New legislation for re-domiciliation of foreign funds into Hong Kong
Introduction
Our previous newsletter “Reform of open-ended fund companies
regime in Hong Kong” (September 2020 Issue) has walked you
through the major changes in the revised Code on Open-ended Fund Companies
dated 11 September 2020 which incorporated certain proposed enhancements
pursuant to the Securities and Futures Commission (the “SFC”)’s consultation conclusions, including introduction of a
statutory mechanism for the re-domiciliation of overseas corporate funds to
Hong Kong. In around one year’s time, the Securities and Futures (Amendment)
Ordinance 2021 and the Limited Partnership Fund and Business Registration
Legislation (Amendment) Ordinance 2021 (the “Ordinances”) came into effect on 1 November 2021. It is expected
that the introduction of the re-domiciliation mechanisms under the Ordinances
can help to promote the open-ended fund company (“OFC”) and the limited partnership fund (“LPF”) regimes in Hong Kong.
Overview
of the Ordinances
Re-domiciliation refers to situation where
a legal entity is able to change its jurisdiction of establishment. Pursuant to
the Ordinances, foreign OFCs and LPFs can be re-domiciled and registered in
Hong Kong as Hong Kong’s OFCs and LPFs respectively, so long as the same set of
eligibility requirements for registering a new fund as an OFC or a LPF in Hong
Kong are satisfied. Upon re-domiciliation, a fund will have the same rights and
obligations as any other newly established OFC or LPF in Hong Kong. The main
advantages of re-domiciliation are that (a) it saves the troublesome of
redeeming and subscribing or exchanging investors’ interests in one fund to a
new fund and also transferring the assets of one fund to a new fund, instead,
the same fund will continue to exist merely the governing law will change from
one to another; and (b) the track records of the re-domiciled fund can be
maintained.
Re-domiciliation
of OFC
For a non-Hong Kong fund corporation (“Non-HK Fund Corp”) to be registered as
an OFC in Hong Kong, one must apply to the SFC containing the following
particulars:
1.
the name of the Non-HK Fund Corp at the
time of the application;
2.
the place of incorporation of the Non-HK
Fund Corp;
3.
the proposed name of the intended OFC;
4.
the name and any other particulars
required by the SFC in respect of each person who is to be —
a.
a director of the intended OFC;
b.
an investment manager of the intended OFC;
and
c.
a custodian of the intended OFC;
5.
the address of the place which is to be
the registered office of the intended OFC.
Amongst a list of documents which should
be submitted to the SFC with the applicable fee, the followings are highlighted
to you:
1.
the intended OFC’s instrument of
incorporation together with an undertaking made by the Non-HK Fund Corp that
the instrument will not be amended before the re-domiciliation date without the
prior approval of the SFC;
2.
a certified and authenticated copy of the
certificate of incorporation or registration issued to the corporation under
the law of its place of incorporation;
3.
a certified and authenticated copy of the
instrument of incorporation or constitutive document of the Non-HK Fund Corp;
4.
a certificate issued by the board of
directors of the Non-HK Fund Corp within 5 weeks before the date of the
application confirming that:
a.
the Non-HK Fund Corp has only 1 place of
incorporation;
b.
the Non-HK Fund Corp has a registration
relating to its incorporation or domicile under the law of its place of
incorporation;
c.
the Non-HK Fund Corp does not have
registration under the law of any other jurisdiction;
d.
no petition or other similar proceedings
to wind up or liquidate the corporation have been notified to the corporation
and remain outstanding in any place;
e.
no order has been notified to the
corporation and no resolution has been passed to wind up or liquidate the
corporation in any place;
f.
no appointment of a receiver, liquidator,
or such person acting in a similar capacity has been notified to the Non-HK
Fund Corp;
g.
the Non-HK Fund Corp has served notice of
its proposal to become a re-domiciled OFC on all of its creditors;
h.
any consent to or approval required for
the proposed re-domiciliation and intended deregistration of the Non-HK Fund
Corp has been obtained or waived; and
i.
the proposed re-domiciliation and intended
deregistration is not prohibited by, and has been approved in the instrument of
incorporation or constitutive document of the Non-HK Fund Corp;
5.
a certificate issued by the board of
directors of the Non-HK Fund Corp within 5 weeks before the date of the
application, together with a statement of assets and liabilities of the Non-HK
Fund Corp within 3 months before the date of such certificate, confirming that:
a.
the board of directors of the Non-HK Fund
Corp has made a full enquiry into the affairs of the corporation; and
b.
the board of directors has formed an
opinion that the Non-HK Fund Corp will be able to pay its debts in full within
12 months from the date of application.
