The New Companies Ordinance Series (4) – Reduction of Capital, Share Buy-back and Financial Assistance

Happy Chinese New Year and Kung Hei Fat Choy!

In this legal update, we will discuss changes relating to reduction of capital, share buy-back and financial assistance under the new Companies Ordinance.

The Uniform Solvency Test

A uniform solvency test is introduced in the new Companies Ordinance. The survival of this solvency test is a pre-requisite for a company that intends to reduce its share capital through the court-free procedures, buy-back its own shares and provide finance assistance to acquire its own shares.

The solvency test will be satisfied if:

• immediately after the transaction there will be no ground on which the company could be found to be unable to pay its debts; and
• the company will be able to pay its debts as they become due during the period of 12 months immediately following the transaction, or if the company is intended to commence winding up within 12 months after the date of the transaction, to pay its debts in full within 12 months after the commencement of its winding up.

A solvency statement is to be made and signed by directors having formed the opinion that the company satisfies the solvency test. A director must inquire into the company’s state of affairs and prospects and take into account all liabilities (including contingent and prospective) of the company in forming his opinion.

A director who makes a solvency statement without having reasonable grounds for the opinion expressed in it will be a criminal offence.

There is and will be no requirement for an auditors’ report. The Government takes the view that auditors would not be in a better position than the directors to ascertain the company’s solvency.

Reduction of Capital – An Alternative Court-free Procedure

We will have a new and alternative court-free procedure for reduction of capital. This new procedure, which is based on the solvency test (as outlined above) applies to all companies. It is therefore a faster and cheaper way for companies to achieve capital reduction.

To reduce capital through the court-free process, a company would require:

• a special resolution to be passed by disinterested members;
• a solvency statement made by all directors;
• the Company giving public notice of the reduction of capital in the Government Gazette and newspapers in Hong Kong; and
• registration with the Companies Registry.

Any creditor and non-approving member may apply to the Court for cancellation of the resolution.

Share Buy-back

Under the existing law, companies are allowed to buy back its own shares using distributable profits or using the proceeds of a fresh issue of shares. For private companies, share buy-back out of capital is also permissible based on a solvency test. The new Companies Ordinance will extend this solvency-based buy-back out of capital to all companies.

The requirements and procedures for companies to buy back its shares out of capital are similar to those in the court-free procedure for reduction of capital as discussed above. These requirements will be applicable to all listed and unlisted companies except that listed companies are not allowed to make any on-market purchase of its own shares out of capital.

Financial Assistance

Under the existing law, it is an offence for a Hong Kong company and its subsidiaries to give financial assistance for the purpose of acquiring shares in the company. There are certain exceptions. This regime will largely be maintained, pending the introduction of insolvent trading provisions.

Notably, the new Companies Ordinance will provide that contravention will not in itself affect the validity of the financial assistance given or any connected contract. This does not, however, mean that one can proceed with a transaction which may involve financial assistance, regardless of any consideration that it may be a prohibited transaction.

The new Companies Ordinance will also permit both unlisted and listed companies to provide financial assistance, subject to compliance with any one of three “whitewash” procedures. A listed company is subject to the additional restriction that it may only provide financial assistance, if it has net assets which are not reduced by the giving of the assistance, or if its net assets are reduced, the assistance is provided out of distributable profits.

In all cases, the directors who vote in favour of giving assistance are required to make a solvency statement. This says essentially that the directors have formed the opinion that the company will be able to pay its debts as they become due during the period of 12 months immediately following the date of the transaction. This is a cash flow test. A director who makes a solvency statement without having reasonable grounds for the opinion commits an offence.

The first “whitewash” procedure permits assistance if the assistance, and all other financial assistance previously given and not repaid, do not exceed 5% of the paid up share capital and reserves of the company.

The above “whitewash” procedure does not require shareholders’ approval. The other two procedures require approval either by all shareholders or by an ordinary resolution (which may be passed by a simple majority) of the shareholders. In the latter case, the company must send to each shareholder 14 days before the resolution a notice which contains information about the nature of the assistance and the implications of giving the assistance for the company and the shareholders. The assistance can only be given after 28 days after the resolution is passed. Dissenting shareholders holding 5% of the total voting rights may, within the 28-day period, apply to the Court to restrain the giving of the assistance.

