OLN

OLN Marketing

OLN Once Again Ranked by Benchmark Litigation Asia-Pacific

by

OLN Once Again Ranked by Benchmark Litigation Asia-Pacific

We are proud to announce that the 2022 edition of Benchmark Litigation Asia-Pacific has placed Oldham, Li & Nie among the top Family & Matrimonial, Commercial & Transactions and Private Client law firms in Hong Kong.

OLN was ranked in the following categories:

  • Family and Matrimonial – Hong Kong and International firms – Tier 3
  • Commercial and Transactions – Hong Kong firms – Tier 3
  • Private Client – Hong Kong firms – Recommended

More information about the rankings – https://benchmarklitigation.com/NewsAndAnalysis/2022-Benchmark-Litigation-Asia-Pacific-is-now-live/Index/8294

About Benchmark Litigation

Benchmark Litigation, the definitive guide to the region’s leading dispute resolution firms and lawyers, was first published in 2008 covering the litigation and disputes markets in the United States and Canada and has broadened its coverage to include Asia – Pacific, Europe and Latin America – becoming a truly global guide. The guide provides in-depth law firm rankings, editorial commentary on many ranked firms and rankings of highly recommended dispute resolution specialists. Research is based in Hong Kong and is conducted through extensive interviews with litigators, arbitrators, dispute resolution specialists and their clients to identify the leading litigators and firms as well as examining recent casework handled by law firms and lawyers.

First Case in China Penalising Bad Faith Trade Mark Registration

by

The Fujian Higher People’s Court issued a judgment on 27 September 2021 awarding Emerson Electric Co (“Emerson”), a US company damages in the amount of RMB1.6 million payable by the defendants (two affiliated Xiamen companies, the main shareholder of the Xiamen companies and the trade mark agent) in China for having registered Emerson’s trade marks in bad faith as an act of unfair competition. 

Emerson is the owner of the brand name “InSinkErator 爱适易”. 

Two affiliated Xiamen companies have been found registering “InSinkErator” and “爱适易” and a number of other well known brand names as trade marks in China since around 2010.   Having considered all the relevant factors and circumstances, the Court ruled that the trade mark registrations the Xiamen companies acquired or attempted to acquire have exceeded the normal needs for its commercial activities and disturbed the business activities and interest of Emerson.  Such acts have caused unfair competition in the market in violation of Article 2 of the PRC Anti-Unfair Competition Law.  The main shareholder of the Xiamen companies and the trade mark agent representing the Xiamen companies were also held liable for facilitating the unlawful act of unfair competition.

Many brand owners before this case had inevitably spent huge effort and millions of legal costs to re-claim their trade mark rights in China without expecting any award of damages.  This case has set an encouraging precedent for brand owners to look up to and materialized the PRC Government’s initiative and determination to better safeguard the legitimate trade mark rights of brand owners.

Update on Underground Banking – Lesnina H. D.O.O. v Wave Shipping et all (HCA 154/2020)

by

If you are the plaintiff who has been defrauded within the underground banking system, think twice before applying for summary judgment where the defence of bona fide purchaser for value without notice has been pleaded.

Author: Eunice Chiu of OLN, Solicitor for the 8th Defendant

This is a short update on underground banking. Monies transferred through underground banking into Hong Kong may escape detection until they are mixed with funds obtained by fraud, and the defrauded party attempts to recover the defrauded funds by suing:

(a) the suspected fraudster (who will have usually disappeared by the time legal action is commenced), together with;

(b) other recipients who did not participate in the fraud but whose money arrived in the very same bank account which held the funds obtained by fraud.

It is generally when such a lawsuit is commenced (sometimes via an application for an injunction or the police issuing a letter of no consent which freezes the account) that innocent recipients come to realize that the fund senders had conducted the transfers using the underground banking system.

