With the first quarter of 2020 behind us, Richard Hall of Conyers Dill & Pearman’s Hong Kong office looks at the themes that are emerging for Bermuda, Cayman and British Virgin Islands entities, both in Hong Kong and globally.
The first four months of 2020 have seen a variety of factors influencing clients and work flows: the US/China trade war, which proved a drag on business out of, and direct investment into, China in 2019 reached a temporary truce, only for the shut down during February of much of China’s business operations to prolong the difficulties faced by China, in particular, and the Asia region as a whole. The long term global impact of the coronavirus will be far reaching across much of the world, and has already led to significant drops in economic activity in most countries; certain industries (aviation, hospitality, tourism in particular) are likely to require significant restructuring and will emerge in very different forms to those that existed pre COVID-19. The uncertainty around Brexit has been (temporarily) alleviated with the passing of the Brexit bill, though the hard work of negotiating the UK’s relationship with Europe remains.
Hong Kong and China
There has been an understandable increase in corporate advisory, disputes and litigation work, as clients seek to work around the obstacles they face. With the social distancing laws in Hong Kong coming into effect in the middle of listed company annual general meeting season, a considerable amount of time has been spent working with listed companies on how (or even if) to proceed with general meetings, the use of virtual, hybrid and electronic meeting facilities, and postponements or adjournments of such meetings. Many companies are taking the opportunity to amend their articles or bye-laws to accommodate virtual, hybrid or electronic only meetings to enable them to use the latest technology available.
Proposed privatisations (with schemes of arrangement (Hong Kong) and statutory mergers (US) the preferred routes) are also increasingly popular, as share values fall and assets increasingly represent better value to be taken off market.
Despite the issues faced by many Chinese-related entities currently listed on such markets, there was a marked increase in the number of clients seeking new listings on New York/Nasdaq. However, the revelation of Luckin Coffee’s accounting scandal has caused a number of clients to question the US route and look again at a Hong Kong or, increasingly, a PRC listing. Instructions for Hong Kong IPOs remain consistent with 2018 levels, helped to an extent by the 2018 changes to permit the listing of companies with weighted voting rights (dual class shares) and Biotech companies that don’t meet the usual financial eligibility tests for listing.
China Resources Microelectronics Limited pioneering red-chip listing on the Sci-Tech Innovation Board of the Shanghai Stock Exchange, or SSE STAR Market, (see https://www.conyers.com/publications/view/conyers-advises-china-resources-microelectronics-limited-on-its-pioneering-red-chip-listing-on-the-sci-tech-innovation-board-of-the-shanghai-stock-exchange-or-sse-star-market/) has opened the door for other offshore companies to look to list their shares directly in the PRC, and we are seeing clients viewing this as an alternative to a Hong Kong or US listing
The changes implemented by the Cayman government in the Mutual Funds (Amendment) Law and the Private Funds Law introduced new registration requirements for “limited investor funds” and closed-ended “private funds”, respectively, which had previously fallen outside the scope of regulation in the Cayman Islands. The firm is assisting clients work through the impact of this legislation on their fund structures.
On the financing side, there has been a marked increase in the number of fund financings, as clients look to lock down access to capital to fund acquisitions ahead of an anticipated credit squeeze in the third or fourth quarter of the year.
The Bermuda Registrar of Companies announced that the online portal for the filing of declaration forms for economic substance went live on May 1, 2020 (see https://www.conyers.com/publications/view/bermuda-economic-substance-declaration-e-filing-portal-opens/). With thousands of Bermuda entities potentially subject to a filing obligation, lawyers have been kept busy assisting clients to meet the first filing deadline of June 30, 2020.
In Yao Juan v. Kwok Kin Kwok and Crown Treasure Group, the court ruled that the fees in respect of work done by Hong Kong based fee earners were recoverable (see https://www.conyers.com/publications/view/bvi-court-issues-key-decision-on-recoverability-of-costs/), providing a boost to the ability of law firms to service the needs of Asian based clients without affecting their rights of recoverability of such costs.
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