15 April 1999
Ms Estella Chan
Clerk to Bills Committee
Legislative Council Secretariat
8 Jackson Road
Dear Ms Chan,
Companies (Amendment) Bill 1999
I refer to the Chairman's request in the Bills Committee meeting held on 29 March 1999 and provide the information the legal requirement of the major common law jurisdictions relating to merger relief.
(1) Singapore and Malaysia
Both Singapore and Malaysia adopted the same merger relief provisions in the UK Companies Act.
Until recently, Section 191 of the Australian Corporations Law was roughly equivalent to Section 130 of the UK Companies Act and provided that if a company issued share for which it received a premium, whether in cash or in the form of other valuable consideration, a sum equal to the aggregate amount or value of the premiums on those shares must be transferred to the "share premium account".
Thereafter there had been considerable debate on whether raising a share premium account was legally necessary in a share-for-share transaction. Subsequently, in 1998, following reform of the Australian Corporations Law, the provisions on "par value" and "share premium" were repealed. The law relating to capital structure and protection of creditors now follows the North American and Canadian model.
(3) US & Canada
In most commonwealth jurisdictions which have common roots in UK Law, the legal capital concepts of "par value" share and "share premium" provide the main yardstick for determining whether the company can lawfully make a distribution to its members. Further rules on distribution of assets and profits were introduced in the early 80's in the UK based on the concept of realisable profits. These rules were also adopted in Hong Kong in 1991. The legal capital concept and the distribution rule serve to provide an irreducible minimum assets for the protection of creditors and existing share holders.
In US and Canada however, the statutory structure embodying "par value" and "legal capital" concepts have long been abandoned as it is recognised that capital maintenance requirements offer little protection to creditors and shareholders. Instead, reliance is placed on the use of a solvency test to determine the ability of the company to distribute assets and profits and for reduction of capital. The issue of merger relief, to them, has become irrelevant.
While Singapore, Malaysia and many other commonwealth countries continue to follow the English system, New Zealand and Australia have switched to the US & Canadian model.
I would also like to take the opportunity to advise the Bills Committee that the Administration intends to propose two CSAs in the consequential amendments, details of which are as follows.
The first is a technical omission to include in the Schedule 1 to the Companies (Fees and Percentages) Order (Cap.32 sub leg. C) the court application fee for reinstating a deregistered company under new section 291AB in the Companies (Amendment) Bill 1999. At present the fee charged by the Court for similar service (to restore a name to the register of companies under section 291 of the Companies Ordinance ) is at a level of $1,045.
The second is a new fee item of $350 to be charged by the Commissioner of Inland Revenue under Part XV General of Schedule 11 to the Inland Revenue Ordinance (Cap.112) on application under new section 291AA(3) of the Companies (Amendment) Bill 1999 for a written notice from the CIR stating that the Commissioner has no objection to the company being deregistered.
The CIR has advised that the notice will only be issued by the Commissioner where he is satisfied that the company has no outstanding liabilities, whether in relation to Property Tax, Profits Tax, Business Registration or Stamp Duty. The issue of these notices of no objection represents a new service to the public. The fee has been set at $350 on a full cost recovery basis. The fee will be non-refundable. If an application is initially rejected because of outstanding tax liabilities, the applicant may, once those liabilities are cleared, ask that the application be reconsidered. It is not proposed to charge a further fee for this re-consideration.
The CIR has confirmed that this proposed fee is in line with the department's fee charging policy, which is a full cost fee for the new services where users should pay for the full cost incurred.
I shall happy to discuss with Members further on the above at the next Bills Committee Meeting. Subject to Members' views, we shall submit the "blue" copy for consideration by the Bills Committee.
( Miss Julina Chan )
for Secretary for Financial Services
||R of C (Attn: Mr Gordon Jones)|
S for Tsy (Attn: Miss Vivian Sum)
CIR (Attn: Miss Grace Tse)
D of J (Attn: Mr Geoffrey Fox, Miss Shandy Liu)
HKSA (Attn: Ms Winnie Cheung)