On 10 September 2020, the Private Wealth Management Association (PWMA) and Society of Trust and Estate Practitioners (STEP) HK co-organised a webinar themed “Practical Considerations on Managing Wealth and Assets of Vulnerable Clients”, addressing members, including private bankers, trustees, lawyers and accountants, on business social responsibility and ethics when serving vulnerable clients.

Our firm’s partner, Ms. Sherlynn Chan, TEP, together with two other TEP members, Ms. Joanna Caen, Managing Director of PraxisIFM and Mr. Ken To, Barrister of Sir Oswald Cheung’s Chambers were the speakers. The topic of the webinar was well received and attracted over 110 participants.

With the rapidly ageing population, the webinar aimed to raise awareness amongst the audience on the importance of issues relating to mental capacity, protection of vulnerable clients, and ethical banking.

For more information on this webinar, please go to the following links: PWMA, STEP HK.
Please contact Ms. Sherlynn Chan for more information or further enquiries.

On 14 September 2020, Wendy Lam, partner and head of SW Private Client Department, was invited to speak at a 2-day virtual conference titled “Supporting, Healing, Reconstructing – The New Landscape” by The Law Society of Singapore.

The 3rd annual Family Conference aimed to benefit practitioners in the field with updates of the multifaceted developments in family law. Different expert panels with prominent local and foreign judges, practitioners and academics covered different perspectives on topics that are central to the practice of family law. Wendy discussed the multiplicity of proceedings in family and probate matters from a Hong Kong perspective, and explored with the co-panellists from Singapore and Malaysia the challenges faced in different jurisdictions.

The conference was a huge success which was widely covered in the local press and attracted more than 400 participants.

Please contact Ms. Wendy Lam for more information or further enquiries.

In most Hong Kong divorce proceedings, an application for maintenance pending suit (“MPS”) is one of the crucial matters for consideration.  It often takes a year for a divorce and even longer when there are disputes in the main suit, custody and welfare of children of the family, and/or ancillary relief and division of the matrimonial assets. Can a party to the divorce proceedings receive maintenance in any kind if he/she does not have sufficient financial resources pending suit?

According to section 3 of the Matrimonial Proceedings and Property Ordinance (Cap. 192) (“MPPO”), Hong Kong Court has the discretion to order a party to the divorce proceedings to pay MPS to the other party.  If the financially weaker spouse and/or the children do not have sufficient financial resources to sustain their expenses, the spouse can apply to the Court for MPS.  If granted, the Court normally orders payments for MPS to commence immediately, which lasts until the final ancillary relief order or further order of the Court.  In making such order, the Court is required to balance the reasonable needs of the applicant spouse and/or the children against the paying spouse’s ability to pay by adopting a broad brush approach.

However, after the MPS Order has been awarded, either party can apply for variation of the said Order due to any change in his/her financial circumstances such as income, assets and/or liabilities. Since the variation will have great impact on the party receiving the MPS, the Court will take extra care in considering any variation application.

In this article, we will share and explain the legal issues in KCMA v ABC and others [2020] HKCFI 1078 in relation to an application to vary the MPS Order.

Background

We acted for the Wife who successfully defended against the Husband’s application to adjust the MPS Order downward at the High Court on an urgent basis during the General Adjourned Period enforced by the Judiciary during the COVID-19 crisis. Pursuant to the previous MPS Order made by consent, the Husband was to pay, amongst others, MPS for the Wife at HK$26,450 per month and MPS for the 3 children at HK$79,350 per month (HK$26,450 for each child).

The Husband sought to reduce the MPS to HK$13,600 per month for the Wife and HK$13,600 per month for each child on the basis that there had been a material decrease in his income.

Legal Principles

Section 11(1) of MPPO empowers the Court to vary or discharge the order of financial provision; section 11(7) of MPPO stipulates that in exercising the power under section 11(1), the Court is required to have regard to all the circumstances of the case and any changes on matter to which the Court was required to have regard when making the MPS Order.

In addition, the Court cited the principles from a Court of Appeal judgment AEM and VFM [2008] 3 HKLRD 36, CACV 261/2006:

• According to s.11(7) MPPO, the Court is required to consider all the circumstances of the case. 

• The Court is not required to proceed from the starting point of the original order but look at the matter afresh.

• Any change in any of the matters to which the Court was required to consider when making the original order must be taken into account. For example, the increase in spending necessitated by the growth of children, the adverse impact arisen out of increasing living cost etc. An increase in the wealth of the husband was a relevant factor to be taken into account.  

