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Hong Kong – Assignment, Novation Or Sub-Participation Of Loans.

April 28, 2022 by Balaram Adhikari

TRANSFERABILITY OF LOANS

The legal analysis regarding the transferability of loans can be complex.  The loan agreement should be examined with a view to identifying any restrictions on transferability of the loan between lenders, such as prior consent of the debtor and, in some cases, whether such consent may be withheld.  Other general restrictions may apply given that most banks have internal confidentiality rules and data protection requirements, the latter of which may also be subject to governmental regulations.  Certain jurisdictions may restrict the transfer of loans relating to specific types of receivables – mortgage or consumer loans being prime examples.  It is imperative to conduct proper due diligence on the documentation and underlying assets in order to be satisfied with the transferability of the relevant loans.  This may be complicated further if there are multiple projects, facility lines or debtors.  It is indeed common to see a partial transfer of loans to an incoming lender or groups of lenders.

METHODS OF TRANSFER

The transfer of loans may be carried out in different ways and often involves assignment, novation or sub-participation.

A typical assignment amounts to the transfer of the rights of the lender (assignor) under the loan documentation to another lender (assignee), whereby the assignee takes on the assignor’s rights, such as the right to receive payment of principal and interest on the loan.  The assignor is still required to perform any obligations under the loan documentation.  Therefore, there is no need to terminate the loan documentation and, unless the loan documentation stipulates otherwise, there is no need to obtain the debtor’s consent, but notice of the assignment must be served on the debtor.  However, many debtors are in fact involved in the negotiation stage, where the parties would also take the opportunity to vary the terms of the facility and security arrangement.

Novation of a loan requires that the debtor, the existing lender (transferor) and the incoming lender (transferee) enter into new documentation which provides that the rights and obligations of the transferor will be novated to the transferee.  The transferee replaces the transferor in the loan facility and the transferor is completely discharged from all of its rights and obligations.  This method of transfer does require the prior consent of the relevant debtor.

Sub-participation is often used where a lender, whilst wishing to share the risks of certain loans, nonetheless prefers to maintain the status quo.  There is no change to the loan documentation – the lender simply sells all or part of the loan portfolio to another lender or lenders.  From the debtor’s perspective, nothing has changed and, in principle, there is no need to obtain the debtor’s consent or serve notice on the debtor.  This method of transfer is sometimes preferred if the existing lender is keen to maintain a business relationship with the debtor, or where seeking consent from the debtor or notifying the debtor of any transfer is not feasible or desirable.  In any case, there would be no change to the balance sheet treatment of the existing lender.

OFFSHORE SECURITY ARRANGEMENTS

The transfer of a loan in a cross-border transaction often involves an offshore security package.  A potential purchaser will need to conduct due diligence on the risks relating to such security.  From a legal perspective, the security documents require close scrutiny to confirm their legality, validity and enforceability, including the nature and status of the assets involved.  Apart from transferability generally, the documents would reveal whether any consent is required.  A lender should seek full analysis on the risks relating to enforcement of security, which may well be complicated by the involvement of various jurisdictions for potential enforcement actions.

A key aspect to the enforcement consideration is whether a particular jurisdiction requires that any particular steps be taken to perfect a security interest relating to the loan portfolio (if the concept of perfection applies at all) and, if so, whether any applicable filing or registration has been made to perfect the security interest and, more importantly, whether there exists any prior or subsequent competing security interest over all or part of the same assets.  For example, security interests may be registered in public records of the security provider maintained by the companies registry in Bermuda or the British Virgin Islands for the purpose of obtaining priority over competing interests under the applicable law.  The internal register of charges of the security provider registered in the Cayman Islands, Bermuda or the British Virgin Islands should also be examined as part of the due diligence process.  Particular care should be taken where the relevant assets require additional filings under the laws of the relevant jurisdictions, notable examples of such assets being real property, vessels and aircraft.  Suites of documents held in escrow pending a potential default under the loan documentation should also be checked as they would be used by the lender or security agent to facilitate enforcement of security when the debtor defaults on the loan.

DUE DILIGENCE AND BEYOND

Legal due diligence on the loan documentation and security package is an integral part of the assessment undertaken by a lender of the risks of purchasing certain loan portfolios, regardless of whether the transfer is to be made by way of an assignment, novation or sub-participation.  Whilst the choice of method of transfer is often a commercial decision, enforceability of security interests over underlying assets is the primary consideration in reviewing sufficiency of the security package in any proposed loan transfer.

