Vous êtes sur la page 1sur 48


Principles of relevant Hong Kong
Law & the Companies Ordinance
What is Law?
 The study of law is called Jurisprudence

 The word is derived from the Latin language and is

commonly accepted to mean the philosophy of law

 In turn the word Philosophy originated from the

Greek word for “Love of Wisdom”

 It incorporates a critical and systematic approach to

obtaining a deep understanding of a body of
knowledge using logical argument and reasoning
Sources of Law

 Natural law theory: asserts that human rights derive from

and are a part of nature itself

 Consequently the role of government is to create / enact

laws which correspond as closely as possible to these
hidden laws using the power of reason

 An unjust law, therefore, is no law at all because one

cannot ignore important considerations such as moral
philosophy, religion, human reasoning and conscience

 Aristotle, Plato, Socrates…

Sources of Law

 Legal Positivism theory: means that the law is something that is

“Posited” or, in other words, validly made in accordance with
socially accepted rules

 There is no connection between law and morality

 Therefore, the source of law is entirely contained in the rules made

by government bodies and the law courts

Major Legal Systems

 Common Law derived in England and is based on ancient customs and


 It is created and refined by the interpretation of judges each time a case is


 Court decisions become a part of the law through the creation of precedent

 Prevalent in Anglo Saxon jurisdictions, UK, USA, Canada, Australia, New

Zealand, Malaysia, Brunei, Singapore, Hong Kong

Major Legal Systems
 Code (Civil) Law attempts to exhaustively cover a complete system of laws
through a process of codification of rules: 1,2,3,4,5,6,…..

 Judges establish rules derived from those codes

 Concept dates back to ancient Babylon, the Roman Empire and Tang Dynasty
(624 AD) with modern origins in France, Germany and Switzerland

 Japanese (German) code introduced by Qing Dynasty and later Republic of

China. Still used in Taiwan

 Used in Continental Europe, Japan, South Korea and Macau. Also Quebec in
Canada and Louisiana in the USA

Major Legal Systems

 The Mainland uses a mixture of civil law and socialist law

 Little development between 1954 and 1978 in the Mainland

 Change of policy in 1979 after the end of Cultural Revolution led

to significant developments albeit rather slowly and incrementally

 Sometimes criticised for being incoherent with poor enforcement

and weak courts and lack of judicial independence

Major Legal Systems

 Islamic Law (Sharia) is the world’s most widely used

body of religious law

 Sharia means the way or path to the water source. It is

more a system rather than a set of laws

 Current attempts to make London and Hong Kong global

Islamic finance centres

Hong Kong Legal System

 Original sources prior to 1997:

 Common Law based on its long usage and precedent

 Law of Equity developed in England in the 14th century as

subjects petitioned the King for justice unavailable at common

 King delegated the petitions to the Chancellor (Church Official)

who dispensed fair and just (equitable) remedies.

 Examples are trusts, injunctions, specific performance, equitable

rescission of contracts and rectification

Hong Kong Legal System

 Mercantile and Commercial Law which developed in

Europe during the Middle Ages to support and promote
trade between merchants

 Evolved as a system of custom and best practice

 It was very successful and was incorporated into various national

laws including England

 Examples include the Sales of Goods Ordinance, the Bills of

Exchange Ordinance, Bills of Lading, Airway Bills, Letters of

Hong Kong Legal System

 Primary legislation refers to the laws passed by the HKSAR Chief

Executive (formerly Governor) with the advice of the Legislative
Council (Legco)

 Subsidiary (delegated) legislation is made by a process of

delegation by Legco to another body

 The delegation takes places under an existing ordinance

 Example – The Securities and Futures Commission (SFC) has extensive

powers to make rules under the Securities and Futures Ordinance (SFO)

 The Hong Kong judiciary is independent

The Basic Law - HKSAR

 1 July 1997 replaced the Letters Patent and the Royal


 Acts as a form of mini-constitution. Domestic Mainland

legislation based on the international Sino-British Joint
Declaration of 1984

 Mainland socialism would not be extended to Hong Kong

 All existing laws (including clan law) would be maintained

except any that would contravene the Basic Law

 The right to private property ownership was confirmed

System Divisions

 Generally speaking law divides into two main branches:

 Criminal law deals with serious offences which are deemed to offend
against the public at large and which are punishable by fines and or
imprisonment: i.e. murder, assault, theft, as defined by law,…

 Civil law (not to be confused with code law systems) provides remedies
for individuals or businesses that have suffered some wrong by the
actions of another person or persons

Criminal Law

 Defines offences against the community at large

 Defines how persons committing crimes may be investigated,

charged, brought to trial (at a criminal court) and punished

 Cases are brought by the State on behalf of the people

 Because offenders are subject to punishment charges must be

proven “beyond all reasonable doubt”. Innocent until proven

 Certain actions may also result in civil law claims

Civil Law divides into several
 Civil law is not primarily designed to punish

 Rather it is designed to provide a party with the opportunity to address a wrong

against him or her at a Court of Law (civil division)

