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Submitted by // K Bowers, Partner
28 February 2018

 

Significant Controllers Register
Companies (Amendment) Ordinance 2018

Introduction

On 1 March 2018, the Companies (Amendment) Ordinance 2018 ("CAO") will come into force. The new requirements aim to make beneficial ownership of Hong Kong incorporated companies more transparent. Hong Kong incorporated companies (excluding Hong Kong listed companies) will be required to maintain up-to-date beneficial ownership information on their corporate shareholding structure by identifying persons who have significant control over the companies and by maintaining a significant controllers register ("SCR") recording this information. These requirements align Hong Kong's laws with the recommendations put forward by the Financial Action Task Force ("FATF") (of which Hong Kong is a member) to enhance its regulatory regime in relation to money laundering and terrorist financing.

An overview of some of the key requirements is set out below.

Current Legal Position

Although the Companies Ordinance (Cap. 622) ("CO") does not currently require companies to provide information on beneficial ownership, the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) ("AMLO") requires financial institutions to verify the identity of the ultimate beneficial owners in relation to their customers. Such information does not have to be disclosed by the financial institution concerned unless it is compelled to do so by a court order. Hong Kong's Legislative Council considered this lack of transparency to be a key deficiency in Hong Kong's money laundering and counter-terrorist financing regime, and saw the need for Hong Kong's regime to be more consistent with FATF standards.

Significant Controllers

Significant Controllers include both registrable persons and registrable legal entities. A person / legal entity will be registrable if it:-

i) holds, directly or indirectly, more than 25% of the issued shares in the company or, if the company does not have a share capital, the person holds, directly or indirectly, a right to share in more than 25% of the capital or profits of the company; or
ii) holds, directly or indirectly, more than 25% of voting rights of the company; or
iii) holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company; or
iv) has the right to exercise, or actually exercises, significant influence or control over the company; or
v) has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions (in their capacity as such) in relation to the company.

It is noteworthy that the conditions do not relate only to shareholding in a company but also to the influence or control asserted over a company. If an individual does not satisfy the first three conditions, the 4th condition can be relied on, and is a "catch-all" provision to ensure that significant controllers, who may not have the requisite shareholding to be a registrable person / legal entity, would be captured under this head.

The Guideline on the Keeping of Significant Controllers Registers by Companies ("Guideline") elaborates on what amounts to "control" and "significant influence" as follows:-

i) "control" is where a person can direct the activities of a company; and
ii) "significant influence" is where a person can ensure that a company generally adopts the activities which the person desires.

The Guideline notes that significant influence or control over a company may be provided under a company's constitutional documents, or through actions, which if taken, would result in the actual exercise of significant influence or control. Some examples include an ability to amend a company's business plan, appointing or removing the CEO, and changing the nature of a company's business. For the latter, how the individual interacts with a company and other company personnel must be considered. For example, an individual who is not on a company board but is regularly consulted on board decisions may be deemed to have significant influence / or control over the company.

Companies' duty to investigate and obtain information to update the SCR

Companies will be under a duty to take reasonable steps to identify their significant controllers. The Guideline encourages companies to keep and maintain a record of the steps taken to comply with this duty, and provides that the appropriate action depends on the circumstances of a company, but may involve:-

i) reviewing all readily available documents;
ii) considering the interests held by individuals, legal entities, and trusts or firms; and
iii) considering any evidence of joint arrangements or evidence of rights held through means that might ultimately be controlled by the same person.

After these steps are taken, unless a company has already obtained all of the information required to complete the SCR (the required particulars of an SCR are provided under a new Schedule 5B to the CO), it must issue written notices to those who it has reasonable cause to believe are significant controllers within 7 days of the company first attaining such knowledge or belief. This means that for existing significant controllers, companies must issue written notices between 1 – 8 March 2018 to ask for outstanding information, where necessary. Under the new requirements, a company can also issue notices to a third party where it has reasonable cause to believe that the third party may have information of a registrable person / entity. Sample notices to be issued by a company are provided in Annex D to the Guideline. A failure to respond to a notice within 1 month constitutes a criminal offence.

Once the particulars have been confirmed by the registrable person, a company should update the SCR within 7 days of the confirmation. The SCR is to be maintained by the company and be kept up-to-date. Again, if a company has any reasonable cause to believe that there is a registrable change in the particulars of a significant controller, it must give written notice to that person within 7 days of first attaining such knowledge or belief, and ask for the updated information.

Further, a company must designate at least one person to assist law enforcement officers with matters in relation to its SCR. The representative must be a member, director or employee of the company who is a natural person resident in Hong Kong. The representative may also be an accounting professional, a legal professional or a Trust and Company Service Provider licensee as defined in the AMLO.

