Welcome to the sixth in a series of approximately 10 articles on Macau Gambling Law AGI publishes throughout the month of March:
The concept of “limited liability” is a fundamental feature, perhaps the fundamental characteristic of companies. Among the most basic principles taught in business school, the concept is so fundamental that it is recognized in the very names of companies. In Australia, England or Hong Kong, we add “Limited” or “Ltd” to the end of company names. In the United States, we have the LLC (“limited liability company”) and most Chinese companies have “有限公司” (yao han gong siliterally “société anonyme”) at the end of their names.
The first notions of limited liability date back to the explorations of the tall ships of the Middle Ages, almost 1,000 years ago. Limited liability was the norm for most businesses in the early 17th century and was enshrined in modern legislation from the early 19th century – the time of the Industrial Revolution.
Without the concept of limited liability, it would be very difficult for entrepreneurs and investors to take risks. Investors should know the limit of their risk when engaging in investments, and that limit is the amount of fully paid-up capital of the companies through which the investments are made. There are rare provisions in company law for the so-called “lifting of the corporate veil”, which makes directors personally liable, but this usually only occurs where directors have been grossly negligent in their duties. .
Despite all this, Macau’s new gaming law contains several instances where limited liability appears to have been removed, and directors of licensee companies have been made personally liable for company liabilities.
The most extreme of these is found in Article 50, paragraph 3, which states: “Shareholders whose quantity is equal to or greater than 5% of the share capital of concessionaires, directors and members of the management body are jointly and severally liable for all debts of the dealers, including in particular the tokens in circulation. In the case of the Macau dealers, it could be incredibly large sums – up to billions of dollars!
While Article 50 as a whole deals with the forced dissolution of existing concessionaires in the event that they do not receive a new concession after the expiration of their existing concession, Article 50(3) does not specify that the personal liability of directors only applies in this case. Case. And even if that’s the case, it’s no less stunning!
Individuals can also be made liable for the debts of the concessionaire by article 48E, paragraph 4, which provides that “any person representing the [concessionaire] in any way” will be jointly and severally liable with the concessionaire for any fine for administrative offense imposed by the Office of Inspection and Coordination of Games (DICJ), if this person has been found “responsible for the act of offense “. Section 48F(1) makes all shareholders who own 5% or more of a concessionaire jointly and severally liable for administrative fines imposed on the concessionaire, even if the dealer has since been liquidated! Under the new law, these fines can be up to MOP$5 million.
These provisions appear to contradict Article 7(1), which provides that “The right to operate games of chance… may only be exercised by limited liability companies incorporated in the Macao SAR; Article 10(1) which reads as follows: “Only limited liability companies incorporated in the Macau SAR… shall be admitted to tender”, and Article 10(6) which reads as follows: “reliable commercial businessmen who [have not registered a limited liability company in the Macau SAR] may be admitted to tender, provided that they undertake to set up a limited liability company in the Macao SAR…”
On the one hand, the Gaming Law places a strong emphasis on licensees being limited liability companies registered under the Macau Commercial Code, and on the other hand, it appears to make directors and shareholders personally liable for all dealer debts – potentially billions of dollars.
What sensible individual would be in it? Under these circumstances, even a barely competent, let alone sophisticated and skillful, entrepreneur would simply refuse to be an INED (independent non-executive director), or any other form of entrepreneur for that matter.
Here is another problem. With these rules in place, I suspect it will be nearly impossible for dealerships to carry D&O insurance, which most large companies do in the interest of financial prudence.
If these provisions remain in the final version of Macau’s gaming law, we could see a series of resignations of directors from concessionaire boards. And they’ll probably be replaced by people who don’t really understand what they’re getting into.
The seventh article in this series will be published later this week.