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Nip conflicts in the bud

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因為家族企業糾紛將家族成員告上法庭是一件令人遺憾，卻也不是不常見的事。我們當然不樂於看見家族的和諧受到破壞，但怎樣才能防患於未然？在本文中，我們將探討如何利用企業管治工具協助家族企業傳承的規劃。

從範例中學習

你可能還記得，身為香港第二大地產發展商和上市公司新鴻基地產有限公司(新鴻基)董事局成員的郭氏兄弟，曾透過訴諸法律程序解決公司控制權爭議的事。2008年，大哥郭炳湘向香港法院申請禁制令，以圖阻止董事局終止其被任命為董事局主席兼行政總裁，及/或改任他為非執行董事。該禁制令最終遭到撤銷，理由是法院不能干預涉及公司內部管理事宜的董事局事務。

雖然新鴻基的範例涉及董事局層面的事宜，但郭炳湘提起的法律行動反映了少數股東的困難。在現行法律框架「少數服從多數」的原則下，一般而言，法院不能協助少數股東維持其董事職位。

另一個關於家族企業控制的範例為鏞記控股有限公司 (鏞記控股)，該公司作為最終控股公司從事經營以燒鵝聞名的鏞記酒家業務。甘健成(原名琨勝)鑑於弟弟甘琨禮不公平地損害他於鏞記控股的利益，因此針對琨禮提出呈請，要求琨禮全面收購他的股份，或者讓鏞記控股清盤。最後，終審法院於2015年作出清盤令，但讓該清盤令暫緩28天生效，以待雙方商討收購的條款(但雙方最後亦未能就此達成協議)。尤其令人遺憾的是，雙方原則上同意了收購安排，但卻無法確定特別是價格等細節。結果，清盤一事無可避免，並交由外部的專業清盤人處理清盤程序。

從上述的範例來看，根據「少數服從多數」這個正當的概念，法院很少從少數股東的利益出發干涉公司事務。此外，雖然在現行的框架下有一些可以幫助少數股東的機制，令到他們免受多數股東的壓迫，但這種機制會導致不確定或者激烈的結果，未必能符合少數股東原先的目的，所以光靠這種機制是不足夠的。

這說明要解決家族企業傳承的問題，是需要額外的方法。例如，在鏞記個案中，如果股東事先就股份收購機制在股東協議中達成共識，就可以避免這種結果。股東只需要在股東協議上提前議定如何釐訂股份的收購價，無論是通過淨資產價值（NAV）法，市盈率法還是現金流量法。一旦立訂規則，股東只需要遵循白紙黑字的條款，就可以免於任何不必要的爭論和衝突。

然而，股東協議只是基於企業管治這個更廣泛的概念的一項工具，而企業管治則是任何家族企業傳承計劃中的重要一環。

企業管治工具

企業管治是指公司管理層、董事局、股東和其他持份者之間相互關係的一種規範化。在家族企業的脈絡裏，這些成員還包括既非董事亦非管理層的家族成員。企業管治對公司的順利運營和不同持份者的平衡至關重要。

家族企業的企業管治工具可以包括：

  1. 《公司條例》（第622章): 第622章載有規管香港公司的條文，以及在香港以外成，但在香港設立營業地點的公司。
  2. 公司章程 :　公司章程必須在公司註冊處註冊為公開資料，這不利於保障家族隱私，而且不應經常修改。
  3. 股東協議：股東協議通常由所有股東簽署，並且通常具有法律約束力，以便根據預先議定的規則管理公司，並確保股東通過協議去確定其權利和協議牽涉的範圍。
  4. 獨立董事/外聘顧問：運用獨立董事或外聘顧問可以保障公司的整體利益，但更適合較大型的家族企業。
  5. 信託營運/家族辦公室: 這更適合已經發展到第二代或第三代的家族企業。

股東協議

毫無疑問股東協議可以解決許多在家族企業傳承過程中出現的企業管治問題。股東協議是公司所有股東之間簽訂的合同，以確定各自的權利和責任，及使公司的管理更有條理。藉着規管股東之間的關係、公司管理和股份擁有權，股東協議發揮了補充公司章程的作用。股東還可以根據股東協議有效利用其股份，或者利用當中的條款以各股東都能接受的方式退出公司。

