Background

On 10 May 2021, The Securities and Futures Commission of Hong Kong (the “SFC”) announced the implementation of the Hong Kong Government’s grant scheme (the “Grant Scheme”) to provide subsidies for setting up qualified open-ended fund companies (the “OFCs”) and real estate investment trusts (the “REITs”) in Hong Kong.  The Grant Scheme covers 70% of eligible expenses paid to Hong Kong-based service providers, subject to a cap of HK$1 million per OFC and HK$8 million per REIT.

Grant Scheme for OFCs and REITs

The application period of the Grant Scheme is three years starting from 10 May 2021 until 9 May 2024 on a first-come-first-served basis[1].  The table below sets out a general summary of the Grant Scheme:

Applicants are recommended to consult the Investment Products Division of the SFC for further details.

According to Mr. Ashley Alder, the Chief Executive Officer of the SFC, the Grant Scheme “will reinforce Hong Kong as a leading capital raising venue and its status as an international assets and wealth management centre”[2].

Please contact our Partner 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.

On 1 January 2021, a tabloid reported the suicide of a 55-year-old American man, found inside a private car in Sai Kung. This was hardly sensational and would have easily gone unnoticed – except perhaps by the princes and barons of the financial sectors.

The deceased was Mr. Paul Lincoln Heffner (“Heffner”), the Founder/CEO/Managing Partner of Adamas Asset Management (HK) Limited (“Adamas”).

Flash back to the end of 2019, the Securities and Futures Commission (the “SFC”) penalised Adamas for regulatory breaches. This may have set in motion a chain of events ultimately leading to Heffner’s tragic demise.

The Prologue

Adamas is a Hong Kong company incorporated in August 2011. It has, since February 2013, been licensed under the Securities and Futures Ordinance (Cap. 571) (the “SFO”) to carry on Type 9 (asset management) regulated activity and used to act as a fund manager and adviser of various offshore funds offered specifically to professional investors.

In December 2019, the SFC announced that Adamas was reprimanded and fined HK$2.5 million for failing to make prompt and proper disclosure of its notifiable interests in the shares of eight companies listed on the Stock Exchange of Hong Kong (the “SEHK”) held in the client portfolios it managed between February 2013 and March 2016.

Adamas applied to the Securities and Futures Appeals Tribunal for a review of the SFC’s sanction but aborted it soon thereafter.

Regulatory Requirements

The SFC’s sanction on Adamas is a reminder of the all-too-familiar disclosure and regulatory requirements, including, inter alia:

• Where a person acquires an interest in, or ceases to be interested in, voting shares in a listed corporation, or any change occurs affecting a person’s existing interest in voting shares in a listed corporation, such person may come under a duty of disclosure[1];
• The notifiable percentage level for notifiable interests is 5% and the specified percentage level for changes to notifiable interests is 1%[2].
• Notification should be given to the SEHK and the listed corporation within three business days after the day on which the relevant event occurs[3].
• A licensed corporation should comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market[4].
• A licensed corporation should comply with, and implement and maintain measures appropriate to ensuring compliance with the law, rules, regulations and codes administered or issued by the SFC[5].

Hefty fine aside, it is curious how Adamas, being the manager and advisor of funds offered to professional investors, could have made the apparently “rookie” mistakes?

SFC’s Winding-up Petition & Appointment of Provisional Liquidators

Since Heffner’s death, all of Adamas’ employees have resigned and all of its operations and business activities had come to a standstill.

It transpired that Heffner was Adamas’ sole beneficial owner and director, thus no one other than Heffner was authorised to manage and handle the assets of the funds managed by Adamas and be the bank signatory of Adamas.

Against the backdrop that the business matters of Adamas had been left unattended, the SFC brought a winding-up petition against Adamas on public interest grounds (the “Petition”) and applied for the appointment of provisional liquidators to Adamas pending determination of the Petition pursuant to section 193 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (the “SFC’s Application”).

