Hong Kong's Competition Bill - Implications for Directors & Senior Executives

Originally published 14 February 2011

Keywords: Hong Kong, competition bill, company directors, senior executives

As most readers will be aware, a comprehensive cross-sector Competition Bill (the "Proposed Law") is currently before Hong Kong's Legislative Council. A Bills Committee is currently reviewing the Proposed Law, which according to the current legislative schedule may be enacted in the first half of 2012.

The Proposed Law aims to prohibit conduct that prevents, restricts or distorts competition in Hong Kong, and contains three key prohibitions. In addition to prohibiting certain M&A transactions that restrict competition in Hong Kong, the Proposed Law contains a generally worded prohibition of anti-competitive agreements and a prohibition against unilateral conduct that constitutes abuse of substantial market power. These latter two prohibitions are collectively referred to as the 'conduct rules'.

According to the Proposed Law, any contravention of the conduct rules will expose the concerned company to penalties amounting up to 10 percent of global turnover - one of the broadest pecuniary penalty formulas under any competition law regime around the world. Additionally, the relevant enforcement body (a proposed new Competition Tribunal) will be empowered to impose a wide range of orders against the company, including orders requiring that it divest assets or exit markets as punishment for transgressions.

These penalties are obviously significant enough to demand the Proposed Law be given the full attention of boardrooms across Hong Kong. However, in addition to threats to a company's finances and permitted scope of operations, company directors and senior executives need to be aware that they may also face significant financial and other risks as individuals if they are involved in the operation or management of a company that contravenes the law.

In this update, we summarise these risks and explain how the Proposed Law may impact the rights and responsibilities of company directors and senior executives.

Pecuniary penalty

According to section 91 of the Proposed Law, the Competition Tribunal's power to impose pecuniary penalties in response to identified contraventions of the conduct rules extends to fining any person 'involved' in such a contravention. This clearly includes company directors and executives.

In particular, directors and executives may be at risk where they aid or abet, or are knowingly concerned in (directly or indirectly), a contravention. This may include, for example, where a director personally oversees, takes part in, or signs off on an arrangement that the Competition Tribunal later deems to be contrary to the conduct rules, or perhaps even wilfully ignores information that suggests a contravention is occurring.

While it can be expected that such risks will usually be higher for individuals directly involved in the day-to-day management or supervision...