Deacons’ New Companies Ordinance Series

In case you have not read our earlier updates on the new Companies Ordinance, they are as follows:

Gearing up for the New Companies Ordinance

The New Companies Ordinance Series (1) – Company Formation and Share Capital

The New Companies Ordinance Series (2) – Written Resolutions, General Meetings, Record Keeping, Accounting Reference Period and Prohibition of Bearer Warrants

The New Companies Ordinance Series (3) – Directors

新《公司条例》系列(4) – 股本减少、股份回购及财政资助

春节快乐！恭喜发财！

本期快讯讨论在新《公司条例》下有关股本减少、股份回购及财政资助的修改。

统一的偿付能力测试 (Solvency Test)

新《公司条例》引入了统一的偿付能力测试。通过这测试成为公司进行不经法院减少股本程序、回购其本身股份及财政资助的先决条件。

如符合以下要求，则可通过偿付能力测试：

(a) 紧接在交易之后，将没有认定公司无能力偿付其债项的理由；及

(b) 紧接在交易之后的12个月内，公司将会有能力偿付到期的债项，或如公司拟在交易日期后12个月内展开清盘，在展开清盘后的12个月内公司将会有能力悉数偿付其债项。
偿付能力陈述书(solvency statement)需由董事作出并签署，以陈述其认为公司通过偿付能力测试之意见。董事必须在作出陈述时查究公司的事务状况及前景，并考虑公司的全部债务（包括或有及潜在的负债）。

董事出具无合理理由支持的偿付能力陈述书，属刑事罪行。

政府认为核数师不比董事更能确定公司的偿付能力。故就上述提及的交易，现时及将来均不要求提交核数师报告。

股本减少 (Reduction of Capital) – 无须通过法院的另行程序

新《公司条例》将有一套新而且无须通过法院的另行程序处理股本减少事宜。这套新程序基于上文提及的偿付能力测试，并适用于所有公司。因此，它是一个更快捷及便宜的方式让公司减少股本。

在这项不经法院的减少股本程序里，公司需要：-

(a) 由无利害关系的股东所通过的特别决议；
(b) 由全体董事作出的偿付能力陈述书；
(c) 在政府宪报及香港报章上刊登有关减少股本的公告；及
(d) 在公司注册处登记。

任何债权人及不同意减少股本决议的股东均可向法院提出申请撤销有关决议。

股份回购 (Share Buy-back)

在现行法例下，公司可以利用可分派利润或使用发行新股份所得资金回购其本身股份。私人公司在通过偿付能力的要求下可从股本中拨款回购股份。新《公司条例》将基于偿付能力准许所有公司从股本中拨款回购。

公司从股本中拨款回购其本身股份所需符合的要求及程序与上文所论及不经法院以减少股本的要求及程序类似。该等要求将适用于所有上市及非上市公司，然而上市公司不可从股本中拨款在市场回购本身股份。

财政资助 (Financial Assistance)

在现行法例下，香港公司及其附属公司为了购入公司本身股份而提供财政资助即属违法。法例设有一些例外情况。在有待引入有关无力偿债情况下营商的条文期间，大部份现行制度将予以保留。

值得注意的是，新《公司条例》订明违例提供资助本身不影响所提供的资助或与其关连的合约的有效性。然而，这并不意味任何公司可以不理会可能违反相关条例而进行涉及财政资助的交易。

新《公司条例》亦将准许非上市及上市公司提供资助，唯须遵循三个“清洗交易”(whitewash)程序的其中之一。上市公司须受到一项额外限制：公司拥有不因提供资助而减少的净资产，或如其净资产因提供资助而减少，而资助是从可分派利润中获得提供的，方可提供资助。

在所有情况下，凡投票赞成提供资助的董事须作出偿付能力陈述。此举基本上说明董事们认为在紧接交易日期之后的12个月内，公司将会有能力偿付到期债项。这是一项现金流测试。若董事出具无合理理由支持的偿付能力陈述书，则属刑事罪行。

第一个“清洗交易”程序准许在以下情况的资助：若该资助加上先前提供但尚未偿还的资助总数不超过公司已缴股本及储备的5%。

上述“清洗交易”程序无需经股东批准。其余两个程序则需要全体股东批准或股东通过普通决议（可藉过半数通过）。后者需要该公司在决议前14天，向每名股东送交通知，其中需载列资助的性质以及资助对公司及股东的影响。资助只可在决议获通过28天后提供。持有占总表决权5%的异议股东可在该28天期间内，向法院申请限制提供该资助。

新《公司条例》系列

如阁下未曾阅览本行先前就新《公司条例》刊发的快讯，可从以下连结浏览：

为新的《公司条例》整装待发

新《公司条例》系列(1) – 公司组成及股本

新《公司条例》系列 (2) – 书面决议、股东大会、公司纪录备存、会计参照期及不记名股份权证

新《公司条例》系列(3) – 董事

Key Contacts

Machiuanna Chu

Partner | Corporate Commercial

Email or call +852 2825 9630