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Jun 16 Legal Update

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Hong Kong’s new winding-up regime; COSO consults on revised ERM framework

Companies (Winding Up and Miscellaneous Provisions)(Amendment) Ordinance 2016 has been gazetted, which aims at improving and modernizing Hong Kong’s corporate winding up regime.

What you should know:

  • Main objectives: to increase protection of shareholders; streamline the winding up process; and enhance integrity of the process
  • Effective date not yet announced

What you should do/watch out for:

  • Did not introduce a new corporate rescue system
  • Separate proposals on a corporate rescue system being developed
  • Click here for our overview summary in Oct 15 newsletter

The Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) published a draft update to its widely-followed  “Enterprise Risk Management (“ERM”) – Integrated Framework” (2004).

Reflected in its title (“Enterprise Risk Management—Aligning Risk With Strategy and Performance”), the update seeks to better align risk management with strategy and performance.

Internal controls are part of ERM. This update, therefore, has a different focus and does not replace the separate framework on Internal Controls (2013).

What you should know:

  • Stresses consideration of risks in strategic planning
  • Risk management should be embedded across all levels in the organization
  • Consequential refinement of core definitions
  • Introduces 5 “components” and 23 “supporting principles” to assist companies in designing and implementing ERM practices (diagram: P.6 of COSO executive summary)

What you should do/watch out for:

  • Interested in giving comments? Open till 30 Sept 16
  • Implementation? Still early stage; just be aware of the consultation and directions
  • We shall provide further updates: a watch area is user feedback on detailed guidelines, whether/how they meet the very commendable objectives

Click to view the COSO press release; COSO site to download exposure draft, executive summary, survey; summary by PwC (engaged by COSO in the revision project)

Other topics and what you should do


The Securities and Futures Commission (“SFC”)

(i) SFC published its 2015-6 Annual Report

What you should know:

  • SFC actions against listed companies broadly include “disclosure of inside information”; “governance cases” (over-valued acquisitions, misstatements in company financials, misappropriation of funds and highly dilutive fund raising transactions)
  • SFC monitored listed company announcements
  • Follow-up actions include exercising its power to compel production of records for further investigation; raised 142 enquiries with listed companies during the year
  • “Key cases” listed include proceedings in Market Misconduct Tribunal for breaches of “disclosure of inside information”(Click our March, April 16 updates), and an “insider dealing” case involving “a landmark ruling” to interpret s.300 of SFO widely (Click our Jan 16 update)
  • SFC observed that its recent cases tend to be “more complex”, and expect this trend to continue

What you should do/watch out for:

SFC has been active in its enforcement of various areas discussed above. Listed company management must make sure its system regarding determination of “Disclosure of inside information” is adequate. Independent directors should also note that “directors’ duties” is also a key area.

(ii) SFC published its Takeovers Bulletin

Pursuant to the theme of controlling “innovative” ways of listed company takeovers and the use of “shell companies”, the Stock Exchange of Hong Kong Limited (“HKEX”) has published various guidelines. Some situations involve the issue of new securities. SFC stated that it might not grant a “white wash waiver” to dispense from Rule 26 of the Takeovers Code (triggering a mandatory offer), if HKEX Listing Rules or other applicable regulations are not complied with.

What you should know/watch out for:

  • This reflects the continuing theme to control “shell companies”, and co-ordinated efforts of both HKEX and SFC



Privacy Law

The Office of the Privacy Commissioner for Personal Data (“PCPD”) published the “Guidance on the Proper Handling of Customers’ Personal Data for the Beauty Industry” relating to the handling of customers’ personal data. PCPD’s press release commented that major complaints received related to direct marketing, the collection of personal data (such as Hong Kong Identity Card number, copy of HKID Card and date of birth), and as the transfer of customers’ personal data to another party without consent.

What you should do/watch out for:

  • Beauty and fitness sector companies should note the Guidance Note
  • As observed in previous updates, “privacy” should be a watch area for businesses generally. PCPD appears to be an “active” regulator. There is also much heightened stakeholder sensitivity generally and the level of complaints has arisen.