In April 2021, I wrote about how money transfers conducted through the underground banking system into Hong Kong may no longer be enforceable even if the recipient in question did not participate in the fraud or did not know that underground banking would be used to transfer funds to him/her. Between 2017 to 2021, the High Court decided in a number of cases that the use of underground banking, being illegal under PRC law though not illegal under HK law, violated the public policy of HK and therefore funds transferred in this manner are subject to being returned to the defrauded plaintiff: https://oln-law.com/underground-banking-in-hong-kong-ndash-can-a-payee-rsquo-s-finances-be-frozen/; https://www.lexology.com/24462/author/Eunice_Chiu/).  

However, in none of the cases decided based on the foreign illegality/public policy ground did the court make a factual finding that the recipient defendant knew, should have known or should have reasonably suspected that the money would be transferred using illegal means, i.e. the recipient defendant was a bona fide purchaser for value without knowledge who merely played a passive role. The question I then asked was, what if the recipient was such a purchaser?

In last Thursday’s decision handed down by Deputy High Court Judge Victor Dawes SC in  Lesnina H. D.O.O. v Wave Shipping et all (HCA 154/2020), not only did the Plaintiff fail to obtain summary judgment against our client, the 8th Defendant, the court also rejected the absolute approach used in previous cases including DBS Bank (Hong Kong) Limited v Pan Jing [2020] 4 HKC 395 (24 January 2020) as the correct or the only approach to be applied. Instead, the court spent a significant part of the judgment reviewing an alternative and more flexible approach represented by various authorities including Ryder Industries Limited (formerly Saitek Limited) v Chan Shui Woo [2015] 18 HKCFAR 546: Not every breach of foreign law makes a contract unenforceable; consideration must be given to the seriousness of the foreign illegality, i.e. there is a de minimis threshold. The court went on to reject the Plaintiff’s application for summary judgment on the basis that the illegality argument raised by the Plaintiff involves triable legal issues which ought to be fully ventilated at trial, not at the summary judgment stage, then granted the 8th Defendant unconditional leave to defend. In essence, the court rejected the absolute approach that has been in place since Pan Jing which was sufficient to grant judgment in favour of the Plaintiff even at the summary judgment stage – illegality renders a contract void and unenforceable full stop, both at the summary judgment and trial stages.   

Arguably, Dawes J went further than just deciding that there is an alternative legal approach that makes it inappropriate at the stage of a summary judgment application to grant judgment in favour of the Plaintiff where foreign illegality is triggered. At paragraph 57 of the judgment, he made it abundantly clear that he did not disagree with the heavy criticism of the absolute approach:

There is much to be said for the suggestion that Laddie J’s approach in Barros Mattos involved an overly blunt application of the maxim ex turpi causa non oritur action, and a preferable approach would be one that measures the gravity of the defendant’s criminal conduct against the impact of allowing the defence of change of position, and in my view the point applies to the bona fide purchaser defence as much as it does to the change of position defence [emphasis added]

Based on Dawes J’s latest judgment, in conjunction with that of Deputy High Court Judge Le Pichon in Solyda SRL v Wu Ge (HCA 1612/2019), [2021] HKCFI 1825 at para 24 who decided that the issue of the bona fides of the defendant was indeed relevant, I would see things in this way: At present, foreign illegality does not automatically render a transaction conducted via underground banking unenforceable, certainly not at the summary judgment stage, whilst 2 defences remain available to passive recipients: the de minimis threshold argument and the bona fide purchaser for value without knowledge defence.

OLN Once Again Awarded Employer of Choice by Asian Legal Business (ALB)

by

We are delighted to announce that Oldham, Li & Nie has again been awarded Employer of Choice, Asia’s Best Law Firms to Work For, by Asian Legal Business.

The ALB Employer of Choice is an annual listing of the best firms to work for across various Asian jurisdictions. Law firms are listed on the basis of what kind of working environment and support they provide, particularly during the pandemic, training and mentoring, how clear the path to seniority is, how open the law firm is to receiving feedback from its employees, etc.

We are grateful to our employees for sharing their feedback and for making OLN a great place to work!

