Hong Kong’s new treasury rules may spur demand for legal, accounting advice

Listed companies may use repurchased stocks to fund investment and capital needs.

Accounting and law firms are expected to benefit from increased demand for professional advice from listed companies seeking to take advantage of a Hong Kong bill that lets them hold on to repurchased stocks.

“The bill should increase appetite for using Hong Kong-incorporated companies as listing vehicles, which would in turn increase the demand for the professional service sector in Hong Kong,” Chistopher Ma, a partner at international law firm Simmons & Simmons, told Hong Kong Business.

Changes to the Companies (Amendment) Ordinance 2025 will take effect on 17 April.

Although the reform applies to Hong Kong-incorporated listed companies in the city, Claudia Yiu, a partner at the same law firm, expects it to "bolster Hong Kong’s appeal as a listing venue.”

Only 8% of listed companies in Hong Kong are barred from holding repurchased or treasury shares under the old law, she said, citing data from Hong Kong Exchanges and Clearing Ltd. The rest were incorporated in territories that allow them to hold treasury stocks.

The bill aligns Hong Kong with other jurisdictions where issuers are commonly incorporated, including Bermuda, the Cayman Islands, and China, Ma said.

A publicly listed company usually buys back shares to increase the value of existing shareholders' stock by lowering the total share count, or to take advantage of an undervalued stock price. A share buyback program can also prevent hostile takeovers by reducing the number of outstanding shares.

Before the amendment, listed companies incorporated in Hong Kong must cancel the nonvoting stocks. Now, they can hold and resell these later to fund investment and capital needs.

“Listed companies may resell their treasury shares for cash in small lots on the market at full market price as an alternative fundraising means to place new shares, which are typically at a discount to market price,” Ronny Chow, a partner and head of Corporate Finance Practice Group at law firm Deacons, told Hong Kong Business.

“Treasury shares may also be transferred as consideration for satisfying employees’ share schemes, or upon conversion of convertible securities,” he added.

Yiu said the Hong Kong Stock Exchange does not specifically restrict the use of treasury shares as a form of currency for mergers and acquisitions or as a security for debt financing.

Aside from treasury share reforms, the bill also allows Hong Kong-incorporated companies to spread corporate communications through a website without shareholder consent.

“An unlisted company will not be required to send separate notifications to its shareholders if they have given one-off prior express consent not to receive such notifications,” Chow said, adding that the reform would further promote paperless corporate communication, thereby cutting costs and boosting efficiency.

He said companies should check their articles of association to see whether changes are needed in order to take advantage of the reforms.

Ma added that issuers should familiarise themselves with the changes, associated risks, and ways to comply.