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A Bit of Certainty During Uncertain Times

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The pandemic has turned our lives upside down. Not only because of the health consequences of the Coronavirus, but also because if you and your family are used to traveling, this last year and a half has been challenging. 

Whether you are a Hongkonger owning a holiday home in Europe, or a European living and working in Hong Kong, this crisis has shown us that international travel as we know might become more complicated. 

These uncertain times are the opportunity to reflect about our future, particularly when it comes to families owning assets in several countries, parents whose children live abroad, or expats who are considering returning to their home countries. 

Estate planning is a real issue that should not be left for last minute. It is indeed possible to plan ahead to avoid difficulties arising upon death. There are several tools which will give you and your family a bit of certainty about the future.  

OLN can help you secure your assets and plan your inheritance in advance.

The complexity of international estate planning

European inheritance law might become complex when it comes to international families, especially regarding the following aspects: 

  • Forced heirship: most European countries apply a system of reserved heirs, a form of inheritance which mandates how the deceased’s estate is to be disposed of and which tends to guarantee an inheritance for the family of the deceased. Indeed, in Europe you are not allowed to disinherit your children. 
  • Inheritance tax: some European countries are entitled to tax the assets your heirs will receive after your demise. This could particularly apply to immovable assets located in France. 
  • Specific documents: European countries may ask for documents from a national lawyer or Notary for amending the Property Deed of your real estate after the demise of the owner.

The impact of the matrimonial property regime in inheritance law

Many foreign couples got married abroad or even in Hong Kong without drafting a prenuptial or postnuptial agreement.

Depending on the countries involved in your particular situation – nationality of the spouses and heirs, location of the assets – the applicable law to the matrimonial property regime could affect inheritance.

Foreigners living in Europe and Europeans living in Europe and abroad are able to choose the applicable law to their matrimonial property regime. Indeed, European Regulation No. 2016/1103 of 24 June 2016 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes entered in force on 29th January 2019. Article 22 of this regulation allows couples to designate either the national law of one of the spouses, either the law of their habitual residence.

Once the applicable law designated, the spouses will be able to choose their matrimonial property regime. For example, a couple might choose separation of assets. However, under some European laws the spouses might be able to choose another property regime, more protective to the other spouse upon death.

This choice could have an impact on inheritance, since the surviving spouse might be entitled to a significant part of the assets acquired during marriage.

To determine your matrimonial property regime is therefore essential for estate planning.

Choosing the best applicable law to your inheritance

In order to limit the difficulties raised above, the European Union adopted Regulation No 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession.

From a European point of view, the applicable law to the succession will be the law of the last domicile of the deceased. However, the regulation allows citizens to choose their national law as the applicable law. A competent lawyer in both jurisdictions will be able to advise you about the best applicable law for your inheritance.

The regulation also creates a “European Certificate of Succession”, an essential document to be drafted by a local authority in order to transfer the ownership of the assets located in Europe to the heirs.

The local authority will need to ensure that the will respects European procedures.

Tools to protect your assets and plan your inheritance

Several tools are available for international estate planning besides drafting a will in Europe and Hong Kong. You could consider donating part of your assets to your children or incorporating a company who will own your real estate for your family.

  • European and Hong Kong wills: an analysis of your situation, the location of your assets and the tax residence of your family members is necessary to assess the suitability of a Hong Kong or European will. In some cases, a European will would be more appropriate. Depending on the case, a Hong Kong will would be needed to complete the European will. In any event, if you own any assets in Europe, it is advisable to take into consideration the tax implications for your heirs before drafting the will.
  • Donation to children during lifetime: in some cases, giving part of our assets to your children during your lifetime would decrease your estate upon death and therefore the tax will be lower. For example, in France parents are allowed to give up to 100.000 € per parent and per child every fifteen years, exempt of tax. 
  • Donation of the real ownership of immovable assets to the children: in some European countries, it is possible to separate the real ownership from the usufruct. One way of decrease your estate before death and to keep the use of the house could be donating the real ownership to your children while the parents keep the usufruct until their death.
  • Incorporation of a Property Company:  some European countries like France provide many ways to limit the inheritance problems for real estate. One of the most popular ones would be creating a “Société Civile Immobilière”, a Property Company owning the real estate instead. Upon demise, the heirs will inherit the shares of the Company and not the real estate itself.
  • Trusts: most Continental European laws do not permit to set up trusts. It is however possible to set up a trust in Hong Kong but legal advice is mandatory to ensure that there will be no consequences for the inheritance of European assets.

