HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
grounds upon which the obligations of the seller can be set aside or avoided. 3.3 Principal Perfection Provisions Perfection requirements and provisions vary depending on the type of assets over which security is created and the place of incorporation of the security providers. In the case of a legal assignment of loan receivables, for example, notice must be given to the original obligor under the loans in respect of such assignment, so that the issuer may take actions directly against the obligor in the event of a default by the obligor The principal covenants provided by the origina - tor to the issuer are usually set forth in the sale and purchase agreement of the receivables. Typical covenants include that the originator: • will not transfer or otherwise dispose of the under the loan document. 3.4 Principal Covenants receivables to any other third parties other than as contemplated by the receivables sale agreement and the securitisation transaction; • will not perform or omit to perform any action that would prejudice the interests of the issuer in the receivables; and • will reimburse the issuer for any reduction in the amount received by the issuer under the loan documents due to any set-off by the obligor therein. The principal covenants provided by the issuer to the noteholders and the note trustee are set forth in the trust deed and include positive cov - enants, such as that: • the issuer will keep proper books of account;
• the issuer will hold any payments received from the obligor of the receivables on trust for the noteholders and the note trustee; • the issuer will notify the trustee upon the occurrence of default; and • the issuer will send financial statements to the note trustee upon request. The issuer would also provide negative cove - nants, such as: • the issuer will not create security interests over its assets other than those in connection with the notes; • the issuer will not engage in any activity that is not incidental to or necessary in connection with the notes; and • the issuer will not incur any indebtedness nor give any guarantee or indemnity other than in connection with the notes. 3.5 Principal Servicing Provisions Typically, the originator will also take up the role of a servicer (or an “administrator” as it is some - times called) to provide services with respect to the receivables transferred to the issuer. The originator will enter into a service agreement with the issuer, which sets forth the detailed services to be provided and the payment arrangements in respect of the servicing fee. The terms and conditions of the service agreement are required to be on an arm’s length basis. Terms governing the services provided by the servicer include, without limitation: • provisions for collecting the payments from the obligors under the loans or directing the obligors to make payments to the issuer; • terms for enforcing the covenants, undertak - ings and obligations of the obligors in respect of the loans; and
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