HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
Power of Sale Whilst a power of sale can arise by statute (under the Conveyancing and Property Ordinance (Cap. 219)) the power of sale is almost always explicitly granted by contract pursuant to the provisions of the relevant security agreement. In exercising such power, the chargee is bound to act in good faith and is under a duty to obtain a proper price. Rather than exercise the power of sale directly, the chargee may (and usually will) appoint a receiver to conduct the sale. Foreclosure Foreclosure is a process by which the chargee becomes the absolute owner of the charged/ mortgaged property. It will extinguish the chargor’s equity of redemption and must be sanctioned by a court order. This is not an enforcement method which is commonly pur - sued on account of the need for court proceed - ings and creditor concerns around consolida - tion. Receivers A creditor may appoint a receiver to safeguard its interests either by making an application to the court or, if the contractual terms of the rele - vant security document grant a right of appoint - ment to the creditor, pursuant to such contrac - tual terms. In order to avoid a court application, most security agreements will provide for the appointment of a receiver including the terms of any such appointment. The receiver’s powers are generally regulated by the underlying security documents and normally include powers to take possession of and to sell the property. It is not really possible to speak of a “typical” restructuring. For example, lenders under an ABL
structure will be focused on enforcing security over bank accounts and the receivables. Where the main security asset is real estate, enforce - ment of the property mortgage may be foremost in the lender’s mind. Share pledges can certainly be expected to play an important role; especially to deal with structurally subordinated creditors and where the view is that the maximum reali - sation value lies in a sale of the business as a going concern. 6.2 Foreign Law and Jurisdiction Foreign Governing Law and Submission to Jurisdiction Hong Kong courts usually recognise and apply the parties’ choice of law to govern the substan - tive merits of a claim subject to certain excep - tions, for example: • when the choice of foreign law is not bona fide; and • when the choice of foreign law contradicts public policy. It should be noted that Hong Kong courts will apply local law in relation to procedural rules, revenue matters, penalties or confiscation of property. Waiver of Immunity The Foreign State Immunity Law (FSI) in the PRC came into force on 1 January 2024. Whilst its precise application in Hong Kong remains to be seen, FSIL has opened the possibility for con - tractual and treaty-based waivers of immunity from both suit and execution to be recognised and upheld by the courts in Hong Kong. This is in contrast to the common law position before the FSIL which provided that contractual waivers of immunity were not effective and that immunity could only be waived “in the face of the court”
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