HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
• the general requirement for corporate benefit; and • financial assistance rules (see 5.4 Restric- tions on the Target ). 5.4 Restrictions on the Target Under the CO, if a person is acquiring shares in a Hong Kong-incorporated company, neither that company nor any of its subsidiaries shall directly or indirectly provide financial assistance for the purpose of such acquisition. This prohibition applies before or at the time of the acquisition, as well as after acquiring shares. The legislation clarifies that a company is not prohibited from giving financial assistance for the purpose of an acquisition of shares in its holding company, if such holding company is incorporated outside Hong Kong. The CO sets out certain exceptions to the finan - cial assistance rule and additionally sets out a whitewash procedure which can be adopted to overcome the general prohibition outlined above. Such procedure requires: • a resolution of the directors that the company should give the financial assistance, that the giving of such financial assistance is in the bests interests of the company and the terms and conditions under which the assistance is to be given is fair and reasonable; • a solvency statement on the same day as the above resolutions are passed made by each of the directors who voted in favour of giving the financial assistance; • the proposed financial assistance is approved by written resolution of all members of the company; and • the financial assistance is given not more than 12 months after the date on which the solvency statements are made.
Some variations to the above are possible but the above steps are generally preferred as they are usually most easily satisfied. 5.5 Other Restrictions Unless the parties are operating in a regulated sector (eg, insurance), there are no particular consents required for the grant of security or guarantees. Hardening Periods Hardening periods in Hong Kong are as follows. • transactions at an undervalue – within five years before the commencement of the winding-up of the company; • unfair preference – within six months before commencement of winding-up proceedings. This period is extended to two years if the unfair preference is given to a person con - nected with the company; • avoidance of floating charges – within 12 months before commencement of winding up proceedings. This period is extended to two years if the floating charge is created in favour of a person connected with the company; • extortionate credit transactions – within three years before liquidation; and • fraudulent conveyance (Section 60 CPO) – no Hong Kong recognises “retention of title” claus - es with the primary legislation having applica - tion to such concepts being the Sale of Goods Ordinance (Cap. 62). Retention of title clauses may not work where the original buyer has on- sold the relevant goods to a third-party bona fide purchaser for value without notice. The effective - ness of such provisions may also be limited in an insolvency of the buyer where the relevant hardening period. Retention of Title
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