Zetland Newsletter November, 2014 Dear Friend of Zetland, There has relatively recently been a judgment by the Hong Kong Court of Final Appeal. The case involved Mr Poon Lok To Otto and his wife Kan Lai Kwan who decided to get divorced after over 40 years of marriage. The main question before the Court was whether assets, that were held in a discretionary Trust, were financial resources that were available to the Husband and would therefore be subject to the Courts jurisdiction when making the financial provision orders under the Matrimonial Proceedings and Property Ordinance. Put very simply, the vast majority of the Husbands holding company shares were settled into a Jersey discretionary Trust that was governed by Jersey Law in 1995. The Husband acted as Settlor, Protector and a potential Beneficiary of the Trust together with Mrs Kan and their daughter. HSBC acted as Trustee. In May 2009 they decided to get divorced after two years of separation. Under Hong Kong law, the court may make financial provision orders in a divorce by considering the financial resources available to each party in a marriage. The court looked at the test laid down by the English Court in Charman v Charman asking the question that if the Husband were to ask the Trustees to advance the whole or part of the income or capital of the Trust fund, on the balance of probabilities, would they be likely to do so. It was a unanimous decision by the judges that the test had been satisfied and that the likelihood was that HSBC would indeed act in accordance with Mr Poons wishes. The following factors were decisive: The fact that the Husband acted as Settlor, Protector and a Beneficiary. The Trust deed also authorised the Trustee to leave the day to day administration of the Holding company to the directors and managers, absolving the Trustee of any responsibility. The letters of wishes indicated that the Husband intended to and did in fact occupy a dominant position of influence over the Trust. As a Protector, he had the power to replace the Trustee. As a result, the Court decided that the entire Trust fund should be treated as a financial resource available to the Husband, despite the fact that his daughter is a Beneficiary also. The Trust was not considered a sham by either the Court or the Parties and that HSBC had fulfilled its obligations as Trustee. The Court considered another English case of Whaley v Whaley that when taking into account a financial resource, the court looks at not just control over the matter, but also at access to them. I should mention that the statutory powers in this case to look beyond proprietary interest at financial resources arises under the Matrimonial Proceedings and Property Ordinance in Hong Kong, the Courts would not have had the same power in cases of contractual disputes or creditor proceedings, in which, other than cases of a sham, the assets would be ring fenced. The result may also have been different had Mr Poon not have had so much control over the trust assets. Zetland can assist in establishing robust trust structures both in Hong Kong and elsewhere. Yours sincerely, James Lee Group Managing Director Zetland Fiduciary Group
Hong Kong Shanghai Stock Connect LaunchedThe trading link, which was announced by Li Keqiang in April this year, was supposed to be launched in September. With a few weeks delay the Stock Connect now allows foreign institutional and retail investors to trade Shanghai 'A' shares via the Hong Kong stock exchange while Mainland investors will be able to trade Hong Kong 'H' shares via the Shanghai Stock Exchange for the first time. The Stock Connect is a pilot program and caps the allowed trades of mainland stock purchases (northbound) at 13 billion Yuan and Hong Kong stocks (southbound) at 10.5 billion Yuan a day. In its first week of trading only 36% of its northbound quota and 6% of its southbound quota were filled up, despite a much anticipated launch date. Albeit the Stock Connect’s mildly launch week, analysts and participants have a positive outlook and welcome the trade link saying that it will take time for investors to familiarize themselves with the platform and mechanism and in the long run it should benefit both exchanges. Rutledge, chief investment strategist at Safanad, said in an interview with CNBC: "If you bought the top 10 market cap stocks in Shanghai and then took the lift up as the foreign institutions buy in, that's not a bad way to initially play this". For more information on setting up your Hong Kong investment and trading company, contact us at email@example.com.
Major reforms to the Singapore’s Companies ActThe Companies (Amendment) Bill 2014 was passed in Parliament on 8 October 2014. Since the Act was enacted in 1967, the Companies Act has undergone several reviews to ensure its corporate regulatory regime is robust and supports Singapore’s growth as a global hub for investors and businesses. The Act was last amended in 2006. This is the largest number of changes since the enactment. The objectives of changes are to reduce regulatory burden, provide greater business flexibility and improve corporate governance landscape. The significant changes to local companies are:
- Introduction of “small company” concept for audit exemption
Currently, a company is exempt from having its accounts audited if it is an exempt private company (“EPC”) with annual turnover of S$5m and below.
