would like to say a few words about these.

First, the filing regime for the annual returns of private companies will be substantially simplified. Under the present statutory timetable, the actual date of filing the first annual return has to take into account the anniversary of the date of the company's incorporation; the due date of the AGM; and the actual date of the AGM, a situation which leads not only to confusion but also, as a result, to compliance problems. Under the proposed timetable, the only factor that needs to be considered is the anniversary of the date of the company's incorporation and private companies will need to file within 42 days of that anniversary. Secondly, there is further streamlining of the registration requirements for oversea companies. Under the new proposals, certified translations in English or Chinese of a company's memorandum and articles and accounts will be accepted for filing as substitutes for certified copies of the originals while there will no longer be any need to file a memorandum or power of attorney under section 333(1)(d).

In addition, as a result of the recommendations of a working group of the Standing Committee on Company Law Reform, chaired by John Brewer, on which a number of HKICS members sat, there are major reforms to section 116B, regarding written resolutions of companies based on the United Kingdom Companies Act 1985. Under these changes, anything which, in the case of a company, may be done by resolution of the company in general meeting or by resolution of a meeting of any class of members of the company, may be done by unanimous written resolution signed on or behalf of all the members of the company. This amendment, if enacted, will have the effect of overriding those provisions of the Companies Ordinance, such as section 53, which currently require a company to exercise its powers at a general meeting. Finally - and I am leaving the best to last - the Standing Committee took this reform a stage further regarding the holding of AGMs under section 111 and recommended that a company could dispense with the holding of AGMs provided that an unanimous written resolution had been passed under section 116B and copies of the documentation that would have been given to members at the AGM were sent to them at the same time that they were asked to approve the resolution. In the event that a single member wishes to discus a particular issue, it will be necessary to hold an AGM. If enacted, these proposals will significantly help to simplify and streamline the regulatory regime without lowering corporate governance standards.

I would, however, like to stress that there is another side to the coin. In parallel with streamlining and rationalizing the disclosure and regulatory requirements, we shall enforce those requirements rigorously. A particular case in point is the Registry's expanded prosecution policy regarding the non-filing of annual returns which was implemented in April 1998. This created a certain amount of upset in its initial stages as many directors of private companies were unaware of the need to file annual returns in the first place, doubtless because they did not have the benefit of a company secretary to advise them! In fact, well before that date, the Registry was pursuing defaulting companies and, in 1996, a reminder had to be sent a no less august body than the Hong Kong Rugby Football Union reminding them that they had not yet filed the company's annual return for that year. The standard reminder letter found its way into the hands of a friend of mine who forwarded it to me with the cryptic query: 'Gordon: does this mean that the Rugby Sevens will be cancelled this year?'. However, I'm glad to say that the Rugby Football Union filed their return and the sevens went ahead. On another occasion, a religious body sent a letter to the Registry, thanking the department for reminding it of its statutory obligations adding 'May our God the Father keep and bless you all' and encouraged my staff to seek 'the way, the truth and the life'. I would hasten to add that we are not considering adding excommunication to the list of penalties in the 12th Schedule to the Companies Ordinance! However, on a more serious note, the expanded prosecution policy has had a very positive impact on the compliance rate as the number of companies filing annual returns on time has increased from just over 70% in the first half of 1997-98 before the expanded prosecution policy was announced to just under 80% in 1998-99. But this is still not good enough and I would like to get the compliance rate to well over 90%. From our point of view, the key thing is for companies to file and, even if they do so only on the date of the court hearing, the summons will be withdrawn. However, they will still have to pay the late filing fees.

The timely disclosure of accurate, up-to-date information about a company is important because it helps the private sector to police itself. And this is of particular importance in Hong Kong where we do not have a corporate regulator. In this respect, the Registry's continuous computerization programmes will enormously enhance the whole process of disclosure and transparency. As many of you are aware, the Registry's expanded database will be made available on-line early this year through the Companies Registry On-line Public Search System otherwise known as CROPS. This system will make available to subscribers in their offices data on, not only the company name and document indices, but also information on registered office addresses, directors and secretaries, liquidators, receivers, share capital structure, and whether or not a charge has been lodged. It is planned that CROPS will be launched on 31 March but, one month before that - and here there will be a commercial break - there will be a major marketing promotion to ensure that as many interested firms as possible, including all those represented here tonight, sign up for this significantly enhanced search facility. Details regarding this will be issued in due course.