此外，股東協議的簽訂時機是非常重要的。實際上，人們總會遇到完全無法預見的事，例如死亡、精神上無行為能力、離婚或家庭內的突然危機和爭議。一般而言，越快簽訂股東協議越好，因為不可預見的事件或家庭糾紛可能隨時發生。如果股東協議在早期階段達，當家族成員數目較少時(在家族成員自然橫向增長前)，自然可以更容易達成一致的共識。

結語

家族通過合同安排正式化成員之間的關係，這或許不符合傳統中國社會長幼有序的概念而對有些人聽起來有點奇怪。但是，合同條款確實在一定程度上能夠解決家族企業的潛在糾紛。如果你不想看到經營長久的家族企業分崩離析，最好還是防患於未然。

(文章首次在香港特許秘書公會2019年8月號會刊發表 (http://csj.hkics.org.hk)，由 Ninehills Media Ltd 出版 。)

Divorce Frequently Asked Questions (FAQS)

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DIVORCE

1. I want a divorce.  What steps do I need to take to start the process?

There are three (3) matters to consider when dealing with divorce:

a. Dissolving the marriage (Divorce Main Suit)
b. Children (custody, care and control, access)
c. Ancillary Relief (Distribution of assets, financial matters relating to you and the children)

If you would like to commence divorce proceedings, the first thing you will need to issue an application for Divorce or a Petition for Divorce.  The Petition for Divorce will list the grounds upon which you are filing for Divorce (see more below for more detail).   In the Divorce Petition, it will state that the marriage has broken down irretrievably and if necessary, particulars of why the marriage has broken down will be outlined in more detail along with what you are asking  for including that the marriage be dissolved and other areas to be dealt with including property division and your proposal for the children.

Once the Petition for Divorce is filed, the Petition will need to be served upon your spouse.  The Family Court will then deal with the Divorce in three sections as listed above.

If your Divorce is undefended, meaning there is no dispute as to the ground for Divorce, then you can apply for a Decree Nisi.  After the grant of the Decree Nisi, the Family Court will later grant a Decree Absolute which dissolves the marriage.

If the Divorce Petition is defended then you will need to apply to fix a date for trial on the issue of the main suit.

2. Is “fault” a factor in the divorce process? What are the grounds for divorce in Hong Kong?

The grounds for divorce are found in the Matrimonial Causes Ordinance (Cap. 179, Section 11A of the Laws of Hong Kong).

Under this section these are the following grounds for divorce, which will need to be deemed satisfied by the Family Court in order to find that the marriage has broken down irretrievably:

a. Adultery
b. Unreasonable Behaviour
c. 1 Year Separation with consent of the other party
d. 2 Year Separation without consent
e. Desertion by your spouse for at least a period of 1 year
f.  Joint Application

3. How soon before I am divorced and can re-marry again?

You may re-marry after a Decree Absolute is granted.  The timeline for the grant of a Decree Absolute varies and is dependent upon adjudication of financial and custody arrangements for the children are approved. For this reason, among others, there is incentive for divorcing couples to seek assistance through mediation rather than through the court.

4. How much will it cost to obtain a divorce?  

The cost of your divorce will depend on how complicated it becomes and whether you and your spouse can agree on outstanding issues.  Divorce becomes increasingly costly if you and your spouse cannot agree on certain issues and require the ongoing assistance of solicitors and barristers to resolve these issues.

The most cost-effective way to resolve your Divorce is through mediation or through mutual agreement between you and your spouse on key issues.

JURISDICTION

5. I am a resident of Hong Kong but I was married in another jurisdiction.  Can I still get a divorce in Hong Kong?

So long as you were validly married in another jurisdiction and can provide a Marriage certificate, then you can apply for divorce in Hong Kong.

To file a Petition for Divorce in Hong Kong, you will need to show to the Family Court one of the following:

a. Domicile:  Either you or your spouse was domiciled in Hong Kong on the date of the Petition
b. Habitually Resident:  Either you or your spouse was habitually resident in Hong Kong for a period of 3 years immediately preceding the date of the Petition
c. Substantial Connection: Either you or your spouse had a substantial connection with Hong Kong on the date of the Petition

These facts will need to be addressed in the Divorce for Petition to show the Family Court that the Family Court has jurisdiction over the matter.

Please note that you will be required to provide your Marriage Certificate or a certified true copy when filing a Divorce for Petition.  It is important to note that once the Divorce for Petition is filed with the Marriage Certificate, you will not receive the Marriage Certificate back.

CHILDREN

6. How does the court deal with custody in divorce?

In Hong Kong, children issues are broken down into three areas:  custody, care and control and access.

