HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
Trust It is also typical to put in place a trust provision in the assignment (and also in the written notice of assignment to the obligor), expressly provid - ing that any payments received by the origina - tor from the obligor shall be promptly deposited into a designated account held in the name of the issuer, or are deemed to be held on trust for the issuer. Restrictions In practice, the transaction parties will review the underlying contracts in respect of the finan - cial assets (eg, the relevant facility agreement) to determine whether there is any restriction on transfers (eg, a negative pledge restriction). These restrictions are generally enforceable under Hong Kong law. If such restrictions exist, unless otherwise consented to by the obligor, the originator may be in default of these con - tracts for making the transfer, and the transfer could be challenged as void by the obligor. True Sale Transfer and Opinion Refer to 6.1 Insolvency Laws . 6.4 Construction of Bankruptcy-Remote Transactions Although there are certain alternatives to effect the transfer of the subject assets, such as through a declaration of trust or through synthet - ic swaps, these alternatives may not necessar - ily achieve the bankruptcy remoteness desired in a securitisation, depending on how they are constructed. Insolvency Opinions In Hong Kong securitisations, insolvency opin - ions may be obtained. This is to assess and con - firm the bankruptcy-remote nature of the SPE involved in the securitisation, and is crucial for ensuring that the SPE remains distinct and sepa -
• the subject assets must not be subject to any form of encumbrance nor otherwise be restricted or prohibited from transfer, whether contractually or by law; and • the obligor of the subject assets (eg, the bor - rower of the loans) must be notified of such assignment (the notice of assignment can be served on the borrower by either the origina - tor (as assignor) or the issuer (as assignee). This is sometimes called the perfection step. If an assignment fails to meet any of the above conditions, it would still be enforceable but instead would be an “equitable assignment” until all these conditions are satisfied. Notice of assignment Although a transfer would not be ineffective solely because of a failure to notify the obligor, the issuer (being the buyer of the assets) will not be able to enforce its rights directly against the obligor in the event of default by the obligor; rather, the issuer would be required to join the originator in the proceedings against the obligor by adding the name of the originator as a claim - ant to any claim against the obligor. Insofar as the form of the notice of assignment is concerned, the obligor must be informed with reasonable certainty that there has been an absolute and irrevocable assignment of the assets so that the obligor knows who it has to pay in the future, and the notice must be uncon - ditional. Perfection A legal assignment is perfected once the obligor of the receivables is notified of the assignment in writing. The requirements of a legal assignment are specifically set forth in Section 9 of the Law Amendment and Reform (Consolidation) Ordi - nance (Cap. 23).
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