Podcast S1E4 | Corporate & Commercial: Essential Considerations

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Podcast S1E4 | Corporate & Commercial: Essential Considerations

Podcast S1E4 | Corporate & Commercial: Essential Considerations 1200 800 Gary Wong
Reading Time: 21 minutes

Gary Wong and Christopher Hooley discuss some of the essential considerations related to the setting-up of new companies as well as corporate risk management, employment matters and potential disputes, both in Hong Kong and in Mainland China.

SHOW NOTES
01:29 – Setting up a business
04:04 – Directors and shareholders
07:45 – Documents
14:00 – Corporate risk management
20:00 – Limiting company liability and accessing company information
26:27 – Hong Kong as a regional base
31:40 – Disputes with a foreign company


TRANSCRIPT

0.01 Welcome to The HIP Talks podcasts, a series of discussions about current legal issues hosted by Hugill & Ip Solicitors. We are a young independent law firm but with decades of experience providing bespoke legal advice and exceptional client service to individuals, families, entrepreneurs and businesses, both in Hong Kong and internationally.

0.22 [Christopher Hooley] I am Christopher Hooley. I’m a partner at Hugill & Ip Solicitors in the Corporate & Commercial Department. The topic that we’re discussing this afternoon is in respect of setting up a business in Hong Kong.

Hong Kong has always been a great business centre, filled with creative spirit and entrepreneurial genius. The number of mega wealthy in Hong Kong comfortably exceeds those in New York.

0.49 A 2019 World Bank survey indicates that Hong Kong is still one of the freest and easiest places in the world to conduct business because it has the rule of law, a simplified tax structure and the business environment, free of much government red tape. But how does the young Hong Kong entrepreneur, brimming with good business ideas actually start a business in Hong Kong? What are the basic matters that the entrepreneur needs to know? What does he need to do? And what documents does he need to create? I’m here with my colleague, Gary Wong, who’s also another Senior Commercial lawyer at Hugill & Ip. Good afternoon, Gary.

1.27 [Gary Wong] Good afternoon, Christopher.

1.29 [Christopher Hooley] Gary, I know that you’ve dealt with many old economy start-ups and more recently with dot.com and FinTech start-ups. So with that experience and expertise, what would you say are the initial issues that any aspiring businessman or indeed business woman needs to consider and deal with? For instance, can he do business under his own name? Or should he set up a partnership or indeed a company?

1.51 [Gary Wong] Well, doing business is always about being aware of the risk and then trying to reduce that risk and trying to manage it. So the first rule of business is always to set up a limited liability company.

2.02 [Christopher Hooley] So does that remove all personal liability?

2.05 [Gary Wong] Well, not all liability. But if you’re investing in a limited liability company, shareholders were responsible for the unpaid amount of shares.

2.15 [Christopher Hooley] What do you mean by unpaid amount of shares? Perhaps you could explain that in a little more detail.

2.20 [Gary Wong] Well, every company would need money to operate. And for example, if the initial capital is Hong Kong $10,000 and the shareholder if you commit to investing that amount is responsible for up to $10,000. Other than that, the company will need to borrow funds from a bank, or shareholder loans or debt or get equity investments in the future.

2.42 [Christopher Hooley] So if I subscribe for 10,000HK$ worth of shares, I pay the company that money. The company then issues the shares fully paid to me. I don’t have any further liability, even if the company doesn’t do well and actually gets into financial problems?

2.58 [Gary Wong] Not as a shareholder but if you are the founders, one of the initial founders, and you also serve as a director, you do have personal fiduciary obligations and potential liability. As a director, you need to mature your act in the best interest of the company to not allow the company to violate any laws or not to trade or conduct business at the time when the company’s insolvent.

3.23 [Christopher Hooley] Why don’t have one type of partnership?

3.26 [Gary Wong] Well, simply a partnership means that every partner has unlimited personal liability. So it’s possible to have a limited partnership, but that’s not very common in Hong Kong. And in any event, the general partner will continue to have unlimited liability.

3.42 [Christopher Hooley] So anybody can actually set up a company in Hong Kong?

