Our Partner Gordon Tsang was interviewed by Bloomberg to share his view on the recent China Evergrande Group (3333.HK) (“Evergrande”) winding-up lawsuit in response to the article “Millennial Threatens Evergrande With Wind Down in Latest Setback”.

Lin Ho Man, an investor in Evergrande, filed a winding-up petition against the embattled property company involving HK$862.5 million. This is the first winding-up petition known to have been filed against Evergrande, which is at the centre of China’s real estate crisis with more than $300 billion of debt. Gordon shared with Bloomberg that some of the creditors in Hong Kong might be concerned that the developer may fail to honour their agreements, and therefore join the suit to demand quicker repayment as Evergrande’s restructuring could take months or even years to unravel. He added, “The winding-up petition may add pressure and costs for the company and have a significant impact on Evergrande’s coming restructuring plan.”

For more information, please contact our Partner Mr. Gordon Tsang, or click here to view the complete interview.

Our Partner Gordon Tsang was recently interviewed by Thomson Reuters Beijing to share his insights on corporate repaying debts by listing in Hong Kong in response to the article “Tianqi Lithium Ends Trading Debut Through IPO in Hong Kong, Lithium Prices Continue to Soar, How Long Will The Trend Last? (天齐锂业赴港上市还债翻身，锂价飙涨春风还能吹多久？)”.

Tianqi Lithium (002466.SZ), a Chinese battery-grade lithium carbonate producer, recently applied for a second listing in Hong Kong. It successfully raised over HKD 10 billion to ease debt pressure, making it Hong Kong’s largest IPO so far this year. Gordon shared his views with Reuters Beijing by saying that “It is usually difficult to obtain approval for fund-raising through listing to pay debts because the Hong Kong Stock Exchange may have concerns about a company’s sustainable development if most of the funds raised are not used to expand a company’s business or growth.”

For more information, please contact our Partner Gordon Tsang.

On 8 July 2022, our Partner Rodney Teoh was invited by Shenzhen Public Companies Association (深圳上市公司协会) to be a guest speaker at the “Lesson 3 of Xingyao Pengcheng & Xiangmihu Accelerator (星耀鹏城&香蜜湖加速器) Overseas Listing Seminar: Overseas Listing Legal Issues and Case Analysis”, introducing and analysing the new listing opportunities for Special Purpose Acquisition Companies (“SPACs“) in Hong Kong.

Our Partner Rodney Teoh

This seminar was jointly organised by Service Bureau for Small and Medium-sized Enterprises of Shenzhen Municipality (深圳市中小企业服务局), Futian Financial Service Bureau (福田区金融工作局), Shenzhen Public Companies Association (深圳上市公司协会), Xiangmihu (Shenzhen) Industry and Finance Innovation / Listing Accelerator (香蜜湖（深圳）产融创新／上市加速器), and attracted more than 60 senior management officers of prospective listing applicants.

Our Partner Rodney Teoh spoke on the topic “New Opportunities for Hong Kong SPAC Listing”. He gave an in-depth introduction to Hong Kong’s SPAC listing regime, including the investment highlights, laws and regulations, as well as the typical processes and requirements of SPAC listing and De-SPAC. He then compared the differences among SPAC listings in Hong Kong and around the world. He concluded his talk with the case studies on Hong Kong SPAC listings and shared the execution highlights of such listings.

About Xiangmihu (Shenzhen) Industry and Finance Innovation / Listing Accelerator (香蜜湖（深圳）产融创新／上市加速器)

Xiangmihu (Shenzhen) Industry and Finance Innovation / Listing Accelerator (香蜜湖（深圳）产融创新／上市加速器) is a professional service platform for prospective listing applicants, which is guided by the Strategic Cooperation Framework Agreement (《战略合作框架协议》) entered into by the Shenzhen Municipal People’s Government and the Shenzhen Stock Exchange in 2018. It is jointly established by the Shenzhen Stock Exchange and the People’s Government of Futian District and operated by the Shenzhen Public Companies Association (深圳上市公司协会).

The webinar has received positive feedback from the audience.

For more information, please contact our Partner Rodney Teoh.

