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Submitted by // B Ho, Partner; D Che, Partner
23 October 2017


Howse Williams Bowers ("HWB"), a leading Hong Kong independent law firm, advised Sunfund Capital Limited, the sole sponsor, and Emperor Securities Limited, the sole bookrunner, as the Hong Kong legal counsel, on the listing of the shares of Satu Holdings Limited ("Satu") on the Growth Enterprise Market of the Hong Kong Stock Exchange. The shares commenced trading on the Hong Kong Stock Exchange on 16 October 2017.

Satu is a provider of homeware products that is principally engaged in the design, development and production management of a wide variety of homeware products. The company has operations in China and Hong Kong and has a diverse global customer portfolio comprising international brand owners, supermarket chains and department stores.

The HWB team was led by partners, Brian Ho and Denise Che. The team had lead responsibility on drafting of prospectus and other legal documentation, providing advice on corporate and regulatory issues, communicating with the regulators and undertaking general transaction management.


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; intellectual property; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

 
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Submitted by // K Bowers, Partner / Solicitor Advocate
10 October 2017


Securities and Futures Commission Issues Statement on Initial Coin Offerings 

Introduction

On 5 September 2017, the Securities and Futures Commission ("SFC") issued a statement on initial coin offerings ("ICOs"), cautioning the public that depending on the circumstance of the case, the SFC may intervene and regulate ICO related activities. This comes just one day after a joint statement was issued by seven Chinese financial regulators on 4 September 2017, banning ICOs in the PRC. The SFC's statement clarifies that whilst ICOs have not been banned in Hong Kong, the SFC may step in as a regulator in certain circumstances.

Background

An ICO is a type of fundraising which utilises blockchain technology to issue digital tokens to investors. In an ICO, the offeror, or scheme operator, offers digital tokens in exchange for legal tender or cryptocurrencies such as Bitcoin. The digital tokens issued in an ICO commonly represent some form of utility in the product or service being developed by the offeror, but can be programmed by the offeror to have other features, including the distribution of earnings or assignment of voting rights. As some ICOs incorporate features that resemble financial securities, they have recently attracted scrutiny from financial regulators, including the SFC.

SFC's statement on ICOs

In Hong Kong, digital tokens offered in an ICO are considered virtual commodities and are not currently regulated by the SFC. However, the SFC's statement clarifies that depending on the facts and circumstances of an ICO, digital tokens may fall within the definition of "securities" under the Securities and Futures Ordinance, (Cap. 571) ("SFO"). Specifically, the SFC's statement says that digital tokens in an ICO may constitute shares, debentures, or an interest in a collective investment scheme ("CIS"). The SFC says that this may occur where:-

  • token holders are given shareholders' rights, such as the right to receive dividends and the right to participate in the distribution of a corporation’s surplus assets upon winding up;
  • the issuer repays token holders the principal of their investment on a fixed date or upon redemption, with interest paid to token holders; or
  • token proceeds are managed collectively by the ICO scheme operator to invest in projects, with an end goal of enabling token holders to participate in a share of the returns generated by the project.

The classification of digital tokens as "securities" means that ICO-related activities may constitute "regulated activities" within the meaning of the SFO, which means that persons involved in ICO-related activities (such as trading or advising on ICOs) will fall within the licensing regime of the SFC. Additionally, where an ICO involves an offer to the Hong Kong public to acquire "securities", the prospectus requirements under the Companies (Winding Up and Miscellaneous Provisions) Ordinance, (Cap. 32) may also be triggered.

The SFC's statement warns that as the digital tokens involved in an ICO are transacted or held on an anonymous basis, there are inherent money laundering and terrorist financing risks involved. The SFC reminds Licensed Corporations and Associated Entities (as defined under the SFO) to comply with the anti-money laundering and counter-terrorist financing ("AML/CTF") requirements as set out in the SFC Circular dated 16 January 20141.

Approach in other jurisdictions

A number of regulators in other jurisdictions have also commented on ICOs. In the US, the Securities and Exchange Commission ("SEC") published a report in July 2017, stating that ICOs involving US investors will be considered as securities offerings and subject to the SEC's enforcement jurisdiction.  Further, in June 2016, the US Commodity Futures Trading Commission brought an enforcement action against Bitfinex, a Hong Kong based cryptocurrency exchange, confirming that US commodity laws can apply to virtual currencies.