3.47 [Gary Wong] Anyone who is 18 years or older, which is the age of majority in Hong Kong.

3.51 [Christopher Hooley] I understand that they’re actually what are called service provider companies from whom you can actually purchase an existing off the shelf company.

4.00 [Gary Wong] Yes, there are many, many service provider companies who provide the service.

4.04 [Christopher Hooley] So I go to a service provider, I choose an existing company with an existing name. And by that I change the name if I want to, and then appoint myself and whoever else I want to as directors, the directors pass resolutions to issue the shares. Is that correct? Do any of the directors of shareholders need to be Hong Kong residents?

4.25 [Gary Wong] No, none of the directors or shareholders need to reside in Hong Kong. The only requirement is that the company secretary be Hong Kong resident, but that’s often a service provided by the company service provider. So a new company would hire a company service provider. They would serve as a company secretary will also be aware of all the company governance requirements and meet the required filings at the Hong Kong companies registry.

4.52 [Christopher Hooley] What about more practical issues to a new company, let’s call it new CO, like opening a bank counter here that simple things like that can be problematic take time and usually require a business plan.

5.03 [Gary Wong] Well, with all the lawyer client and anti-money laundering laws and regulations that have been put in place in recent years, it has gotten a lot more difficult to open a bank account.

The banker would want to know what your business plan is, wants to take a look at your articles, and a lot of other information. What has occurred practically is that a lot of new companies have had difficulty opening up bank accounts in Hong Kong banks. And one of the things you need to consider is that when setting up that perhaps only the Hong Kong residents are directors of the company, because the banks are often required to actually see all the directors physically present in their offices before they open the bank account. So what we often advise our clients to do is to start off with Hong Kong directors, open the bank account and when additional directors are required and they live overseas that can be added to that subsequently.

6.04 [Christopher Hooley] So we now have a company new CO, with an initial director and shareholder and with initial working capital paid through the issue of the founder shares. But what about the great idea that is the essence of this new business? How does that idea actually get transferred into new co?

6.19 [Gary Wong] Well, one of the key things to ensure is that this great idea and all the assets of the founder needs to be transferred to new co. So it’s going to be important to any new investor in the company or to the bank that this new Co company has all the assets, including intellectual property, owned by the company. In that respect one of the most overlooked issues as a transfer on an existing domain name. All the assets can be transferred by a simple assignment and when the title only passes through delivery that should be noted in the company’s asset register.

6.53 [Christopher Hooley] What about if there are to be additional founders or investors, how are they actually dealt with?

6.59 [Gary Wong] Well, this is where a shareholder agreement becomes very important. So you need to identify the rights and the obligations of each of the shareholders, and how the company will be governed in the future.

7.09 [Christopher Hooley] Gary, this does sound a lot of work before the businesses even up and running and doing business and trying to make a profit.

7.15 [Gary Wong] It can be a lot of work. But I mean, in our view, in my view, that it’s good that a company and a founder Look at all these issues and to make sure they’re in place prior to actually starting up the business and investing more money to get it going. It makes a lot of sense to think about all these issues ahead of time and to make sure that’s properly taken care of early on for the starting of the company as well as for or in the future when additional investors may be needed to invest in the company.

7.45 [Christopher Hooley] Thank you Gary. That’s extremely informative and very helpful. The next section I’d like to talk about is the initial documents that are needed in setting up any company in Hong Kong. I understand that there are articles of association of a Hong Kong company. And these are typically an agreed form. Are these then the first and sometimes the only written contract between the company and its shareholders? I assume that not everybody has actually a shareholder agreement.

8.14 [Gary Wong] That’s right. The articles are a requirement. And there are actually templates put out by the Hong Kong legislation, which set out all the basic rights and obligations of the company and the shareholders in the document. And that is a mandatory requirement.

8.30 [Christopher Hooley] So why then do we hear a lot of talk about shareholder agreements?