• The basis and intended effect of the original order are relevant factors to which the Court on variation should pay regard and there should not be a radical departure from the approach taken by the parties themselves when they entered into an agreement embodied in a consent order.

Court’s Decision

The husband’s application was refused based on the abovementioned statutory and common law principles.  The Court had taken into consideration the following factors:

• The Husband contended that his income was gravely reduced by 40%. The Court compared the husband’s income as at 11 December 2018 (the date on which the MPS order was made) and his present income, his then and present assets and liabilities, comprehensively considered the Husband’s living expenses and reasonable needs, and came to the conclusion that there was no evidence to support the Husband’s case that his income had been reduced by 40%.

• The Court further considered the Wife’s income, assets and liabilities, the children’s and her living expenses and reasonable needs. The Court emphasised that the Wife was a housewife and was wholly financially dependent on the Husband.  There was no evidence suggesting there was any alternative source of income available to her.  The Court therefore considered that the original MPS Order was reasonable in maintaining the Wife and their children’s daily expenses.

After considering all the factors, the Court decided that the Husband was able to afford the MPS, and that even after paying the MPS, he would still have the funds to cover his daily expenditures.

Although the Husband claimed that the duration of the MPS Order was unexpectedly long, the Court pointed out that the MPS Order had been made by consent, and was based on the Husband’s average income for at least 3 years. There was no evidence that the parties had intended that such agreement was to be re-visited or varied annually.

Commentary

MPS is an important matter to be considered in the divorce proceedings. The Court is required to balance the reasonable needs of the applicant spouse and/or the children against the paying spouse’s ability to pay by adopting a broad brush approach.

When either party subsequently seeks to vary a MPS Order, the Court will carefully scrutinise the application.  As the Court of Appeal principle cited by the judge in the present case, “the basis and intended effect of the original order are relevant factors to which the Court on variation should pay regard, and there should not be a radical departure from the approach taken by the parties themselves when they had entered into an agreement embodied in a consent order”.

This article is co-authored by our experienced Private Client Team – our Partners Catherine Por and Wendy Lam, and our Senior Associates Karl Wong and Calvin Lo. Please contact our Catherine Por or Wendy Lam for any further enquiries or information.

This newsletter 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.

The Cayman Islands have long been the pre-eminent jurisdiction for investment funds which typically take the form of a segregated portfolio company (“SPC”) or a limited partnership despite its high formation and maintenance cost.  It is mainly due to the fact that the Cayman Islands have no direct taxes of any kind.  However, its tax efficiency has been largely discoloured by legislation in relation to economic substance.

In an attempt to attract investment funds to establish and operate in Hong Kong and lead Hong Kong into becoming a premier international asset and wealth management centre, the Hong Kong Government has made great effort to further enhance Hong Kong’s position in asset and wealth management by diversifying Hong Kong’s fund structures and offering tax relief.  Further to the introduction of the new open-ended fund company regime in July 2018, the Limited Partnership Fund Ordinance (Cap. 637) (the “Ordinance”) came into effect on 31 August 2020, under which a new fund structure named limited partnership fund (“LPF”) is now available within the international financial hub.

A LPF is a private fund that is structured in the form of a limited partnership.  LPFs established under the Ordinance will not only enjoy the necessary contractual flexibility and flexibility in capital contribution and distribution of profits, but it also provides tax exemptions as well as simplified registration process and dissolution mechanism.

The table below makes a brief comparison of the major elements of the most popular investment vehicles in Cayman Islands, i.e. SPC and exempted limited partnership (“ELP”), with the forthcoming LPF regime in Hong Kong :-

While SPC, ELP and LPF all feature high privacy and tax exemption, and are free from exchange control, Hong Kong LPF is relatively cost-effective by way of its one-off registration fee and relatively low sustaining fee, and unlike running a segregated portfolio company, the LPF has streamlined management which further reduces the administrative costs.  Moreover, its simplified registration procedures allow the investors and fund managers to manage and operate the investment vehicles more easily.

Subsequent to the implementation of the economic substance requirements in the Cayman Islands in January 2019, unless there are special needs for mechanism of segregated portfolios (e.g. investors wishing to switch their investments and/or assets between segregated portfolios at some point during the term), the Hong Kong based LPF would be a favourable option for investors from Hong Kong and all over the world.

For more information or advice on the Hong Kong Limited Partnership regime please contact Hank Lo, Osbert Hui or Ann Chan.

