29 April 2002
Our Ref: PRO/CC/101

Mr J S Bush
Secretary
Standing Committee on Company Law Reform
Companies Registry
15/F Queensway Government Offices (High Block)
66 Queensway, Hong Kong

Dear Mr Bush

Corporate Directors

Thank you for inviting us to comment on the recommendation to abolish corporate directors.

We found the present statutory position regarding corporate directors not acceptable. We believe the cancellation of corporate directors will enhance Hong Kong's corporate governance and encourage the willingness of companies to be established here.

Hong Kong's attractiveness might be marginally affected due to the loss of some companies that might otherwise have been formed here if corporate directors were not abolished. That will affect principally companies that are shelf companies formed to hold, say, one asset with little or no movement or formed for tax avoidance in other jurisdictions or for price transfer profit arrangement schemes. Their being formed elsewhere is no great loss to Hong Kong in either revenue or reputation. If the argument for retaining corporate directors is said to be speed then indemnified individuals would be available and could be put in place almost as quickly. This arrangement is not as efficient as appointing corporate directors due to possible reluctance of some people to act (as the Courts extend the bounds of individual liability) and changes in personnel where the indemnified individual is an employee of the organisation forming the company. However, the same problems have been faced in other jurisdictions that have discontinued corporate directors without overall, adverse effect. We expect any negative impact will be short-lived.

The argument by accountants for shelf companies is hardly true because most of them have their partners as directors and unless they are prepared to run a company with their own name, then they should not be in business to provide such a service.

Since the Enron situation, the role of corporate directors has to change. They have to become far more visible, accountable and be prepared to explain detail in their company. They are responsible to all stakeholders.

We believe this recommendation by the Standing Committee on Company Law Reform is moving in the right direction and Hong Kong would be unwise not to follow the lead of the many countries that have cancelled corporate directors. In making the change, we suggest that a grace period of up to two years should be allowed to effect changes to the existing situation.

Yours sincerely

Dr W K Chan
Secretary General