The Employer of Choice list is featured in April 2022 issue of ALB. Click here to read the publication.

5 Common Legal Mistakes Hong Kong Startup Founders Should Avoid

by

Starting a new business adventure means managing multiple exciting activities simultaneously: product development, marketing, sales, etc. With so many things to get done, legal aspects usually tend to take a back seat. Many founders consider legal advice a luxury, assuming that their bootstrapped startups cannot afford it. Unfortunately, this leads to all sorts of legal problems that can undermine the foundation of their startup and even become company killers.

The following are some of the common mistakes made by Hong Kong startups:

1. Not protecting their intellectual property (IP)

Intellectual property refers to any intangible assets, such as patents, trademarks, copyright, logo, design, and anything else that differentiates a business’ offering. If a founder has a brilliant idea, there will always be those who will try to duplicate it and get a bit of the brand’s success, with a risk of undermining or even destroying the brand’s value. Intellectual property is one of the most valuable asset for a startup, as it provides commercial value to and differentiates a startup from the others. Therefore, it’s really important to identify the strategic intellectual property at the very beginning and to enlist legal support to protect it properly. Most, if not all, of the investors would love to see startups with a well-developed intellectual property protection strategy.

Also, there is no such thing as “global IP protection” – if the intellectual property is protected in Hong Kong this does not necessarily mean that it is automatically protected in any other country. The rule of thumb is to register IP rights in each jurisdiction the startup works with.

Some excellent resources about intellectual property protection in Hong Kong include:

Hong Kong – IP Trading Hub
Intellectual Property Department
Online Search for Trademark, Patents & Designs

2. Sealing the business with a verbal agreement and a handshake

When friends or family members come together to form a company, more often than not, they will not consider the need for a written shareholders’ agreement as they tend to rely on mutual trust, respect and confidence. Of course, this generally works perfectly when the business is doing well and profitable, and while the shareholders are receiving their expected return on investment. But what if things turn sour? Whether the business is not doing well or trust and confidence morph into distrust and suspicion, what can shareholders do? In circumstances like these, the shareholders’ agreement comes into play. A well-drafted shareholders’ agreement should be able to offer a solution to the parties in most cases. As with any other agreement such as those for sale and purchase, and loan transactions, the importance of a shareholders’ agreement is to safeguard interests of the shareholders and if disputes arise between the parties, there is an agreement they can fall back on setting out clearly what the parties can or cannot do, and shall or shall not do.

Here are some of the terms the written shareholders’ agreement should address:

  1. How the shares will be split between co-founders
  2. The management of the company – the roles and responsibilities of the co-founders
  3. The right of founders to nominate directors
  4. Frequency, procedures for convening and holding board meetings and shareholders’ meetings
  5. Matters which require simple majority, super majority or unanimous votes
  6. Dividend policy
  7. Issue of new shares and admission of new shareholders
  8. Transfer of shares
  9. Anti-dilution mechanism
  10.  Deadlock
  11.  Minority shareholder protection
  12.  Further financing needs of the company
  13.  Non-competition undertaking by shareholders
  14.  Term and termination of the shareholders’ agreement
  15.  Dispute resolutions

3. Poor management of accounting

One more common mistake made by startups is the poor management of their expenses throughout the year. Founders usually rush to collect all receipts only when they need to file tax returns. Some business expenses may be deductable from the income to reduce the amount of payable tax, so good accounting practices not just help make informed business decisions, but also save costs.

4. Not registering the right business entity

There are many reasons startups should form a business entity rather than operate as a sole proprietorship. In Hong Kong, in most instances, that will mean a limited company. Limited companies can protect the founders and investors from corporate liability, own property, open bank accounts, have different types of shareholders (holding common and preferred shares), sue and be sued, and carry on business both in and outside Hong Kong.

It is essential to form the company early and to document the formation, the ownership, and the agreed arrangements among the shareholders. All of this can be done cheaply by professional corporate service providers, but to make sure that it is done properly, taking into account the current and future needs of the startup, as well as the preferences of the founders (and investors), it is advisable to speak to a startup lawyer first.