For further information, please contact:

Fiona Chan , Partner, Appleby

[email protected]

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Assignment of Contract Rights

LEARNING OBJECTIVES

• Understand what an assignment is and how it is made.
• Recognize the effect of the assignment.
• Know when assignments are not allowed.
• Understand the concept of assignor’s warranties.
• The Concept of a Contract Assignment
• Method of Assignment
• Effect of Assignment
• When Assignments Are Not Allowed
• Partial Assignments
• Successive Assignments
• Assignor’s Warranties
• Learning Objectives LEARNING OBJECTIVES
• Functions of the Law
• Law and Politics KEY TAKEAWAY EXERCISES
• Legal Positivism: Law as Sovereign Command
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• Other Schools of Legal Thought KEY TAKEAWAY EXERCISES
• Law: The Moral Minimums in a Democratic Society
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• Civil versus Criminal Cases
• Substance versus Procedure KEY TAKEAWAY EXERCISES
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• Delegating Legislative Powers: Rules by Administrative Agencies
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• The Constitution as Preemptive Force in US Law
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• Treaties as Statutes: The “Last in Time” Rule
• Causes of Action, Precedent, and KEY TAKEAWAY EXERCISES
• Comparing Common-Law Systems with Other Legal Systems
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• A Sample Case Note to Students CASE QUESTIONS
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• Physical Duress
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• Remedies KEY TAKEAWAY EXERCISES
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• Material Effect on the Agreed-to Exchange of Performance
• Party Seeking Relief Does Not Bear the Risk of the Mistake KEY TAKEAWAY EXERCISES
• The General Rule
• Exceptions and Complications
• Necessities
• Nonvoidable Contracts
• Misrepresentation of Age
• Ratification
• Duty to Return Consideration Received
• Tort Connected with a Contract
• Mentally Ill Persons
• Intoxicated Persons KEY TAKEAWAY EXERCISES
• Undue Influence CASE QUESTIONS
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• Misrepresentation by Assertions of Opinion CASE QUESTIONS
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• A Definition of Consideration KEY TAKEAWAY EXERCISES
• Actual versus Legal Detriment
• Adequacy of Consideration
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• Accord and Satisfaction Generally
• Settling an Unliquidated Debt
• Settling a Disputed Debt
• The “In-Full-Payment” Check Situation
• Unforeseen Difficulties
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• Illusory Promises
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• Outputs Contracts and Needs Contracts KEY TAKEAWAY EXERCISES
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• Under the UCC
• International Contracts KEY TAKEAWAY EXERCISES
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• Consideration: Required for Contract Modification CASE QUESTIONS
• General Perspectives on Illegality LEARNING OBJECTIVES KEY TAKEAWAY EXERCISES
• Gambling Contracts
• Sunday Contracts
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• Family Relations KEY TAKEAWAY EXERCISES
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• Excusable Ignorance
• Partial Illegality KEY TAKEAWAY EXERCISES
• Extension of Statutory Illegality Based on Public Policy CASE QUESTIONS
• Unlicensed Practitioner Cannot Collect Fee CASE QUESTIONS
• Unconscionability CASE QUESTIONS
• Overview of the Statute of Frauds
• Promises to Pay the Debt of Another
• Agreements of Executor or Administrator
• The Marriage Provision
• Contracts Affecting an Interest in Real Estate
• The One-Year Rule
• Other Writing Requirements
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• The Ten-Day-Reply Doctrine
• “Specially Manufactured Goods”
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• At Common Law
• Full Performance
• Detrimental Reliance
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• Contract Modification KEY TAKEAWAY EXERCISES
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• Untrue Recital or Errors
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• The UCC Approach KEY TAKEAWAY EXERCISES
• The General Problem
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• Tools of Interpretation KEY TAKEAWAY EXERCISES
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• The Statute of Frauds’ One-Year Rule CASE QUESTIONS
• The Parol Evidence Rule: Postcontract Modification CASE QUESTIONS
• Manifesting Assent
• Acceptance and Revocation
• General Rule
• Material Change in Duties of the Obligor
• Assignment of Personal Rights
• Assignment Forbidden by Statute or Public Policy
• Contracts That Prohibit Assignment
• Future Contracts
• Assignor’s Warranties KEY TAKEAWAY EXERCISES
• Effect on Obligor
• Personal Services
• Public Policy
• Delegations Barred by Contract KEY TAKEAWAY EXERCISES
• Creditor Beneficiary
• Donee Beneficiary
• Modification of the Beneficiary’s Rights
• Government Contracts KEY TAKEAWAY EXERCISES
• Nonassignable Rights CASE QUESTIONS
• Assignment Includes Delegation CASE QUESTIONS
• Third party Beneficiaries and Foreseeable Damages CASE QUESTIONS
• Nonperformance, Material Breach
• Substantial Performance
• Anticipatory Breach and Demand for Reasonable Assurances KEY TAKEAWAY EXERCISES
• Conditions Classified Based on How They Are Created
• Conditions Classified Based on Their Effect on Duty to Perform
• Condition of Timeliness
• Condition That a Party Must Be Satisfied KEY TAKEAWAY EXERCISES
• Mutual Rescission
• Substituted Agreement
• Accord and Satisfaction KEY TAKEAWAY EXERCISES
• Death or Incapacity of a Personal Services Contractor
• Destruction or Deterioration of a Thing Necessary for Performance
• Performance Prohibited by Government Regulation or Order
• Impracticability
• Common-Law Impracticability
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• Substantial Performance; Conditions Precedent CASE QUESTIONS
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• Impossibility as a Defense CASE QUESTIONS
• Purpose of Remedies
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• Summary and Exercises Summary EXERCISES  SELF-TEST QUESTIONS  SELF-TEST ANSWERS 
• History of Products-Liability Law
• Current State of the Law KEY TAKEAWAY EXERCISES
• Express Warranties
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• Implied Warranty of Merchantability
• Fitness for a Particular Purpose
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• Liability Insurance KEY TAKEAWAY EXERCISES
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• Apparent Agency KEY TAKEAWAY EXERCISES
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• Importance of Partnership Law
• Through the Twentieth Century
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• For Purposes of Bankruptcy KEY TAKEAWAY EXERCISES
• Creation in General
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• Who Can Be a Partner?
• Written versus Oral Agreements
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• Creation of Implied Partnership
• Association of Persons
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• Suit against Whitehead
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• Liability of the Partnership
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The Government restricts bans on assignment