 Actions are brought by individuals typically for damages, compensation or an

equitable remedy

 The standard of proof is much less stringent “on the balance of probabilities”.
How would a reasonable man interpret the issue and decide? No question of

Contract Law

 Agreement between two or more persons creating obligations which are

recognised by and enforceable under the law

 There must be an offer, an acceptance, consideration and the intention

to create a legal relationship

 An act or forbearance or the promise thereof is the price for which the
promise of the other is bought and a promise thus given is legally

 The sale and purchase of financial product creates contracts between

the parties

Law of Agency

 Agency is a fiduciary relationship created by express or implied contract or by


 In which one party may act on behalf of another (the principal) and bind that
principal as long the authority to act is not exceeded

 The agent is said to be a fiduciary - a person who owes another person duties of
good faith, trust, confidence, honesty and care

 A principal is liable for the acts of his or her agent

 An employee may act as agent for an employer

Law of Tort
 A tort is a civil wrong of which there are many types

 Trespass against the person – assault and battery

 Trespass against property – unlawful entry – interference

 Nuisance

 Deception

 Negligence

 Misrepresentation

Employment Law
 Employment Ordinance

 Factories and Industrial Undertakings Ordinance

 Employees’ Compensation Ordinance

 Occupational Safety and Health Ordinance

 Under common law, employers must provide an employee with

remuneration, indemnity for expenses, losses and liabilities incurred while
performing duties and a safe working environment

 Under common law, employees must demonstrate skills and competence,

faithful service, obedience and confidentiality

Other Divisions of Law
 Law of Property

 Inheritance Law

 Family Law

 Administrative Law

 Constitutional Law

 Law of Evidence

 Immigration Law

Hong Kong Court System
 The Court of Final Appeal (Privy Council before 1997)

 The High Court – Court of Appeal – hears appeals in all civil and criminal
cases arising from proceedings of the Court of First Instance

 The High Court – Court of First Instance – unlimited jurisdiction in respect

of all civil and criminal cases

 The District Courts – hear more serious cases criminal cases (excluding
murder, manslaughter and rape) and civil cases up to HKD1M

 The Magistrates’ Courts – deal with the least serious criminal cases

 Decisions of higher Courts bind the lower Courts

Hong Kong Forums
 Administrative tribunals are sometimes created by Government to speed up
the legal process which can be slow through the Courts

 Tribunals require less strict levels of proof, are less formal and faster

 The SFO contains provisions to set up Market Misconduct Tribunals and

Securities and Futures Appeals Tribunals

 Arbitration is a private forum for resolving disputes in which a neutral third

party is tasked with making a decision which becomes binding on the parties

 Generally efficient but the element of privacy can lead to the public interest
not been served

Company Ordinance
Companies Ordinance
 A company is an artificial legal person created by an act of law. It has
the power to contract, sue and be sued and own property

 It can commit crimes and torts

 It exists separately from its members (owners - shareholders)

 A limited company’s liability is unlimited but that of the members is


 It has perpetual succession. It can live forever

Company Types

 A private company is one which:

 Restricts the right to transfer shares

 May not have more than 50 members

 May not offer shares or debentures (loan stock) to the public

 A public company is one that is not a private company

 A listed company is one whose stocks and or debentures are

admitted to listing on a stock exchange. Public company


 As a company does not possess the human ability to think

and act for itself it requires a remedy:

 The Memorandum indicates the purpose for which a

company was formed (objects clause) and regulates its
relationship with external third parties

 The Articles of Association regulate the internal

relationships of the company. Table A model articles are
often adopted

 The constitution forms a contract between the company and

members and between the members themselves

Share Capital

 Share capital represents the funds invested by the members

(shareholders) and by consequence their ownership

 Ordinary shares are entitled to participate in distributable

profits – receive ordinary dividends

 But only after payment of any preference dividends and loan


 In a winding-up holders of ordinary shares are the last to receive

any payout

Share Capital

 Preference shares entitle the holder to receive

dividends at a specified rate in priority to ordinary

 In a winding-up situation they have priority over ordinary

shareholders on return of capital

 Less risk than ordinary shares but participation in profits

is lower


 A debenture is a document issued by a company as evidence of a


 Holder is entitled to receive a fixed rate of interest – creditor

 May be issued for a fixed term or for perpetuity

 The holders ranks before shareholders in receiving interest

 Debentures may be secured on a fixed or floating charge or;

 They may be unsecured

Corporate Governance

 Is a set of processes, customs, policies, laws and institutions

affecting the way a company is directed, administered or

 It includes the relationships among the many stakeholders

involved such as:

 Shareholders, bondholders, directors, management,

employees, customers, suppliers, regulatory authorities, public

 How can accountability be achieved ?