8.33 [Gary Wong] Well, again, the article is only set out the basic requirements of the company and the shareholders and their standard issues. You have shareholders agreement to address specific issues into company and how the founders and other shareholders want to operate the company. Things such as what happens when there are deadlocks. What happens when you transfer share. What happens in an event of default. And how the company is deal with it? And what remedies do the shareholders have and trying to get the company operated and up and running. So it’s important to have a shareholders agreement to define all these specific rights and obligations. And again, it’s specific to the shareholders and the founders and how they want the company to be established and run.

9.23 [Christopher Hooley] So in every case, the shareholder agreement must be specifically tailored and drafted to fit the individual criteria of the business.

9.30 [Gary Wong] Yes, that is right. For example, if the founders are the start, the people starting up the company know how much money they will need, and when investments are maybe coming in, it’s good to set down in the shareholders agreement, in terms of the funding requirements for the next two, three or five years, and what will be required of the initial shareholders and investors and what they’re be looking for in the future. It’s quite important to the company for start-up company to identify these issues and try to cover it as much as they can in the start-up situation.

10.04 [Christopher Holley] So we create the shareholder agreement to fit the needs of the founders. But what then about incoming investors? What if they want to change the terms of the shareholder agreement which is already in place?

10.15 [Gary Wong] Well, the basic position is that this should be non-negotiable. If you’re a founder, you set up the shareholders agreement, and this is how the company should be run now and into the future. And if there are people coming in, new investors who want to jump on board with the company, you would say this is the shareholders agreement. And this is what you need to sign on to. And in that case, there’s normally a deed of inheritance which new investors would have to sign. Of course, this could change depending on what the financial needs of the company may be. For example, if the company is in need of funds from a private equity investor or venture capital company, and of course these companies which are investing new monies, we want to have some saying in the company and they will probably require that there be changes to the shareholders agreement, they would probably want to have some type of management control or review of the company operations. And in that situation, probably the agreements will have to be amended, or in certain cases where there are significant changes that the entire agreement be restated and amended to set out the new arrangement with the significant new investors in the company.

11.28 [Christopher Hooley] So are there any other basic deeds or documents that are needed at its very early stage?

11.32 [Gary Wong] Well, there are certain situations where it makes sense to execute additional documents, for example, sometimes we will ask shareholders to execute a deed which will allow the directors to act on their behalf to transfer shares back to individuals. For example, if there’s a default, the shareholder would then execute this document and the company and the directors would have to trust the shareholders to sign transfer forms.

12.02 [Christopher Hooley] Yeah, fully understand that. Does the founder of the company need to have an employment contract in place? And if he does have an employment relationship, are there any particular issues to be aware of? 12.14 [Gary Wong] Well, the real question I think is, you know, how are the company’s founders and owners to be remunerated for his efforts? Is it better to have a salary that could drain the company from its operating capital? So, this all needs to be looked on a case by case basis. Additionally, you need to consider about the company’s confidential and proprietary information and trade secrets and how are these to be protected and what happens if a shareholder ceases to be a member of the company? So there should be clear restrictions on him or her not taking staff or clients or working in a competing business. Whatever is decided here the needs to be very precise drafting as a strength of trade prima facie unenforceable in Hong Kong. And that’s being contrary to public policy.

13.03 [Christopher Hooley] Okay, oh, through this process, I’m sure there must be money that’s going backwards and forwards to the company. So, if I lend money to the company, should there be formal loan agreements?

13.12 [Gary Wong] Indeed, there should always be a document and writing to reflect what is agreed on particularly upon when the loan is to be repaid, what interest is to be charged, and what happens if the loan is not repaid on time. Additionally, the auditors will always want to see a written document so they can justify what was agreed upon and what occurs and there was good and prudent business management.

13.38 [Christopher Hooley] So the takeaway point at the end of all this is that there needs to be or should be at least considerable time spent thinking through the initial documents and making sure that properly constructed not least because it’s very, very difficult to have shareholders agree to changes after the company becomes operational.

Absolutely.

14.00 [Gary Wong] The time spent beforehand, strategizing is very well spent.

14.03 [Christopher Hooley] Thanks, Gary much appreciated. I’d now like to turn to risk management, specifically corporate risk management. What are the issues or events that could derail a business overnight has the founder or have the founders thought about this disaster scenario? Like, if the entire workforce resigns and goes to work for a competitor, or another business opens up using the same business model? What has been put in place to do this? Has there been sufficient planning and protection in advance?

