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Heightened Regulation of the Stock Market: What Directors of Listed Companies Need to Know

The Securities and Futures Commission (“SFC”) and The Stock Exchange of Hong Kong Limited (“SEHK”) both shifted their enforcement strategies and priorities after the conclusion of their joint consultation in 2017 in relation to the regulation of listed companies. The SEHK has stepped up the number of investigations it conducts and the number of resulting sanctions has risen accordingly. At the same time, the SFC has adopted a more pro-active role in exercising its statutory powers to pre-empt corporate misfeasance.

Enhanced Suitability Requirements for the Sale of Complex Products: A Pullback?

New enhanced suitability requirements applicable to the sale of complex products will come into force on July, 6 2019. Though heavy-handed and paternalistic on their face, recent guidance issued by the Securities and Futures Commission appears to soften the impact of these requirements. In this article, we discuss the major changes.

Hong Kong Judicial Assistance to Foreign liquidators: Ripe for Appeal?

Though Hong Kong has yet to enact legislation to deal with cross-border insolvency, the Court of First Instance has taken the pragmatic position that it has the jurisdiction to assist liquidators appointed under a winding-up in a foreign jurisdiction by making orders to recognize those liquidators in Hong Kong and to require persons in Hong Kong to produce documents to those liquidators, to submit to examinations by those liquidators and to stay proceedings. This is so even though the Hong Kong statutory provisions governing these matters in a winding-up in Hong Kong have not been invoked through a winding-up in Hong Kong. The absence of legislation providing jurisdiction for this position raises an issue as to whether persons in Hong Kong who are subject to such orders by a foreign liquidator may wish to consider challenging such orders.

Opening Bank Accounts: Duties of Banks in Hong Kong to Combat Tax Evasion

Hong Kong money laundering laws require banks to assess the risk of tax evasion in evaluating bank account opening applications. Prospective customers applying to open bank accounts must exercise sensitivity in understanding how their overall profile looks objectively from a tax evasion perspective to a bank and must exercise care in managing the presentation of their profile.

Opening a Bank Account in Hong Kong: Latest Regulatory Developments

For many new businesses, opening a bank account is a mission critical task. Unfortunately, as a result of significant growth in laws intended to combat money laundering and tax evasion and to enforce international sanctions, the process of doing so in Hong Kong has become a Herculean challenge which not infrequently results in a disappointing dismissal by the bank of the account opening application. In a recent circular to banks, the banking regulator attempts to address these difficulties.

Provisional Liquidation for Restructuring: A review of the State of the law

Whilst the Companies Ordinance in Hong Kong provides that a scheme of arrangement may be carried out for the purpose of a debt restructuring, it makes no provision for a moratorium on creditor enforcement processes during the time in which the scheme is in progress. For a time, the courts filled this legislative lacuna by placing companies into provisional liquidation and empowering the provisional liquidators to pursue a corporate rescue with the benefit of the statutory moratorium on creditor enforcement processes that is triggered upon a provisional liquidation. However, a 2006 decision of the Court of Appeal casts doubt on the viability of this approach. These doubts have lingered since then though the courts have continued from time to time to tolerate provisional liquidations for restructuring purposes. The recent decision in Re China Solar goes some way to allaying these doubts.

Freezing Assets in Cases of Suspected Money Laundering: Constitutionality and Civil Liability

A recent decision of the Court of Appeal rejected a constitutional challenge against the “no-consent” regime under the Organised and Serious Crime Ordinance. The regime prohibits a person including a financial institution from dealing with property which the person knows or has reasonable grounds to believe are proceeds of crime unless the Joint Financial Intelligence Unit (JFIU) consents to such dealing. Though the consequences for a bank account holder can be a catastrophic loss of liquidity where consent is refused and that illiquid situation can persist indefinitely with no transparent process to hold the JFIU accountable, the court declined the opportunity to require greater safeguards. However, the court left open the possibility of a future constitutional challenge on the question of whether the regime was sufficiently certain and seemed to suggest that a heavier burden rests on financial institutions and other persons to ensure that they are not too aggressive in refusing access to accounts.

Reminder: New Tax Exemption for Private Funds Commences on April 1, 2019

With the gazetting on March 1, 2019 of the new Inland Revenue (Profits Tax Exemption for Funds) (Amendment) Ordinance 2019 (“Amendment Ordinance”), from April 1, 2019, the tax position of investment funds in Hong Kong will be governed by a new tax exemption (“Private Funds Exemption”). Though the new exemption is broadly similar to the exemption (“Offshore Funds Exemption”) previously relied upon, there are significant differences, including:

SFC Implementation of New Suitability Requirements for Sale of Complex Products Extended to July 6, 2019

SFC imposes restrictive code of conduct updates upon intermediaries to combat mis-selling as part of its prioritised regulatory efforts since the Lehman Brothers mini-bond debacle in 2008.

The New Private Funds Exemption: an Update on Discussions with the Inland Revenue Department

The Inland Revenue (Profits Tax Exemption Amendment) Bill represents a major step forward in allowing private funds, including hedge funds and private equity funds, managed from Hong Kong to obtain exemption from profits tax. Amongst other things, the Bill will provide bright line tax certainty for open-ended fund companies. At the same time, the Bill will allow funds to maintain their tax residency in Hong Kong, meaning that such funds will no longer be required to undertake board activities outside of Hong Kong and will no longer be required to maintain directors resident outside of Hong Kong to qualify for tax relief. Finally, the Bill will provide greater flexibility for tax relief in the context of private equity investments both in and out of Hong Kong. The Bill is on track to come into effect in April, 2019 and discussions with the IRD to date suggest that the IRD will be helpful in construing the legislation for the benefit of the asset management industry.

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