 Opportunity for members (shareholders) to participate in the affairs

of the company

 A company is required to hold an Annual General Meeting (AGM)

 Business includes presentation and approval of annual account,

declaration of dividends, election of directors and appointment of

 Members can question directors and auditors

 Other meetings are called Extraordinary General Meetings (EGMs)


 A resolution is a formal way of making and recording decisions

at meetings

 In many cases they can be passed by circular without the need

for the members to actually join a meeting

 An ordinary resolution refers to one passed by a simple majority of

votes (> 50%)

 A special resolution is one passed by at least 75% of members

and is used for more important matters

 21 days notice must be given to members. Copy must be lodged

with Company Registrar within 15 days of it being passed

Powers of Shareholders

 Shareholder powers are generally exercisable at meetings by the

casting of votes. They can cover a number of issues such as:

 Changes to the company’s articles and name

 Changes to the company’s share capital and major assets

 Variation of share class rights

 Appointment and removal of directors and auditors

 Company restructurings and winding-up (petitions and voluntary)

Shareholder Protection

 Sometimes shareholders need protection

 Provisions exist in the CO

 Variation of class rights – holders of at least 10% of

class may petition (request) the court to have the
action cancelled if it is against their interests

 An individual member may also petition the court if the

affairs of the company are being conducted in a
manner prejudicial to the members generally

Minority Protection
 Court will generally not interfere in internal matters. The is the principle of majority power but it cannot be
abused. The CO provides additionally certain safeguards for minorities:

 Certain issues require a special resolution

 Court sanction is required if a decision directly affects creditors

 Members with 5% paid up (voting) capital may requisition a meeting if directors fail to do so

 100 members or 10% of ordinary shareholders may ask the Financial Secretary to appoint an investigator
into company’s affairs

 A member my petition a court to wind up the company

Further Protection

 In addition a court may intervene to allow an individual member or members to bring an


 To enforce some personal rights (a personal action)

 To enforce the rights of a group (a class action)

 To bring a derivative action when the wrongdoers are in control and it is not possible to
bring an action in the company’s name

Directors and Officers

 The CO defines a director as including a person who occupies the position

of director, by whatever name her or she is called

 Every public company must have at least two directors

 Every private company must have at least one director

 The directors must be appointed by the members acting in general meeting

Directors and Officers

 A shadow director is a person in accordance with whose directions or

instructions the directors or a majority of them are accustomed to act

 This provision prevents persons from escaping responsibility / liability for

acting as a director

 Professional advisors are excluded

 A company officer includes a director, manager or company secretary

Qualifications of Directors

 They must be at least 18 years of age

 They must have any shareholdings as required by the articles of

association (qualification shares)

 They must not be undischarged bankrupts

 They must not be disqualified by courts order: conviction for

indictable (serious) offence, persistent default under the CO,
fraud or fraudulent trading or found to be unfit during insolvency

Powers of Directors

 The general powers to manage the business are vested in the directors

 Directors are not bound by member resolutions. They may override shareholders

 Members can only intervene in the company management if:

 Directors are unwilling to act, or seek approval to act beyond their powers or act in
breach of their fiduciary duties

Duties of Directors

 Directors owe a fiduciary duty to the company. They must:

 Act bona fide (in good faith) for the benefit of the company

 Exercise their powers for their proper purpose

 Not allow any conflict of interest between their duties as directors and their personal

Duties of Directors

 They must also act with skill and care (reasonable man test):

 Must exercise the skill that can be reasonably expected from a person of their
knowledge and experience

 Are not required to give continuous attention to the affairs of the company

 Are justified in relying on a company officer to whom proper delegation of some

duties has been made

Liabilities of Directors

 In general directors may incur liabilities due to:

 Breaches of fiduciary duties

 Failure to act with due care and skill

 Breaches of statutory duties (law)

Company Remedies

 In the event of a breach of duty by a director a company may:

 Obtain a injunction to stop such action

 Avoid a contract entered into on behalf of the company if the

directors failed to disclose a personal interest

 All directors in breach will be jointly and severally (separately)

liable to the company for damages

 They must account for any wrongful profit made by dealing

with the company’s property

Relief for Directors

 The majority of members in general meeting may,

after full disclosure of the material facts, ratify a
breach of duty by directors

 A court may give relief to directors if they have, in

causing the breach, been shown to have acted
honestly and reasonably

Financial Arrangements

 If a director has a significant (material) interest in a contract or

proposed contract with the company he must disclose it at the
earliest board meeting as is practical

 Remuneration of directors is determined by the company at

general meeting

 Executive directors can have a service contract

 A company cannot directly or indirectly make loans to


Audits and Investigations

 Investigations may be ordered by the Financial Secretary or

the company may itself carry out a private investigation

 The FS is required to appoint inspectors if a court declares

that an investigation should be carried out and for other

 All present and past officers and agents of the company –

bankers, solicitors and auditors have a duty to assist the

 A court can enforce the duty to assist

Liquidations of Companies

 A liquidation terminates the life of a company

 Assets are sold off and the proceeds are distributed in

accordance with law

 Shareholders are only entitled to receive whatever remains

once all other parties have been paid

 A Liquidation may be compulsory or voluntary