It appears that the SFC had over the years only sought to wind up a handful of companies, amongst which Adamas is the exceptional one not listed on the SEHK.

In March 2021, the High Court published a judgment in Securities and Futures Commission v Adamas Asset Management (HK) Ltd[6] in relation to the SFC’s Application.

The judgment sets out the Court’s reasons for allowing the SFC’s Application: –

• There is a strong prima facie case that Adamas should be wound up in the public interest so as to:

• The circumstances of the case rendered it appropriate and necessary to appoint provisional liquidators pending the hearing of the Petition.

The Epilogue, or the end of the First Chapter?

Underneath its professional façade, the ironically named Adamas was a flimsy one-man band, and its operation came to a grinding halt after the unexplained death of Heffner. This was followed by surreptitious attempts by unknown persons to usurp the control of the now unmanned company.

We expect this matter to spawn further regulatory and criminal investigations.

At the moment, we have more questions than answers.

Please contact our Partner Osbert Hui and Senior Associate Dominic Lau 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.

References:

1. Cap. 32 Companies (Winding Up and Miscellaneous Provisions) Ordinance
2. Cap. 571 Securities and Futures Ordinance
3. News article titled “American man who committed suicide in a Tesla in Sai Kung was the CEO of Adamas Asset Management, ex-wife’s father – founder of Dragon Air (Updated)”: https://www.dimsumdaily.hk/american-man-who-committed-suicide-in-a-tesla-in-sai-kung-was-the-ceo-of-adamas-asset-management-wifes-father-founder-of-dragonair/
4. News article titled “SFC fines Fidelity and Adamas”: https://fundselectorasia.com/sfc-fines-fidelity-and-adamas/
5. SFC media release titled “SFC reprimands and fines Adamas Asset Management (HK) Limited $2.5 million”: https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=19PR122
6. Securities and Futures Commission v Adamas Asset Management (HK) Ltd [2021] HKEC 1107 (HCCW 88/2021, Hearing Date: 9 March 2020; Date of Judgment: 24 March 2021)

[1] Section 310(1) of the SFO.
[2] Section 315 of the SFO.
[3] Section 325(1)(a) of the SFO.
[4] General Principle 7 of the Code of Conduct for Persons Licensed by or Registered with the SFC (the “Code of Conduct”)
[5] Paragraph 12.1 of the Code of Conduct
[6] HCCW 88/2021, Hearing Date: 9 March 2020; Date of Judgment: 24 March 2021

Background

On 31 March 2021, the Singapore Exchange Regulation (the “SGX”) published a consultation paper on the proposed listing framework (the “Proposed Framework”) for special purpose acquisition companies (the “SPACs”) and invited comments by 28 April 2021.  The Proposed Framework proposed to introduce a regime for SPACs in Singapore to list on the Mainboard of Singapore Exchange Securities Trading Limited (“SGX-ST”).  According to the SGX, the Proposed Framework was in light of various developments including the market development in United States SPACs listings in recent years and potential merger and acquisition opportunities in the Asia Pacific region.

SPACs

The SGX defined SPACs as typically listed on stock exchanges as companies with no prior operating history, operating and revenue-generating business or asset at the time of listing. They are formed to raise capital through IPOs for the sole purpose of acquiring operating business(es) or asset(s).  A SPAC is generally established and initially financed by experienced founding shareholders (typically referred to as sponsors). The majority of IPO funds raised are typically required to be placed in an escrow account, where the utilisation will be primarily for the consummation of the business combination. After listing, the SPAC begins its search for a target company for a business combination which must be completed within a permitted time frame.

