In my last recent “Transparency and Beneficial Ownership of Hong Kong Companies”, I raised the likelihood of a Companies (Amendment) Bill 2017 (the "Bill") being published.
The Bill has indeed now been published and it does aim to introduce new legislation in Hong Kong, to improve transparency in the beneficial ownership of Hong Kong incorporated companies; this is to enhance Hong Kong's regulatory regime on combating money laundering and terrorist financing.
The Bill now requires that:
Applicable Companies maintain a register of Significant Controllers.
Applicable Companies carry out investigations, obtain information about its Significant Controllers and keep that information accurate and updated at all times.
Set out below are details of these practical changes:
Significant Controllers Register
Each Applicable Company will be required to keep and maintain a register (the "Significant Controllers Register") for any person who has significant control over an Applicable Company (the "Significant Controllers").
The Significant Controllers Register must contain the prescribed contents and be kept at the registered office of the Applicable Company, or at another prescribed place.
What is an “Applicable Company”
An Applicable Company is a Hong Kong incorporated company, that is NOT:
a listed company; or
a type of company, or class of companies, that is exempted from keeping and maintaining a Significant Controllers Register by regulations made by the Financial Secretary of Hong Kong.
An Applicable Company also does not include a non-Hong Kong company which has registered branches or representative offices in Hong Kong under Part 16 of the Companies Ordinance.
Who is a “Significant Controller”?
A Significant Controller means either:
a natural person or specified entity that has significant control over that company (a "Registrable Person"); or
a legal entity that is a member of and has significant control over that company (a "Registrable Legal Entity").
What constitutes Significant Control?
A person has “significant control” over an Applicable Company if the person fulfills one or more of the following criteria:
the person holds, directly or indirectly, more than 25% of: either the issued shares in that company if it has a share capital; or the right or rights to share in the capital or profits of that company if it does not have a share capital;
the person holds, directly or indirectly, more than 25% of the voting rights in that company;
the person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of that company;
the person has the right to exercise, or actually exercises, significant influence or control over that company; or
the person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm, not being a legal person under the relevant governing law, whose trustee(s) or member(s) meet(s) one or more of the conditions specified above.
Duties and obligations of Applicable Companies
Keep a Significant Controllers Register whether or not that company in fact has any Significant Controllers.
Carry out investigation and obtain information about its Significant Controllers.
Keep information on the Significant Controllers Register up to date including recording any registrable change arising from: (a) any person ceasing to be a Significant Controller; (b) any other change which results in any particulars for any person entered in the Significant Controllers Register being incorrect or incomplete; or (c) any required update on the prescribed additional matters noted in the register.
Notify the Registrar of Companies of the place at which the Significant Controllers Register is kept and any change in the place at which the register is kept, subject to certain exceptions.
In fulfilling those duties to investigate, obtain information and keep information updated about its Significant Controllers, each Applicable Company must give notice to the relevant persons (the "Notice") if it knows, or has reasonable cause to believe that:
that person is a Significant Controller;
that person knows the identity of another person who is a Significant Controller; or
there is a registrable change with respect to that person, the details of which are required to be contained in the Significant Controllers Register.
There are certain exempt circumstances where a Notice may be not required.
Inspection of Significant Controllers Register – Not available to the general public
The following persons have the right to inspect the Significant Controllers Register and obtain copies of the Register:
Any Significant Controller whose name is entered in the Significant Controllers Register.
Any law enforcement officer of various statutory bodies including the Companies Registry, the Hong Kong Monetary Authority, the Hong Kong Police Force, the Inland Revenue Department, the Independent Commission Against Corruption, and the Securities and Futures Commission.
If an Applicable Company fails to meet the demand for inspection or for making copies by a law enforcement officer, that officer may apply to the Hong Kong Court for an order to compel the Applicable Company to do so.
An Applicable Company must designate at least one representative who has the required qualification, to facilitate and assist it to comply with its duties in relation to the Significant Controllers Register under the new law, including the provision of assistance to any law enforcement officer for the purposes of performing his function relating to the prevention, detection or investigation of money laundering, or terrorist financing.
It is expected that the Bill, if passed, will come into force on the commencement date, indicated in the Bill as being 1st March 2018 .
It is unclear whether the Companies Registry will issue guidelines to help Applicable Companies comply with the new requirements after the Bill is passed, and in particular whether an Applicable Company will be given any transitional period to set up the Significant Controllers Register and to take all necessary actions required to comply with the new law after it comes into force as of the proposed commencement date.
After the Bill is passed, each Applicable Company must start to formulate compliance steps and give itself sufficient time to implement and complete these steps so that as of the proposed commencement date, it will have in place an accurate and up to date Significant Controllers Register. An Applicable Company should also at the same time establish a set of compliance rules in relation to the keeping and maintenance of the Significant Controllers Register to ensure that it will comply with its ongoing obligations under the new law to keep the Significant Controllers Register up to date at all times.
How OLN can help
OLN can help you create the Significant Controllers Register, advise on the compliance steps and help establish compliance rules for all ongoing compliance now need.
OLN is available to advise you on any questions you may have on the Bill, the proposed new law or any of the above concepts.