We are proud to announce that our firm’s Partner, Ms. Sherlynn G. Chan, has been named the winner of the Vulnerable Client Advisory Practice of the Year category at the STEP 2020/21 Private Client Awards (STEP Awards). Stevenson, Wong & Co. is the sole Hong Kong domestic law firm recognised by the STEP awards this year.

The results were announced at the first-ever virtual award ceremony which took place on 9 Dec 2020. The STEP awards celebrate excellence in private client practice and are widely seen as a hallmark of quality in the industry. The panel of international judges summarized: “In a field of remarkably compelling submissions, this year’s winner (of the Vulnerable Clients Advisory) stood out as a champion and a pioneer in a region where resources for vulnerable clients are still evolving. Their significant devotion to their clients and to the profession, and their technical skills and commitment to professional development are an inspiration to us all.”

Our partner Sherlynn commented: “I am deeply honoured and grateful to have been chosen as the winner of this international award of “Vulnerable Clients Advisory Practice of the Year” by the STEP Awards. I would like to take this opportunity to thank STEP for recognizing our achievement and my team for their amazing work. This is a very important and growing area of work in Asia, especially with the ageing population and increased number of vulnerable clients in our community including children, elderly and mentally incapacitated persons. We will continue to work hard in promoting awareness and protecting vulnerable clients. “

About Sherlynn G. Chan

Ms. Sherlynn Chan, Partner of our firm and the Chairman and founding member of a charitable organization, MIP Care Resources Connect, specialises in private client work including contentious probate and family matters. She served as a Deputy District Judge in the Family Court in 2014 and is currently the Chairman of the Mental Health Law Committee of the Law Society of Hong Kong and Co-Chair of the Societies of Trusts and Estate Practitioners (STEP) HK’s Mental Health, Elderly and Capacity Law Sub-Committee.

Sherlynn has been appointed by the High Court as Committee of the estate of mentally incapacitated persons and manages substantial assets on behalf of vulnerable clients.

This year’s finalists of the “Vulnerable Client Advisory Practice of the Year” award.

Mark Walley, CEO of STEP and Mary Duke TEP, Chair of the Presiding Judges, delivered the opening speeches.

About STEP

STEP is the global professional association for practitioners who specialise in family inheritance and succession planning. STEP works to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members. STEP members help families plan for their futures, from drafting wills to issues surrounding international families, protection of the vulnerable, family businesses and philanthropic giving. Full STEP members, known as TEPs, are internationally recognised as experts in their field, with proven qualifications and experience.

Please click here to view this year’s winners or click here to watch the ceremony.

Please contact Ms. Sherlynn Chan for more information or further enquiries.

Stevenson, Wong & Co. acted as the Hong Kong legal advisers to Oriental Culture Holding LTD (NASDAQ: OCG) (“Oriental Culture”) on its successful listing on the Nasdaq Capital Market on 15 December 2020. Oriental Culture offered a total of 5,065,000 shares priced at US$4.00 per share, raising gross proceeds of approximately US$20,260,000.

Oriental Culture is an online provider of collectibles and artwork e-commerce services, which allows collectors, artists, art dealers and owners to access a much bigger art trading market to engage with a wider range of collectibles or artwork investors.

As a company with a rich cultural and art collection background, Oriental Culture aims to build a complete e-commerce service chain of art to provide customers with comprehensive services, including account opening, art investment education, market information, research, real-time customer support, and artwork warehousing services.

Our firm’s Partner Mr. Hank Lo, Senior Associate Mr. Gordon Tsang and Registered Foreign Lawyer Ms. Alice Ma acted as the Hong Kong legal counsel for the issuer in the Nasdaq Listing. Mr. Steven Zu and Ms. Joy Huang from our associated firm, Allbright Law Offices (Shanghai) acted as the issuer’s PRC legal counsel for the Nasdaq Listing.

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

On 27 November 2020, The Stock Exchange of Hong Kong Limited (the “Exchange”) published a consultation paper (the “Consultation Paper”) introducing its proposal to increase the profit requirement for a Main Board listing. Under the proposed changes, the Profit Requirement (defined below) will undergo either a 150% or a 200% increase, as explained further below. The consultation will last for two months, ending on 1 February 2021.

