On 8 January 2025, the Legislative Council of Hong Kong passed the Companies (Amendment) Bill 2024. The Companies (Amendment) Ordinance 2025 (the “Amendment Ordinance“) will introduce significant changes to capital management and corporate governance for businesses in Hong Kong.  The main changes include (1) Treasury shares – enabling listed companies incorporated in Hong Kong to hold shares bought back in the treasury and dispose of them under certain restrictions; and (2) Paperless communication – introducing a system of implied consent, simplifies notification requirements while incorporating appropriate safeguards to protect shareholders’ interests. These changes will come into effect on 17 April 2025.

TREASURY SHARES – LISTED COMPANIES

On 11 June 2024, The Stock Exchange of Hong Kong Limited (the “Stock Exchange“) has amended its listing rules (“Listing Rules”) by removing the requirement for listed companies to cancel shares bought back and allow those shares to be held in treasury. The Stock Exchange provided a framework to regulate the cancellation, resale and transfer of such shares. However, such is only permitted if the laws of the place of incorporation and the constitutional document of the listed company also permit it.

The Amendment Ordinance was introduced to bring the Companies Ordinance (Cap. 622) (the “CO“) in line with the Listing Rules.

The Amendment Ordinance modifies the CO to allow Hong Kong-incorporated companies whose  shares are listed on the Stock Exchange (the “Listed Companies“) to hold shares bought back as treasury shares and cancel, transfer or sell such treasury shares on and off-market subject to certain restrictions. Listed Companies must submit a return in the specified form to the Registrar of Companies within 15 days following the disposal of the treasury shares.

It is important to note that the amendments related to treasury shares under the Amendment Ordinance apply solely to Listed Companies.  If the Listed Companies subsequently become delisted, all its treasury shares are to be regarded as cancelled upon the company being delisted.  For other private and public companies incorporated under the CO, any redeemed or repurchased shares will still be automatically considered cancelled under the CO.

What does the new treasury share scheme mean for your business?

For Listed Companies, the new treasury share scheme provides greater flexibility for capital structure management. Also, as shares are not cancelled, dilution of existing shares can be avoided, preserving shareholder value and reinforcing market stability. This can be particularly helpful for Listed Companies amid a volatile stock market.

For the market, the new treasury share scheme is welcomed as it strengthens Hong Kong’s competitiveness as a financial centre with another new share buyback method while the risks of market manipulation and insider dealing are being managed.

Taking advantage of the new treasury share scheme

For Listed Companies looking to take advantage of the new treasury share scheme, the actions below can be considered:

1. Alignment of the company’s constitutional documents

Constitutional documents of a company might impose restrictions on the holding and use of treasury shares. To leverage the new treasury share scheme to achieve the best possible outcome, the company shall consider amending its constitution documents to clear all possible roadblocks.

2. Listing Rules compliance

Listed Companies should always be vigilant about compliance with Listing Rules.

• Reflect Treasury Share regime in General Mandates: To issue new shares or resell treasury shares, Listed Companies may use a general mandate approved by their shareholders. The general mandate should clearly authorise the intended action.
• Explanatory Statement in Share Repurchase Mandate: Listed Companies must disclose in the explanatory statement for a share repurchase mandate whether it plans to retain the repurchased shares as treasury shares. The company can state that it may either cancel the repurchased shares or hold them as treasury shares, depending on factors such as market conditions and capital management requirements at the time of repurchase.
• Amend rules of share schemes: Listed Companies may amend their share scheme rules to satisfy share grants using treasury shares. The Stock Exchange would normally not regard such amendments as a material alteration to the scheme rules and shareholders’ approval will not be required for this purpose. Listed companies may seek shareholders’ approval to amend their constitutional documents and obtain relevant general mandates to take advantage of the new regime.

PAPERLESS COMMUNICATION

To promote paperless corporate communication for companies with a view to enhancing corporate efficiency and cost-effectiveness, as well as creating a green business environment in Hong Kong, the Amendment Ordinance enables all Hong Kong-incorporated companies to adopt an implied consent mechanism for disseminating corporate communication through a website and put in place appropriate safeguards to protect the interests of shareholders.

Under the CO, a company has to obtain prior express consent from shareholders and/or debenture holders for electronic communication or by website.

The Amendment Ordinance introduces an implied consent system, simplifying notification requirements while incorporating appropriate safeguards to protect shareholders’ interests. If a company’s articles of association states that corporate communication may be disseminated via a website, and the company has sent shareholders or/and debenture holders a one-off notification individually with specified details, such as the website address and the person to request information in electronic or hardcopy form, the shareholders and/or debenture holders will be considered to have agreed to this method of dissemination. This allows the company to communicate through electronic forms and the website without seeking separate consent from each shareholder and/or debenture holder in the future.

What does the new Paperless communication scheme mean for your business?

For companies, the new paperless communication scheme presents an opportunity to strengthen their ESG commitments, save resources, and streamline communication with shareholders and/or debenture holders.

For shareholders and/or debenture holders, the new paperless communication scheme broadens the communication channels between them and the Listed Companies.

Taking advantage of the new paperless communication scheme

For Listed companies looking to take advantage of the new paperless communication scheme, the actions below can be considered:

1. Alignment of the company’s constitutional documents

Constitutional documents of a company might impose restrictions on the mode of communication with shareholders. All possible roadblocks should be cleared before implementing the new paperless communication mode.

2. Optimising information and technology platforms and procedures

Corporate communications are important as a matter of law. Therefore, it is important for the company to establish a comprehensive set of procedures and a reliable technology system to ensure that all relevant parties are duly notified.

Contact us today to learn more about how our team can help you navigate the complex legal and regulatory landscape.

Alfred Leung, Partner

(alfredleung@hkytl.com; T: +852  3468 7202)

Ken Leung, Trainee Solicitor

(kenleung@hkytl.com; T: +852  3468 4998)

This article is introductory in nature. Its content is current at the date of publication.  It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this article. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.