Stevenson, Wong & Co. acted as the Hong Kong legal advisers to Intelligent Living Application Group Inc. (NASDAQ: ILAG) (“Intelligent Living”) on its successful listing on the Nasdaq Capital Market on 13 July 2022. Intelligent Living offered a total number of 5,060,000 Ordinary Shares, priced at US$4.00 per share, raising gross proceeds of approximately US$20,240,000.

Intelligent Living is a premium lockset manufacturer in Hong Kong, manufacturing and selling high quality mechanical locksets to customers mainly in the United States and Canada. Having continued to diversify and refine its product offerings, Intelligent Living has, since 2000, offered products that comply with the American National Standards Institute (ANSI) Grade 2 and Grade 3 standards developed by the Builders Hardware Manufacturing Association (BHMA) for ANSI and has obtained the ISO9001 quality assurance certificate. Intelligent Living continues to invest in self-designed automated product lines, new craftsmanship and developing new products which include smart locks.

Our Partners Mr. Hank Lo, Mr. Gordon Tsang, and Associate Mr. Bun Chan, acted as the Hong Kong legal counsel for the issuer in the Nasdaq Listing.

Please contact Mr. Hank Lo or Mr. Gordon Tsang for any enquiries or further information about this transaction.

Introduction

On 24 June 2022, the Hong Kong government gazetted the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (the “Bill”)¹, proposing changes to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (the “AMLO”)². Following the Consultation Conclusions ³ on the same subject published by the Financial Services and Treasury Bureau on 21 May 2021 (please see our news update), the Bill introduces a licensing regime for virtual asset service providers (“VASPs”) and a registration regime for dealers in previous metals and stones (“DPMS”) to impose statutory anti-money laundering and counter-terrorist financing (“AML/CTF”) obligations on the two sectors. The Bill has been introduced into the Legislative Council (“LegCo”) for first reading on 6 July 2022. This news update focuses primarily on the regime for VASPs.

Scope of the proposed VASP licensing regime

The licensing regime for VASPs will come into effect on 1 March 2023 pursuant to the Bill. Under this regime, a licence issued by the Securities and Futures Commission (the “SFC”) will be required for the carrying on of a business of operating a virtual asset (“VA”) exchange.

The operation of a VA exchange is defined in the Bill as providing services through means of electronic facilities:-

(a) whereby-
(i) offers to sell or purchase VAs are regularly made or accepted in a way that forms or results in a binding transaction; or

(ii) persons are regularly introduced, or identified to the other persons in order that they may negotiate or conclude, or with the reasonable expectation that they will negotiate or conclude sales or purchases of VAs in a way that forms or results in a binding transaction; and

(b) where client money or client VAs comes into direct or indirect possession of the person providing such service.

Any person who carries or holds themselves out as carrying on a business of providing VA service; and any person, whether in or outside Hong Kong, who actively markets to the public in Hong Kong any VA services he provides or purports to provide will have to submit a licensing application to the SFC. Licensees will be required to meet fit and proper requirements and comply with the AML/CTF and other regulatory requirements.

Definition of virtual assets

Following the proposed amendments, VAs will be defined under the AMLO as a cryptographically secured digital representation of value that:

• is expressed as a unit of account or a store of economic value;
• either:
  • is used, or is intended to be used, as a medium of exchange accepted by the public, for (i) payment for goods or services, (ii) discharge of a debt and/or (iii) investment; or
  • provides rights, eligibility or access to vote on the management, administration or governance of the affairs in connection with, or to vote on any change of terms of any arrangement applicable to, any cryptographically secured digital representation of value;
• can be transferred, stored or traded electronically; and
• satisfies other characteristics prescribed by the SFC;

or alternatively:

• a representation of value prescribed as a virtual asset by the Secretary for Financial Services and the Treasury by notice published in the Gazette.

Echoing the clarifications made in the Consultation Conclusions, the definition of VA currently excludes any digital representation of value that⁴:

• is issued by a central bank or by an entity that performs the functions of a central bank or by an entity authorized by a central bank on its behalf;
• is issued by a government of a jurisdiction, or by an entity authorized by the government of a jurisdiction and acting pursuant to an authority to issue currency in that jurisdiction;
• is limited purpose digital tokens;
• constitutes securities or a futures contract;
• constitutes any float or SVF deposit of a stored value facility as defined in the Payment Systems and Stored Value Facilities Ordinance (Cap. 584);
• satisfies other characteristics prescribed by the SFC which precludes it from being a VA; or
• is prescribed not to be a VA by notice published in the Gazette by the Secretary for Financial Services and the Treasury.