In proposing the change, the Exchange intended to align the current Profit Requirement with the increased Market Capitalisation Requirement (defined below) that was effective from February 2018, and which together with the current Profit Requirement had given rise to an increase in listing applications from small cap issuers with a relatively high historical price-to-earning (P/E) ratios. The Exchange commented that these small cap issuers tend to respond to the increased Market Capitalisation Requirement by justifying their higher valuations by reference to potential growth, supported by profit forecasts that they in certain cases failed to meet post listing. The Exchange has also quoted relevant regulatory concerns, such as the drop or volatility of share prices post listing, as well as potentiality of shell creation and market manipulation post listing, as the relevant mischiefs.

Current Profit Requirement

New applicants may be considered eligible for listing on the Main Board by satisfying, among other things, either one of the three financial requirements under Listing Rule 8.05.  These requirements are as follows: the Profit Requirement[1] – that, among other things, a new applicant shall have a minimum amount of profit attributable to shareholders, currently (1) HK$20 million in the most recent financial year and (2) HK$30 million in aggregate in the two preceding financial years (collectively, the “Profit Requirement”); the market capitalisation revenue cashflow requirement[2]; or the market capitalisation revenue requirement[3]. The Exchange has also introduced other eligibility requirements to attract different types of companies to list in Hong Kong, including the well-known Chapter 18A for biotech companies, and Chapter 18 for mineral companies.

An applicant relying on the Profit Requirement is also required to have an expected market capitalisation at the time of listing of at least HK$500 million (the “Market Capitalisation Requirement”)[4]. The current Market Capitalisation Requirement, i.e. HK$500 million, was effective from 15 February 2018, which was increased from HK$200 million previously.  With the Profit Requirement being unchanged at the time, this implied an applicant’s historical P/E ratio from 10 times to 25 times.

Proposed Changes

In the Consultation Paper, the Exchange proposed to increase the Profit Requirement by two options:

• Option 1 – 150% increase, which will increase the minimum amount of profit attributable to shareholders to (i) HK$50 million in the most recent financial year and (ii) HK$75 million in aggregate in the two preceding financial years; and
• Option 2 – 200% increase, which will increase the minimum amount of profit attributable to shareholders to (i) HK$60 million in the most recent financial year and (ii) HK$90 million in aggregate in the two preceding financial years.

According to the Exchange, Option 1 is based on the percentage increase in the Market Capitalisation Requirement in February 2018, while Option 2 is based on the approximate percentage increase in the average closing price of the Hang Seng Index from 9,541 in 1994 when the Profit Requirement was introduced to 27,569 in 2019.

To cope with relevant side issues, the Exchange also proposed temporary relief and transitional arrangements in association with the change proposed, as further explained below.

Temporary Relief

The Exchange recognised that, against the backdrop of the COVID-19 pandemic and the uncertainties arising from the economic and political tensions between the US and China, many companies’ businesses have been adversely affected. Therefore, subject to the adoption of the proposal to increase the Profit Requirement, the Exchange has proposed to introduce a temporary conditional relief from the profit spread in the increased Profit Requirement for applicants that are able to meet certain conditions set out in Chapter 2 of the Consultation Paper, summarised as follows:

• its aggregate profit during the track record period meets the aggregate profit threshold (i.e. HK$125 million under Option 1 or HK$150 million under Option 2);
• it had a positive cash flow generated from operating activities in the ordinary and usual course of business before changes in working capital and taxes paid in the last financial year during the track record period;
• it demonstrates that the conditions and circumstances leading to its inability to meet the profit spread in the Profit Requirement are temporary;
• the track record period must have at least consecutive six months that fall within the calendar year 2020; and
• adequate disclosure is made in its listing document, including:

  (i) the likelihood of continuance or recurrence of the circumstances leading to the applicant’s inability to meet the spread of the increased Profit Requirement;

  (ii) measures which were taken or will be taken by the applicant to mitigate the impact of those circumstances on future profitability; and

  (iii) a profit forecast covering the period up to the forthcoming financial year end date after the date of listing with detailed bases and key assumptions.

An applicant seeking the temporary relief will be required to submit an application to the Exchange for consideration on a case-by-case basis.

Transitional Arrangements

Pursuant to the Consultation Paper, the change will come into force (the “Rule Amendment Effective Date”) not earlier than 1 July 2021. To reduce the impact of the proposal on companies that have commenced plans to apply for a Main Board listing relying on the current Profit Requirement, the Exchange will introduce transitional arrangements.

