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International Corporate / M&A - Hong Kong

posted 10 months ago

Our firm provides advice on all aspects of corporate and commercial law. We offer services on M&A, joint ventures, private equity, Listing Rules and Takeovers Code compliance as well as general corporate and commercial law advice. We also have a dedicated company secretarial team.

We take a pragmatic and commercial approach in providing advice. We recognise the commercial realities of transactions. Our advice is provided with the practical reality of the particular circumstances in mind to help clients complete transactions smoothly and efficiently, without taking overly aggressive positions.

The principal piece of legislation that governs companies in Hong Kong is the Companies Ordinance (Cap. 622). This legislation governs all aspects of the incorporation, registration and management of companies. Other legislation include the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), which deals with corporate insolvency, prospectuses for public offerings and disqualification of directors and the Securities and Futures Ordinance (Cap. 571), which governs financial products and securities, the securities and futures market and industry, activities connected with financial products or securities and the protection of investors.

Hong Kong is a common law jurisdiction. It uses a combination of legislation and case law while in neighbouring civil law jurisdictions more reliance will be placed on civil codes.

Presently we are working on, among other things, an acquisition of a group which is in the sector of corporate services companies, an investment by a private equity house in a leading robotics business in the PRC, an investment into a Japanese caravan business, due diligence engagements on Hong Kong subsidiaries of global businesses as well as Listing Rules compliance and corporate and commercial advisory work.

Clients engage us for a wide variety of work which involve elements of company law or other commercial aspects.

In 2020-2021 we acted for a Hong Kong seller on his sale of a 21% stake in a company which operates a co-working space. The sale was split into two different tranches with different buyers for each tranche. The transaction with the second buyer was particularly challenging as the counterparty was based in a jurisdiction with capital controls. Additionally, our client was physically located outside Hong Kong, at a time when Hong Kong had strict quarantine measures in place. All of these factors together presented greater challenges in relation to the completion and payment mechanics. We successfully navigated the issues arising from the unconventional transaction process for the client and the transaction completed smoothly.

COVID-19 had a significant impact on business activity in Hong Kong, not just on M&A but across the board. Many cited difficulties in doing on site due diligence due to travel restrictions. While M&A activity has not returned to pre-COVID-19 levels, we have received instructions on several PE transactions and an increased amount of general commercial, employment and corporate advisory work.

Some transactions have been affected by political uncertainty. For example, on one recent transaction, the buyer decided to put an acquisition on hold for the time being, citing political uncertainties in Hong Kong.

Geo-political tensions placing Hong Kong in the cross-fires between US and China have resulted in some companies moving their regional headquarters from Hong Kong to Singapore. In this connection, we have also seen increased outflow of capital and emigration away from Hong Kong. This, combined with companies’ ‘wait and see’ attitude to transactions has slowed down M&A activity. At the same time, this has presented us with opportunities to work on group restructurings, especially those involving a change of jurisdiction of the ultimate holding company.

We are seeing more amalgamations relating to corporate service providers. We have also seen an increase in activity involving fintech and related technology companies. Technology remains a key area of focus for us.

We have worked with a mixture of SMES and larger businesses. That said, our workflow involving start-ups and early stage companies is increasing faster than those involving large businesses.

As a full service firm, we provide advice on all aspects of legal and regulatory compliance. For example, in addition to company law compliance matters, we also have teams who give specialist advice on, among other things, financial services licensing requirements, employment-and food safety regulations.

As part of any M&A transaction, we would investigate the target company’s position in relation to compliance with applicable laws and regulations and work with other intermediaries on the resolution of any issues that may arise.

We have an extensive international network of offices and also relationships with local law firms where we do not have offices. Our firm is active in international conferences and other networking events, hosted by ourselves or others.

A new regime (being implemented in three phases) in relation to restriction of public access to information on the Companies Register maintained by the Companies Registry came into effect in August 2021. Phase 2 will come into force in October 2022 and phase 3 in December 2023.

In phase 1, companies are allowed to replace the full identification number and usual residential address (“protected information”) of directors and company secretary with partial identification number and correspondence addresses on their own registers. In phase 2, the Companies Registry will restrict public access to such protected information on its public search system and limit access to such information to those who make an application for this purpose. In phase 3, company directors and secretaries will be allowed to apply to the Companies Registry for this protected information to be withheld from documents already registered with the Companies Registry.

Stephenson Harwood has an office in Shanghai and an associated office in Guangzhou which is able to practise local law and render PRC legal opinions.

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International Corporate / M&A - Hong Kong

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