Alert 367 - Hong Kong - Shadow Companies Amendments To Become Law


Hong Kong’s Legislative Council last week passed the Companies (Amendment) Bill 2010. The most eagerly awaited changes for IP practitioners and brand owners relate to the issue of shadow companies.

As discussed in Alert 353, the amendments were published some time ago to address the problems posed by company name pirates.  The pirates do not threaten to exclude brand owners from the Hong Kong market, but use their registered company names to lend an illusion of legitimacy to their infringing activities.  This tends to muddy the waters of enforcement, particularly in China where administrative action is regularly derailed by the simple production of a fake authorization letter from the shadow company in favour of the infringing enterprise.

The Companies Registry does not currently put proposed company names under extended scrutiny – it allows companies to be incorporated so long as their names are not identical to existing company names.  After incorporation, third parties have 12 months to complain to the Registrar and, if the Registrar finds that the new company’s name is ‘too like’ an existing company, it will direct a change of name. This practice will remain the same save for one crucial change. 
 
Previously, if the shadow company ignored the Registrar’s direction, nothing happened.  It was impossible for anyone but the court to compel a change of name in the absence of a shareholders’ resolution – and court actions were expensive, albeit relatively straightforward since shadow companies rarely represent themselves.

From the bill’s implementation – expected before the end of 2010, though the precise effective date should be announced in the next few months - the Registrar will be able to impose a change of name itself, to “Company Registration Number ####### Limited” or “公司註冊編號 ####### 有限公司”.  Such a change will not affect the company’s existence or identity (so that, implausibly, if the company owned trade marks or was a genuine operating company with its own contracts, these would not be affected).

Our Comment

We welcome the amendments.  However, they are arguably not far reaching enough.  The Registrar is still unable to act against companies which have abused famous brands – only companies that have copied other companies’ names.  In the former case court procedures for passing off or trade mark infringement will still be required, whilst in the latter case, the Registrar is often quite strict in the application of the ‘too like’ test – complainants can be disadvantaged.  We hope its new powers will be accompanied by a willingness to use them, but it may be a good time for brand owners to audit their use of company names in Hong Kong and how they relate to their brands.

Additionally the 12 month time limit on making complaints to the Registrar still remains, so at-risk companies need to remain vigilant.  But when an offender is found, it should now be quicker and cheaper to eradicate them.