The SGX has identified key benefits of SPACs to include: (i) sponsors are able to tap on public capital at the time of the listing, and through business combinations, invest in later-stage private companies and in turn stand to receive potential significant upside through the sponsor’s promote; (ii) A SPAC IPO process is relatively simpler and quicker as compared to a traditional IPO given that a SPAC is a newly-formed company with no operational history nor commercial operations at the time of listing; (iii) there is better market certainty and price certainty; and (iv) Investors have the opportunity to co-invest with experienced sponsors, who often have a demonstrated track record and experience in achieving meaningful investment returns.  However, the SGX also mentioned certain concerns and risks, including: (a) SPACs are susceptible to execution risks; (b) there is inherent uncertainty to the target company as the business combination is subjected to shareholders’ approval; (c) shareholders remaining with the resulting issuer may be subject to significant dilution; and the equitability of the regulatory treatment for the business combination as the target company is not subject to the level of initial listing review and scrutiny by the relevant securities regulators as compared to a traditional IPO, and limited market professionals’ due diligence may be conducted.

Proposed admission and related criteria, suitability assessment factors, permitted time frame for completion of business combination and other requirements

In the Consultation Paper, the SGX proposed to set admission and related criteria on minimum market capitalisation (S$300 million), public float (at least 25% of a SPAC’s total number of issued shares to be held by at least 500 public shareholders at the time of the SPAC listing on SGX-ST), minimum issue price (S$10 per share or unit), jurisdiction of incorporation (must be incorporated in Singapore) and dual class share structure (dual class share structure not permitted).

Under the Proposed Framework, in assessing the suitability of a SPAC for listing, SGX will consider factors such as (i) the profile including the track record and repute of the founding shareholders and experience and expertise of the management team of the SPAC; (ii) the nature and extent of the management team’s compensation; (iii) the extent of the founding shareholders and the management team’s equity ownership in the SPAC; (iv) the alignment of interests of the founding shareholders and the management team with the interest of other shareholders; (v) the amount of time permitted for completion of the business combination prior to the liquidation distribution; (vi) the dilutive features and events of the SPAC, including those which may impact shareholders and whether there are any mitigants for such dilution; (vii) the percentage of amount to be held in the escrow account that must be represented by the fair market value of the business combination; and (viii) such other factors as the Exchange believes are consistent with the aims of protecting investors and promoting public interest.

The SGX also proposed that the SPAC must complete a business combination within a maximum time frame of 36 months from the date of listing. SPAC sponsors may voluntarily specify a shorter time frame to complete the business combination in the SPAC’s constitution. The SPAC will be liquidated and the remaining funds (comprising a majority of the proceeds raised at IPO) held in the escrow account are returned to shareholders if the SPAC is unable to complete the business combination within the permitted time frame.

In relation to the minimum percentage of IPO proceeds to be held in escrow, it is proposed that the SPAC is required to place at least 90% of the gross proceeds raised from its IPO in an escrow account.  Until the completion of a qualifying business combination, the SPAC may invest the escrowed funds in permitted investments such as cash or cash equivalent short-dated securities of at least A-2 rating (or an equivalent).

It is also proposed that the business combination must comprise an initial acquisition of a business or asset with a fair market value forming at least 80% of the amount held in the escrow account.

Under the Proposed Framework, the founding shareholders and the management team will also be subject to a minimum aggregate subscription value for alignment of their economic interest in the SPAC with that of other shareholders. The minimum aggregate value will be dependent on the market capitalisation size of the SPAC at IPO.

Analysis and Takeaways

The Consultation Paper represented an attempt of the SGX to explore SPACs listings as a viable alternative to traditional IPOs for fund raising in Singapore and the region.

Following the examples of the United States, Canada and Malaysia, various regions have explored the feasibilities of introducing regimes to allow for SPACs listings.  Apart from Singapore, Hong Kong is also on this route.  In early March 2021, the Financial Leaders Forum chaired by Hong Kong’s Financial Secretary had asked the Securities and Futures Commission and Hong Kong Exchanges and Clearing Limited “to explore suitable listing regimes to enhance the competitiveness of Hong Kong as an international financial centre, while safeguarding the interests of the investing public.”  The Financial Secretary had also said in an interview with Bloomberg TV that the government was seriously looking into allowing SPACs.

