Legal update: New Obligation to Maintain Register of Significant Controllers132月2018
The Companies (Amendment) Ordinance 2018 (the “Ordinance”) will come into operation on 1 March 2018. The main purpose of the amendments is to enhance transparency in the beneficial ownership of companies in order to meet its obligations under the Financial Action Task Force’s recommendations for combating money laundering and terrorist financing.
The new requirements
The Ordinance will require companies incorporated in Hong Kong to:
- keep a register of significant controllers (“SCR”) at the company’s registered office or a prescribed place in Hong Kong;
- take reasonable steps to identify any significant controllers of the company, including the giving of notices and obtaining their required particulars;
- maintain an up-to-date SCR with the required particulars of the significant controllers; and
- make the SCR available for inspection by law enforcement officers.
At present, these requirements are applicable to all companies formed and registered in Hong Kong with the only exception of companies listed on the Stock Exchange of Hong Kong. While power is reserved for the Financial Secretary to further exempt companies from these requirements by making regulations under section 653ZG of the Ordinance, it would appear from what has been published so far that there will be no further exemptions before commencement.
Who will likely need to be registered in the SCR?
“Significant controllers” is defined under the Ordinance to mean either a registrable person or a registrable legal entity. Generally, these are persons or entities which have “significant control” over a company.
A person has significant control over a company when:
- the person holds, directly or indirectly –
- if the company has a share capital, more than 25% of the issued shares in the company; and
- if the company does not have a share capital, a right or rights to share in more than 25% of the capital or, as the case requires, profits of the company;
- the person holds, directly or indirectly, more than 25% of the voting rights in the company;
- the person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company;
- the person has the right to exercise, or actually exercises, significant influence or control over the company; or
- the person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm (who is not a legal person under the relevant governing law) and whose trustee or members meet one or more of the conditions (in their capacity as such) specified in paragraphs (a), (b), (c), and (d)
Who will have access to the SCR?
A company is not required to open its SCR for public inspection. Under the Ordinance, 2 classes of persons would have the right to inspect and request a copy of the register. These are law enforcement officers who primarily are government officers (failing to provide the SCR on demand would amount to an offence), and persons whose names are entered in the SCR as significant controllers.
What are “reasonable steps”?
In relation to the requirement for the company to take reasonable steps to identify any significant controllers of the company, “reasonable steps” is not defined.
Generally, “reasonable steps” includes reviewing all documents and information readily available, such as the company’s register of members, articles of association, statement of capital, shareholder agreements or other relevant covenants or agreements, and considering interests in the company as held by different people. It also includes considering evidence of different arrangements which lead ultimately to the rights in a company being controlled by the same person. Different steps may be considered reasonable depending on the circumstances.
What are the consequences if a company fails to comply with these requirements?
Failure to comply with any one of the above requirements is a criminal offence. The company and every responsible person of the company are liable to a fine at level 4 (currently HK$25,000). Where applicable, there is a further daily fine of HK$700.
Any person who has received a notice relating to the SCR issued by a company must comply with the requirements stated in the notice within one month from the date of the notice. Failure to comply with any of the requirements in the notice within 1 month from the date of the notice is also a criminal offence. The notice addressee and every related person (if any) are liable to a fine at level 4 (currently HK$25,000).
If any person knowingly or recklessly makes a statement which is misleading, false or deceptive in any material particular in the SCR, or if he knowingly or recklessly makes a statement or provides any information that is misleading, false or deceptive in a material particular in the reply to a company’s notice, he commits an offence and is liable on conviction on indictment to a fine of $300,000 and imprisonment for two years; or on summary conviction, to a fine at level 6 (i.e. $100,000) and imprisonment for six months.
The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.
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