5. Not engaging legal council

Smart business owners know that it is better to involve a professional legal counsel earlier than later and that fixing legal mistakes is more expensive than preventing them. Downloading free document templates on the internet can save money in the short term, but can lead to all sorts of problems in the future: the documents may not be suitable for industry or jurisdiction, may be outdated, etc. Though legal advice is not cheap, it is possible to find it all over the price spectrum. Moreover, lawyers often provide pro bono and free brief legal clinics and can even make special arrangements for startups.

Online subscription to customizable legal templates with ad-hoc legal advice, such as OLN Online, is also an easy-to-budget and easy-to-use solution.

If you need more hands-on assistance with your legal issues, we recommend that you contact one of us at OLN. We have decades of experience advising founders and investors about emerging businesses and can provide the advice you need for your contracts and other arrangements.

If you have any questions regarding your contract needs or other legal issues, feel free to contact us for advice.

Legal Options in Simple English on Challenges Faced by Businesses During Hong Kong’s 5th Wave COVID

by

The 5th wave of COVID in Hong Kong has hit the business community hard. Many businesses have closed down whilst some companies and sole proprietors are considering winding up and bankruptcy as options to limit losses. For businesses that continue running, they face new challenges in dealing with employees as a result of various legislative measures taken by the government on vaccination and related requirements. 

Here is a practical and brief look at:

  • issues that businesses and individuals should be aware of when considering winding up and bankruptcy or when faced with a winding up or bankruptcy petition issued by creditors; and
  • what employers and employees need to know in the face of new health-related legislative measures and implications on privacy protection.

1. DEREGISTRATION OF A COMPANY

Many companies in financial trouble attempt to avoid creditors by de-registering.  Unfortunately, de-registration cannot achieve the desired effect because the company can still be sued whilst directors and shareholders continue to bear liability for the period that the company remained operational. On the other hand, having been de-registered, the company has no right to sue others or defend itself when sued by others, which is a major disadvantage, to put it lightly.

2. WINDING UP

The Process in a Nutshell

Winding up of a company by the court can be initiated by the company itself, the company’s shareholders or its creditors. In each case, the process is commenced by the filing of a petition in court which essentially claims that the company is unable to pay its debts. Prior to this step, the creditor must have served a statutory demand on the debtor and provided 21 days to the company to repay the debt.  

Where winding up was instigated by creditors, a creditors’ meeting will be held to appoint a liquidator. Voting is by simple majority. 

Where shareholders wish to wind up the company, an EGM must be called to pass a resolution to wind up the company. Such a resolution requires at least 75% of the shareholders present voting in favour of it. Generally, at the same EGM, the members will also pass another resolution to appoint a liquidator.

Once the liquidator is appointed, he/she will “realize” all assets of the company, i.e. investigate and gather assets, turn them into cash and distribute them amongst legitimate creditors on a pro rata basis based on priorities dictated by the law. Secured creditors and employees enjoy priority.

A provisional liquidator may also be appointed to protect the company’s assets at any time after the presentation of the petition and before the making of a winding up order. The appointment of a provisional liquidator or a liquidator triggers an automatic suspension of all legal actions against the company except with the court’s special permission.

Defences and Injunctions

A strong defence to being wound up is the lack of a genuine debt but instead just a mere claim that has yet to be proven, i.e. there is a genuine dispute as to the existence of the debt.

Often, those seeking payment from the company will indiscriminately issue a winding up petition as a way to apply pressure on the company to pay up. If such is done in the absence of a genuine debt, alleged debtors should consider obtaining an injunction on the basis that the petition amounts to an abuse of the process of the court.

Settlement/Voluntary Arrangement with Creditors

As the winding up process can be costly and lengthy (don’t forget that the costs of the process and liquidators’ and legal fees will be paid out of company assets before distribution to creditors), debtors should always consider if there is a way to work out a settlement with creditors and vice-versa.  