14.37 [Gary Wong] Well, our role as lawyers is to really understand to protect against the rest of the company, but we need to fully understand the relevant business, a business model and what the owners and founders intentions are. This involves meeting and understanding fully whether what type of business and what the operations would look like. For example, we do have a high-tech business, it’s something part of a new economy, there are different considerations as, as compared to a real estate business or manufacturing company. We cannot ever protect against certain risks by ensuring that the documents are properly drafted and in place and that relevant policies are adopted and upheld.

15.23 [Christopher Hooley] Wise words. But would you suggest that every company needs to have a sound and thought through business foundation? Presumably, yes, because that gives it a decent chance of success in the long run?

15.36 [Gary Wong] Absolutely, absolutely. And in fact, I would, I would even say that the lack of cohesive thinking at the formation stage is something that will materially hinder the progress of the company. If it has inherent problems from the first day, they may not be easily fixed later on. At Hugill & Ip we want to see clients at this very early stage of the business life so that we can discuss and strategize with them and help the founders to make appropriate decisions.

16.03 [Christopher Hooley] So what would these basic foundations be that you need to build upon with the client?

16.09 [Gary Wong] Well, several things, the correct corporate structure of a for a newco whether there should be licenses, whether it’s just redistribution agreements, certain types of employment agreements, where the new co has the necessary short term and longer term financing to conduct its business, where they’re all key assets have been transferred to newco unencumbered and whether there’s proper insurance in place to protect against certain incidents, unforeseen incidences.

16.44 [Christopher Hooley] Okay, well, let’s look at each of these in slightly more detail. And you can tell us a little bit about the risk that might be attached to each aspect. So let’s start with the correct corporate strategy, which I assume you mean is actually a limited liability company.

16.58 [Gary Wong] Yes, a limited liability company really is the prudent way to start up a business in Hong Kong.

17.05 [Christopher Hooley] The next issue you mentioned is the practical one of ensuring that the company has all necessary financing in place for at least has access to that financing. And the financing presumably, could come from external sources such as banks, investors or from the shareholders themselves.

17.23 [Gary Wong] Yes, well, you know, the lack of financing and funds coupled with over expenditures, too much optimism often leads to problems within your company, having agreed to credit facilities or investors committed or other shareholders have deep pockets are really essential to sustain the newly founded start-up company. What should not happen is to approach any third party with assets of the shareholder or put up in a way for security that could really hinder the operations of the company in the future.

We need to consider the funders plans for subsequent series or venture capital financing.

18.06 [Christopher Hooley] Okay, so funding must be self-reliant and purely based on the assets of the company, not anything else. Let’s just go over to FinTech start-ups. Third parties producing software. So what about the ownership intellectual property in those situations where there probably is a service provider, and they are the party who has the initial copyrights.

18.32 [Gary Wong] Again, it is essential for any new start-up that that’d be proper documentation in place and the newco will have the rights to the software and other information that can be done as an assignment or transfer of all these rights into the newco or through an appropriate License Agreement.

18.52 [Christopher Hooley] Okay. I’m moving over to the employment side. I understand that and the Hong Kong law either in employer or employee can give notice can actually forthwith terminate an employment contract by making a payment in lieu of notice.

19.06 [Gary Wong] Yes, that’s correct. So, Hong Kong law states that you can either give the notice period or pay in lieu of notice, as stated by the employment contract.

19.20 [Christopher Hooley] So presumably, then, long term bonus prospects or employment share options, vesting overtime would be a good retention plan for employees.

19.29 [Gary Wong] Yes, that is one of the best ways to try to ensure that your employees will stay with the company.

19.36 [Christopher Hooley] Okay. In terms of policies, I expect that each company would be they’d have an employment Handbook, and that would actually refer to all relevant policies.

19.47 [Gary Wong] I mean, that really is a good idea because without an employee handbook, there’s so many different areas where disputes could come up between the employees and the company. So you know, it’s essential that companies have a handbook.