An assessment of your particular situation is needed in order to determine the best options international law can offer.

Brexit

I sadly need to remind you that the United Kingdom is not a part of the European Union since January 2021. But for every problem, a solution: our specialized lawyers at OLN can advise you on estate planning in the United Kingdom, Continental Europe and Hong Kong!

September 2021

Changes to the Profit Requirement for Main Board IPO (Part 2)

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Introduction

Further to my previous article “Proposed Changes to the Profit Requirement for Main Board IPO” published in May 2021 (the “Article”), The Stock Exchange of Hong Kong Limited (“Stock Exchange”) published the consultation results shortly after the publication of the Article. 

Consultation of the Stock Exchange

To recap, the Stock Exchange published a consultation paper in November 2020 (“Consultation Paper”) proposing to increase the profit requirement for Main Board IPO listing applicants. The Stock Exchange proposed 2 options for the increase, one proposing to increase the overall profit requirement by 150% of the current profit requirement (“Option 1”) and the other proposing to increase the overall profit requirement by 200% (“Option 2”).

Consultation Conclusion[1]

Noting that some companies with a proposed small market capitalization at the time of application that might not be able to meet their profit forecast post-listing and the concerns raised by respondents to the Consultation Paper on the proposed increase in Main Board profit requirements, the Stock Exchange adopted a profit increase which is neither Option 1 nor Option 2. The new profit requirement adopted by the Stock Exchange is a modified version of Option 1 and Option 2 (“Modified Profit Requirement”), being HKD35 million for the most recent financial year prior to the listing application and HKD45 million in aggregate for the 2 preceding financial years, representing a 60% increase from the current profit requirement and a change in the profit spread from 60%:40% to 56%:44%. With the Modified Profit Requirement, the implied historical P/E ratio drops from 25 times to 14 times. The Stock Exchange is also prepared to grant relief from the profit spread under the Modified Profit Requirement in order to allow more flexibilities to listing applicants, on a case-by-case basis. The Modified Profit Requirement takes effect on 1 January 2022.

Although the Modified Profit Requirement is less than Option 1 and Option 2, still with such increase, it will inevitably drive away small size companies who are only marginally able to meet the current Main Board profit requirement. On the other hand, with the Modified Profit Requirement, small market capitalization companies which might otherwise not be eligible for listing on the Main Board under the proposed increase under Option 1/Option 2 can still apply for Main Board listing if they satisfy the new requirement.

In fact, as previously mentioned, the Stock Exchange accepted 102 Main Board IPO listing applications between January and April 2021 since the publication of the Consultation Paper, the number of new Main Board listing applications received by the Stock Exchange between May and August 2021 was 135[2], indicating that even more companies are aiming to take advantage of the last chance to be assessed based on the current profit requirement.

The impact of the Modified Profit Requirement remains to be seen but at least it has the effect of pushing forward the IPO plans of companies with low profits who may not qualify to be listed on the Main Board after the new profit requirement rules come into effect. We can expect to see even more new Main Board IPO applications to be submitted to the Stock Exchange prior to the Modified Profit Requirement coming into effect.

If you wish to learn more about listing in Hong Kong, please feel free to speak to our Simon Wong.