Scheme of Arrangement

Another alternative to winding up is to put into place a Scheme of Arrangement, a court-approved arrangement between the debtor and creditors that binds all creditors including those who are against the arrangement as long as the votes of more than 50% of creditors holding 75% of the company’s debt are obtained. The Scheme must then be submitted to the court for approval. The court scrutinizes compliance with legislatively-mandated procedures and the fairness of the proposed arrangement between the company and its creditors (or amongst different classes of creditors). Since a Scheme does not automatically suspend proceedings against the debtor company, the parties should consider applying for a provisional winding up order which does trigger an automatic suspension on such legal actions.

Liabilities of Shareholders and Directors of a Company in Liquidation

In a winding up, shareholders and directors can become embroiled in separate litigation (civil, criminal and/or regulatory), if they are found to have engaged in certain prohibitive transactions, such as:

(a) Unfair preference – In simple terms, this involves the company giving a preference to certain creditors in the 6-month period leading up to the presentation of the winding up petition (2 years if the recipient is a person/an entity connected to the company).

(b) Transaction at an undervalue/for no value – In basic terms, this involves the company transferring its assets at a value that is below market value or for no value at all, effectively putting the assets outside of the asset pool. Depending on the circumstances, the period under review can be up to 5 years before the presentation of the petition.

(c) Fraudulent transfer – In simple terms, this is a transaction at an undervalue or for no value but made with the intention of defrauding creditors.

Determining in which jurisdiction to apply for winding up

If the debtor company in issue is a non-Hong Kong registered company, the Hong Kong courts will only grant a winding up order if:

(a) There is a sufficient connection between the company and Hong Kong. That HK is the place of incorporation does not necessarily mean there is a sufficient connection; it is but one of the factors taken into consideration. 

  • In a winding up where shareholders seek to wind up the company on just and equitable grounds rather than mere insolvency, factors that are usually required to be present include the company having carried on business in HK and the events giving rise to the dispute concerned occurred in HK. 
  • Fraud that took place in HK will almost always provide the sufficient connection for the HK courts to take jurisdiction. 
  • Location of income stream.
  • Did administrative decisions and relevant events happen in HK?
  • Where do the shareholders and directors of the company reside?
  • Where are the assets and businesses of the company located?
  • Whether the company has an established place of business in HK, e.g. where are the books and records kept, where is the Register of Members kept?

(b) There is a reasonable possibility that the order will benefit those applying for it. Another way of putting it is, there is a person in HK with sufficient economic interest in the liquidation of the company to justify a winding up in HK. An example of a situation where this requirement will not be met: the company’s only asset in HK is its listing status, provisional liquidators have already been appointed in the company’s place of incorporation (usually an offshore jurisdiction such as the BVI), liquidators appointed by a HK court have no legal standing or power to take control of the company’s subsidiaries in the PRC. The law on the ability of HK-appointed liquidators to take control of assets located in the PRC is changing, as discussed below.

(c) The court must be able to exercise jurisdiction over one or persons in the distribution of the company’s assets.

Applying for a winding up order outside of HK and getting it recognized by the HK courts?

As a starting point, HK courts will consider the place of incorporation to be the correct ­­jurisdiction to issue a winding up order and have it executed. However, even if HK does not have the strongest connection with the company (i.e. the company’s center of main interest (“COMI”)­­ is not in HK – see the above list under (a) sufficient connection), the following factors:

  1. Is the company a holding company and if so, does the structure require the place of incorporation to be the primary jurisdiction to effectively liquidate or restructure the group?
  2. The extent to which giving primacy to the place of incorporation is artificial, having regard to the strength of the company’s connection with its location.
  3. The view of creditors and whether they are sceptical of restructuring plans.
  4. Is there sufficient information about the restructuring exercise?