Licensing requirements
To be eligible for a VASP licence, applicants must be a locally incorporated company with a permanent place of business in Hong Kong or a company incorporated elsewhere but registered in Hong Kong under the Companies Ordinance (Cap. 622). This is to ensure that the SFC can effectively monitor the operation of the licensed VASPs.

In addition, the SFC must be satisfied that:

• the applicant is a fit and proper person to be licensed for the VA service;
• the applicant will appoint at least 2 SFC-approved responsible officers (“ROs”), each of whom is a fit and proper person to be associated with the business of providing the VA service, and at least one of whom is an executive director;
• each director of the applicant is fit and proper; and
• the ultimate beneficial owner of the applicant is fit and proper.

ROs are held to be personally accountable in case of non-compliance. Only individuals licensed by the SFC to be licensed representatives and whose accreditation to a VASP are approved by the SFC may carry out regulated functions on behalf of the VASP. Licensed representatives are expected to meet the qualification requirements and should be competent to carry out VA trading services.

Investor protection

At the initial stage of the regime, VASPs can only provide services to professional investors⁵. This requirement will likely be imposed by the SFC as a licensing condition, allowing SFC room and flexibility to expand the scope of VASP services and to allow VA exchanges to operate and provide services to retail investors in the future.

Furthermore, the VASP regime will consider licensing applicants’ company and management structure, and soundness of their business models. In addition, there will be requirements for detailed risk management policies as well as listing and counter-market manipulation measures. The Bill provides a list of possible licensing conditions the SFC may impose, apart from the abovementioned conditions, it may also require AML/CTF policies and procedures, financial reporting and disclosure, virtual asset listing and trading policies, cybersecurity and more⁶.

Supervisory powers of the SFC

The Bill grants the SFC broad supervisory powers over licensed VASPs. These include the power to enter the premises of the licensed VASP and its associated entities for routine inspections⁷, request the production of documents and records⁸, investigate non-compliances, impose disciplinary sanctions against non-compliant licensees⁹ and appoint an auditor to look into the affairs of a licensed VASP and its associated entities¹⁰.

The SFC is also empowered to impose prohibitions and requirements on the operation of a licensed VASP where the circumstances so warrant¹¹. Intervention powers of the SFC may include prohibiting the licensed VASP from entering into further transactions¹² and restricting the licensed VASP from dealing with or disposing of any relevant property¹³.

Offences under the proposed VASP regime

Enhancing and amending AML/CTF regulations entail creating a new enforcement regime to monitor regulated VA exchange activities in Hong Kong.

Providing a VA service without the relevant licence, or actively marketing (in Hong Kong or elsewhere) to the public of Hong Kong the services of an overseas VA exchange without a licence by the SFC, will be an offence punishable, on conviction on indictment, to a fine of HK$5 million and to imprisonment for seven years, and in the case of a continuing offence, to a further fine of HK$100,000 for every day during which the offence continues; or, on summary conviction, to a fine of $500,000 and to imprisonment for 2 years and a further fine of $10,000 for each day during which the offence continues¹⁴.

Time frame and transitional period

The Bill provides for transitional arrangements for existing VA exchange business operators. The transitional period will last for 12 months beginning on 1 March 2023 for any corporation carrying on a business of providing a VA service¹⁵.

If an existing operator files an application with the SFC within the first 9 months (by 1 December 2023) and confirms that it will comply with the regulatory requirements applicable to a licensed provider of the VA service and that it has arrangements in place to ensure it complies with such requirements, the operator will be deemed to be licensed until the SFC has made a decision on its application.

The SFC will be empowered by the Bill to issue a notice to unsuitable applicants informing them that they will not have a deemed licensed status. These applicants will be required to close down their business by the end of the 12-month transitional period.

Therefore, prospective applicants for the VASP licence and VA exchanges considering entering the Hong Kong market should ensure they are operating in Hong Kong as soon as possible prior to the enactment of the Bill so they can benefit from the transitional arrangements.

