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Legal Update

Hong Kong: Soon Comes The End Of Slavenburg Registration

12 November 2007
Mayer Brown JSM Legal Update

Summary

The Companies (Amendment) Ordinance 2004 (the "Amendment Ordinance") introduces changes to registration of charges created by oversea companies and the relevant provisions of the Amendment Ordinance will come into force on 14 December 2007. This will have implications on secured lending business of lenders.

Full Update

Present Position

Section 91 of the Companies Ordinance currently provides that certain charges on property in Hong Kong which are created or acquired by a company incorporated outside Hong Kong which has a place of business in Hong Kong must be registered in accordance with section 80 of the Companies Ordinance. Section 80 requires particulars of the charge, together with the instrument which creates the charge, to be delivered to the Registrar of Companies within 5 weeks of the charge being created or acquired, otherwise it will be void against the liquidator and every creditor of the company. In addition, the money secured by the charge shall immediately become payable.

Registration under Part XI of the Companies Ordinance is required in the case of every foreign company which establishes a place of business in Hong Kong. In the case where a search at the Companies Registry shows that the foreign company is not registered under Part XI, there is however no way to be certain whether or not, as a matter of fact, the foreign company has a place of business in Hong Kong which would oblige it to be registered under Part XI. The danger in this situation is that, on the basis of the decisions in England in Slavenburg's Bank NV v. Intercontinental Natural Resources Ltd [1980] 1 All ER 955, the beneficiary of the charge will be at risk if the charge is not registered and it is discovered that the foreign company should have been registered under Part XI. The unregistered charge will be void against the liquidator and creditors of the foreign company.

It is unsatisfactory that registration of charges is required even if the foreign company has failed to register as an oversea company under Part XI. The current determining factor is whether the foreign company has a place of business in Hong Kong, and not whether the foreign company has been registered as an oversea company. Section 341 of the Companies Ordinance (for the purpose of Part XI) defines "place of business" to include a share transfer or share registration office and any place used for the manufacture or warehousing of any goods, but does not include a place not used by the company to transact any business which creates legal obligations. But in practice, it is difficult to determine whether as a matter of fact the foreign company has a place of business in Hong Kong.

Because of this uncertainty, it is the common practice to do an "attempted" registration of the charge at the Companies Registry even though the foreign company is not registered under Part XI.

Given that these "attempted" registrations are not provided for in the Companies Ordinance and it is not possible to do a search of it at the Companies Registry, it is unclear whether these registrations can afford any kind of protection. 

Changes Introduced By The Companies (Amendment) Ordinance 2004

When the Amendment Ordinance comes into force on 14 December 2007, the existing term "oversea company" will be replaced by "non-Hong Kong company" and the circumstances under which a foreign company is required to register charges on its properties in Hong Kong will be clarified. 

The existing section 91 will be replaced in its entirety by a new section 91 which only applies to charges on property in Hong Kong of a non-Hong Kong company registered under Part XI. The previous uncertainty on registration of charges created by a foreign company will be removed as only charges created by a Part XI registered non-Hong Kong company will be required to be registered under the Companies Ordinance. Charges created by a foreign company having a place of business in Hong Kong but which fails to register as a non-Hong Kong company under Part XI will not be required to be registered. 

The Amendment Ordinance also clarifies that section 91 is not applicable, and so registration is not required, where the relevant property of a non-Hong Kong company was not in Hong Kong at the time the charge was created by the company.

Lenders should be pleased with the changes, so should the Companies Registry as its administrative burden of handling all these "attempted" registrations will be removed.

For further information, please contact:

Name: Keith P.K. Cheung
Position: Partner
Phone: +852 2843 4331
Fax: +852 2103 5034

Name: Susan W.M. Poon
Position: Senior Associate
Phone: +852 2843 2214
Fax: +852 2103 5102

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