In Hong Kong, you will either be granted “sole” custody over the children or share “joint” custody with the other parent.  Generally speaking however, whether you receive sole or joint custody makes little difference because each parent will always have a right to be consulted over major issues with respect to the children such as education, religion and health.  Even if you are granted “sole” custody, the other parent can veto your decision by bringing this to the Family Court. In Hong Kong, the Family Court is likely to grant to you and the other parent “joint” custody, meaning the two of you will be able to make joint decision relating to the children on major issues such as country of residence, education, religion and health.

Care and control refers to the parent who will be responsible for the day-to-day decisions related to the children and whom the children will be living with on a day-to-day basis.  The Family Court however has made orders where parents have shared care and control, which is similar to many of the orders provided by courts in international jurisdictions. 

In cases where one parent has care and control, then there will be an order for reasonable access.  This is the amount of time the non-custodial parent will have access to the children, whether it be by agreement between the parties or by an order of the Court. 

When making orders relating to the children, the Family Court will look to the best interests of the children (“the Welfare Principle”).  The relevant factors may include the following:

a. Preservation of status quo
b. Age, sex and background of the parents and children
c. Personality, capability and character of the parents
d. Financial resources of the parents
e. Physical and mental health of the parents and the children
f. Accommodation for the Children
g. The children’s wishes/views
h. Benefit of keeping the siblings together with one parent
i. The religion and culture of the family
j. Professional reports
k. Suffering/risk of suffering of the children including any history of family violence
l. Any other fact or circumstances that the Family Court thinks are relevant

As a principle, it is always best when you and your ex-spouse can agree on a parenting plan, whether it is agreed upon between the two of you or through the assistance of a mediator.  Litigation involving the children can become quite costly. Conflict over the children will also result in the Family Court ordering a Social Welfare Report prior to making any orders related to the children and this is stressful not only for you and also your ex-spouse but also upon the children.

7. Is the Hong Kong divorce process typically preferential towards women and mothers?

Not necessarily.  While there may be a perception that there is a general stereotype that the Family Court in Hong Kong is partial to women mothers over men/fathers, it is simply that, a perception.  The Hong Kong Family Court will look at various factors as noted above when dealing with custody, care and control and access issues and the outcome depends on the circumstances of each specific case.

8. I want to move and take my children out of Hong Kong.  Can I do that and what is the procedure to remove the children from Hong Kong? 

If you want to take the children out of Hong Kong, whether temporarily (e.g. For holidays) you will need consent from the other parent.  Generally speaking, a Consent Summons and Order can be drafted outlining the dates you will be removing the children from the jurisdiction of Hong Kong.  In this Consent Summons and Order, you will need to undertake that you will return the children back to Hong Kong after the end of the holidays.

If you want to take the children out of Hong Kong and move to another jurisdiction permanently, you will require consent from the other parent.  

If the other parent does not consent to the removal of the children (temporarily or permanently), you will need to speak to your legal representative and make an application to remove the child/children from the jurisdiction of Hong Kong.

To remove the children out of the jurisdiction of Hong Kong without consent or proper order the courts will view this as wrongful removal and child abduction.

ANCILLARY RELIEF

9. How does maintenance for a spouse play into divorce proceedings?  

When determining maintenance, the Family Court will look to each specific circumstances including the following:

a. Income, earning capacity, property and financial resources now and in the foreseeable future
b. Financial needs, obligations and responsibilities
c. Standard of living enjoyed by the family prior to the breakdown of the marriage
d. Age of each party and the duration of the marriage
e. Physical or mental disability of either of the parties
f. Contributions made by each party to the welfare of the family including taking care of the family
g. Value to either of the parties of any benefit which that party will lose as a result of the breakdown of the marriage
h. Conduct and all circumstances of the case

Pending the determination of maintenance, you may also consider applying for maintenance pending suit.  This order may be varied upon the final divorce decree as this is only temporary.

Other ways in which the Family Court may deal with finances include periodical payments, secured periodical payments, order for the sale of property and property adjustment orders. 

10. What about division of assets?  What is the court’s position, is it generally a 50/50 split of assets?

The Court of Final Appeal has ruled that a wife is entitled to half of the assets when they divorce in Hong Kong (LKW v DD (2010) 13 HKCFAR 537)

In addition to the split of assets, a wife may also be entitled to periodic maintenance.  In some cases, however, the Family Court may consider to order a “clean break” meaning the termination of financial dependency on one party against the other and distribution made in a lump sum (sometimes in installments).  This is usually appropriate when there are sufficient resources to result in a clean break, meaning there is sufficient capital to pay such a lump sum payment.