United Kingdom |  Publication |  November 2018

Legislation now in force preventing parties from prohibiting the assignment of receivables under certain contracts.

At the moment, a contract can prohibit or restrict the parties’ ability to assign or transfer rights created under the contract. The extent of the restriction is a matter of interpretation of the clause concerned. If one of the parties to the contract attempts to assign the benefit of the contract in breach of the restriction, the purported assignment is ineffective.

One of the key assets of any business is its receivables, and restrictions on assignment can prevent the parties from factoring receivables or otherwise raising finance on them. The Government has decided that it should be easier for businesses to raise finance on their receivables. Accordingly the Small Business, Enterprise and Employment Act 2015 allows regulations to be made to invalidate restrictions on the assignment of receivables in particular types of contract. The regulations have now been made. They are contained in The Business Contract Terms (Assignment of Receivables) Regulations 2018. Draft regulations published in July, have been approved by both Houses of Parliament and are now in force.

What types of contracts do the Regulations apply to?

The Regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money. But there are a number of important exclusions from their application, including the following:

• They only apply to contracts entered into on or after 31 December 2018.
• They only apply where the person who supplies the goods, services or intangible assets concerned, and is therefore entitled to the receivable, is a small or medium-sized enterprise which is not a special purpose vehicle. Whether or not an entity qualifies in any particular case requires a detailed examination of the precise wording of the
• Regulations. Counter-intuitively, the test is not applied at the time the contract is entered into, but at the time the assignment takes place.
• There is a specific exemption for contracts “for, or entered into in connection with, prescribed financial services”: These are widely defined to include “any service of a financial nature”.
• There are specific exclusions for particular types of contract, including certain commodities, project finance, energy, land, share purchase and business purchase contracts and operating leases.
• As a general rule, it would seem that the Regulations only apply to contracts governed by English law or the law of Northern Ireland, but they prevent the parties from choosing a foreign law if it can be established that the purpose of doing so was to evade the Regulations.
• The Regulations do not apply if none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom.

What is the effect of the Regulations?

The Regulations provide that “a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction , on the assignment of a receivable arising under that contract or any other contract between the same parties.”

A receivable is the right to be paid any amount under a contract for the supply of goods, services, or intangible assets. The Regulations do not prevent the parties from restricting the assignment of other contract rights.