Hong Kong – Mainland Mutual Recognition of Winding-Up Order

Prior to 14 May 2021, it was difficult for HK-appointed liquidators to enforce the winding up order in the PRC. On that day, a mutual recognition arrangement was put into place allowing for courts in Shanghai, Shenzhen and Xiamen to give effect to a HK winding up order and vice versa, provided that certain requirements are met. In a nutshell, they are:

(a) The company has a substantive place of business, a representative office or has its main assets in one of the 3 cities.

(b) The company’s COMI has been in HK for a period of 6 months.

Since then, the Shenzhen court has recognized a HK winding up order in Re Samson Paper Co Ltd, HCMP 963/2021. In this case, the company in question was incorporated in HK, had a 40-year presence in HK, with assets in the PRC, including a wholly-owned subsidiary in Shenzhen, receivables from affiliates incorporated in the Mainland and an apartment in Beijing.

It is important to note that the creditors in this case were all in agreement as to the specific duties that ought to be granted to the liquidator (taking over the company’s most important assets, making decisions in relation to the company’s internal management affairs, deciding on the company’s daily and other necessary expenses, managing and disposing of the assets). 

Under HK law, the views of the creditors are germane to the recognition of a foreign winding up order and generally in winding up proceedings. It remains to be seen if the PRC courts will give recognition to a HK winding up order if creditors take different views on the liquidator’s powers and duties. The 2 pending applications in the PRC courts will hopefully provide further clarity to such issues.

3. PRACTICAL CONSIDERATIONS IN WINDING UP/BUSINESS CLOSURE

Leases and the Intended Legislation to allow tenants to defer rental payments

One issue that companies often face during a winding up or business closure is dealing with leases of office premises, warehouses, factories, etc. If rent is unpaid, the landlord can sue in the courts or the Lands Tribunal or even present a winding up petition. 

On 23 February 2022, our Financial Secretary announced that new rent relief law will soon be enacted to allow certain classes of commercial tenants to defer paying rent for 3 months or longer. Until then, without a break clause (i.e. a clause that allows a tenant to terminate the lease after a certain period of time or under specified circumstances), tenants can do little except to attempt negotiation of a settlement with the landlord or even renegotiate the lease.  Many landlords would rather renegotiate than kick the tenant out resulting in zero income.

Unpaid Wages

Employees can recover their salaries in the following ways: filing a complaint with the Labour Department, initiating legal action in court, applying to court to wind up the company or to bankrupt an individual employer, and applying to the government for compensation from the Protection of Wages on Insolvency Fund (Protection of Wages on Insolvency Ordinance (Cap. 380)).

Commencing legal action against the company or its directors may not prove fruitful if the company or its directors who have engaged in wrongdoing do not have sufficient assets to satisfy all creditors and employees. It may not be easy to find out whether the company has assets and where those assets are hiding as banks and other third parties will not easily give out information unless there is a court order compelling them to do so. 

Obtaining such an order, investigating the location of the company’s assets or suing/winding up the company can be an extremely expensive process. The same goes for suing directors for any wrongdoing that has led to the defaults of the company. 

A good option is to join forces with other creditors and/or employees. Please also remember that one can choose to join as a creditor in any ongoing winding up proceedings that were commenced by others; joining is a far cheaper option than commencing proceedings afresh.

In terms of claiming compensation from the Protection of Wages on Insolvency Fund, all employees can apply save for the company’s directors and their family members. The application deadlines and compensation limits are as follows:

  • Unpaid wages: up to $36,000, but the employees must have accumulated at least this amount in unpaid wages in the 4 months preceding the employees’ last day of work; application must be made within 4 months after the last day of service.
  • Wages in lieu of notice: up to $22,500; application must be made within 6 months after the last day of service.
  • Severance payment: up to $50,000 plus 50% of the severance payment to which the employee is entitled that is in excess of $50,000; application must be made within 6 months after the last day of service.
  • Pay for untaken annual leave and untaken statutory holidays: up to $10,500; application must be made within 6 months after the date of termination of contract.
Reputational Issues

Business owners are well-advised to consider giving an explanation to their customers, suppliers and other stakeholders when ceasing business especially if the business or its brand has enjoyed a good reputation in the market over the years and may need to call upon it in the future.