A company's failure to comply with the above obligations will constitute a criminal offence. The company and each responsible person of the company would be subject to a fine of HK$25,000 (Level 4 fine).

In light of this new wide-ranging Hong Kong law, Hong Kong incorporated private companies should take note of the required particulars to be completed in the SCR and start preparing straight-away. Companies should also immediately start their review of all relevant documents on hand and identify any outstanding information or additional persons who may qualify as a significant controller. Notices based on the Guideline samples should be prepared and issued within the prescribed time limit.

For further details on the new requirements, please refer the external circular No. 2 / 2018 and Guideline issued by the Companies Registry.


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; and 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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News //
Submitted by // K Bowers, Partner / Solicitor Advocate
26 February 2018


Standard Chartered Bank (Hong Kong) Ltd v Lau Lai Wendy and another [2017] HKCU 3268

Clarification of the duty to make full and frank disclosure on ex parte applications 

Introduction 

In the recent case of Standard Chartered Bank (Hong Kong) Ltd v Lau Lai Wendy and another [2017] HKCU 3268, the Court of First Instance ("CFI") reviewed the issue of material non-disclosure in an ex parte application to the Court, and its implications for the applicant if material non-disclosure is established. The present case concerned the substantive hearing of the application for an injunction. The 2nd Defendant applied to discharge the injunction on the ground that there had been material non-disclosure of material facts by the plaintiff at the ex parte stage, such that the Court was deprived of the opportunity to consider matters raised by the 2nd Defendant. Although the Court acknowledged that it would have been better if additional evidence had been exhibited to the affidavit evidence filed in support of the original ex parte application for the injunction so as to avoid allegations of non-disclosure of material facts, the failure to do so in this case did not amount to a material non-disclosure. In doing so, the Court confirmed that the test for materiality is an objective one to consider whether all matters relevant to the Court's "weighing operation" have been disclosed.

Facts

After receiving customer complaints, the Plaintiff bank investigated the conduct of the 1st Defendant, an employee of the Plaintiff. The 1st Defendant admitted during the investigation that she had misappropriated funds from the 2nd Defendant's accounts and had subsequently transferred about US$24m from the Plaintiff's suspense accounts or other customer accounts into the 2nd Defendant's accounts held with the Plaintiff, and had retained some of those funds for her own benefit.

The Plaintiff bank then made an ex parte application for an injunction against the Defendants, which was granted. The 2nd Defendant alleged that there had been material non-disclosure by the Plaintiff bank during the ex parte application as it had not disclosed either the interview statements which were made during the Plaintiff's investigation, or WeChat text messages between the 1st and 2nd Defendants. The 2nd Defendant argued that these details were relevant because they contained the agreement with the 1st Defendant that he was entitled to additional interest payments and accordingly, entitled to the misappropriated funds, meaning that the Court had been deprived of the opportunity of considering a number of matters which were raised in the 2nd Defendant's skeleton submissions. After reviewing all of the matters before it, the Court found that there had been no material non-disclosure, though it did acknowledge that had these matters been disclosed, it would have prevented allegations of material non-disclosure being made in the first place.

The Court should make an objective assessment as to materiality of the undisclosed matter

In considering the 2nd Defendant's case, the Court confirmed that it is the applicant's duty to disclose all matters which are relevant to the "weighing operation which the Court has to make in deciding whether or not to grant the order". The test as to whether a matter is material is an objective one, to be decided by the Court. Any failure by the applicant to disclose relevant matters cannot be justified by the applicant being unaware or not believing the facts to be material to the application.

Further, the Court affirmed the principle that an injunction will not be automatically discharged once it is held that there has been material non-disclosure. If material non-disclosure is established, the Court retains the discretion to continue the order, or to make a new order on terms. In the present case, the Court decided that even if it was incorrect in finding that there was no material non-disclosure, it would have, in any event, granted a fresh injunction. The injunction initially obtained by the Plaintiff was ordered to be continued pending the trial of this action, or until further order of the Court.

Comment

This case is a reminder of the well-established principle that full and frank disclosure must be made by an applicant in respect of any ex parte application. Litigants should be mindful that this duty is not discharged simply by exhibiting bundles of documents mentioned in supporting affidavit evidence. Specific reference to relevant issues referred to in exhibits to the affidavit evidence must be highlighted in the body of the supporting affidavit, or in oral submissions to the Court at the ex parte hearing.