Simon Wong
+852 2186 1848 / +852 9460 9816
simon.wong@oln-law.com
Partner, Corporate & Commercial
Oldham, Li & Nie

September 2021

[1] Consultation Conclusions – The Main Board Profit Requirement

[2] Progress Report for New Listing Applications – Main Board IPO Applications

滴水不漏：合约弥偿为最佳保障

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给《香港律师》的信

2021年九月

在「仲裁庭判令附带法庭程序费用的权力」（《香港律师》，2021年6月）一文中，作者认为，由于在附带法庭诉讼中申请临时措施所招致的费用（「附带法庭程序的费用」）不能构成「仲裁程序的费用」，仲裁庭因此不能判给申请方相关费用。

被忽视的法例

我等谨认为，《再谈在仲裁中追讨附带法庭程序的费用》（《香港律师》，2021年4月）阐述的分析尚未被充分理解，而《仲裁条例》第74(3)条亦再次被忽略。

简而言之，《仲裁条例》第74(3)条明确规定，「凡任何一方要求作出命令或指示(包括临时措施)，则仲裁庭亦可就该请求……命令一方支付费用」。（作者后加的强调）该条文看来已授权仲裁庭就《仲裁条例》第74(1)条衍生的一般仲裁程序费用以外的费用颁令。

仲裁程序的费用

尽管许多有关其他司法管辖区的文章都曾探讨「仲裁程序的费用」这概念，但这些讨论与《仲裁条例》第74(3)条的诠释并不相关。《仲裁条例》第74(3)条乃是一条由香港立法会议员创造的独特条文，外国法规并无任何同等的条文。

无论如何，前文作者所引用的文献亦指出了某些仲裁庭可以在仲裁中判给「附带法庭程序的费用」的情况。

1.《国际仲裁实务指引》(International Arbitration Practice Guideline)（2006年）中提及，若本地法院无法处理临时措施的费用，或法院已将其提交予仲裁庭决定，则临时措施的费用可能在仲裁中予以追讨。

2. 同样地，Micha Bühler（2018年）接受了只要没有重复判给费用且相关法律程序没有违反仲裁协议，「附带法庭程序的费用」也许可以作为仲裁费用予以追讨。

3. Jeffrey Waincymer教授（2012年）进一步指出，「如果这是胜方用以支持仲裁的附带行为，例如于法院取得临时措施的费用」，该「附带法庭程序的费用」则有可能被视为仲裁费用。

原则上，除非另有明确规定，否则仲裁庭判给「附带法庭程序的费用」的管辖权不应取决于某些事件而定。因此，依我们愚见，这些文献均倾向支持而不是否定仲裁庭确实对判给「附带法庭程序的费用」拥有管辖权的观点。较好的说法应是仲裁庭虽有判给讼费的管辖权，但基于显而易见及不必重复的公共政策原因，这种管辖权只应在极罕见的情况下使用。

务实及可行的商业解决方案

虽然要求外国司法管辖区特别容许仲裁庭判给「附带法庭程序的费用」这主张可能值得推崇，但若这主张与外国司法管辖区预设的讼费原则相反，则并不现实。无论如何，要改变每个外国司法管辖区的常规亦是不切实际的。

依我们愚见，一个简单而可行的解决方案，亦与上述Waincymer（2012年）的学术文献相符，是在仲裁协议中加入讼费弥偿条款，订明「附带法庭程序的费用」可作为损害赔偿予以追讨。

鸣谢

作者感谢梁泳泽律师（高李严律师行合伙人）的研究指导和梁冠衡先生（高李严律师行暑期实习生）的研究投入。任何错误、遗漏和失误都是作者自己的责任。

有关英国税务的简单摘要

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1.    英国与香港的税制的分别

香港

  • 收入来源地域征税 – 即只有源自香港的利润才须在香港征税，而源自其他地方的利润则不须在香港缴付利得税。

英国

  • 全球征税 – 即在全球所赚取的收入和收益，包括得自海外的利润，都予以征税。
 入息稅物业
收入稅		公司利得稅股息稅資产
增值稅		土地稅物业
印花稅		遗产稅
香港2% – 17%净租金收入的15%16.5%
(正常税率)
8.25%
(不超过$2,000,000
的应评税利润)		沒有沒有差饷: 5%
地租: 3%		$100 – 15%2005年7月15日後取消遗产税
英国  20% – 45%物业所得租金收入连同个人
入息计算税款		19%
(正常税率)		7.5% – 38.1%
(视乎税级)		10% – 28%
(視乎稅級和資產類別)		市政稅:
£1,070.22 – £3,210.66
(2020/21年度)		0% – 12%最高稅率为40%
2.    英国税制的简介