More difficult is to establish what is meant by assignment. Receivables are transferred in various ways in practice. Sometimes the transfer is outright (for instance by way of sale); and sometimes it is by way of security (for instance to secure a loan). The transfer may be effected by a statutory assignment, an equitable assignment, a charge or a trust. “Assignment” is not defined in the Regulations, and so there is some doubt as to which of these transactions are covered.

Although charges are not expressly referred to, they might be covered by the expression “assignment” if it is given a broad interpretation. But because of the uncertainty, the best course is to take an assignment by way of security over a receivable where there is, or might be, a restriction. That way, it is clear that the Regulations do apply.

Non-assignment clauses come in a variety of forms. They will be covered by the Regulations if they prohibit or impose a condition , or other restriction on the assignment of a receivable. The Regulations expressly invalidate terms which prevent the assignee from determining the validity or value of the receivable or their ability to enforce it. Whether or not the Regulations apply in any particular case will require an analysis of the precise terms of the restriction.

The Regulations will be of particular importance to businesses involved in the financing of receivables. And they will also be of concern to buyers because they will override their contractual protections.

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Factoring and Set off Rights – Some Practical Tips

Factoring is a widely used mechanism in the business world. This article discusses the law in relation to factoring and practical tips to be adopted by companies when it comes to factoring and set off rights.

What is factoring?

Factoring is a form of financing by which a company sells debts that are due to be collected from a customer to a third party (the Factor) at a discounted price, and in turn assigns its rights to collect the debts from the customer or customers to the Factor.

After the factoring arrangement is entered into between the company and the Factor, it is the usual practice for the Factor to send out to the relevant customers a letter giving notice that from the date of the letter and until further notice, all debts owed by the customers to the company are automatically assigned and become payable to the Factor. This letter is usually known as an introductory letter.

Law on factoring and its effect on set off rights

Under Hong Kong law, the assignment of debts is governed by both statute and common law principles. Section 9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23) (the Ordinance) provides that:-

“ Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee…) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor .”

This means that when a customer receives (and/or acknowledges) a written notice of assignment (including an introductory letter) from the Factor, the assignment of debt to the Factor becomes effective in law.

Section 9 of the Ordinance provides that the Factor takes the assignment of debt subject to all equities which would have been entitled to priority over the rights of the Factor.  Cases have interpreted this wording to mean that:-

(a)        the Factor takes subject to the customer’s right of set off against the assignor; but

(b)        if the set off does not arise out of or is not closely connected with the same contract or the subject-matter of the assignment, the customer can only claim a set off against the Factor if the right of set off arose before the notice of assignment is given.

Where there is a prior contractual set off agreement in place between the company and the customer, the law is not as clear cut when it comes to deciding whether such an agreement will also be effective against the Factor where the transaction out of which the cross-claim sought to be set off arose was entered into after the notice of assignment is given. There are two competing views arising from the case law on this issue:-

(a)        One view is that the assignee (i.e. the Factor) takes the same interest and is subject to the same liabilities as the assignor (i.e. the company) at the date of the notice of assignment, and the prior agreement will allow the debtor (i.e. the customer) to set off cross-claims, both present and future, including claims which arise out of new transactions.

(b)        The competing view is that when the debtor receives notice, the debtor should regulate its conduct accordingly and should not rely on debts arising out of new transactions to diminish the rights of the assignee as they stood at the time of notice: in other words, set off is not available in respect of new transactions.

A set-off agreement entered into by the company and customer after the customer has notice of the assignment will not ordinarily be effective as against the Factor.

In summary, set off rights will continue to apply after assignment where:

(a)      the relevant cross-claim arose before the assignment;

(b)      the relevant cross-claim arose out of the same contract or is closely connected with it;

(c)      the factor expressly (or, depending on the facts, by implication) agrees to the continuation of a contractual set off right.

Practical Tips

Below are various measures which can be taken by a company to strengthen its position when it comes to factoring and set off rights:-

• It is prudent for a company to include a clause in their terms and conditions with the supplier providing that the set off rights which the company has under the contract will continue to be enforceable against the supplier and their assignees regardless of (a) any existing or future agreements entered into between the supplier and a third party assigning the right to the third party to collect its receivables or (b) any future notice of assignment of debt which may be received by the company in relation to the supplier’s debt.  Again, it is also prudent to get an acknowledgement from the Factor and the supplier that they will adhere to these terms.
• Set up measures to ensure that Factors are kept up to date with the set off arrangements which the company has in place with their customers e.g. by periodically sending letters to Factors (especially if the Factor is involved in a long term trading relationship) reminding them that the company’s set off rights against the customer and Factor will continue to apply to future assigned debts of the customer; and
• In the event the company’s right to set off crystallises (e.g. default by the supplier), the company should put the supplier and Factor on immediate notice that the company will exercise their set off rights against any assigned debts which are the subject of any existing or future invoices which may be issued by the supplier.