Absconding with Company Assets

If creditors suspect that the company’s directors or shareholders plan to leave Hong Kong together with company assets and there is good evidence to support the suspicion, consider applying to court for a prohibition order which would allow immigration to stop and detain the person at the border. 

If creditors suspect that the company is about to transfer its assets out of HK and there is good evidence to support the suspicion, consider applying for an injunction in court.

4. BANKRUPTCY

The Process in a Nutshell and Differences between Bankruptcy and Winding Up

The process of obtaining a bankruptcy order is similar to that of obtaining a winding up order. The main difference between winding up and bankruptcy is that the winding up of a company does not result in any individual having to live his/her life in a prescribed manner, whereas the duties of a bankrupt include a number of both positive actions and restrictions.

Throughout the bankruptcy period, the bankrupt must abide by all reasonable requests and instructions of the Official Receiver/Trustee-in-Bankruptcy. Otherwise, the bankrupt can be charged with contempt of court and may be arrested and jailed. 

Period of Bankruptcy

Bankruptcy starts from the date that the court makes a bankruptcy order to 4 years thereafter, if this is the first time that the person becomes bankrupt. If the person was previously adjudged bankrupt, the period is 5 years. One can apply for an early discharge after 3 years on the basis that he has conducted him/herself in accordance with the law and the lawful requests of the Trustee, i.e. complied with positive duties and refrained from restricted activities. Conversely, if the bankrupt has engaged in misconduct or fails to cooperate with the Trustee, the period can be prolonged.

Positive Duties of a Bankrupt

Here is a list of some basic positive actions that a bankrupt must undertake:

  • Submitting a Statement of Affairs, a List of Assets and Liabilities and an Annual Income and Expenditure Account Statement.
  • Attending all meetings with the Official Receiver/Trustee as requested. Family members and business friends may also be asked to attend the same meeting or separate meetings.
  • Attending all creditors’ meetings.
  • Assisting the Trustee in all matters in repaying debts, including answering the Trustee’s questions regarding assets and income, signing all asset transfer documents, etc.
  • Automatically notifying the Official Receiver/Trustee of changes in his/her economic circumstances.
  • If the bankrupt is working in the banking sector, inform his/her employer of his bankruptcy.
  • Even if the bankrupt does not work in the banking sector, check his/her employment contract to see if there is a contractual duty to disclose one’s bankruptcy status to the employer.
Things that a Bankrupt cannot do

Here is a list of things that a bankrupt must refrain from doing:

  • Holding certain positions such as director of a limited company, a solicitor (at the discretion of the Law Society), estate agent (at the discretion of the regulator), securities dealer (at the discretion of the regulator), insurance agent (at the discretion of the regulator), and any position that the bankrupt’s employment contract prohibits him/her to hold.
  • Leaving Hong Kong for work, vacation or family visits using his/her own funds, as opposed to someone else’s funds provided as a gift. Taking such a trip without informing the Trustee of his/her itinerary and contact details, or returning to Hong Kong beyond the date stipulated by the Trustee.
  • Living at a standard exceeding “reasonable family needs” which the courts interpret according to each person’s circumstances. For instance, taking a taxi to the hospital for an emergency may be acceptable. However, there are clear examples of actions that clearly go beyond this standard, including buying a luxury vehicle or an Hermes handbag, staying in a five-star hotel paid for by the bankrupt, etc.
  • Obtaining credit or loans from financial institutions. Credit cards will usually be automatically cancelled. Even if the Trustee has not yet informed the financial institution, most financial institutions have designated staff who keep themselves apprised of daily bankruptcy orders made by the courts. 
Bankruptcy will be made public, duty to disclose and privacy issues

The Official Receiver has an obligation to give notice of the bankruptcy order to the public by advertising in the Gazette and 2 newspapers (Chinese and English) and to record the bankruptcy in the bankruptcy register searchable by members of the public.