The proposal for the regime in Hong Kong is yet to be released.  Nevertheless, under the encouragement at official level and guided by overseas examples, it is expected that the market will embrace more discussions on a potential SPAC-listing regime in the future.  Such a regime, if introduced in Hong Kong, is expected to provide further avenues for listing of businesses, and more options for general investors to participate in the markets.

Please contact our Partner 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.

Stevenson, Wong & Co. is honoured to announce that we have once again been ranked in Benchmark Litigation Asia-Pacific, a guide to the market’s leading litigation firms and lawyers.

This year, we are ranked in 5 categories:

• Commercial and transactions
• Insolvency
• White Collar Crime
• Family and Matrimonial
• Private Client

In addition, our partner and Head of SW Private Client, Ms. Catherine Por, has been named as a “Litigation Star” in Family and Matrimonial for 4 consecutive years.

Please contact Ms. Catherine Por, Ms. Heidi Chui, or Ms. Milly Hung for any enquiries or further information.

To view the full list of awards, please click here.

(中文) 简介

如果一名银行客户因为一名银行雇员的欺诈行为而遭受损失，银行需要负上法律责任吗？被欺诈的客户针对银行又可以寻求哪些救济方式呢？在最近的陆颖恩对招商永隆银行有限公司 [2021] HKCFI 279一案中，香港法院原讼法庭裁定被告人招商永隆银行不需要对其雇员欺诈客户所造成的损失负上法律责任。法庭在判决中详细讨论及审视了转承责任及Quincecare责任方面的法律，并确立了重要的法律原则。

背景事实

原告人为被告人银行 (下称「银行」) 的客户，涉事的银行雇员(下称「该雇员」)当时于北角分行任职证券经理。原告人是该雇员欺诈投资计划的其中一名受害者。

该雇员向原告人提出可让原告人参与只提供给银行雇员的「内部」投资，而该等「内部」投资将产生极高的回报 (大约是一般银行定期存款回报的100倍)。

原告人信以为真，并于2010年至2013年间将约3,500万港元转到该雇员的私人银行帐户用作「内部」投资。该雇员伪造收据、结单及其他记录，并前后向原告人支付约1,130万港元的「回报」，令原告人相信她转给该雇员的3,500万港元全部用作「内部」投资。

该雇员的欺诈行为于 2014 年 3 月曝光。该雇员继而受到刑事检控，被判定三项欺诈罪，并判处监禁 10 年。在整个欺诈投资计划中，原告人损失了约2,380万港元。

原告人其后向银行提起诉讼，要求银行赔偿她的损失。就此，法庭需要处理的议题是，银行是否需要对原告人因其雇员的欺诈行为而遭受的损失负上法律责任。

转承责任

首先，原告人依赖转承责任的原则向银行申索。该原则下雇主在某些情况下需要为其雇员的侵权行为 (tort) 负上法律责任。

在雇佣关系的情况下，香港终审法院于Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd 一案中就转承责任的认定确立了「密切联系」测试 (“close connection” test)。该测试的准则是，雇员的未经授权侵权行为与其受雇工作的联系是否如此密切，以致于法庭裁定雇主须负上转承责任是公平公正 (fair and just) 的？

在本案中，法庭认为，由于侵权行为可能出现的情况是无限 (infinite) 的，「密切联系」测试无可避免地缺乏精确性 (lack of precision)，因此并非在所有情况下都适用。 法院认为，在涉及雇员欺诈行为的案件中，认定转承责任的法律测试应该是雇员的欺诈行为是否属于雇主实际或表见代理 (apparent authority) 的范围。 一般而言，表见代理成立的条件是:-