Analysis and Takeaways

Despite not being named directly in the Legislative Council Brief on the Bill or the Bill itself, the definition of VA appears to apply equally to “stablecoins” in consonance with the Consultation Conclusions. It is also worth mentioning that the definition in the Consultation Conclusions did not include elements such as “the provision of rights, eligibility, or access to vote”, which are now included in the Bill. This seems to broaden the scope of VAs covered by the licensing regime.

In particular, we note that whether an NFT is a VA depends on the circumstances, and it is important to consider not merely its form but also its substance. We understand that an NFT project could sometimes involve a Decentralised Autonomous Organisation (“DAO”), a community-led organisation which allows members to vote on the direction of their entity. DAOs related tokens granting members voting rights seem to fit part of the definition of a VA under the Bill for its nature as a “governance token”. As such, it is therefore important for service providers to think about the true nature of a NFT in ascertaining whether they need to apply for a VASP licence.

It is also noteworthy that the regulatory ambit seems to align with that of the SFC as stated in its first substantive statement on NFTs released on 6 June 2022 – if an NFT is a genuine digital representation of a collectible, activities related to it do not fall within the SFC’s regulatory remit.

While it is arguable that certain NFTs may not be captured by the definition of VA at the moment, the Bill provides that the Secretary for Financial Services and the Treasury will be empowered to prescribe particular digital representation of value as a VA by publishing a notice in the Gazette, thereby expanding the scope of VAs in the future.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information. Rodney would like to thank Mr. Calvin Lo (Trainee Solicitor) and Ms. Gladys Wong (Intern) for their contributions to this news update.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

¹ Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (the “Bill”)
² Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615)
³ Consultation Conclusions on Public Consultation on Legislative Proposal to Enhance Anti-Money Laundering and Counter-Terrorist Financing Regulation in Hong Kong published by the Financial Services and the Treasury Bureau dated May 2021
⁴ Section 53ZRA(2), the Bill
⁵ Para 6, Legislative Council Brief Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022
⁶ Section 53ZRK(5), the Bill
⁷ Part 2, Division 2, Clause 11(1B)(a), the Bill
⁸ Part 2, Division 2, Clause 11(1B)(b), the Bill
⁹ Section 53ZSO, the Bill
¹⁰ Section 53ZSG, the Bill
¹¹ Section 53ZSX, the Bill
¹² Section 53ZSY, the Bill
¹³ Section 53ZSZ, the Bill
¹⁴ Section 53ZRD, the Bill
¹⁵ Schedule 3G, Part 2, the Bill
¹⁶ SFC reminds investors of risks associated with non-fungible tokens” announcement published by the Securities and Futures Commission, dated 6 June 2022

(中文) 立法背景及引言：

本港律师现时处理诉讼案件主要是按时收费。根据现行相关法例、行为操守的守则， 以及普通法下禁止包揽诉讼和助讼的法则，律师目前不得就争讼事务与当事人订立按条件收费或按判决金额的收费安排，即一般「不成功、不收费」的讼费安排为不合法的。

但这局面将会在仲裁案件方面迎来突破性的进展。香港特区政府在2022年3月25日将《2022年仲裁及法律执业者法例 (与仲裁结果有关的收费架构) (修订) 条例草案》(简称“《条例草案》”) 刊登宪报，在同月30日提交立法会，《条例草案》经三读表决通过后，《2022年仲裁及法律执业者法例 (与仲裁结果有关的收费架构) (修订) 条例》(简称“《条例》”)自2022年6月30日起正式实施。

《条例》旨在修订《仲裁条例》及《法律执业者条例》，以订定在仲裁案件采用与结果有关的收费架构 (Outcome related fee structures (简称 “ORFS”) ) 的协议之有效性及可强制执行性，并准许律师就在香港及香港以外地方进行的仲裁采用以下三类ORFS协议。

《条例》亮点:

《条例》主要采纳香港法律改革委员会于2021年12月发布报告书中的建议，并提出3种容许律师与当事人订立的ORFS协议：包括 (1) 按条件收费模式 (Conditional Fee Agreement)，(2) 按损害赔偿收费模式 (Damages-based Agreement) 及 (3)混合式按损害赔偿收费模式 (Hybrid Damages-based Agreement)。