11. What basis is child maintenance awarded? 

The parent with care and control will be entitled to request financial support for the children.  Many times, pending the determination of the divorce proceedings, there will be a need for immediate financial assistance with respect to the children.  In such circumstances, you may make an application to the Family Court for interim maintenance pending suit for the children.

In determining child maintenance, the Family Court will look at all circumstances including but not limited to the following:

a. Financial needs of the children
b. Standard of living enjoyed by the family
c. Physical and mental disability of the children
d. Manner in which the children were brought up and the expectations of the parties for the children to be educated
e. Financial resources and needs or obligations of the parties to the marriage
f. Any income, earning capacity, property or other financial resources of the children

Essentially the Family Court is trying to place the children, as far as practicable in a financial position similar to what the children would have been if the marriage had not broken down.

It is important to note that maintenance with respect to the children can be varied at any time both prior to a Decree Absolute and more after.

MEDIATION

12. Can I attend mediation instead of going through the court system?

Yes, if you and your spouse agree, you can attend mediation instead of seeking the assistance of the Family Court for outstanding issues. The whole purpose of mediation is to avoid emotionally and financially draining litigation and thus find a workable solution.  It is important to note that mediation is not marriage counseling and a separate psychological professional would be needed for such purpose.

Mediation can be conducted by way of individual and/or joint sessions. If you or your spouse enlist the representation of a solicitor, your solicitor can assist you in the mediation process as well.

Depending on the complexity of the outstanding issues, mediation sessions can take as little as a day and can extend to an intermittent period of several months.

Mediation is confidential which the mediator will explain at the outset.  Mediation is also cost-effective compared to litigation and a more civilised option to resolve outstanding issues.

PRE-NUPTIAL / POST-NUPTIAL AGREEMENTS

13. I am getting married.  Can you prepare a prenuptial agreement for me and my spouse?

Yes, we can prepare a prenuptial agreement. 

A prenuptial agreement is an agreement reached between you and your future spouse prior to marriage.  A prenuptial agreement will outline the rights and obligations of both you and your future spouse in the unlikely event of divorce.  Prenuptial agreements deal with financial issues, namely the division of property, maintenance for a spouse and other financial arrangements perhaps dealing with family businesses and trusts.

Strictly speaking, prenuptial agreements are not binding in Hong Kong.  However, they are becoming more and more common, especially among expatriate couples who have obtained prenuptial agreements in a foreign jurisdiction.

Even though prenuptial agreements are not strictly binding upon the Hong Kong courts, the Family Court may take the terms of the prenuptial agreement into consideration when making rulings in a divorce.

Generally speaking, a good prenuptial agreement will have been carefully read and understood by each party, each party will have provided full and frank financial disclosure of his/her financial positions, there was no duress or exploitation and each party will have received independent legal advice.

14. I am married and would like a postnuptial agreement.  Is this something you can prepare for me?

Yes, we can prepare a postnuptial agreement.

A postnuptial agreement is an agreement reached between you and your spouse during the marriage.  A postnuptial agreement will outline the rights and obligations of both you and your spouse in the unlikely event of a divorce.  The difference between a prenuptial agreement and a postnuptial agreement is when the agreement is prepared and signed.  A postnuptial agreement is an agreement reached during the marriage, while a prenuptial agreement is an agreement reached prior to a marriage.

Similar to prenuptial agreements, postnuptial agreements are not binding in Hong Kong. However, like prenuptial agreements, the Family Court may take the terms of the postnuptial agreement into consideration when ruling.

Similar to prenuptial agreements, the postnuptial agreement should be understood by each party, each party will have provided full and frank financial disclosure, there was no duress or exploitation and each party will have received independent legal advice.

SEPARATION

15. I am not ready for a divorce but would like a judicial separation. Is this possible?  What about annulment?

Yes, if you are not prepared to file for Divorce, then another option would be a Judicial Separation.  You can apply for a Judicial Separation and must be present one of the two (2) grounds namely adultery or behaviour in your application.  Here, the Family Court will grant the Judicial Separation if the Family Court is satisfied with the arrangement of the children (if any). 

It is important to note however, that if you obtain a Judicial Separation you are not divorced and therefore not free to re-marry.  Thus, if you later decide you would like a divorce, then you will need to commence a separate and new Divorce action.