A.    全球征税制度 – 英国居民 (Resident) vs 非英国居借居民 (Non-domiciled Resident)

英国居民

  • 如你是英国居民，便要为源自英国及海外的收入缴税。
  • 一般而言，只要你在每税收年度（4月6日至来年4月5日）于英国逗留多于183日，就自动定义为税务居民（Tax-Resident）。

非英国居借居民 (Non-domiciled Resident)

  • 如你居住在英国，但并非英国居籍居民，那么只有源于英国的收入和收益要缴税，而对于海外收入，你可选择申请以汇款制计税 (Remittance Basis) ，即只把汇入英国的海外收入和收益计税。
  • 居籍 (domicile) 是个普通法概念，意旨你视为永久居所的国家或地区。要确定居籍有可能涉及复杂的法律事实，考虑因素包括为你的出生地、于英国逗留的时间长短、是否有意于英国永久定居等等。
  • 值得注意的是如你在20年内有15年都是英国税务居民（即使居籍并非英国），你将在第16年起自动被视为具有英国居籍的人（Deemed Domicile），并需要为源自英国及海外的收入缴税。

B.    香港与英国签订的双边税务条约 (Double Taxation Agreement)

  • 香港与英国有签订双边税务条约，订明双方的征税权，亦定明不同被动收入的税率宽免，以防止双重征税。
3.    移民前的税务计画

A.    建立 “干净资本” (Clean Capital)

  • 首次成为英国税务居民以前所产生的海外收入或收益一般称为 “干净资本”。即使该资金被汇入英国，都不会被征税。
  • 在成为英国税务居民之前，应该将 “干净资本” 进行分离。否则如果该资金和成为税务居民后产生的资金混合，原本的“干净资本”亦有机会被征税。
  • 以达至 “干净资本” 分离，你可开设不同银行账户，以单独管理 “干净资本”、利息帐户和资本收益帐户等。

B.    妥善安排每年居英日子

  • 如上所述，如你在20年内有15年每年留英日子多于183天，便会被视为英国居籍 (domicile)，这会影响你可否申请以汇款制计税及遗产税缴纳多寡。

C.    作好资产承继安排

  • 如你打算保留香港作为你的居籍 (domicile)，建议应订立香港遗嘱以涵盖香港资产。

D.    设立信托

  • 海外信托的设立能有效地达至税务递延甚至减免。海外信托的海外收入和收益一般无需缴英国所得和利得税。
  • 至于英国遗产税，英国非居籍居民设立的海外信托的海外资产无需缴税。只要信托设立人在设立信托时是英国非居籍居民，即使之后信托设立人获得居籍，信托名下的海外资产亦无需缴英国遗产税。

联络我们:

Anna Chan 陳韵祺律师 | 合伙人
anna.chan@oln-law.com

Victor Ng  吳光懋律师 | 合伙人
victor.ng@oln-law.com

免责声明：本文仅供参考。本文中的任何内容均不得解释为对任何人提供的英国或香港法律意见或任何与此有关的法律意见。高李严律师事务所对任何人因本文所所载的任何内容而行所造成的任何损失和/或损害不承担任何责任。

Dissipation of Assets by Debtor – How Lumley v Gye Tort Can Assist Creditor

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The notorious “dissipation” cases

One of the common questions a desperate creditor would ask is whether he/she can go after the ultimate owner/the controller of the debtor company instead of the debtor itself. In most circumstances, the answer is No because:-