As soon as practicable within 60 days
after the re-domiciliation date, subject to the discretion of the SFC for any
time extension, the Non-HK Fund Corp must take all reasonable steps to procure
its deregistration in its place of incorporation and submit to the SFC evidence
of the deregistration.
Such application made to the SFC is a
one-stop application process where upon allowing the application, the SFC will
register the Non-HK Fund Corp as an OFC in Hong Kong and notify the Hong Kong
Companies Registry (“CR”).
Re-domiciliation
of LPF
For a non-Hong Kong LPF (“Non-HK LPF”) to be re-domiciled to Hong
Kong, the Hong Kong firm or solicitor of the Non-HK LPF’s general partner, who
is going to be the general partner of the proposed LPF as well, shall make an
application to the CR with the required particulars including the followings:
1.
the name of the Non-HK LPF as at the
application date;
2.
the place of establishment of the Non-HK
LPF;
3.
a statement confirming that:
a.
any consent to or approval required for
the proposed registration as a LPF in Hong Kong and the intended deregistration
of the Non-HK LPF in its place of establishment has been obtained or waived;
b.
the intended deregistration is not
prohibited under the law of Non-HK LPF’s place of establishment or by any
agreement entered into among the partners in the fund; and
c.
the proposed general partner understands
that the CR may strike the name of the LPF off the register of LPF if the Non-HK
LPF is not deregistered in its place of establishment within 60 days after the
registration date;
4.
other information specified in Schedule 1
of the Limited Partnership Fund Ordinance (“LPFO”).
As soon as practicable within 60 days
after the re-domiciliation date, subject to the discretion of the CR for any
time extension, the Non-HK LPF must be deregistered in its place of
establishment.
If the Non-HK LPF holds a valid business
registration certificate prior to re-domiciliation registration, the general
partner of the LPF shall within 1 month after the registration date, notify the
Commissioner of Inland Revenue of the registration, the name of the
re-domiciled LPF, and details of the general partner. If the Non-HK LPF does not
hold such business registration certificate, the general partner of the LPF
shall apply for the same within 1 month after the registration date.
One should note that the LPFO specifically
requires simultaneous business registration applications to be made with the Non-HK
LPF re-domiciliation registration application.
Effect
of re-domiciliation
One shall take special attention to the
effect of re-domiciliation, whereby upon re-domiciliation:
1.
no new legal entity will be created;
2.
no contract made or resolution passed will
be affected;
3.
no function, property, right, privilege,
obligation or liabilities acquired, accrued or incurred by or to the Non-HK
Fund Corp or Non-HK LPF will be affected;
4.
no legal proceedings commenced or
continued by or against the Non-HK Fund Corp or Non-HK LPF will be defective;
5.
registration of the LPF will not cause the
original Non-HK LPF to be dissolved, instead, the original partnership
continues in existence;
6.
any legal proceedings that could have been
commenced or continued by or against the Non-HK Fund Corp or Non-HK LPF may be
commenced or continued by or against the re-domiciled OFC or LPF respectively;
7.
all property of the Non-HK Fund Corp or Non-HK
LPF is deemed as property of the re-domiciled OFC or LPF respectively; and
8.
for tax purposes, the re-domiciliation is
not considered as a transfer of assets, nor a change in beneficial ownership of
those assets – accordingly, the re-domiciliation will not attract any stamp
duty implications in Hong Kong.
Conclusion
Prior to the proposed amendments under the
Ordinances, foreign corporate funds can only be re-domiciled to Hong Kong
through asset transfer or share swap which is both time-consuming and costly
and will incur stamp duties. With the enactment of the Ordinances and the
supporting measures contained therein, such as the tax exemption for the
re-domiciliation, it is expected that the Ordinances can increase the
popularity and adoption of Hong Kong’s new fund vehicles – the OFC and LPF, in
the hope to further develop Hong Kong as an attractive fund domicile. To
explore the opportunities brought by the recent reform to Hong Kong fund
market, please do not hesitate to contact us.
For enquiries,
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Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
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Published by ONC Lawyers © 2022 |