Many times, an individual may choose a Judicial Separation due to religious/moral reasons or to prevent the loss of financial or trust benefits for one spouse.

On the other hand, if you are seeking an annulment or a “nullity” in Hong Kong, the court will look at whether the marriage was properly formed or not which could cause the marriage to be considered invalid.  A marriage which is invalid can be either “void” or “voidable” meaning that if it’s considered “void”, it never took place before and if “voidable” then it will require a Decree of Nullity because without it then the marriage is still valid.

A void marriage is for example, bigamous, such as marrying a family member.  A voidable marriage is if at the time of marriage any of the following grounds apply:

a. No consummation due to the incapacity of either party to consummate the marriage

b. No consummation due to the willful refusal to consummate the marriage

c. Either party did not validly consent whether in consequence of duress, mistake, unsoundness of mind or otherwise

d. Either party, though capable of giving valid consent, was suffering from a mental disorder within the meaning of Mental Health Ordinance (Cap 136) of such a kind/extent to be unfit for marriage

e. A party was suffering from venereal disease in a communicable form

f. A party was pregnant by some person other than the other party

SURROGACY

16. What about surrogacy agreements. Is this possible in Hong Kong?

In Hong Kong, overseas surrogacy agreements are not enforceable and Hong Kong commercial surrogacy agreements are illegal.  It is regulated by the Parent and Child Ordinance.  Surrogacy is rare in Hong Kong but it is an option for married couples overseas and returning to Hong Kong under strict rules and guidelines imposed.  Once a baby is born, the parents will need to apply for a parental order so long as certain conditions are met including but not limited to domicile, habitual residence and substantial connection of the parents with Hong Kong.  There are also certain conditions that surrogate mother herself will need to meet including being over the age of 21 years old.

If you are considering surrogacy, it is important to consult with a qualified professional familiar with the laws of Hong Kong to ensure that no illegal activity is committed, including activity committed inside or outside of Hong Kong.

SAME-SEX PARTNERSHIPS

17. Are same-sex marriages recognized in Hong Kong?

Same-sex marriages are not recognized under Hong Kong law and thus a valid marriage under Hong Kong law is heterosexual and not open to couples of the same sex.  Parties must be male and female to have the capacity to marry in Hong Kong.

18. My partner and I are not married, but we live together.  What rights do I have in the event of a split in our relationship? 

Unmarried couples are not entitled to the same rights as those of married couples.  Therefore, even if you have lived together as a couple for years upon years, the Hong Kong courts will not recognize you and your partner as a married couple or a “common” law couple as some international jurisdictions recognize.

However, cohabitating couples may be protected under certain ordinances such as the Domestic and Cohabitation Relationships Violence Ordinance (Cap. 189) which is for those who are the unfortunate victim of domestic violence as a result of the relationship.

If you and your partner have a child/children, then the issues with respect to the child/children will be dealt with under a different ordinance called the Guardianship of Minors Ordinance (Cap 13). Under the GMO (Cap 13) the Family Court will still look at all of the circumstances surrounding the matter and will look to what is in the best interests of the child/children.

OTHER RESOURCES

19. Can you point me to any online resources so I can obtain more information about custody and financial support in divorce in Hong Kong?

HKSAR Judiciary: 

https://www.judiciary.hk/en/index/index.htm

Matrimonial Causes Ordinance (Cap 179): 

https://www.elegislation.gov.hk/hk/cap179

Matrimonial Causes Rules (Cap 179A):

https://www.elegislation.gov.hk/hk/cap179A

Matrimonial Proceedings and Property Ordinance (Cap 192)

https://www.elegislation.gov.hk/hk/cap192

Guardianship of Minors Ordinance (Cap 13)

Emigration from Hong Kong: The Importance of Pre-Migration Tax Planning (1)

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The colloquial phrase “the grass is always greener on the other side of the fence” is perhaps most fitting to describe the proliferation of emigration thoughts in the minds of the Hong Kong people recently. According to an article from the South China Morning Post, there were two distinct periods in Hong Kong which prompted a flux of emigration from Hong Kong: the first was before the handover of sovereignty over Hong Kong from Britain to China in 1997 whilst the second was after the “Umbrella Movement” by the Pro-Democrats in 2014. Now, the alarming situation in Hong Kong instils concerns into local residents over the stability and prosperity of the place, marking a possible third wave of emigration. Many have begun searching for an emigration destination which presents better living, better protection, and better future or retirement for themselves and their next generation. Census shows that the top destinations for emigration by the Hong Kong people include Canada, Australia, Taiwan and the United States. This article examines from a taxation point of view the considerations a person should pay due regard to before emigration so as to better plan for future taxes which might arise at the time of and after the emigration in the emigration country. For brevity, the article will limit its analysis to migration from Hong Kong to the United States, and accordingly, the taxation issues in this respect.