  1. Under the “privity of contract”, only the contracting party can be sued for breach of contract. Where there is a written contract, a party is in general bound by its terms after signing. A party is not allowed to claim that there are contracting parties other than those stated in the contract, especially when the application of The Contracts (Rights of Third Parties) Ordinance has been expressly excluded.
  2. A company is accepted in law as a separate “legal personality” which is able to act on its own, and is also able to be sued and become liable on its own. In the case of a limited liability company, a shareholder’s liability is limited to the extent of his investment in the company.
  3. Only in very exceptional circumstances (such as fraud) that the court would “lift the corporate veil”. But even in the case of fraud, the UK Supreme Court once pointed out in VTB Capital plc v. Nutritek International Corp [2013] UKSC 5 that it is wrong to treat the persons behind as contracting parties to hold them contractually liable.  

In view of the above cardinal principles, a cunning owner/controller may nominate a limited liability entity as the borrower/contracting party thus shielding oneself from personal liability. Such owners/controllers may also willfully drain the company’s financials or in more radical cases, they may even try to siphon off assets from the company to their related parties. In the latter scenario, as it is not uncommon for such controllers to have lent money to the company by way of shareholders’ loans, such controllers may even actively pursue the winding-up of the company with the ultimate goal to appoint a liquidator over whom they may exert influence.

Creditors’ options in such an unfortunate circumstance are limited. The creditor may try to obtain a Mareva injunction against the debtor company, which is, however, preventive in nature and would have no use if dissipation has already occurred. In such a situation, what has been consistently underexplored, if not overlooked, is the tort as recognised in Lumley v. Gye [1853] EWHC QB J73, or what is modernly called the tort of procuring a breach of contract. As will be seen below, this tort has been recently reinvigorated (in particular in the cases of Marex Financial Limited v. Carlos Sevilleja Garcia [2017] EWHC 918 (Comm) and Palmer Birch v. Lloyd [2018] EWHC 2316 (TCC)) to cover shareholders/ directors (and even ultimate beneficial owners and shadow directors) of a company who, through dissipation, have emptied the pocket of the company to deprive it of the means to make payments to its contractual counterpart. This may sound a bit ironic because while commercial lawyers have always tried to use the device of contract to avoid the need to establish a “duty of care” should a dispute later arise, it is tort law which comes to the rescue when no effective means is to be found in enforcing a contract. On the other hand, as will be analysed below, it cannot be overstated that a contract nonetheless plays a significant role here because the tort relies on the existence of a contract and a breach thereof (which in turn depends on the existence, breadth, legality and enforceability of a contractual clause). Viewed in this light, the existence of the Lumley v. Gye tort actually highlights the importance of the drafting technique of a commercial lawyer.

The Elements of the Lumley v. Gye Tort 

The basic elements of the Lumley v. Gye tort are that:

  1. There at least has to be a contract.
  2. There at least has to be a breach of the contract.
  3. There has to be an element of participation (which has to be more than mere prevention) on the part of the shareholder/director/controller in causing the breach of the contract.
  4. The shareholder/director/controller must also have intended to procure the breach of the contract through its participation. Impliedly, they must also have known of the existence of the contract.
  5. The plaintiff has to have suffered a loss.

Having regard to the elements of the tort, it is then not difficult to understand why such a tort can be a useful weapon in a dissipation case against the controllers of the company where a breach of contract has already occurred. By definition, such controllers are in control of the company so that it is usually hard for them to insulate themselves from the dissipation. On the other hand, being close to the affairs of the company, they cannot really deny their knowledge of the contract. As for the fifth element, the non-payment under the contract is the loss suffered.

It can be immediately observed that while the Lumley v. Gye tort seems to have “sidestepped” the doctrine of separate legal personalities, it does not deny and is actually premised on the recognition of the separate legal personalities of a company and its controllers (so that they can be properly regarded as third parties). Therefore, there is no established policy reason to exclude a claim against the controllers once the elements of the tort are satisfied. The debtor in Palmer Birch tried to argue that the whole claim was an impermissible attempt to pierce the corporate veil but such argument failed.