A new small company concept is introduced for exemption for statutory audit. To be exempted, it must be a private company that meets at least 2 of 3 criteria for the immediate past two financial years:
- Total turnover not more than S$10M
- Total assets not more than S$10M
- Number of employees not more than 50
- Revised financial reporting for dormant companies
Currently, a dormant company is exempted from statutory audit requirements but is still required to prepare accounts.
Under the revised dormant company financial reporting:
- Dormant non-listed companies (other than subsidiaries of listed companies) are exempt from requirements to prepare accounts
- Exemption from preparation of accounts subject to substantial assets threshold test (ir not more than S$500,000)
- No change for listed companies and its subsidiaries (ie exempt from audit but must prepare accounts)
- Use of alternate of addresses on ACRA’s records
Currently, individuals report personal particulars including residential address to ACRA. This information is made public. With the change, it allows an individual to report an alternate address where one can be located. However, the address cannot be a P.O. Box and it must be the same jurisdiction as the residential address.
- ACRA’s electronic register of directors/members
Currently, every company is required to keep a register of members at its registered office. Under the Bill, ACRA will maintain the register of members in electronic form. The date of filing of share ownership and its changes will be taken as the effective date of entry of a person into the register as a member or the date of cessation of a person as a member.
- Merger of Memorandum and Articles into Constitution
Under the Bill, the existing Memorandum and Articles of the company will be merged into a constitutional document. Model constitutions will be prescribed in the regulations. A company may choose to adopt the whole model constitution, or part of the model and/or add provision into it or add objects clauses to it.
- Updates to the striking off framework
- The period for showing no cause to the striking off has been reduced from 3 months to 60 days.
- The period of time given to a person aggrieved by the striking off of a company to appeal to court has been reduced from 15 years to 6 years.
- Application may be made to the Registrar to administratively restore a struck off company initiated by the Registrar, if no appeal to the Court has been made. This application must be made within 6 years after the dissolution of the company instead of 15 years.
- Registrar’s powers to debar directors and company secretaries
This new debarment regime empowers the registrar to debar any director or company secretary of a company that has failed to lodge any documents at least 3 months after the prescribed deadlines. The debarred person cannot take on any new appointment as a director/company secretary though he/she can continue with existing appointments. The registrar will lift the debarment when the default has been rectified or on other prescribed grounds.
Shanghai FTZ Released Shortened Negative ListThe Shanghai Free Trade Zone (FTZ) adopts a Negative List Approach towards foreign investment management, which specifies restrictions or bans on certain types of foreign investment. Under this approach, foreign investment projects on the Negative List are subject to pre-approval procedures, while foreign investors wishing to set up an foreign-invested enterprises (FIE) in a field not listed need only undergo record-filing procedures with the authorities. The list covers 1,069 businesses in 89 divisions under 18 industries, including agriculture, forestry, animal husbandry and fishery; mining; manufacture production and supply industries for power, gas and water; construction; and wholesale and retail industries. The FTZ has brought China’s opening-up to a new level. Besides local benefits, the zone is also meant to drive the whole country’s opening-up, which was designed to gather experience for further opening-up of the country’s economy. In order to attract more foreign investment and offer more leeway for foreign investment in the city's pilot free trade zone, on July 1st, the Shanghai Free Trade Zone government has released an update of its Negative List, the list referencing the industries in which foreign investments are forbidden. Compared with the 2013 version, the new negative list is more open and transparent, and has a closer connection with international prevailing rules. This update reduces the number of restricted industries from 190 to 139, in an effort to increase the zone attractiveness for foreign capital. Key changes affect:
- Manufacturing: numerous new sectors have been opened to foreign investments, including cotton processing, paper manufacturing and printing inks, certain chemicals and vitamins, electronic components for cars. Import and export good certification companies can now be foreign-funded.
- Transportation: railway freight and maritime transportation sectors have been opened to foreign capital, along with aircraft repairs.
- Financial Industry: investment banking, trust companies and currency brokerage companies are not restricted anymore.
- Healthcare Industry: minimum investment of RMB 20 million has been abolished. Maximum operation period, previously limited to 20 years, disappears.
- Internet: Investments in cybercafés have also been authorized, in the wake of the gaming consoles ban lift earlier this year.