New companies bill benefits trademark owners

The Companies (Amendment) Bill 2010 was gazetted on 22nd January 2010 and is expected to be enacted by the end of the year. In order to address concerns raised by trademark owners regarding the problem of "shadow companies" in Hong Kong, the bill considers, among other things, certain changes to the company name registration system with a view to enhancing enforcement against possible abuses by shadow companies.

Shadow companies are principally incorporated by individuals from the People's Republic of China who:

• Use the Hong Kong company registration system to register a company name that incorporates another party's well-known mark.
• Then use that company as a vehicle to carry out counterfeit dealings in China without carrying out any business activities in Hong Kong.

New powers for the companies registrar
The bill seeks to strengthen the power of the companies registrar in the company registration process as follows.

New Section 20(2A)
Except with the consent of the registrar, a company must not be registered by a name identical to a name that the registrar has previously ordered to be changed under Section 22(2) (for being too like another company's name) or Section 22A (for being misleading or offensive) of the current Companies Ordinance.

This new prohibition does not extend to similar names. Thus, the same company name containing the same objectionable trademark and with only the non-distinctive element being varied will not be considered as an identical name and, as a result, would not be caught by the new prohibition.

New Section 22(3B)
On receipt of a court order restraining a company from using its name or any part of its name, the registrar is empowered to direct that company to change its name within a specified period.

This is a useful provision and would relieve trademark owners of the need to sue the individual shareholders of the company, which often entails the service of proceedings outside Hong Kong.

New Section 22AA
Where a company fails to comply with the registrar’s direction under new Section 22(3B) or Section 22(2) to change its name, the registrar is empowered to substitute the name of the company with a new name consisting of the words “Company Registration Number” followed by the company’s registration number as stated in its certificate of incorporation.

At present, where a company has failed to change its name in accordance with a direction, the registrar can only:

• Prosecute the company’s directors for non-compliance with a direction (which is an offence).
• After a certain time, consider striking the company off if there are sufficient grounds for the registrar to believe that it is defunct. The striking-off process takes around six months to complete.

The effectiveness of the new section will depend on what constitutes non-compliance with the registrar’s direction to change the name, which will be dictated by how the direction is formulated.

It is hoped that the direction will target changes to the distinctive part of the name (ie, the well-known mark at issue), rather than the company name as a whole. In this regard, a direction made pursuant to the new power under Section 22(3B), which refers to a court order restraining the company from using its name or any part of the name, can follow the terms of the court order such that the company is directed to change its name to one that incorporates no distinctive part of that name (or as provided in the court order).

On the other hand, it is hoped that the registrar will similarly formulate a direction under Section 22(2) regarding changing the distinctive part of the company name when it is considered to be too similar to another name on the register.