The Hong Kong Government has recently released its proposal for new legislation to facilitate the re-domiciliation of foreign investment funds (including hedge funds and private equity funds) back to Hong Kong as open-ended fund companies ("OFCs") or limited partnership funds ("LPFs"). In this article, we provide an overview of the proposed re-domiciliation mechanisms. If you would like more specific information, please contact one of our hedge fund lawyers or private equity fund lawyers.
With a view to strengthening Hong Kong's position as an international asset management centre, on July 7, 2021 the Hong Kong Government introduced into the Legislative Council the Securities and Futures (Amendment) Bill 2021 and the Limited Partnership Fund and Business Registration Legislation (Amendment) Bill 2021 (together "Re-Domiciliation of Foreign Investment Funds Bills"). These bills aim to facilitate the re-domiciliation of foreign investment funds and, in particular hedge funds and private equity funds, back to Hong Kong for registration as OFCs or LPFs. They are intended to work in conjunction with measures introduced by the government to subsidize the registration of OFCs.
Proposed Re-domiciliation Mechanism for OFCs
Eligibility for Re-domiciliation as an OFC
Under the proposed mechanism, a foreign investment fund in corporate form is eligible for re-domiciliation as an OFC in Hong Kong if it meets the same eligibility requirements under the Securities and Futures Ordinance ("SFO") for a new fund to be registered as an OFC. These requirements include having a Hong Kong registered office and eligibility criteria for the directors, investment manager and custodian of the fund.
Application for Registration Before Re-domiciliation
As a first step, an eligible foreign investment fund should apply for registration with the Securities and Futures Commission ("SFC"). The application must be supported by the constitutive documents of the foreign investment fund and a certificate issued by the foreign investment fund's board of directors confirming that:
- the proposed re-domiciliation is not prohibited by and has been approved in accordance with the fund's constitutive document;
- the intended de-registration of the fund in its place of incorporation is not prohibited under the laws of that place or the fund's constitutive document and the required consent to such de-registration has been obtained;
- the solvency of the fund and each of its sub-funds;
- the absence of any petition of winding-up, liquidation, receivership or compromise in respect of the fund or its sub-funds; and
- service of notice of the proposed re-domiciliation to its creditors.
Under the proposed mechanism, if the intended OFC has one or more sub-funds, the application fee for registration is HK$10,000 plus HK$1,250 for each sub-fund. In any other cases, the application fee is HK$5,000.
Where all the requirements for registration are met, the SFC may register the non-Hong Kong fund corporation as a re-domiciled OFC and notify the Registrar of Companies in writing of the registration.
Application for a Certificate of Re-domiciliation
After the foreign investment fund is registered with the SFC, it should apply for a certificate of re-domiciliation with the Companies Registry by submitting a prescribed re-domiciliation form and a copy of the instrument of incorporation of the intended OFC, and paying the application fees. The fund should apply for a business registration certificate simultaneously in its application for a certificate of re-domiciliation by submitting a notice to Business Registration Office and paying the applicable business registration fee. The Companies Registry will register the relevant documents and issue a certificate of re-domiciliation and a business registration certificate (on behalf of the Commissioner of Inland Revenue) in one go after the fund corporation is registered with the SFC.
Under the current OFC regime, in practice, an applicant for a new fund to be registered as an OFC only needs to deliver all documents and fees required for incorporation and business registration to the SFC when it submits its application for registration with the SFC. It is likely that this practice will also apply to re-domiciled OFC applicants.
Proposed Re-domiciliation Mechanism for LPFs
A foreign investment fund in the form of a limited partnership is eligible for re-domiciliation as an LPF in Hong Kong if it meets the same eligibility requirements under the Limited Partnership Fund Ordinance ("LPFO") for a new fund to be registered as an LPF. These requirements include the fund having a general partner and at least one limited partner, being constituted by a limited partnership agreement, and having an office in Hong Kong to which communications and notices may be sent.
Application for Registration as an LPF
An eligible foreign investment fund should apply to the Companies Registry to be registered as an LPF. The application should be submitted by a Hong Kong law firm, or a solicitor admitted to practise in Hong Kong, on behalf of the proposed general partner of the fund. The application must be accompanied by a statement confirming that:
- any consent to or approval for the proposed registration as an LPF and the intended de-registration in the place of establishment of the fund as required by any contract or undertaking has been obtained or waived;
- the intended de-registration in the fund's place of establishment is not prohibited under the law of that place or by any agreement between the fund's partners; and
- the proposed general partner understands that if the fund is not de-registered in its place of establishment within 60 days after the registration date, its name may be struck off the LPF Register
Upon successful application, a certificate of registration will be issued to the fund.
Separately, if the original fund does not have a valid business registration certificate immediately before it is registered as an LPF, the general partner of the re-domiciled LPF should apply for such certificate with the Business Registration Office within 1 month after the registration date. However, if the original fund holds a valid business registration certificate immediately before it is registered as an LPF, the general partner of the re-domiciled LPF should notify the Business Registration Office of the relevant particulars of the fund within 1 month after the registration date.
Effect of re-domiciliation
After the re-domiciliation, a foreign investment fund in corporate form becomes and continues as an OFC and a foreign investment fund in limited partnership form continues to exist as an LPF. The re-domiciliation will neither create a new legal entity, nor affect the identity or continuity of the re-domiciled foreign investment fund.
At the same time, re-domiciliation will neither prejudice any existing contract, property, right, obligation or liability of the re-domiciled foreign investment fund, nor affect any legal proceedings commenced by or against the fund. With effect from the re-domiciliation date, all property of the foreign investment fund is the property of the re-domiciled OFC or LPF, as the case may be.
For Hong Kong tax purposes, the re-domiciliation does not amount to a transfer of assets or a change in the beneficial ownership of the assets of the foreign investment fund so it will not give rise to any Hong Kong stamp duty implications.
Within 60 days after the re-domiciliation, the re-domiciled OFC or the re-domiciled LPF must take all reasonable steps to procure the de-registration in its place of incorporation or its place of establishment (as the case may be), failing which the re-domiciled OFC's registration with the SFC may be cancelled or the Registrar of Companies may strike the name of the re-domiciled LPF off the LPF Register, unless an approval for extension is granted.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.