Brief Overview of Steps to Obtain US Citizenship

To obtain US citizenship, one has to first apply for permanent residency and the Lawful Permanent Resident Card, commonly known as the “green card”, before applying for naturalization after having held the “green card” for five years and satisfied other requirements.

For a resident alien, meaning a person who holds a “green card” or anyone who has stayed in the country for at least 31 days in one calendar year and 183 days over the past three years are subject to worldwide income tax, like US citizens.

Absence of Bilateral Double Taxation Treaty between Hong Kong and the United States

Hong Kong currently does not have a comprehensive treaty for double taxation with the United States as it has only concluded a double taxation agreement for shipping income.  This essentially means that, in the absence of bilateral tax concessions, a US citizen or resident alien whose income has a Hong Kong source will be taxed twice, one time in Hong Kong-based on Hong Kong’s territorial source principle of taxation, and another time in the United States based on the worldwide income principle.

Pre-emigration Tax Planning, FGT and FNGT

As could be imagined, one would face a drastic change in his/ her tax position by moving from a low tax regime (Hong Kong) to the US. There are a number of taxation tools available which can potentially mitigate the impacts.

 (1) Setting up a Trust

One of the commonly adopted tax planning tools is setting up a foreign grantor trust (the “FGT”) for people who wish to become a US tax resident.  Such tax planning tool is considered very efficient for people who own substantial assets prior to becoming a US tax resident, for US income tax and estate duty purposes. The beauty of such trusts is that the income from the distribution of such trust is not taxable. The income would otherwise be taxable if it comes directly to the US citizen from the underlying investments.

In a typical FGT structure, a non-US person will settle a non-US revocable trust for the benefit of US family members (including those who wish to emigrate to the United States).  From a US tax perspective, the settlor, during his lifetime, will be considered the owner of the trust assets.  It follows that any distributions to be beneficiaries (including those US persons) will not give rise to any US tax liability on the part of the beneficiaries notwithstanding the fact that there will be US reporting obligations. 

Foreign non-grantor trust (the “FNGT”), on the other hand, with appropriate structure in place, can achieve favourable tax results for US persons, especially in the context of inheritance. 

(2) Existing Trust

It is not uncommon that some Hong Kong people who wish to become a US person are already beneficiaries of a trust.  In light of any forthcoming US residency, the trust structure shall be revisited to avoid any adverse tax implications.

To minimise US taxes, generally speaking, the trust should prior to the beneficiary becoming a US person (1) make as much distributions as possible to the beneficiaries, (2) distribute all unpaid retained earnings and in which case the personal financials have to be revised to reflect that the beneficiary has already received the same and such distribution has now converted into the beneficiary’s personal assets which is not subject to US tax, (3) re-valuate the trust assets reflecting the mark-to-market adjustments in the financial accounts of the trust; and/or (4) “step up” in basis of the assets to minimise capital gain taxes.

Conclusion

In closing, in considering emigration (especially into the United States), one has to pay sufficient regard a priori to the tax ramifications with being a resident of the country emigrated to. There are various tax planning tools which can considerably reduce tax liabilities which have to be deployed before the change of residency. In this regard, a carefully-planned tax-minimisation framework should be adopted before emigration to maximise tax efficiency

OLN provides a range of tax advisory services in the migration context. If you have any questions on the above, please contact one of the members of our Tax Advisory Team.

Disclaimer: This article is for reference only. Nothing herein shall be construed as US or Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Motion! Debate Training

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On Saturday, 27 July 2019, OLN partnered with ChickenSoup Foundation to host another meaningful CSR event with students from Mu Kuang English School. Through two rounds of debate training in English, our volunteers were able to pass on their critical thinking, presentation and advocacy skills as lawyers to the young students. We were delighted to hear from the enthusiastic participants that they learnt a lot of useful skills in presenting their arguments in a succinct, cohesive and organized manner through this workshop, and the school is now contemplating further training for the students!