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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News //
Submitted by // K Bowers, Partner / Solicitor Advocate
26 February 2018


Raingate Ltd v Bee Cheng Hiang (Hong Kong) Ltd [2017] 6 HKC 472

Introduction

This case concerned an action arising out of trespass to land. The Plaintiff was the registered owner of the external walls of a building ("External Walls"). The 1st Defendant was the registered ground floor shop owner ("Shop Owner") and the 2nd Defendant was the ground floor shop tenant ("Tenant") under a tenancy agreement entered into between the Shop Owner and the Tenant (together, "Defendants").

The Plaintiff commenced proceedings against the Defendants for trespass, specifically for installing air-conditioning equipment on the External Walls. Whilst judgment was entered against the Shop Owner, the Tenant was granted unconditional leave to defend. The Plaintiff then appealed against the Court's decision for granting unconditional leave to the Tenant to defend.

Summary

It is well established that placing anything on or in land in the possession of another, such as fixing air-conditioning equipment to his / her wall, constitutes trespass to land.

On the facts of the case, it was undisputed that the Tenant had committed the prima facie tort of trespass. The key question before the Court was whether the Tenant could justify its use of the External Wall or raise any credible defence. The defences upon which the Tenant sought to rely were (i) implied licence and/or (ii) acquiescence and estoppel.

(i) Implied Licence

As stipulated in Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd [2007] HKCU 1698, "…passive acquiescence is not enough to establish implied licence. There must be some overt acts on the part of the licensor referable to a licence having been granted to give rise to an implication by conduct." Similarly, it was held in R (Newhaven Port and Properties Ltd) v East Sussex County Council [2015] AC 1547 that "…mere silence or inaction…cannot amount to permitting. In the same way as silence and inactivity on the part of a private landowner cannot, without more, amount to consent…, so would the absence of any express or implied prohibition in the Byelaws, without more, not amount to an implied licence".

In this case, it was the Court's view that the facts relied upon by the Tenant amounted to no more than inaction and silence on the part of the Plaintiff; no positive act, overt or otherwise, was identified. Although it was argued that the Plaintiff did not do anything to stop, object to or complain about the trespass (which it knew about) until a later date, the Court held that "...such inaction…could not conceivably be said to communicate the Plaintiff's permission to the [Tenant] to occupy the outer wall…on the [Tenant]'s own evidence, it did not use the outer wall pursuant to any perceived implicit permission from the Plaintiff; it did so in reliance on the express permission of the [Shop Owner]." Accordingly, it was held that the Tenant's defence of implied licence "...must fail on the facts alleged and relied upon and therefore raised no triable issue".

(ii) Acquiescence and Estoppel

As stipulated in Jones v Stones [1999] 3 EGLR 81, the Tenant must show detrimental reliance in order to establish a defence of estoppel. In this case, there was no plea or evidence whatsoever that the Tenant had relied on the Plaintiff's acquiescence or representation to its detriment. Moreover, the Court found that it was difficult to see what detriment the Tenant could have suffered. In the specific circumstances of this case, the Tenant's bare assertion of an estoppel by acquiescence did not give rise to any triable issue.

Seeing as the Tenant had failed to justify its use of the External Wall and/or raise a credible defence, the Tenant was found liable. Consequently, the Court allowed the appeal, set aside the leave to defend and entered interlocutory judgment against the Tenant for damages and mesne profits to be assessed.

Comment

This case provides general guidance on the requisite criteria when a trespasser attempts to raise the defences of (i) implied licence and/or (ii) acquiescence and estoppel. Nonetheless, it should be borne in mind that all cases are fact-specific and interested parties wishing to bring an action against trespassers should ensure that their legal rights and interests are protected to their fullest extent.

 

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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Press //
Submitted by // C Yu, Partner; A Yung, Partner
15 February 2018

 

Howse Williams Bowers ("HWB"), a leading Hong Kong independent law firm, advised the placing agent, AMTD Global Markets Limited ("AMTD"), as the Hong Kong legal counsel in relation to the issuance of the aggregate principal amount of US$200 million of 7.5% guaranteed bonds due 2019 by ZH International Holdings Limited ("ZH") (Stock Code: 185), whose shares are listed on the Main Board of the Hong Kong Stock Exchange.

AMTD is a Hong Kong-based comprehensive financial institution with services coverage across the People's Republic of China ("PRC") and the world. ZH is a Hong Kong-based investment holding company. Its main businesses include security investment, property investment and management, as well as hotel businesses. ZH operates businesses in Hong Kong, the United States of America, the PRC, Singapore, Japan and elsewhere.

The HWB team was led by partners, Christopher Yu and Antony Yung and assisted by senior associate, Stephen Leung and associates, Sonya Mahbubani and Ryan Liu. The team had the lead responsibility on legal documentation, advising on commercial issues 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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