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US imposes visa restrictions on Hong Kong officials in response to passing of tough security law

The United States will impose new visa restrictions on a number of Hong Kong officials over the crackdown on rights and freedoms in the Chinese-ruled territory.

Secretary of State Antony Blinken said on Friday that in the past year China continued to take actions against Hong Kong's promised high degree of autonomy, democratic institutions, and rights and freedoms, including with the recent enactment of a new national security law known as Article 23.

"In response, the Department of State is announcing that it is taking steps to impose new visa restrictions on multiple Hong Kong officials responsible for the intensifying crackdown on rights and freedoms," Mr Blinken said in a statement.

The statement did not identify the officials who would be targeted.

In November, Hong Kong condemned a US bill calling for sanctions against 49 Hong Kong officials, judges and prosecutors involved in national security cases, saying US legislators were grandstanding and trying to intimidate the city.

Officials named in that Hong Kong Sanctions Act included Secretary for Justice Paul Lam, Police chief Raymond Siu and judges Andrew Cheung, Andrew Chan, Johnny Chan, Alex Lee, Esther Toh and Amanda Woodcock.

The United States has imposed visa restrictions and other sanctions in the past on Hong Kong officials blamed for undermining freedoms and announced an end to the special economic treatment the territory long enjoyed under US law.

It has also warned that foreign financial institutions that conduct business with them would be subject to sanctions.

The US Hong Kong Policy Act requires the State Department to report each year to Congress on conditions in Hong Kong.

"This year, I have again certified that Hong Kong does not warrant treatment under US laws in the same manner as the laws were applied to Hong Kong before July 1, 1997," Mr Blinken said, referring to when Hong Kong was handed back to China by Britain.

"This year's report catalogues the intensifying repression and ongoing crackdown by PRC [People's Republic of China] and Hong Kong authorities on civil society, media, and dissenting voices, including through the issuance of bounties and arrest warrants for more than a dozen pro-democracy activists living outside Hong Kong," Mr Blinken said.

The Commissioner's Office of China's Ministry of Foreign Affairs in Hong Kong said the report and statements issued by Mr Blinken "confused right and wrong" and "stigmatised" Hong Kong's national security law and the city's electoral system.

The threat to sanction Hong Kong officials "grossly interferes" in Hong Kong affairs and China's internal affairs, a spokesperson said in a statement issued on Saturday.

"Instead of acting as the world's policeman and issuing an annual 'Hong Kong Policy Act report', the United States should take time to examine itself."

China's embassy in Washington said it strongly deplored and firmly opposed US threats to "impose unwarranted unilateral sanctions" on Hong Kong.

"The US side disregards facts, makes irresponsible remarks about Hong Kong affairs, and levels groundless accusations" at the Chinese and Hong Kong governments, the embassy posted on its website.

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Newsletter No. 149 (EN)

Securing and assigning claims in hong kong.

• Last updated:
• 31 January, 2023

I. Introduction

Security in the form of a charge over certain assets, such as receivables or “book debt” for instance, is of signifi­cant importance for international trade and loan transactions. In order for a creditor to minimize the risk of default by the debtor and obtain assurance that only secured rather than unsecured debts are held, the creditor must take several steps to reserve a preferential rank over other creditors.

This newsletter will discuss the assign­ment of receivables, in German called “Zession”, and what is required for a registration in Hong Kong to reserve a preferential rank in case of insolvency of the debtor. First, the relevant terms will be defined and then described in further detail in context of Hong Kong legisla­tion. The final part of the newsletter will explain what is required to register a blanket assignment of receivables in Hong Kong.

II. Definitions

1.       Assignment of receivables

Assignments of receivables are regulated in Germany in § 398 of the Civil Law Code ( B ürgerliche G esetz b uch, BGB ). The assignment of receivables is a common security for loans. The legal re­lationship usually consists of a party granting security, the grantor (e.g. per­son or entity taking a loan) who assigns receivables (e.g. receivables for goods supplied) to a secured party (e.g. entity or person giving a loan). The assignment of receivables makes the se­cured party the creditor of the receiva­bles.

