26 June 2003
Mrs Sharon Tong
Clerk to Bills
Committee on
National Security
(Legislative Provisions) Bill
Legislative
Council
Hong Kong
Dear Mrs Tong,
National Security (Legislative Provisions)
Bill: proscribed organisations
I must express my great dismay at the
proposed amendment to Schedule 2 to the above Bill as set out on page 8 of
Paper No. 105 dated 25 June 2003.
The newly introduced section 4 in the
Schedule, which attempts to preserve the liabilities of "every director,
officer and member of the [proscribed] organization" after its
dissolution, is not, and cannot be, directed at any of my previous criticisms
of sections 1 and 2 of Schedule 2. It merely adds complexity to a Bill which
has already consisted of some very convoluted drafting.
It is the most elementary principle
of company law that on incorporation (which also applies to unregistered foreign
corporations within the meaning of section 326 of the Companies Ordinance), a
company becomes a legal entity separate and distinct from its members:
"…once the
company is legally incorporated it must be treated like any other independent
person with its rights and liabilities appropriate to itself, and
that the motives of those who took part in the promotion of the company are absolutely
irrelevant in discussing what those rights and liabilities are." (my
emphasis)(per Lord Halsbury LC, Salomon v A. Salomon & Co Ltd.
[1897] AC 22 at 30
Thus since the Salomon case, the
complete separation of the company and its members has never been doubted in
any Commonwealth or North American jurisdiction. If a company is separated from
its members, it is all the more the case that it is separated from its
directors or other officers since directors and officers per se merely
work for the company and have no interest in it at all.
If section 4 in Schedule 2 is intended to
fix the liabilities of a proscribed company on its members, directors, or other
officers, adopting the words of Lord Templeman sitting in the House of Lords in
Williams & Humbert v W H Trade Marks [1986] 1 AC 368,
"This heretical submission files in the
face of the principle established in Saloman v. A. Salomon & Co. Ltd.
[1897] A.C. 22 and re-affirmed in E. B. M. Co. Ltd. v. Dominion Bank [1937]
3 ALL E.R. 555, 564-565 where Lord Russell of Killowen said that it was:
"of supreme
importance that the distinction should be clearly marked, observed and
maintained between an incorporated company's legal entity and its actions,
assets, rights and liabilities on the one hand and the individual
shareholders and their actions, assets, rights and liabilities on the
other hand."" (my emphasis)(at 249)
There can be no simpler explanation for the
basic principle that shareholders do not assume the liabilities of their
company than that by Lord Herschell in the Salomon case:
"In a popular
sense , a company may in every case be said to carry on business for and on
behalf of its shareholders; but this certainly does not in point of law
constitute the relation of principal and agent between them or render the
shareholders liable to indemnify the company against the debts which it
incurs." (at 43)
In the circumstances, section 4 of Schedule
2 is not designed to address any of the defects in sections 1 and 2 at all;
otherwise the provision undermines the whole foundation of company law and
defeats the very object of incorporation. If this is the case, the "liability,
… of every director, officer and member" can only mean their personal
liabilities and not those of the company. Since there is no provision in the
Bill to "dissolve" or extinguish or alter their personal status at
law, section 4 to me is wholly superfluous and may well serve to confuse in the
context of the Bill. As long as these individuals exist (even when fined or
imprisoned), any claimant may mount a claim against them for liabilities
incurred personally under the law as now existing in Hong Kong. Even the estate of a deceased person is
liable for civil wrongs committed or damages incurred by him whilst he was
alive!
If the Administration remains adamant in
striking off or dissolving a registered or unregistered company first but is
nevertheless serious in preventing innocent third parties from adversely
affected by sections 1 and 2 of Schedule 2 to the Bill, short of vesting the
liabilities of a dissolved company in the officer taking charge of its winding
up section 290 of the Companies Ordinance, which enables claims to be made
against a dissolved company, must be available to any creditor or member of the
dissolved company, whether registered or unregistered under the Ordinance. A
disadvantage of invoking section 290 is that it is a time consuming and costly
procedure.
Personally speaking, a much more
satisfactory regime for dealing with the assets and liabilities of a proscribed
company would be for it to be wound up first with the Official Receiver
immediately taking control of all its affairs (in which case all the powers of
its officers cease at once as a matter of law) and continuing to wind up the
company in accordance with Part V of the Ordinance irrespective of whether
the company is registered or unregistered. Unless the Government is distrustful
or its own official i.e. the Official Receiver, there should be no fear of any
conduct of unlawful activities by the proscribed company. In the eyes of the public, winding up
of a company for all intent and purposes is the beginning of its "death"
process and its existence, as envisaged by the Companies Ordinance, is solely
for the orderly running down of its affairs for the benefits of its creditors
and, if there are surplus assets, its members also.
In concluding this letter I must, once again,
draw your attention to the fact that my views expressed above are confined
solely to sections 1 and 2 of Schedule 2 to the Bill and in no way bears upon
any of the organizations in section 3 such as partnerships or trade unions.
Your sincerely,
Winston Poon, QC
cc. Mrs
Regina Ip, Secretary for Security