1.按条件收费协议 （「成功先收费」及/或「不成功，低收费」模式）
按条件收费协议大概细分为两种模式。
「成功先收费」的安排是指，律师在法律程序过程中不收取费用，只有当事人在该事宜中取得成果的情况下（如当事人索赔成功），该律师才可以就该事宜收取「成功费用」。
另一种「不成功、低收费」的安排即是指，律师在法律程序过程中按惯常收费率或折扣收费率收取费用，如当事人索赔成功，其向律师支付一笔额外的「成功费用」。

就以上两种安排而言，「成功费用」的数额既可以是由双方议定的固定金额，也可以按照法律程序过程中所收取费用的某个百分比额外计算。

2.按损害赔偿收费协议 （「不成功，不收费」模式）
在按损害赔偿收费协议底下，只有当事人在该法律程序中取得「财务利益」的情况下，其律师才可以就该事宜收取费用（简称“DBA费用”）。
简单而言，如当事人的案件败诉，其律师将不收取费用，即「不成功，不收费」。如当事人获得胜诉，根据按损害赔偿收费协议，其律师的收费则参照法律程序的结果计算，如当事人在仲裁中获判给或讨回的款额的某个百分比。

3.混合式按损害赔偿收费协议（「不成功，低收费」模式）
混合式按损害赔偿收费协议结合了「按条件」及「按损害赔偿」两种模式。律师不但可以就其所提供的法律服务收取费用（一般按折扣收费率收取），并在当事人索赔成功时，另收取额外按损害赔偿收费协议费用。

《条例》范围及披露要求:

值得关注的一点为，《条例》始终围绕仲裁程序而定，仅适用于以香港和香港以外的地方为仲裁地的仲裁，其适用性并未伸延至包括民事或刑事诉讼程序，因此助讼和包揽诉讼在本港仍然禁止。另外，《条例》亦明确订明，仲裁ORFS协议在人身伤害申索的范围内应属无效且不可执行。
同时，《条例》也就仲裁ORFS协议订立及完结需作的披露做出相关规定。如果当事人与其律师订立了ORFS协议，《条例》要求该律师须在仲裁展开时或在该ORFS协议订立后的15日内，向仲裁的其他每一方及仲裁机构发出书面通知，说明 (i) 已订立ORFS协议的事实，以及 (ii) 当事人的姓名或名称。

相关规则及实务守则:
值得注意的是，虽然《条例》已就容许律师与当事人订立的ORFS协议的大方向定局，但相关细节及ORFS协议条款仍有待司法机构及相关业界人士进一步商讨及敲定。《条例》第98ZL条明确订明 「咨询机构」 可就仲裁ORFS协议订立一般条款及各ORFS 协议个别订立指定条款（如律师可收取当事人财务利益作DBA费用的上限等），以利便有效施行《条例》。另外，《条例》第98ZM条亦明确表示，「授权机构」可就仲裁ORFS协议发出实务守则。

业界要密切留意有关ORFS协议规则及实务守则的最新发展，以了解《条列》的实际操作。

點评
随着仲裁当事人对另类费用安排的需求日益增长以及其他首要仲裁地纷纷认可及容许ORFS安排，《条例》的出台无疑是香港仲裁发展史上一大突破性的进展，开创对当事人、仲裁业界以及香港三赢的局面。
ORFS协议的出现让原本因仲裁费用昂贵而却步的当事人获得更多循仲裁途径寻求公义的机会。受惠于《条例》带来的裨益，仲裁业界现有更大自由度与当事人订立收费架构及选项，从而得到更多商机。最后，对于香港而言，此修订有助香港可在公平的环境下，与其他热门仲裁地竞争，进一步提高香港作为仲裁地的吸引力，维持香港作为国际仲裁中心的地位。

本文由本所合伙人，诉讼及争议解决部主管徐凯怡律师和陆卓楠实习律师共同撰写。若阁下想了解更多详情，请联络本所徐凯怡律师。

感谢实习助理郑晓蓝同学就本文内容的背景研究作出的贡献。

于本文中提供的一切资料仅供参考，不构成任何法律意见，资料亦受制于适用规定及法例不时的更新与修改。若需取得相关法律意见，须咨询法律顾问。