Stay tuned for our next CSR event in October – Brick party plus community dinner!

How to Tackle Email Scams

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You cannot trust anyone — “One may smile, and smile, and be a villain.”

While not everyone has heard of this quote from William Shakespeare’s famous play Hamlet, you will have to agree that it fittingly describes the Hamlet-esque story that you find in your email inbox out of the blue: his father having passed away, a Nigerian prince’s throne was usurped by his uncle and he now needs your help to transfer his funds out of Nigeria, in return you would keep a portion of the funds. All you have to do is to give him your personal details (so the Prince knows who you are), your bank account number (for you to temporarily “safekeep” his funds), and of course, to pay a fee in advance.

Yes, this is apparently a scamming technique that has been widely deployed since the 1980s, and while every year there are still people who succumb to the temptation of windfall, more and more people are aware of the reality.

Fraudsters are therefore making use of a different modus operandi in recent years, one that is more specific instead of the “spray and pray” Nigerian prince model. Also carried out by way of email scam, fraudsters would first hack email accounts or compromise computers to obtain vital information, then tailor-make the fraud scheme to deceive the email recipients into paying them.

How do email scams operate?

In many cases that we came across, the victims are mostly trading companies with business counterparts all across the globe. The diagram below illustrates how the scheme operates.

  1. There had been genuine sale of goods by the Supplier to the Victim.
  2. The Supplier then sent payment invoice (sometimes together with the bill of lading, the purchase order etc.) to the Victim via email. 
  3. The Fraudster, having hacked the Supplier’s email account, pretended to be the Supplier and send a forged payment invoice, bill of lading and purchase order by changing the bank account details and the document letterheads via email. The forged email would normally come from a fraudulent account which is strikingly similar to the Supplier’s genuine email account (e.g. changing from sales@abcengineering.com to sales@abcengineeering.com), misleading the Victim to believe that the email was from the Supplier itself. The façade is further reinforced by the Fraudster justifying the different payment details with excuses such as change in accounting policies. The Victim is of course reasonable and courteous enough not to venture too far and challenge the legitimacy of such policy.
  4. The Victim, failing to notice the subtle difference in the forged email, remitted money to the Fraudster’s bank account.
  5. The Victim would eventually realize the scam perpetrated by the Fraudster upon the Supplier’s reminder chasing for payment or its notice that money was never received. The scam might be discovered slightly earlier if the Victim sends a remittance advice to the Supplier, and then the Supplier informs the Victim that the recipient bank account is apparently not the Supplier’s bank account.
  6. By that time, it is likely that the Fraudster has dissipated the funds from its bank account, most probably to other jurisdictions.

What to do next?

  1. A complaint should be filed to the Hong Kong Police or the Joint Financial Intelligence Unit (JFIU) such that they might take action to freeze the Fraudster’s bank account in Hong Kong.
  2. At the same time, the victim should file a parallel report to the relevant authority in its jurisdiction. Certain jurisdictions have online reporting systems dedicated to cybercrimes, such as the Internet Crime Complaint Center (IC3) under the U.S.A. Federal Bureau of Investigation and the U.K. “Action Fraud” National Fraud & Cyber Crime Reporting Centre.
  3. A letter should also be issued to banks (including the sending and recipient banks), alerting them of the scam and demanding return of the defrauded fund and/or preservation of the fund in the relevant bank accounts.

The victim’s effort to recover the money is always a race against time. It is therefore always advisable to act as soon as possible, and ideally within 24 hours from the fund transfer, as thereafter the fraudster is very likely to have already dissipated the funds. If law enforcement authorities or banks have not decided to freeze the relevant accounts, the victim should seek assistance from lawyers to apply for a Mareva Injunction (i.e. asset-freezing order) on the civil route to prevent dissipation. 

If the money is successfully retained in the bank account pursuant to the injunction, civil proceedings should be commenced against the bank account holder to recover the money in equity. The fraudster is very unlikely to contest the proceedings (by this time he probably has absconded) so the victim can apply for a monetary default judgment against the fraudster unhindered. To actually recover the money, the victim then needs to apply for a garnishee order, which once granted will compel the bank to directly transfer the money from the fraudster’s bank account to the victim.

Recent case law suggests that other than the conventional way of obtaining a monetary default judgment, the victim might also seek a declaration in default to assert a proprietary claim over the funds in the fraudster’s bank account which, if succeeds, would lead to a vesting order. The bank will then be compelled to immediately transfer the money back to the victim without the need to wait for the garnishee order. 

