The three-month consultation is part of the companies ordinance rewrite exercise. As the draft bill is lengthy, the consultation will be conducted in two phases. The first mainly deals with corporate governance matters, with replies requested by March 16, 2010.

The draft bill has incorporated views gathered in three rounds of consultation in 2007 and 2008, plus the recommendations of the Standing Committee on Company Law Reform and other advisory groups.

The key legislative changes proposed in the companies bill aim to enhance transparency and accountability with companies’ operations, as well as to provide greater opportunity for all shareholders to engage in company business in an informed way. Amongst other things, it will therefore codify the standard of directors’ duty of care, skill and diligence, and improve the disclosure of company information.

To ensure that the regulatory regime is effective and business-friendly, it also introduces a number of improvements to the company incorporation and name registration procedures, the filing of information and the registration of charges. Many of these will focus on encouraging and exploiting new forms of e-communication.

Furthermore, the companies bill would allow small and medium-sized enterprises to take advantage of simplified accounting and reporting requirements, thereby saving their compliance and business costs.

Provisions in the companies ordinance which are based on old concepts that no longer meet the needs of modern business, such as the assumption of paper-based communications between a company and its members, will be modernized. Some antiquated concepts that no longer serve any useful purpose (such as the par value of shares) will also be retired. In addition, technical changes are proposed to provide for the enabling framework for scripless securities trading.

The consultation paper has highlighted several issues for review, including whether the "headcount test" for approving a scheme of compromise or arrangement should be retained or abolished; whether directors' residential addresses and identification numbers of directors and company secretaries should continue to be disclosed on the public register; and whether the common law derivative action should be abolished.

In addition, it questions if private companies associated with a listed or public company should be subject to more stringent regulations similar to public companies for the purposes of the provisions on fair dealings by directors.

Secretary for Financial Services and the Treasury, Professor KC Chan, said the bill would enhance corporate governance, ensure effective and better regulation, facilitate the conduction of business, and modernize the company law. "When the companies ordinance rewrite exercise is completed, it will modernize the legal framework for companies in Hong Kong and enhance our competitiveness and attractiveness as a major international business and financial center," he said.

The draft bill will be further refined in light of the comments received. The Bureau plans to table it at the Legislative Council by the end of next year.