2.      Types of assignment of receivables

Assignments generally can be distin­guished into single assignment (“Einzel­zession”), overall assignment (“Mantel­zession”) and blanket assignment (“Globalzession”). The blanket assign­ment is also sometimes re­ferred to as global assignment. The blanket assign­ment is differentiated from the single as­signment and overall assign­ment insofar, as the blanket assign­ment assigns all cur­rent and future receivables in favour of the secured person or entity. In contrast, a single assign­ment only assigns a specif­ic receivable while an overall assignment usually assigns only receivables that ex­isted at a certain point in time. Some­times, overall assignments are accompa­nied with an arrangement that all future receivables will be assigned through ad­ditional overall assignments. However, since such arrangement is very similar to the blanket assignment, usually in such circumstances the parties agree to pro­ceed with a blanket assignment.

3.      Absolute and undisclosed assign­ments

Independent of whether current or fu­ture receivables are assigned, or whether one specific receivable or a group of re­ceivables are assigned, the assign­ment can be either absolute or undisclosed. With an undisclosed assign­ment the se­cured party decides not to disclose the assign­ment to the third-party debtor, who continues to settle the receivables by payment to the grantor. With an absolute assignment, the assign­ment is disclosed to the third-party debtor and the debtor is only able to set­tle the receivables with discharging ef­fect by payment to the secured party, not the grantor.

In Hong Kong, no requirement exists that for an absolute assignment the third-party debtor has to only settle the receivables with discharging effect by payment to the secured party. It is how­ever common, if the secured party is a bank, that a special account is opened, which is used by the third-party debtor to settle the receivables. The money held in these accounts can only be accessed or transferred with the permission of the secured party (usually the bank).

III. Assignment of receivables in Hong Kong

Assignments of receivables such as the blanket assignment are generally possi­ble and are regulated under the broader term “charges”. In Hong Kong and many other common law jurisdictions a distinction is made between “fixed” and “floating” charges.

A fixed charge is a charge over assets which are specified (e.g. a machine or a specific receivable). With the effect of the assignment that the grantor (“char­gor”) is no longer free to deal with those assets. In contrast, a floating charge is an assignment of a type or group of assets (e.g. inventory, goods in a warehouse, undefined number of receivables, or the general under­taking or property of the company) which are not specifically identifiable and the chargor is able to continue to use the assets (processing and selling goods, collect receivables, etc.) while the secured person (“chargee”) retains certain rights in case of insolvency.

Charges are generally available to sole-traders as security instrument in business transactions while in practice “floating charges“ are primarily only granted by companies. The C ompanies O rdinance Chap. 622 ( CO ) does not define fixed and floating charges and so its definition is based on case law in alignment with common law principles. Assignments of receivables have generally been catego­rised as fixed charges. However, the conditions of what constitutes a fixed charge have changed significantly after the decisions in Agnew v IRC [2001] UKPC 28 and National Westminster Bank Ltd v Spectrum Plus Ltd [2004] 3 WLR 503.

A blanket assignment has the character­istic that the underlying assets, the re­ceiv­ables, constantly change (old receiv­ables are settled, and new ones are add­ed). Therefore, it is generally accept­ed that the blanket assignment is not treat­ed like a fixed charge, but as a float­ing charge. The classification is not up to the involved parties, but is determined by the relevant judge on a case by case basis (common law).

In case the grantor would like to classify the blanket assignment as a fixed charge, it would be necessary to open a bank ac­count, which is used for all settlement payments of the relevant receivables, and the grantor is unable to access or transfer any amounts from this account without the prior permission of the se­cured party. Since such arrangement is rather unpractical, it can be noted that the blanket assignment will most likely be characterised as a floating charge. With a floating charge, the secured party has only access to the charged receiva­bles, when they “concretise”. A floating charge will concretises if:

• the company winds-up;
• commences insolvency proceedings;
• ceases its business;
• any agreed terms of the charge.

The disadvantage of a floating charge is that the secured party is ranked after creditors that are in the possession of a fixed charge.

IV. Registration

To ensure that a party providing a loan becomes a secured creditor in compari­son to an unsecured creditor, it is neces­sary that the charge is valid and regis­tered. If an assignment of receiv­ables is not registered, it is invalid towards the liquidator and other creditors of the company. The registration of charges is regulated in Section 333 ff of the CO.

1.       Registration

Section 334 of the CO includes a list of charges that must be registered (inde­pendent whether they are considered fixed or floating charges). Among the listed charges are receivables.