(1) 委托人 (principal) 以言语或行为向第三方表示 (represent)，代理人 (agent) 有权从事有关交易；

(2) 第三方依赖该陈述 (representation) 进行交易; 及

(3) 该等依赖是合理的。

就此，法庭接纳银行的说法认为银行不可能打算或授权其雇员代表银行向外部人员提供内部投资计划。法庭更指出，认为银行的雇员出售证券产品的表见代理权限会扩大至销售任何类型产品的权限，包括外部人员明确知道是银行无法提供给外部人员的投资产品，这样的想法是不合逻辑的。因此，法庭裁定银行没有表示或向外宣称 (hold out) 该雇员有权向原告人提供该等内部投资计划，而原告人亦不会有任何实际依赖 (actual reliance)，因此转承责任不成立。

Quincecare责任

除了转承责任外，原告人亦依赖Quincecare 责任向银行提出申索，该责任指当银行应当知道 (put on inquiry) 某授权代理人 (authorised agent) 发出的交易指令是为了欺骗 (attempt to defraud) 该客户时，银行有责任避免执行该代理人发出的交易指令。

然而，法庭指出，Quincecare 责任一般只有在银行收到代表客户作出的命令或指示，即从客户的授权代理人收到的命令或指示，而不是直接从客户收到指令或指示才适用。在本案中，由于付款指示是由原告人直接发出，且原告是有意向收款人支付款项的，因此Quincecare责任并不适用。法庭认为，原告人的损失不是由银行的任何疏忽或失职造成的，而是由「她自己的贪婪及轻信」 (her own greed and gullibility) 所造成的。

同时，法庭拒绝将Quincecare责任的范围扩大至银行需判断付款指示是否是任何人以任何方式欺骗客户的任何计划的一部分 (a duty arising whenever a bank has reasonable grounds for believing that the instructed payment is part of any scheme perpetrated by any person to defraud the customer in any way)。这种扩大的责任范围无疑会让银行执行客户指示的效率变低，且严重阻碍银行的首要责任。

评论及要点

毋庸置疑，银行界会欢迎陆颖恩案的裁决，特别是法庭确认了Quincecare责任的有限适用范围，并且拒绝将银行的责任范围扩大。然而，随着银行在人工智能以及金融科技领域的进一步发展，银行可能需要考虑制定并采取适当的监管措施，合法监管银行职员的行为，保障银行客户的利益。同时，在所有涉及客户代理人发出的交易指令或指示时，银行应该额外保持警惕，以确保完善履行Quincecare责任。　

本文由本所合伙人﹑银行及金融部和诉讼及争议解决部主管徐凯怡律师和黄晊晄律师撰写。若阁下想了解更多详情，请联络本所徐凯怡律师 (heidi.chui@sw-hk.com)。

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。

In such an international and cosmopolitan city as Hong Kong, it is not unusual for a spouse to seek to commence divorce proceedings against his / her partner who is overseas. This article illustrates how we may serve divorce petitions out of Hong Kong to commence the proceedings.

Laws on the Service of Divorce Petitions Overseas

Service of a writ out of the jurisdiction of Hong Kong is permissible with the leave of the court generally. However, service out of jurisdiction for divorce petitions is an exception and the Hong Kong Matrimonial Causes Rules specifically provides that no leave is required.

Whilst it is not necessary to seek prior permission to serve the divorce petitions, the mode of service in the laws of the jurisdiction in which the papers have to be served must be followed.

Examples on Serving Divorce Petitions Overseas

Here are some of the examples we have come across.

In the U.K., the U.S.A. and Australia, the service of process can be effected directly by post, through a local lawyer, the judicial authority, or even a private investigator.

In mainland China, Germany and India, service can only be effected through their respective central authorities.

In the Philippines, we can only effect such service on nationals of the originating state.

Some jurisdictions may require that the translation of the documents to their corresponding official languages be appended. For documents to be served on a spouse in mainland China, generally, the documents should be in Chinese, or else a translation in Chinese should be attached. For documents to be served on a spouse in Germany, the German translation of the documents has to be served.

If it cannot be proved to the satisfaction of the Hong Kong court that the documents have been properly served, the proceedings cannot move forward. It is therefore essential that proper legal advice is sought so as to avoid frustration and disappointment.

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 Ms Catherine Por or Ms 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 arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.