HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
goods have been transformed or incorporated into other products. Anti-Assignment Hong Kong law recognises anti-assignment provisions. As such, if security is intended to be taken over contractual rights, the underly - ing contract should be examined to ensure that there are no such provisions or if they exist, rel - evant consents are obtained. In addition, rights under contracts that are “personal” to the con - tracting parties (eg, an employment contract) are not assignable. For completeness, the authors also note that, as a matter of public policy, it is not generally pos - sible to assign (by way of security) a bare right to sue or litigate. 5.6 Release of Typical Forms of Security Security is typically released by way of a deed of release between the parties in respect of which the security was entered into. For any registrations applicable to the grant of security which are noted in 5.1 Assets and Forms of Security , there will be a corresponding de-registration process. 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims Under Hong Kong law, it is possible for chargors to grant multiple charges over the same asset. The rules governing priority of competing secu - rity interests are complex but some general rules are as follows: • as between two fixed charges, the fixed charge which has been granted earlier in time takes priority over the other, provided that if they are registrable, both fixed charges have
been registered within any applicable time limits; • a floating charge becomes a fixed charge only upon crystallisation and ranks behind other fixed charges even if such fixed charges were created after the floating charge (but before it crystallises); and • in respect of assignments and charges over the same chose in action, the starting point is that priority is determined by the creditor that serves notice first on the contract counterpar - ty, provided that at the time of the assignment or the creation of the charge, that creditor did not have any notice of any earlier assign - ment or charge over that chose in action to any other assignee or chargee and was acting in good faith and gave good value for that assignment/charge. Where multiple charges are granted over the same asset, the parties should enter into an intercreditor or subordination agreement. As of the time of writing, there is no direct case law on whether such arrangements would survive insol - vency, but the market practice is to operate on the basis that they do (there are some helpful English law decisions in this area, which may be persuasive). Whilst by definition such form of subordination means there will not be any competing claims, structural subordination is also often employed. 5.8 Priming Liens and/or Claims There is no general statutory framework in Hong Kong which can be relied upon to prime a lender’s lien in the same way as the Bankruptcy Code in the US. ICA terms for regulating second-ranking security typically include the following with exceptions
149 CHAMBERS.COM
Powered by FlippingBook