Meanwhile, the Financial Conduct Authority ("FCA") in the UK has also stated that depending on the structure of an ICO, it may fall within the regulatory regime of the FCA. The Canadian Securities Administrators and the Monetary Authority of Singapore have also published statements on the topic of ICOs. More recently, South Korea's Financial Services Commission announced on 29 September 2017 that it will move to ban ICOs in the country, which may influence the approach of other regulators in Asia.

Comment

The SFC clarifies through its statement that it is prepared to treat digital tokens offered in an ICO as "securities" as defined under the SFO. As a result, and depending on the nature of an ICO, issuers and other persons involved in ICO-related activities can fall within the SFC's licensing and regulatory regime. However, as can be seen from developments in other jurisdictions, ICOs remain a highly volatile topic. It remains to be seen whether the SFC will take a stronger stance towards ICOs in Hong Kong. Parties concerned should meanwhile be aware of all the relevant risks and comply with the applicable SFC requirements on AML/CTF in relation to virtual commodities (including the SFC Circular dated 16 January 2014).

 


Circular to Licensed Corporations and Associated Entities Anti-Money Laundering / Counter-Terrorist Financing Money Laundering and Terrorist Financing Risks Associated with Virtual Commodities dated 16 January 2014.


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.



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Submitted by // K Bowers, Partner / Solicitor Advocate
27 September 2017


Cross-border insolvency - winding up a foreign incorporated company in Hong Kong

Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK2 Ltd [2017] HKCU 1738

Introduction

In the case of Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK2 Ltd, the Court of First Instance held that a foreign company with a secondary listing in Hong Kong can be wound up in Hong Kong for failing to pay an arbitral award, despite the company being solvent and having no assets within the jurisdiction. This case further develops the law on the winding-up of foreign companies in Hong Kong and represents a significant development since the landmark case of Yung Kee in 20151 .

Background

Shandong Chenming Paper Holdings Limited ("Shandong") is a Mainland incorporated company listed on the Shenzhen Stock Exchange. It is also a registered non-Hong Kong Company with a dual primary listing of H shares on the Hong Kong Stock Exchange.

The background dispute in this case arises from a joint venture agreement entered between Shandong and Arjowiggins HKK2 Limited ("AH2"). The dispute, which was arbitrated in Hong Kong, resulted in damages of RMB 167,860,000 being awarded to AH2 on 20 November 2015 ("Award"). Although Shandong applied to the Court to set aside the Award in September 2016, its application was dismissed. A statutory demand was subsequently served by AH2 against Shandong in October 2016. In response, Shandong sought an order to stop AH2 from obtaining a winding-up order.

Law on the winding up of foreign companies in Hong Kong

The Court’s power to wind up foreign companies is found under sections 327(1) & (3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, (Cap 32). Past cases have confirmed that this is a discretionary power, and that three core requirements ("Core Requirements") must be met before the Court will exercise its discretion to wind-up a foreign company. The Core Requirements were summarized in the case of Re Beauty China Holdings Ltd
2as follows:-

1. there has to be a sufficient connection with Hong Kong, but this does not necessarily have to include the presence of assets within the jurisdiction;
2. there must be a reasonable possibility that the winding-up order would benefit those applying for it; and
3. the Court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.

In the current case, the issue in dispute was whether the second Core Requirement for winding up a foreign company had been met.

Whether AH-2 would benefit from winding-up Shandong in Hong Kong

Usually, a creditor applies to wind-up a debtor company in the hope of recovering its debts through liquidating the assets of the company. As Shandong did not have any assets in Hong Kong, it was argued that AH2 would not derive any benefit from obtaining a winding-up order against Shandong in Hong Kong.

However, the Court found that the benefit of a winding-up order is not limited to obtaining the assets of the debtor. Instead, the Court found that the threat of a winding-up order would give AH2 leverage against Shandong, as the appointment of a liquidator would have serious consequences for the company. Control of Shandong would be forced out of the hands of its directors into the hands of the liquidator, share transfers would become void unless otherwise ordered by the Court, and Shandong's listed status would be at risk. In the view of the Court, the leverage gained by the threat of liquidation would be of sufficient benefit to AH2 to meet the second Core Requirement.

