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Chapter: 32  COMPANIES ORDINANCE

Section Num: 157H  Version Date 13/02/2004

Prohibition of loans, etc., to directors and other persons

(1) The prohibitions in this section are subject to the exceptions in section 157HA.

(2) A company shall not, directly or indirectly-

(a) make a loan to a director of the company or of its holding company;

(b) enter into a guarantee or provide any security in connection with a loan made by any other person to such a director; or

(c) if any one or more of the directors of the company holds (jointly or severally or directly or indirectly) a controlling interest in another company-

(i) make a loan to that other company; or

(ii) enter into a guarantee or provide any security in connection with a loan made by any person to that other company.

(3) A relevant company shall not-

(a) make a quasi-loan to a director of the company or of its holding company;

(b) enter into a guarantee or provide any security in connection with a quasi-loan made by any other person to such a director; or

(c) if any one or more of the directors of the company holds (jointly or severally or directly or indirectly) a controlling interest in another company-

(i) make a quasi-loan to that other company; or

(ii) enter into a guarantee or provide any security in connection with a quasi-loan made by any other person to that other company.

(4) A relevant company shall not-

(a) enter into a credit transaction as creditor for a director of the company or of its holding company;

(b) enter into a guarantee or provide any security in connection with a credit transaction entered into by any other person as creditor for such a director; or

(c) if any one or more of the directors of the company holds (jointly or severally or directly or indirectly) a controlling interest in another company-

(i) enter into a credit transaction as creditor for that other company; or

(ii) enter into a guarantee or provide any security in connection with a credit transaction entered into by any other person as creditor for that other company.

(5) A company shall not arrange for the assignment to it, or the assumption by it, of any rights, obligations or liabilities under a transaction that, if it had been entered into by the company, would have contravened subsection (2), (3) or (4).

(6) If a company enters into an arrangement in contravention of subsection (5), then for the purposes of this section the company is to be treated as having entered into the transaction in question on the date of that arrangement.

(7) A company shall not take part in any arrangement whereby-

(a) another person enters into a transaction or arrangement that, if it had been entered into by the company, would have contravened subsection (2), (3), (4) or (5); and

(b) that other person, in pursuance of the arrangement, has obtained or is to obtain any benefit from the company or its holding company or a subsidiary of the company or its holding company.

(8) In the application of subsections (2), (3) and (4) to-

(a) a company that has any of its shares listed on a recognized stock market; or

(b) a company that is a member of a group of companies of which a company referred to in paragraph (a) is a member, references in that subsection to a director shall include references to-

(i) the spouse or any child or step-child of such director;

(ii) a person acting in his capacity as the trustee (other than as trustee under an employees' share scheme or a pension scheme) of any trust the beneficiaries of which include the director, his spouse or any of his children or step-children or the terms of which confer a power on the trustees that may be exercised for the benefit of the director, his spouse or any of his children or step-children; and

(iii) a person acting in his capacity as partner of that director or of his spouse, child or step-child, or of any trustee referred to in paragraph (ii).

(9) References in subsection (8) to the child or step-child of any person shall include a reference to any illegitimate child of that person, but shall not include a reference to any person who has attained the age of 18 years.

(10) In this section-

"company" means-

(a) a company within the meaning of section 2; or

(b) any other body corporate that is incorporated in Hong Kong under an Ordinance and that has any of its shares listed on a recognized stock market, but does not include an authorized financial institution;

"conditional sale agreement" means an agreement for the sale of goods or land under which-

(a) the purchase price or part of it is payable by instalments;

(b) the property in the goods or land is to remain in the seller until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled; and

(c) the buyer is (notwithstanding such reservation of property) to be in possession of the goods or land prior to the fulfilment of such conditions;

"credit transaction" means a transaction between one party ("the creditor") and another party ("the borrower") under which the creditor-

(a) supplies goods to the borrower under a hire-purchase agreement;

(b) sells goods or land to the borrower under a conditional sale agreement;

(c) leases or hires goods or leases land to the borrower in return for periodical payments; or

(d) otherwise disposes of land or supplies goods or services to the borrower on the understanding that payment (whether in a lump sum or instalments or by way of periodical payments or otherwise) is to be deferred;

"director" includes a shadow director;

"guarantee" includes indemnity, and cognate expressions are to be construed accordingly;

"hire-purchase agreement" means an agreement for the bailment of goods under which the bailee may buy the goods, or under which the property in the goods will or may pass to the bailee;

"land" includes any estate or interest in land, buildings, messuages and tenements of any nature or kind whatsoever;

"quasi-loan" means-

(a) a transaction under which one party ("the creditor") agrees to pay, or pays otherwise than in pursuance of an agreement, a sum for another ("the borrower")-

(i) on terms that the borrower (or a person on his behalf) will reimburse the creditor; or

(ii) in circumstances giving rise to a liability on the borrower to reimburse the creditor; or

(b) a transaction under which one party ("the creditor") agrees to reimburse, or reimburses otherwise than in pursuance of an agreement, expenditure incurred by another for another ("the borrower")-

(i) on terms that the borrower (or a person on his behalf) will reimburse the creditor; or

(ii) in circumstances giving rise to a liability on the borrower to reimburse the creditor;

"relevant company" means a company within the meaning of this subsection but does not include a private company other than a relevant private company;

"relevant private company" means a private company that is a member of a group of companies of which a company that has any of its shares listed on a recognized stock market is a member;

"services" means anything other than goods or land.

(11) For the purposes of this section-

(a) a person "makes a quasi-loan to" or "enters into a credit transaction as creditor for" a person if the first-mentioned person is the creditor and the second-mentioned person is the borrower under the quasi-loan or credit transaction, as the case may be;

(b) the liabilities of a borrower under a quasi-loan include the liabilities of any person who has agreed to reimburse the creditor on behalf of the borrower; and

(c) a body corporate is not to be treated as a shadow director of any of its subsidiaries by reason only that the directors or a majority of the directors of the subsidiary are accustomed to act in accordance with its directions or instructions.

(Replaced 28 of 2003 s. 62)

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