As can be shown in the Supreme Court case of Sevilleja v. Marex Financial Ltd [2020] UKSC 31, a claim based on the Lumley v. Gye tort is allowed even when the company is in the process of being wound up. The no reflective loss rule is no bar to such a claim. A general creditor may therefore be in a more advantageous position since he/she could have a direct claim against the controllers circumventing the problems of ranking lower than secured creditors or ranking pari passu with claims of other general creditors. 

Is there a tort of knowingly inducing or procuring the wrongful violation of a judgment debt?

Under the doctrine of merger, upon obtaining a judgment, the contractual debt has “merged” into the judgment and the claimant can no longer rely on the original contractual debt. The question then is, whether the creditor can still rely on the Lumley v. Gye tort where the non-payment is in respect of a judgment debt deriving from a contractual debt? This is the scenario encountered by the English Court in Marex Financial, where at first instance Knowles J decided in an interlocutory application hearing that there exists a tort of knowingly inducing or procuring the wrongful violation of a judgment debt, thereby extending the application of the Lumley v. Gye tort to cover such a judgment debt. Though this case was subsequently appealed to the Supreme Court on other points, ruling on this point remains undisturbed.

The decision of Marex Financial however leaves another problem unaddressed. Given that the original Lumley v Gye tort only recognizes contractual interests as a specific asset class worthy of its protection, it remains to be seen whether the tort of knowingly inducing or procuring the wrongful violation of a judgment debt can be extended to judgment debts based on other causes of action (e.g. a monetary judgment obtained solely based on a tortious claim).

Even if the tort of knowingly inducing or procuring the wrongful violation of a judgment debt is kept within its current bounds, it still represents an outlier in the common law world because a cause of action is generally considered as completed upon the grant of the judgment so that the failure of the debtor to satisfy a judgment debt would not give rise to another cause of action, and the creditor is left with traditional enforcement actions and winding-up proceedings. By this special tort, the creditor can now launch a new claim against the shareholder/director/controller of the debtor company where the judgment debt (which has to be derived from a contractual debt) remains unsatisfied.

Comparison to other economic torts

The Lumley v Gye tort also has the following advantages when compared with other economic torts:

  1. No fraud needs to be proved as in the case of tort of deceit. It has to be borne in mind that fraud is a serious allegation and it is hard to prove fraud in a commercial context.
  2. No unlawfulness needs to be proved as in the cases of unlawful means conspiracy and unlawful interference.
  3. Unlike conspiracy, only one wrongdoer (other than the contract breaker) is enough in the Lumley v. Gye tort.

The Lumley v. Gye tort also seems to be exceptionally useful against shadow directors who are acting outside of the constitution of the company. Ironically, this may deprive them of the defence of “acting bona fide within the scope of his authority” conferred on by the company whereas such a defence is generally available to a de jure director. It is therefore not a coincidence that the main defendant in both the cases of Marex Financial and Palmer Birch is a shadow director.

On the other hand, in dissipation cases, what the claimant requires is some initial evidence that there has been dissipation of assets from the company. Such financial information is not normally available to outsiders and as the claimant cannot fish for evidence, he may have to obtain such evidence through other legal routes. Such routes may include contractual clauses which allow access to financial information (which are commonly included in commercial agreements), as well as disclosure orders ancillary to a Mareva injunction. 

Conclusion

Both the cases of Marex Financial and Palmer Birch have not been considered by the Hong Kong courts in the context of a Lumley v. Gye tort. It therefore remains to be seen whether the two cases will be followed by the Hong Kong courts, especially when the flexible use of the Lumley v. Gye tort has the effect of sidestepping many of the long-lasting common law principles as described above. However, as an experienced litigator can tell, there is often no better way to apply pressure on the other side than to sue the natural persons behind, and for this reason alone the possibility of launching a claim based on the Lumley v. Gye tort is worth exploring. 

Our firm has extensive experience in debt recovery action in HK. If you have any question regarding the topic discussed above, please contact our partner Anna Chan at anna.chan@oln-law.com or Martin Tse at martin.tse@oln-law.com for further assistance.

August 2021