If you’ve ever dealt with a Hong Kong company that hasn’t held an Annual General Meeting (AGM) in years, you might have assumed everything was above board—especially if the company claimed it had “dispensed” with AGMs under the old laws.
But here’s the catch: The old loopholes that allowed companies to skip AGMs indefinitely have been quietly closed.
And if you’re partnering with, investing in, or doing due diligence on a Hong Kong company, this change could expose hidden legal risks—from invalidated director approvals to unenforceable transactions.
In this guide, we’ll break down the crucial updates in Hong Kong’s Companies Ordinance (Schedule 11, sections 95 and 107) that affect companies which previously dispensed with AGMs. You’ll learn:
- How the new rules automatically convert old “AGM dispensation” conditions into written resolution requirements.
- Why companies that haven’t adapted may have key decisions lacking legal force.
- How to spot the warning signs in a company’s records—before you commit to a deal.
Why AGMs Matter—Even When “Dispensed”
First, let’s rewind. Under Hong Kong’s predecessor Companies Ordinance, private companies could apply to dispense with holding AGMs under certain conditions. This was meant to reduce administrative burdens, especially for smaller companies.
However, some companies used this provision not just for convenience—but as a way to avoid shareholder scrutiny on sensitive decisions, such as director loans, substantial transactions, or executive pay approvals.
The old law required that if an AGM was dispensed with, any condition that would normally need AGM approval must be satisfied by the date the AGM would have been held. Yet in practice, without an actual meeting, these conditions were often overlooked, forgotten, or deliberately ignored.
Enter the new Companies Ordinance (Cap. 622), which came into effect in 2014. While it modernized many aspects of corporate governance, it also introduced transitional rules to ensure past practices don’t create present-day risks.
The “Automatic Conversion” Rule: From AGM Dates to Written Resolutions
Schedule 11 of the new Ordinance is where the old and new rules meet. Two sections are particularly relevant:
1. Section 95(2)—Loans and Transactions Involving Directors
This applies to companies that, before the new law, entered into certain transactions (like loans to directors) conditional on AGM approval—but never actually obtained that approval because the AGM was dispensed with.
The new rule states:
If the company dispensed with an AGM under the old law, the approval condition is now treated as requiring a written resolution of shareholders by the date the AGM would have been due.
If approval isn’t obtained within that timeframe, any liability arising from the transaction must be discharged within six months. Failure to do so could render the transaction void or unenforceable.
Example:
A Hong Kong company dispensed with AGMs in 2012. In 2013, it granted a substantial loan to a director, subject to AGM approval—which never happened because there was no AGM.
Under Schedule 11, the company must now secure shareholder approval via written resolution within the original AGM deadline. If it fails, the loan may be deemed invalid, and the director could be personally liable to repay it.
2. Section 107—Annual General Meetings and Written Resolutions
This section reinforces that written resolutions replace AGM approvals for companies that dispensed with meetings. Specifically, it clarifies that references to “resolutions in accordance with section 116B” (old Ordinance) should now be read as “written resolution or written resolutions.”
In other words, companies can’t hide behind the absence of an AGM. Critical decisions still need formal shareholder consent—just in a different format.
The Hidden Risk: What Happens If Companies Ignore the New Rules?
Many companies—and their partners—are unaware of these transitional requirements. Here’s where the risks pile up:
- Invalid Approvals: Decisions on director remuneration, related-party transactions, or financial assistance that lacked proper AGM approval under the old system may still be legally defective.
- Exposure to Liabilities: Directors could be held personally liable for transactions that haven’t been properly ratified.
- Contractual Uncertainty: Agreements dependent on such approvals (e.g., service contracts, loan agreements) could be challenged in court.
- Reputation Damage: Companies found to be non-compliant may face scrutiny from regulators, investors, and business partners.
For overseas firms doing due diligence on a Hong Kong entity, these issues might not surface in a standard registry search. That’s why understanding the company’s meeting history and resolution records is crucial.
How to Spot Red Flags in a Hong Kong Company’s Records
When investigating a Hong Kong company, don’t just check its registration status. Dig deeper:
- Review the Company’s AGM History:
Has the company held AGMs in the past decade? If not, determine whether it formally dispensed with them under the old Ordinance. - Check for Written Resolutions Post-2014:
For decisions that would normally require AGM approval (e.g., director appointments, major contracts), verify that written resolutions were properly passed and filed. - Look for Transactions with Conditional Approval:
Scrutinize annual returns and disclosed transactions—especially those involving directors or substantial assets. Are there indications that conditions were attached? - Assess Compliance with Section 95 and 107:
If the company dispensed with AGMs, ensure key decisions after the new Ordinance have been ratified via written resolution.
Due diligence tip:
A standard business credit report might not capture these nuances. For a thorough risk assessment, consider a Professional Enterprise Credit Report that includes corporate governance analysis and resolution tracking.
Why This Matters for International Partners
If you’re based overseas and partnering with a Hong Kong company, you might assume local compliance is someone else’s problem. But if a transaction is voided due to lack of approval, your business could suffer:
- Supply agreements could be terminated.
- Joint ventures might face legal challenges.
- Investments could lose value overnight.
That’s why savvy international firms now include Hong Kong corporate governance checks in their due diligence. It’s not just about financials—it’s about legal validity.
Practical Steps for Mitigating Risk
- Request Resolution Records:
Ask the Hong Kong company for copies of written resolutions related to major decisions—especially if AGMs were dispensed with. - Verify with Official Sources:
Some resolution documents may be filed with the Hong Kong Companies Registry. Cross-check where possible. - Consult a Professional:
When in doubt, engage a corporate services provider with expertise in Hong Kong compliance. They can help interpret records and identify gaps. - Use Tailored Due Diligence Reports:
Generic company searches aren’t enough. Opt for investigative reports that analyze corporate governance practices, such as a Hong Kong Company Due Diligence Package.
Conclusion: Don’t Let Hidden Loopholes Sink Your Deal
Hong Kong’s corporate legal framework is robust, but transitions between old and new laws can create hidden traps. The rules around dispensed AGMs are a perfect example: what was once a convenient loophole is now a potential liability.
For international businesses, the lesson is clear:
When dealing with Hong Kong companies, look beyond the surface. Understand their meeting practices, check for unresolved approval conditions, and ensure critical decisions are legally sound.
If you’re unsure where to start, professional company verification services can help. At ChinaBizInsight, we specialize in Hong Kong company due diligence, offering detailed reports that uncover governance risks and compliance gaps. Whether you need a basic company profile or an in-depth investigation, we provide the insights you need to partner with confidence.
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