Main Board listing applications (including GEM Transfer applications) will be assessed under the current Profit Requirement if they are submitted before the Rule Amendment Effective Date and remain active as of the Rule Amendment Effective Date. Such application will be allowed to be renewed once after the Rule Amendment Effective Date for continued assessment under the current Profit Requirement. For any subsequent renewals, the application will be assessed under the increased Profit Requirement.

Analyses and Takeaways

The Exchange’s proposal aims to improve the overall quality of Main Board issuers, which will be conducive to promoting post-listing liquidity, increasing investors’ confidence in the market and strengthening Hong Kong’s position as an international financial centre. However, as noted in the Consultation Paper, on average, the proposal would have barred approximately one-third of the listing applications under the current Profit Requirement which are able to meet the Market Capitalisation Requirement.

With such proposed change in sight, it is advisable that prospective listing applicants which intend to benefit from the current Profit Requirement with a lower threshold should seek early legal advice regarding listing plans, including preliminary preparation  such as corporate reorganisation and pre-IPO investments, so that the same can be implemented in an opportune time.

Furthermore, should the change be introduced, it is expected that there may be an influx of applications for listing on the Main Board ahead of the change in the Profit Requirement. As such, as the Rule Amendment Effective Date draws closer, the time required for the Exchange’s vetting of Main Board listing applications may be longer, thus posing uncertainties to and incurring extra costs for listing applicants.

Prospective listing applicants should bear these in mind when planning for listing of their businesses and are advised to take early and effective steps. Meanwhile, companies at an early development stage or small or mid-sized companies may still consider accessing the capital market by utilising a listing on GEM.

Please contact our Partners Mr. Hank Lo or Mr. Rodney Teoh for any enquiries or further 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 arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

Our Senior Associate Mr. Terence Lau presented a webinar for The Hong Kong Institute of Chartered Secretaries (“HKICS”) entitled “IPO 101: An Overview of a Listing Project” on 18 November 2020. In this course, Terence offered a detailed explanation of listing criteria as well as suitability for listing. The syllabus dissected IPO projects and included topics such as reorganisation, due diligence, prospectus drafting and share offer. The webinar also gave an overview of the IPO process pre-IPO investment.

Terence specialises in advising listing applicants, sponsors and underwriters in a broad range of corporate finance transactions, including initial public offering on The Stock Exchange of Hong Kong Limited, subsequent share issues, shares placement, rights issue, open offer and convertible bonds. Terence also advises listed issuers on regulatory and compliance matters.

Please contact Mr. Terence Lau for any enquiries or further information.

Mr. Terence Lau (left) and Ms. Polly Wong, Fellow of HKICS (right)

Stevenson, Wong & Co. is honoured to be recognised as a Senior Member by the City University of Hong Kong Foundation (CityU) for our firm’s continuous contribution and support towards the university.

Our firm has been nurturing the future generation of young lawyers by sponsoring academic prizes at local universities since 2010. Our annual fellowship, “Stevenson, Wong & Co. Fellowship 2020/21- LW 4643 Cyber Law Course” , is awarded to one PCLL student who was a full-time student of the Bachelor of Laws with Honours (LLB) in the School of Law and has achieved the highest mark in Cyber Law as part of his/ her LLB degree completed immediately prior to entering the PCLL programme.

On 20 November 2020, our firm’s partner Milly Hung was invited to attend the student award presentation ceremony at The Faculty of Law, The University of Hong Kong (HKU), to present prizes on behalf of Stevenson, Wong & Co.

Our firm’s partner, Ms. Milly Hung (in the middle), presented the Stevenson, Wong & Co. Prizes to Miss. Chan Gee Ting (on the left), awardee of the Prize in Employment Law & Practice and Miss. Ho Ka Hei (on the right), awardee of the Prize in Commercial Dispute Resolution.

Stevenson, Wong & Co. has been nurturing the future generation of young lawyers by sponsoring academic prizes at local universities since 2010. This year, we are honoured to be the HKU sponsor of the prizes for commercial dispute resolution and employment law & practice.

Congratulations to the 2 talented students for their outstanding performances.

Please contact Ms. Milly Hung for more information or enquiries.