On 25 September 2024, following a public consultation, the Financial Services and the Treasury Bureau (FSTB) published consultation conclusions and legislative proposals aimed at promoting paperless communication for Hong Kong companies. The final proposals largely mirror those in the original consultation paper and a draft amendment bill (Amendment Bill) to the Companies Ordinance (Cap. 622) (CO) will be introduced to the Legislative Council within 2024.

The existing regime

The effect of section 833 of the CO is that information and documents may be published on a website, and a company will be considered to have duly provided them to an individual shareholder, as long as: (i) the shareholder has expressly consented to this (either generally or in respect of specific information or documents); or (ii) the shareholder is deemed to have consented because the company has requested consent and the shareholder has not responded within 28 days.

Nonetheless, the usefulness of this section for simplifying business operations is limited by the separate notification requirement, namely: (i) the continuing obligation to provide a separate notification to each individual shareholder on every occasion new information is published on the website; and (ii) the requirement that such notification must be provided in hard copy form unless a shareholder has further expressly agreed that they can be provided electronically. The need to provide repeat notifications and obtain a series of consents can undermine the purpose of the provisions altogether.

The proposed changes

To “streamline” these requirements, enhance corporate efficiency and cost-effectiveness and create a green business environment in Hong Kong, while at the same time protecting shareholders’ interests, the FSTB has proposed the introduction of an implied consent mechanism and changes to the separate notification requirement.

The implied consent mechanism

Under the proposed implied consent mechanism, if the articles of association of a company contain a provision for the electronic dissemination of corporate communication by means of a website, the company will be able to do so without seeking prior consent from each shareholder. Both listed and unlisted companies incorporated in Hong Kong may choose to adopt the implied consent mechanism, though they will need to first send a first-time notification to each shareholder to inform them of the new arrangements.

The FSTB has proposed a number of ways to protect shareholders’ rights as the new mechanism is introduced. While all shareholders will be considered to have impliedly consented to receiving communications via a website, individual shareholders will be able to withdraw their implied consent at any time. Additionally, the FSTB proposes that shareholders will be able to request free electronic copies (for example, PDFs) of corporate communication, in addition to the free hard copies they are already entitled to request under section 837 of the CO.

The existing express/deemed consent mechanisms will be retained in the CO alongside the new implied consent mechanism, and each company may choose which to use. While it is anticipated that most companies’ articles will already include a relevant provision (and the FSTB will be updating the model articles under the CO), companies whose articles do not already include it will need to either modify their articles accordingly or continue to obtain express or deemed consent on an individual shareholder basis.

The separate notification requirement

Under the proposals, listed companies will no longer need to send separate notifications to shareholders whenever a corporate communication is uploaded to the website as the FTSB considers that shareholders are already able to receive notifications by e-mail or mobile alerts via Hong Kong Exchanges and Clearing Limited (HKEX).

By contrast, unlisted companies will no longer need to send separate notifications to those of its shareholders who have given one-off express consent to not receive such notifications. Notifications must still be provided on each occasion to those shareholders who have not expressly consented (and no deemed consent mechanism has been proposed in this respect). Furthermore, based on the existing provisions of the CO, it seems that unless express consent has additionally been given for these separate notifications to be electronic, they must still be provided in hard copy form.

The FSTB is proposing that, to give companies time to prepare, the changes to the separate notification requirements are implemented only three months after the passage of the Amendment Bill.

Companies must remain alert to individual preferences of shareholders

FSTB is seeking to balance carefully the goal of helping companies to simplify their communications on the one hand with the need to protect the rights and interests of shareholders on the other. In combination, the changes should make it easier for companies to communicate electronically with their shareholders by reducing the number of consents that need to be obtained to do so.

Nonetheless, as shareholders will be able to withdraw implied consent to receiving information via a website, or refuse or withdraw express consent to forego separate notifications, and in any event will still be able to request hard copies of specific documents and information under section 837 of the CO, there will remain a patchwork of obligations incumbent on companies in respect of their shareholder communications. Companies must remain alert to their members’ individual preferences to ensure they remain compliant.

The exact nature of the changes will depend on the version of the Amendment Bill that is ultimately passed by the Legislative Council when it is introduced later this year. After the Amendment Bill is passed, the Companies Registry will publish guidance on the implementation of the implied consent mechanism, the proposed first-time notification arrangement and the sending of separate notifications to assist companies with complying.