This newsletter is for information purpose only. Its content does not constitute legal advice and shall 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.

Our firm’s Partner Ms. Lai Lam has been recognized as Trade Mark Stars 2020/21 by IP stars.

The research is conducted by an experienced team of research analysts from Hong Kong, London and New York. The aspects assessed for the firm rankings include expertise, workload, market reputation, track record, outcomes achieved for clients, and unique strengths in a given practice area. For a practitioner to be ranked by IP Stars, one must be highly regarded by their peers and/or clients or those that are integral to their firm’s success or reputation.

Lai was admitted to practise as a solicitor in Hong Kong in 1989, in England and Wales in 1993 and in Singapore in 1995. Lai joined the firm in 2002.

Lai’s practice covers all areas of intellectual property. She frequently advises on the selection and suitability of trade marks for use and registration; the proper use of trade marks; opposition and rectification proceedings; the drafting and registration of trade mark licences; and user agreements and the assignment of trade mark rights.

Lai has handled large trade mark portfolios for clients regionally and internationally, in both the private and public sectors and in various fields, including acting for leading international companies operating in fashion and luxury goods.

In addition, Lai is qualified as a member of the Asian Patent Attorneys Association and a former Board Member of Interlaw and Vice Chair for the Asia Pacific Region. She is currently the vice Chair for the Interlaw Diversity, Inclusion and Community Special Business Team for Asia Pacific. She has also been appointed as a Civil Celebrant of Marriages.

About IP Stars

IP Stars is the leading resource for companies or individuals looking for experienced legal practitioners for contentious and non-contentious IP advice. The Managing IP’s legal directory has been covering IP law and practice since 1990 and rebranded in 2013 as IP Stars.

In August 2020, The Stock Exchange of Hong Kong Limited (the “Exchange”) published “Guidance on Disclosures in Listing Documents and Continuing Obligations under Chapter 37 – Debt Issues to Professional Investors Only” (the “Guidance”), supplementing the consultation conclusions on “Review of Chapter 37 – Debt Issuers to Professional Investors Only” (the “Consultation Conclusions”). The Guidance and Consultation Conclusions relate to the listing regime for debt issues to professional investors only (the “Professional Debt Regime”) under Chapter 37 of the Rules Governing the Listing of Securities on Main Board of The Stock Exchange of Hong Kong Limited (the “Listing Rules”). For the updates on the Professional Debt Regime, please see our news update on the Consultation Conclusions here.

This update centres upon the guidance provided by the Guidance on debt issues to professional investors only under Chapter 37 of the Listing Rules (“Chapter 37 Debts”), which consists of (1) general guidance on disclosure to be included in listing documents for the Chapter 37 Debts, (2) specific guidance in relation to the disclosure requirement of particular types of debts with special features (the “DSSFs”), as well as (3) general guidance on issuers’ continuing obligations. The Guidance applies to the Professional Debt Regime under both Chapter 37 of the Listing Rules and Chapter 30 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Exchange.

1. Disclosure for Chapter 37 Debts and DSSFs

1.1. What are DSSFs?

DSSFs are debts with the special features that render debt securities “complex”[1]. The Guidance provided a non-exhaustive list of special features including:

(a)  perpetual or subordinated debt securities;

(b)  variable or deferred interest payment terms;

(c)   extendable maturity dates;

(d)  convertible or exchangeable;

(e)  have contingent write down or loss absorption features; and

(f)    with multiple credit support providers and structures.

1.2. General Disclosure Guidance

Disclosures in a Chapter 37 Debt listing document should be commensurate with the customary expectation of professional investors, especially when such investors also include high net worth individuals. Customarily expected disclosures for Chapter 37 Debts would usually include:

(a)  a summary of key terms and conditions.

(b)  financial information on the obligors, considering what level of financial disclosure would be required for investors to make an investment decision, including any credit assessment of the debt security.