20.00 [Christopher Hooley] Okay. Now let’s move on to limiting liability. It’s quite clearly possible to do that in any contractual document, by amount and also by time, but how’s that actually practically achieved? Perhaps you could give us some examples?

20.16 [Gary Wong] Well, there’s a variety of ways you can do it, you could maybe limit it to some certain fixed amount, you could tie it to maybe your insurance policies, or you could tie it to the amount of the total value of the contract a variety of ways to do it. And it really depends on the position of the two parties.

20.37 [Christopher Hooley] Okay, finally, what about insurance to cover any risk?

20.41 [Gary Wong] It’s usually dictated by cost and the benefit it will bring and needs to be looked at by a company on a case by case basis.

20.49 [Christopher Hooley] Okay, thanks. So the takeaway point here is the management of any company whether it’s a start-up or an ongoing company to try to identify risk, and then to put in place all necessary protective procedures, and clearly not to turn a blind eye to potential risk.

21.05 [Gary Wong] I think that’s right.

21.07 [Christopher Hooley] Excellent. Thank you. I now like to progress and talk about information that is actually accessible in Hong Kong. In a challenging high-tech era where privacy is a very real concern to many people and we’re constantly reminded not to share data with third parties. That exactly what information can I found out about a company, a private company that is not a company that’s listed for public trading, whether that’s my own company or a company and where third party or a complete stranger I may want to ensure that the public records in my own company are up to date, I may want to bring a civil action against another company claiming contractual breach, or I may want to invest in a company. There are a myriad of very good business reasons for accessing and reviewing available data. But what is actually publicly available in Hong Kong not only about a Hong Kong company, but also about any other offshore company, BVI, Cayman, which is conducting business in Hong Kong. Gary, perhaps you could actually lead me into where I can access that data. And how do I go about it?

22.11 [Gary Wong] Well, the first place to start is the Hong Kong Companies Registry, where indeed, every Hong Kong company and foreign company doing business in Hong Kong needs to file information with Hong Kong Companies Registry. For a small fee anyone can conduct a search of this information and that copies of all the documents and this will include the annual returns of the company, mortgages and charges against the company, particulars of the directors and shareholders. These particulars include the home addresses and full names of all the directors. However, audited accounts do not have to be filed and are not accessible even though they may be available in other jurisdictions.

22.55 [Christopher Hooley] Okay, I mentioned earlier about offshore jurisdictions like Cayman and BVI. So if I’ve got a Cayman company in Hong Kong, does that an obligation to file details that Hong Kong Companies Registry?

23.06 [Gary Wong] Well, any overseas company, which is actually doing business in Hong Kong needs to register with Hong Kong Company Registry? And what information is actually visible from those searches? For instance, can I actually do an in-depth search against the BVI or Cayman company?

23.20 [Gary Wong] Again, they’re going to require all the basic information as to the articles and the shareholders and directors of the company.

23.29 [Christopher Hooley] Okay, I understand that the obligation comes from actually having a place of business in Hong Kong. So perhaps you can share with us what a place of business actually means.

23.40 [Gary Wong] Good question, as we visibly see numbers of overseas companies in Hong Kong, as to place a business is normally a question of fact, are there that people are working here? Are they executing contracts here? Do they have employees here? And so all of these are factors that go into determining whether a company overseas company needs to register in Hong Kong.

24.00 Okay, this isn’t a strictly corporate matter, but I assume that I can also check all court records to ascertain whether a company has been party to any civil or criminal action in Hong Kong, whether it’s claimant or defendant or whether there’s any winding up action commenced against it.

24.18 [Gary Wong] Yes, normally a separate service provider who will check all the court filings and all the also the receivership and insolvency records for companies.

24.29 [Christopher Hooley] And what about real property and other information about a company?

24.33 [Gary Wong] For real property and apartments a search can be conducted at the Land Registry, financial and credit information normally can be obtained from financial services companies such as Dun & Bradstreet. In special circumstances, depending on the need, it might even be useful to utilize the services of a private investigator.