2.      Registration period

Section 335 of the CO requires that a charge is registered within a month af­ter its creation.

3.      Registry keeping

Pursuant to Section 352 of the CO, a company must keep a registry at its reg­istered office. In case that the registry is not kept at the registered office, the Registrar of Companies must be in­formed. The registry must be kept in Hong Kong.

4.      Registration by the company or its creditors

In theory it is the duty of the company to register the charge. However, it is common that the registration is done by the creditor.

A blanket assignment of receivables is possible in Hong Kong and must be registered at the Companies Registry as charge. A registration is also possible (recommended) by the creditor. A blan­ket assignment of receivables is most likely categorised as a floating charge, which has the disadvantage that in case of insolvency, the secured party’s set­tlement of claims will be ranked after the creditors of fixed charges.

We hope that we have been able to assist you with this information. If you have any further questions, please contact us:

Lorenz & Partners Co., Ltd.

27th Floor, Bangkok City Tower, 179, S Sathorn Rd,

Thung Maha Mek, Sathon, Bangkok 10120

Email:  [email protected] www.lorenz-partners.com +66 (0) 2 287 1882

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Hong Kong Adopts Sweeping Security Laws, Bowing to Beijing

The legislation targets “external interference” and the theft of state secrets, with implications for businesses, journalists, civil servants and others.

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By Tiffany May and David Pierson

Reporting from Hong Kong

Hong Kong on Tuesday passed national security laws at the behest of Beijing, thwarting decades of public resistance in a move that critics say will strike a lasting blow to the partial autonomy the city had been promised by China.

The new legislation, which was passed with extraordinary speed, grants the authorities even more powers to crack down on opposition to Beijing and the Hong Kong government, establishing penalties — including life imprisonment — for political crimes like treason and insurrection, which are vaguely defined. It also targets offenses like “external interference” and the theft of state secrets, creating potential risks for multinational companies and international groups operating in the Asian financial center.

Analysts say the legislation, which will take effect on March 23, could have a chilling effect on a wide range of people, including entrepreneurs, civil servants, lawyers, diplomats, journalists and academics, raising questions about Hong Kong’s status as an international city.

An earlier attempt to pass such legislation, in 2003, set off mass protests involving hundreds of thousands of people.

But this time many of the opposition figures who might have challenged the legislation have either been jailed or have gone into exile since China’s ruling Communist Party, under Xi Jinping, its most powerful leader in decades, imposed the first national security law , in 2020. That law gave the authorities a powerful tool to quash dissent after months of antigovernment demonstrations engulfed the city in 2019.

Hong Kong’s Beijing-backed leader, John Lee, has said the package of new laws is needed to root out unrest and to fight what he described as Western spying. Once the laws are passed, he has said, the government can focus on the economy.

In a speech at the legislature, Mr. Lee said that the new laws would “allow Hong Kong to effectively prevent and put a stop to espionage activities, the conspiracies and traps of intelligence units and the infiltration and damage of enemy forces.”

As the bill was passed unanimously on Tuesday, lawmakers and officials called it a “historic moment.” Chris Tang, Hong Kong’s secretary for security, who oversaw the bill, likened its passage to the birth of his own son after multiple “miscarriages.”

Lawmakers had put the legislation on the fast track, holding marathon sessions over a week and working through a weekend.

“A rapid passage is meant to show people in Hong Kong the government’s resolve and ability to enforce it,” said Steve Tsang, director of the SOAS China Institute in London. “The new national security bill is as much about intimidation as it is about enforcement.”

For Mr. Lee, the Hong Kong leader, “the first concern is not how people in Hong Kong or in the rest of the world see this,” Professor Tsang said. “He is performing for the audience of one — Xi himself.”

And in the eyes of Beijing, these laws are long overdue.

When Hong Kong, a former British colony, was returned to Chinese rule in 1997, it was given a mini-constitution designed to protect civil liberties unknown in mainland China, such as freedom of expression, assembly and the media. But China also insisted on a provision called Article 23, which required Hong Kong to draft a package of internal security laws to replace colonial-era sedition laws.

Hong Kong’s 2003 effort to pass internal security legislation not only triggered large protests. Top officials also resigned, and in the years that followed, city leaders were reluctant to raise the matter again, for fear of public backlash.

But in recent months, the Chinese Communist Party again urged the Hong Kong government to enact Article 23 laws.