If the bankrupt is a civil servant, the Official Receiver must notify the Department Secretary of the bankrupt’s department, the Civil Service Bureau and the Treasury.

If the bankrupt works in the private sector, the Trustee is not allowed to approach the bankrupt’s employer except for the purpose of requesting information as part of the Trustee’s investigation into the bankrupt’s financial situation or to demand outstanding wages owed to the bankrupt.

5. ABSCONDING OR DISAPPEARING – Practical Considerations

The risks and pressures associated with absconding are not those that most people can bear.  In many cases, ties with family members and friends may need to be cut, and one lives in perpetual fear of being found. 

6. EMPLOYMENT-RELATED AND PRIVACY ISSUES ARISING FROM NEW LEGISLATION TARGETING COVID CONTROL

The Employment (Amendment) Bill 2022 gazetted on 25 February 2022 appears to be an attempt to put into place a system aimed at keeping the workplace, employees and those who come into contact with such personnel free from COVID, balanced against the continued operation of businesses and employees’ ability to maintain employment. Here are some of the Bill’s key features:

(a) Generally speaking, employers have the right to dismiss employees who fail to produce a vaccination record showing that they have received at least 1 dose of vaccine or a certificate of exemption issued by a qualified medical professional within 56 days after receiving the employer’s written notice of a request. However, such a right is a qualified right as employers making such a request must have good reason to do so. The Bill does not define what constitutes a good reason but one would imagine that frontline workers that face members of the public or the crowded nature of work stations may constitute good reasons.

(b) Pregnant women and those who are breastfeeding are exempt.

(c) Employees working in certain sectors or engaging in a specific type of work can be required to receive more than 1 dose of vaccine. As of the writing of this article (4 April 2022), the government has announced that construction workers must receive at least 2 doses of vaccine before being allowed to enter construction grounds.

(d) Employees’ absence from work due to compulsory quarantine is not a valid ground for dismissal.

(e) If an employee catches COVID and does not report this to the government out of fear or unwillingness to be admitted into designated medical or quarantine facilities, or is unable to provide an appropriate medical certificate, he or she will not be able to justify absence from work.  Even under existing employment legislation, absenteeism without written justification (i.e. a medical certificate) is a reason for employers to refuse to grant paid sick leave or, depending on circumstances, can justify dismissal, especially if the employer can prove that the length of absence has a negative impact on the company’s operations.

Although the Bill is yet to be passed, employers should consider devising a policy that follows the principles set out in the Bill. Whilst no law has officially been enacted, the Bill may well be considered by a court to contain reasonable guidelines. 

On the other hand, employers should also consider whether dismissal of employees in the current atmosphere will affect the company’s reputation or result in unfair dismissal claims. Defending such claims (even if devoid of merit) takes time and money which perhaps only large-sized companies may be able to afford.

As to under what circumstances employers should allow employees who contracted COVID to return to work, the Government has yet to provide guidelines. Based on the concept of reasonableness, employers should consider whether the employee lives with family members and whether such family members also contracted COVID and if they have now recovered with a negative COVID test result.

Data Privacy Issues

Tension exists between the vaccine-related laws and privacy laws.

On the one hand, employers have the right to require employees to provide vaccination records. On the other hand, if an employer reveals an employee by name that he/she has contracted COVID, the employer may have violated the Personal Data (Privacy) Ordinance. 

We suggest that employers refer to the guidelines issued by the Office of the Privacy Commissioner for Personal Data:

  • If an employee has contracted COVID, employers may notify other employees, visitors and the property management office without disclosing information that would identify the person. In most cases, disclosure of the name and other personal data of the employee who contracted COVID would be deemed unnecessary or disproportionate.

What if employee A contracted COVID and, before discovering the positive diagnosis, joined a meeting with employee B in the same physical space? Does the employer owe a fiduciary obligation to inform employee B? The law is so far silent on this point. We therefore suggest employers in such a situation or similar circumstances to seek legal advice before acting.