Winding-up on the grounds of public interest

In addition to the above finding, the Court also put forward public interest as an alternative ground for winding up Shandong. In the judgement, the Court followed the decision in Yung Kee that the Core Requirements are self-imposed restrains. In the view of the Court, foreign companies should not be allowed to dishonor judgement debts or arbitral awards. Therefore, there is a public interest in dissuading foreign companies from taking advantage of Hong Kong's financial system without complying with the laws of Hong Kong.

Comment

There are two main points to take away from this judgement. First, the case illustrates the approach of the Court in interpreting what constitutes a benefit when considering the Core Requirements for winding-up a foreign company. The Court's approach in this case shows that the benefit will be interpreted widely and is not limited to the recovery of assets through liquidation. Secondly, the case shows that the Court may be prepared to take a hardline and dispense with the traditional Core Requirements on the grounds of public interest, especially in cases where the company has refused to honour a Hong Kong Judgement or Arbitral Award.

________________________________________________
1 Kam Leung Sui Kwan v Kam Kwan Lai & Ors FACV 4/2015
2 6 HKC 351


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.



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Submitted by // K Bowers, Partner / Solicitor Advocate
22 September 2017


Building Maintenance: Recent Developments in the Bid-rigging Saga

Introduction

As Hong Kong is a city with a high density population, most people live in private multi-storey buildings or private residential estates with severed blocks of buildings. Naturally, the need to renovate and maintain the common parts of buildings arises. The problem of 'bid-rigging' in building repair works of the common parts has become increasingly prevalent within the community.

Under the Competition Ordinance (Cap. 619), bid-rigging (
圍標) essentially means two or more competitors, without the knowledge of the person calling for bids or requesting a tender, agreeing that they will not compete with each other for tender. Put in the context of building repair works, this may involve building consulting firms / renovation contractors / sub-contractors / property management companies / the Incorporated Owners of the building and even triad members colluding in an attempt to manipulate the tendering process by unlawful means (including significantly inflating maintenance costs) and making secret profits at the expense of property owners. As a result, property owners are forced to pay exorbitant costs for such maintenance / repair works, especially in circumstances where they are unable to assess the reasonableness of the cost as a result of their lack of professional knowledge in the field.

First Ever Conviction in Hong Kong

In September 2016, a sub-contractor was sentenced to 35 months of imprisonment for offering bribes to secure renovation contracts for two residential estates. Remarkably, it was the first ever successful conviction in Hong Kong for bid-rigging in building repair works. The Judge noted that the practice of bid-rigging was 'rampant' and people need to be more aware of it. As observed by Mr. Lam Cheuk-ting, Democratic Party lawmaker and former anti-graft investigator, the conviction has "…marked an "important step" in eradicating tender rigging practices, as it set a precedent and raises public awareness on the issue".

Call for Legislative Amendments

The case demonstrates the lack of protection / regulation in place and calls for amendment to the Building Management Ordinance (Cap. 344) ("Ordinance").

Recently, members of the Legislative Council ("LegCo") expressed their views and concerns over the need to combat bid-rigging to defend the rights and interests of property owners, and urged the Government to take further action. For instance, to "…expeditiously plug the relevant loopholes under the Building Management Ordinance to safeguard the rights and interests of property owners…" as "...bid-rigging seriously undermines the fairness and impartiality of the tendering process of building maintenance works, and also causes the price of the successful bid in maintenance works to far exceed the reasonable market rate, thus greatly increasing the maintenance expense of property owners while the quality of maintenance works cannot be safeguarded".

In response, in the Legco meeting on 8 June 2017, the Secretary for Home Affairs, Mr. Lau Kong Wah indicated that following its previous consultation with the Panel on Home Affairs ("Panel") in May 2016, the Home Affairs Department recently had another consultation with the Panel in March 2017 regarding proposed legislative amendments and the relevant administrative measures proposed to be put in place.

Seeing as the passing and implementation of legislative amendments take time, and as an immediate next step to address the concerns of the public, the Home Affairs Department intends to issue a further Code of Practice in late 2017, incorporating certain proposed amendments to the Ordinance (which are consistent with the current legislation). All Incorporated Owners are encouraged to comply with the Code of Practice.

Comment

As a topical issue in the recent years, any steps towards combatting tender rigging would be in the public's interest. Interested parties are encouraged to keep a close eye on the details and scope of the upcoming issue of the Code of Practice and / or legislative amendments and seek independent legal advice (where necessary). HWB will continue to monitor any future legislative developments.

 

About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

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