If the money has already been dissipated by the time the injunction is obtained, the victim will have to take extra steps to “trace” the money. A discovery order for banker’s record needs to be obtained first, so that the victim can ascertain the flow of the money and track down where it was transferred to. Most of the time it would be a cross-jurisdiction transfer, which adds another obstacle to the victim’s recovery. The victim will have to engage lawyers in that jurisdiction to commence new proceedings against the new, foreign recipient of the money, and also conduct further discovery and tracing to ascertain the latest whereabouts of the money. As one may see, if the money cannot be frozen in time, the matter will be very complicated with time and costs spiraling out of control, and at the end of the day, the fraudster may still be one step ahead of the victim so that the victim cannot recover the stolen money. This is exactly why the victim is advised above to act as soon as possible.

Prevention is better than cure

It is always better to take preventative measures rather than looking out for remedies. You may check out some practical preemptive measures from the Police’s article “Tips for Smart Netizens” which is available at http://www.police.gov.hk/ppp_en/04_crime_matters/tcd/tips.html

What OLN can do for you

OLN has acted for the victims in many email scam incidents, and electronic fraud cases generally. On most occasions, OLN has successfully obtained the Mareva Injunction and recovered a substantial portion of the defrauded money (if not entirely). With extensive experience in civil litigation, we will be able to assist you in a swift and efficient manner. 

Another fitting quote by William Shakespeare in Henry VI would be appropriate to conclude this article:

“Wise men ne’er sit and wail their loss, but cheerily seek how to redress their harms.” 

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

Quick way to get what you want before starting the legal fight with fellow partners and shareholders – Injunctions

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Shareholders disputes can take years to conclude whether via arbitration or the court system in HK but interim injunctions can offer quick relief even before the issuance of legal proceedings.

Injunctions can be used to maintain a board’s composition and prevent “illegal” resolutions from being passed:

  • To remain in management of the company: When 2 camps of shareholders are in a disagreement over the management of the company, often, directors are removed from the board without the appropriate number of votes or proper notice, in violation of the articles of association/shareholders agreement. One way of maintaining the status quo before the alleged breach took place is to obtain a pre-action injunction requiring the company to reconstitute the board such that those wrongfully removed are re-appointed. The victim can subsequently issue the proper proceedings to support the injunction, e.g. fraud, unfair prejudice, breach of contract. In the right circumstances, with the interim injunction in place, parties will gain leverage in subsequent settlement negotiations.
  • To prevent board/shareholders meetings from abuse: When directors do not observe terms imposed by contract or statute in holding board/shareholders meetings, an injunction can be obtained to restrain the convening of the meeting in question and the passing of specific resolutions.

Injunctions are also important tools in protecting the very assets that form the subject matter of the dispute. Often, interim injunctions effectively dispose of the dispute. 

  • To identify the wrongdoer and important evidence against the wrongdoer from an innocent third party (Norwich Pharmacal): Quite often, assistance from the Court is required to compel an innocent third party, e.g. a bank in internet fraud cases, to disclose information or documents relating to the wrongdoer and the wrongdoing.
  • To secure source of payment pending suit (Mareva): Restraining a defendant or would-be defendant from dissipating assets is a very important legal remedy in a variety of cases especially where the ownership rights of the assets in question are contested and their dissipation would effectively foreclose any chances of recovery/ enforcement, e.g. shares, cash in winding up cases.

One of the tricks lies in making the correct decision in conducting the application on an ex parte basis (i.e. where the other party is not aware of the application and is not present to argue their case) or on an inter partes basis (i.e. full notice to the other side is given).  Your legal advisor needs to strike a balance between several factors: maintaining secrecy, going for speed and running the risk of having the injunction discharged due to failure to provide full and frank disclosure.

Recent case development on anti-suit injunctions: In cross-border contractual disputes, a Hong Kong arbitration clause can form the basis of an injunction to restrain a plaintiff from continuing legal proceedings in a foreign jurisdiction (see Dickson Valora Group (Holdings) Co Ltd and another v Fan Ji Qian [2019] HKCFI 482).

If you wish to learn more about injunctions within the context of shareholders disputes or other types of litigation, please feel free to speak to our litigation partner, Eunice Chiu or stay tuned for our in-house CPD.

Eunice Chiu
+852 9169 4356 / 2186 1885
Partner, Dispute Resolution
Oldham, Li & Nie