However, despite CROPS, documents will still have to be filed in paper form and, if people need to obtain a copy of the original company document, they will have to collect the copy from the Registry. And this is where the far reaching changes envisaged in the department's Strategic Change Plan (SCP) will have a far reaching impact on the way we do business with you. Briefly, the SCP envisages a fully electronic registry by 2005 with e-filing, electronic processing and electronic dissemination of information, with phased e-filing at an earlier date of certain documents such as annual returns and appointment of directors. However, the timetable is fluid and much will depend on the detailed recommendations in the SCP Final Report which I expect to get in early June. An electronic Companies Registry will necessitate fundamental process re-engineering of the Registry's operational processes and procedures as well as significant readjustment for the private sector. However, I am convinced that the long term gain will more than outweigh the short term pain.

In fact, electronic data interchange will enhance enormously disclosure and transparency as it will be so much easier to report and circulate corporate information and any changes to this information in a timely manner. One major problem with a paper-based disclosure system, which we have at present, is that a lot of the information - particularly financial information - can be out of date at the time it is filed. However, in an age of e-commerce and the Internet, the Consultation Document published in February 1999 by the Company Law Review Steering Group in the United Kingdom suggests that it should be possible for companies - particularly listed companies - to provide information more frequently than the once a year required by statute. This could be done by filing interim statements and preliminary results. Furthermore, it may even be possible, for a company, with its members' consent, to make its accounts available by 'posting' them at a website and informing members that they were available. This would be a vastly less expensive and more convenient method than postal distribution with considerable possibilities in terms of more effective disclosure. Such developments, if they transpire, will have considerable implications for the disclosure and regulatory regime of the Companies Ordinance not to mention the concept of a Companies Registry!

All this change has to have regard, in the final analysis, to the overall statutory and regulatory framework although this, in turn, must respond to the 21st century realities of e-commerce and the Internet. And, in this respect, the coming year will see two significant developments. First, the Overall Review of the Companies Ordinance. As some of you may recollect, the Consultants' recommendations were published in May 1997 and, during the extended consultation period which lasted until March 1998, a total of 28 written submissions were received including a very detailed submission from the HKICS. Between May 1997 and December 1998, the Standing Committee on Company Law Reform had a 'first' look at the Consultants' recommendation on top of its routine business and, during 1999, prepared its own very detailed report on company law reform having regard to the Consultants' recommendations and the comments received. It would not be appropriate for me to discuss the Standing Committee's Report tonight (even if I had time to do so which I don't). However, there is one exception and that is the Consultants' recommendation that there should be no requirement for the appointment of any particular company officer such as a company secretary. In this respect, you will be all delighted to learn that the Standing Committee, reflecting the overwhelming majority of comments received, has roundly rejected this recommendation so you can rest assured that you will all still have jobs! I would, however, stress that company law reform is a continuous process, and what we are likely to see is a series of major amendment bills rather than one big 'bang'. This will also have the considerable advantage of introducing practitioners to change in a phased manner. However, the task is immense and will take time.

The second development concerns corporate governance which the Secretary for Financial Services has asked the Standing Committee to start to consider this year. This subject is something which happens to be particularly in vogue at present with numerous bodies springing up around the world to expound views on best corporate governance theory and practice. As far as Hong Kong is concerned, corporate governance will be the subject of two major international conferences to be hosted by the OECD from 31 May to 2 June and the HKICS on 3 and 4 November. I look forward very much to working with the Institute and your Chief Executive - Peter Tashjian - regarding the organization of the second conference. Furthermore, the HKICS will be establishing a Corporate Governance Panel later this year under the chairmanship of Gerry Hopkinson. So, by the end of the year, we shall have had our fill of corporate governance theory and, hopefully, out of this, some sensible ideas will emerge to provide the basis for sound corporate governance practice which have regard to Hong Kong's specific circumstances. However, it is very important that, in the process of assimilating all these theories and concepts, we do not get indigestion!

The coming year will see either the fruition or initiation of many momentous developments and changes which will have a profound and far reaching impact on the way we conduct our operations and do business with you. And this is only the start for the next decade will see a particularly intense and fast-moving process of change in terms of corporate regulation and company law. In her first President's column in the January 1999 edition of 'Company Secretary', Rebecca concluded with the words 'Live with passion'. One of the meanings of 'passion' is to have intense enthusiasm about a particular subject and I very much hope that company secretaries are passionate about their profession. For all of you work at the coal face of corporate governance and regulation, and have a unique opportunity, with your professional and practical knowledge and experience, to make significant contributions to developments in these critically important areas. The fast moving developments in company law and corporate governance over the next decade will test the professional skills of company secretaries to the limit. However, I am very confident that the HKICS - especially those members who live with passion - will have the commitment, enthusiasm and vision to respond to the challenges and opportunities which lie ahead. And, while the way in which we do business with you will change substantially and the data held by the Registry will be increasingly in cyberspace rather than a building, there will always be a need for some form of Companies Registry and a Registrar of Companies. But we are still far from the day when we shall have a virtual Registrar of Companies, at least as long as I am around. Thank you.

End/Thursday, January 27, 2000

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