(c)   risk factors relating to the obligors, their businesses, and the Chapter 37 Debts, which may include:

(i)        structural or other risks associated with the Chapter 37 Debts such as subordination, security and credit support;

(ii)       for state corporations, prominent disclosure on the relationship with the government and level of financial support from the state; and in case the latter is no longer available, state that the repayment obligations of the Chapter 37 Debts remain solely on the issuer;

(iii)      highlighting the risks that where the trustee or a prescribed proportion of holders of the Chapter 37 Debts can modify, waive or make other decision which may adversely affect the interests of individual or its minority holders, and that their recourse may be limited;

(iv)      the full terms and conditions of the Chapter 37 Debts;

(v)       a description of the use of proceeds of the Chapter 37 Debts;

(vi)      business disclosure on the obligors, for example where an individual obligor has a fundamental role in fulfilling payment obligations of the debt securities, information on the business of this obligor, which the investors might not otherwise require or expect in the disclosure;

(vii)     a summary of key taxation consequences associated with dealings in the Chapter 37 Debts;

(viii)    any restrictions on the subscription and sale of the Chapter 37 Debts; and

(ix)      any other material information that may be necessary to facilitate investors in making an informed investment decision.

(d) Issuers should consider the particular features of the Chapter 37 Debts which investors would expect to be drawn to their attention, particularly those of DSSFs that affect the investors’ rights (“Product Features”).

(e) Issuers should avoid misleading terminology when describing Chapter 37 Debts, which should have a title or description of the obligors that reflects the type of credit support being provided.

(f) Issuer should consider prominent disclosure of the key terms and structure of Chapter 37 Debts, highlighting any Product Features and risks. It may be appropriate to include a disclaimer or cautionary statement on the front cover of the listing documents, highlighting the key Product Features of DSSFs which could have an impact on investors’ rights.

(g)  Issuers should include in the listing document:

(i)    on the front or inside cover of the listing document, a disclaimer statement under Listing Rules 37.27 stating that Hong Kong Exchanges and Clearing Limited and the Exchange take no responsibility for the contents of the document, make no representation as to its accuracy or completeness, and expressly disclaim any liability;

(ii)   a responsibility statement under Listing Rules 37.28 stating that the issuer accepts full responsibility for the accuracy of the information contained in the document and that there is no omission of other facts that would make any statement therein misleading; and

(iii)  on the front cover of the listing document a caution statement stating that the Exchange has not reviewed the contents of the listing document, other than to ensure that certain prescribed form disclaimer or statements have been reproduced in the listing document, and that the listing is not to be taken as an indication of commercial merits, credit quality of the bonds or the issuer or guarantor, or quality of disclosure in the listing document.

(h) Issuers should clearly indicate the intended investors for the Chapter 37 Debts.

1.3. Specific Disclosure Guidance for DSSFs

The table below sets out the specific guidance on each type of DSSFs. Issuers should consider the type of disclosure that investors would customarily expect in a listing document in order to understand the particular type of DSSF, its Product Features and risks associated with investing in such.

The Exchange will maintain its current approach in relation to disclosure requirements and vetting for Chapter 37 Debts. It is the issuers’ responsibility to ensure that their listing documents contain information that is customarily expected by the investors in a listing document for making informed investment decisions. Issuers should also consider any Product Features and the associated risks of investing in the debt securities with such features.

2. Post-Listing Continuing Obligations

General Guidance in relation to Continuing Obligations for Chapter 37 Debts

The Guidance also reminds the issuers of Chapter 37 Debts of their continuing obligations, particularly:

(a)  Issuers and guarantors should consider at all times whether they would be required to disclose information, pursuant to the continuing disclosure obligations under Listing Rules 37.47(b), 37.47A and 37.47B(a);

(b)  Issuers must comply with the Listing Rules in force from time to time under Listing Rules 37.46, failing which the issuers may be subject to disciplinary action including cancellation or suspension of the Chapter 37 Debts and public or private sanctions against the issuers, and/or other appropriate actions under Listing Rules 2A.09; and

(c)   Issuers and guarantors may be required to provide the Exchange with their annual accounts or any interim reports when they are issued, or to notify the Exchange when such accounts or reports are published on a website under Listing Rules 37.53.

Implications and Conclusion

This Guidance promotes disclosure consistency and quality of listing documents and reminds issuers of their post-listing continuing obligations. Having been issued along with the Consultation Conclusions, the duo clarifies and strengthens the Professional Debt Regime amid rapid debt capital market development. Particularly, the Guidance has provided specific examples of disclosable contents according to the type of DSSFs, which can better accommodate and regulate the complex debt issues nowadays. The review and guidance regarding the Professional Debt Regime further fortify Hong Kong as an international finance centre and promise greater certainty and predictability for the bond market.

This article is authored by Rodney Teoh (Partner, Corporate Finance). Please contact our Rodney Teoh for any enquiries or further information.

This newsletter is for information purpose only. Its content does not constitute legal advice and shall 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.