24.54 [Christopher Hooley] Okay. I’ve also recently heard about the significant controllers register which was brought into Hong Kong in – I think – last year. I understand that this register has its genesis in governments trying to ensure transparency and ownership in the global fight against money laundering and terrorist financing. And that must, of course, be linked to KYC issues. So what is that register? What does the significant controller actually do? What does it mean? Who has to complete it? And is the register actually publicly available in Hong Kong?

25.28 [Gary Wong] Yes, it is a recent enactment by Hong Kong, but now companies are required to complete the significant control register, and to keep it updated. It doesn’t have to be filed for public dissemination, but it does need to be kept by the company who are the owners and beneficial owners of the company.

25.50 [Christopher Hooley] So the takeaway from all this is that there is a lot of very freely available information accessible through targeted searches at the Hong Kong Companies Registry and also through other search of court records. But unfortunately, none of those searches can provide an overview of the financial situation of a company because audited accounts don’t have to be filed.

26.15 [Gary Wong] That’s right. You need to go to a provider or service providers and to find out a fair amount but the actual audit of the financial statements are not available.

26.27 [Christopher Hooley] Since Hong Kong sits where it is, and is renowned as being an international business, or perhaps we should actually next talk about cross border issues. Hong Kong has got an ideal location on the edge of the Pearl River Delta, enables Hong Kong businesses to tap into the multitude of opportunities in the Greater Bay Area, and also in other Southeast Asian countries. For multinational corporations looking for a regional base to small and medium sized enterprises looking for a foothold in mainland China, there is an increasing trend of cross border trade and business and that no doubt will only increase as technology pushes the world become a smaller place. Business owners are often unfamiliar with the customs legal regime regulations, procedures or the general business environment and culture in Mainland China, let alone other Asian countries. So, we should explore this in a lot more detail. Clearly, every time there is a contract entered into by a Hong Kong company with a non-Hong Kong company, there will be potential problems. Initially, we seem to have the practical and logistical problems of providing goods and services on a cross border basis. And then we have the issues of litigation if there is breach behind all that of course, there are regulatory issues of doing business in China, where most importantly, regulatory consent is required for the transfer of monies out of China. Lastly, there is the concern of a foreign entity taking your employees, taking your trade secrets or confidential information, how can that be pragmatically dealt with? Let’s look at these individual areas, starting with the transfer of monies in and out of China. What are the common challenges faced when we want to send money into China?

28.17 [Gary Wong] Well, things have been improving, but it’s still quite difficult and can be slow and expensive when you first start off. Chances are that if you’re working with overseas banks that would support your business either don’t have branches in China, or don’t have a direct relationship with any of the Chinese banks. So on wiring money via bank, cross border money transfers will go through the swift network, which of course is a very established network but does take some time and is somewhat expensive. There are also many restrictions and regulations and policies that most people don’t know about, set up by the by the Chinese banks and the People’s Bank of China. They’re also policies, many policies which are not even written so that’s part of the difficulty in during business and moving money in and out of China.

29.05 [Christopher Hooley] But China has made huge developments in the past two years in respect to its own commercial laws. And as such foreign investment does and can take place in a variety of different ways, one of which is what I understand is the Wholly Foreign Owned Enterprise, a WFOE, typically owned by a Hong Kong company, what’s it worth and why are they so popular?

29.24 [Gary Wong] Well, WFOE is, as you mentioned, is a Wholly Foreign Owned Enterprise. And typically, they will be it’s a Chinese Limited Liability Company, where its sole shareholder is a foreign company. In this case, normally, it’s a Hong Kong company. The beauty of using a WFOE and Hong Kong holding company is that, if it’s a joint venture are there multiple shareholders, the governance between the shareholders and the investors can be governed by Hong Kong agreements in Hong Kong law, and if there’s any dispute about their arrangements, and the governance of the company or the joint venture that can be determined under by the Hong Kong courts or the Hong Kong Arbitration Centre. Okay.

30.05 [Christopher Hooley] And it’s also quite easy for WFOEs to remit profits back to Hong Kong as well.

30.10 [Gary Wong] There are some areas in terms of if the company, if the WFOE is making profit, it can be once you get approval from the Chinese regulatory authorities for foreign exchange, you can remit those profits out as dividends.

30.25 [Christopher Hooley] Okay. What about intercompany payments? I understand that a WFOE can pay its foreign parent companies for services rendered. And since this would be part of a regular sort of regular business operation, I assume that there are fewer risks and regulations relating to this. Is this the better way to remit money out of China?

30.45 [Gary Wong] Well, as long as and it makes sense, when you start off that you can set up arrangements between the parent company or the overseas company and the Hong Kong and the WFOE. If there are legitimate service payments, whether it’s for licensing IP or a management service contract, as long as those are submitted to the Chinese government and they take a look at it and it’s a very legitimate way of repatriating moneys out of China.

31.12 [Christopher Hooley] Okay. The third thing you mentioned was the WFOE extending loans to a related foreign company with which it’s got an equity relationship. What are the requirements that company uses this method of remittance?

31.25 [Gary Wong] Well, a lot of companies use this. But there needs to be proper documentation and there will be a need for the authorities to make sure that it’s an arm’s length transaction between the parent company and the WFOE.

31.40 [Christopher Hooley] Okay, let’s cut to the chase then a look at what happens when there’s actually a dispute with a foreign company. It means that the expressly at this time we start looking at the clauses in the contract relating to the law and the dispute resolution, clearly then that needs to be thought through in advance.  {And this cannot be a situation where Hong Kong courts always have jurisdiction.

32.04 [Gary Wong] Yeah, a lot of it depends on the particular contract and what the dispute is about. Recently, there have been arrangements made between China and Hong Kong, where the Chinese government and the Hong Kong government will recognize court judgments. But those are only in limited situations. So provided that those are looked at early on, may be beneficial to have a Hong Kong court determine issues. Otherwise, the general default is that arbitration maybe through the Hong Kong International Arbitration Centre, is the preferred way to resolve disputes between a Chinese company and an overseas company.

32.42 [Christopher Hooley] So realistically, on any cross border contract, we have to anticipate a breach when it’s actually being drafted and decide how best the client can actually be protected based on the individual facts.

32.57 [Gary Wong] As I mentioned, it depends on you know, what’s been agreed to and what would be the best solution, depending on the circumstances and what the contract is about.

33.07 [Christopher Holley] Okay. Finally, it’s in the world news, so we might as well talk about it as well. And that’s the question about chasing a foreign company that’s taken confidential or proprietary information or indeed, clients or staff. This is presumably an extremely difficult area to police, because it depends on the legal system of the contracting party, and also how costly it might be to actually take legal action, obtain injunctive relief in that place. Shouldn’t every cross-border contract be first looked at in a very pragmatic way, in terms of what happens if there’s a breach and also how much money can be afforded to be spent pursuing that breach? It’s not an ideal situation, but clearly it needs to be thought through.

33.48 [Gary Wong] I think that’s right. And I think any company that is, for example, starting up or invest in China with some intellectual property needs to consider the risk. And you know, as lawyers, we can advise and try to put the best agreements in place. But enforcement, I think, as most people agree it’s difficult in China. So in terms of intellectual property, I would say that you really need to have an intellectual property confidentiality program to try to protect your assets as much as you can. You may have legal remedies, but again, trying to enforce those in China is still awfully difficult.

Thanks, Gary.

34.28 [Christopher Hooley] I think the final thing that I’d like to say is that, obviously assisting any client whether that be an international client or a client in Hong Kong, the sooner that we actually see the client, sit down, discuss, take note of their business things, the better and easier it is for actually, for documentation to be put in place and for us to think through risk with the client. I think the time spent analysing, strategizing is indeed money well spent. Thank you.

34.58 Be sure to catch our other episodes of The HIP Talks podcasts by checking the insights section of our website at www.hugillandip.com. And please send us your comments by writing to our email address hello@hugillandip.com. Also, please feel free to share this episode of the hip talks podcast with your friends, family and associates.

This podcast is for informational purposes only. Its contents do not constitute legal or professional advice.

Gary Wong

Gary Wong

Gary is a corporate lawyer advising companies, funds and individuals on M&A transactions, investments, licensing, commercial and regulatory matters.

All articles by : Gary Wong
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