There was little chance that China’s will would not be heeded; Hong Kong’s legislature has been overwhelmingly stacked with pro-Beijing lawmakers since China overhauled the electoral system to exclude candidates who aren’t considered “patriots.”

The new laws take aim at five types of offenses: treason, insurrection, theft of state secrets, sabotage and external interference. They also introduce key changes to due process. In some instances, the police may now seek permission from magistrates to prevent suspects from consulting with the lawyers of their choice, if that is deemed a threat to national security.

Human rights groups said that in swiftly passing the legislation, the authorities had reversed course on the freedoms once promised to the city.

Maya Wang, the acting China director at Human Rights Watch, said on Tuesday that the new security legislation would “usher Hong Kong into a new era of authoritarianism.” The government has criticized rights advocacy groups based overseas as “anti-China” and “anti-government” organizations.

The vague wording of some of the legislation has raised questions among legal scholars. For example, an act of espionage, under the new laws, could include the passing of any information or document that is considered “useful to an external force.” Such a broad definition could discourage legitimate exchanges with diplomats, Simon Young, a law professor at the University of Hong Kong, wrote in a submission to the government last month.

Professor Young also objected to the legislation’s sweeping definition of “sedition,” which includes an intent to “bring disaffection” against the state or its institutions. Disaffection is “an emotional state of too low a threshold to be the subject of a crime,” he wrote.

“It is not a crime to simply feel this way,” he added.

The legislation also empowers the city’s leader, known as the chief executive, to make new, related laws, which can carry penalties of up to seven years in prison, without going through the legislature. The leader would consult the cabinet before enacting any such law; the legislative council, known as the LegCo, would be able to amend or reject the law later.

Such a mechanism would not be new to Hong Kong, but it raises the potential for abuse, given how broadly written the new legislation is, said Thomas E. Kellogg, the executive director of the Center for Asian Law at Georgetown University.

“This is deeply disturbing,” Professor Kellogg wrote in an email. “The LegCo is handing the chief executive the power to expand the law even further, in ways that could further infringe on basic rights.”

Hong Kong, known just a few years ago for its boisterous political opposition, now more closely resembles mainland China, where dissent can carry a high cost. During the recent sessions over the new security legislation, lawmakers mostly suggested changes that would make it even tougher.

“They seem to be looking for ways to signal their fealty to the government’s national security agenda, and to ensure that they are demonstrating no daylight between themselves and the government,” Professor Kellogg said.

Discussion of the bill illustrated the city’s new political landscape and the murkiness of the new boundaries around speech.

Lawmakers asked if possession of old copies of Apple Daily, a now-defunct pro-democracy newspaper, would be an offense. (A security official said it would depend on whether there was “seditious intent.”) A government adviser said that priests who heard confessions about national security offenses like treason could themselves be charged under the new laws if they did not report what they heard. (The Catholic Diocese of Hong Kong said the church recognized that citizens had an obligation to ensure national security, but that confessions would remain confidential.)

The legislation’s vague wording — for example, in how it defines offenses like the theft of state secrets — is comparable to language found in security legislation in mainland China. And someone who shares “information that appears to be confidential matter,” even if it is not classified as a state secret, could be punished if that person intended to endanger national security, in the eyes of the authorities.

Business leaders in Hong Kong say such changes could raise the cost of operating in the city by requiring companies to scrutinize documents and other information shared by employees, to ensure that they do not inadvertently violate the new legislation.

One risk is that Hong Kong’s comparative business advantage over the mainland could be eroded, said Johannes Hack, the president of the German Chamber of Commerce in Hong Kong.

“Part of the unique value Hong Kong has for Western (German) stakeholders is the openness of the city, and we feel the balance between openness and the desire for security needs to be well calibrated,” he wrote in a message on WhatsApp.

Olivia Wang contributed reporting.

Tiffany May is a reporter based in Hong Kong, covering the politics, business and culture of the city and the broader region. More about Tiffany May

David Pierson covers Chinese foreign policy and China’s economic and cultural engagement with the world. He has been a journalist for more than two decades. More about David Pierson

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Radio Free Asia closes its Hong Kong operation over safety concerns for its staff

John Ruwitch

Michele Kelemen

A view of the Hong Kong skyline is pictured before the lights were turned off to mark the Earth Hour environmental campaign on March 25, 2023. Bertha Wang/AFP via Getty Images hide caption

A view of the Hong Kong skyline is pictured before the lights were turned off to mark the Earth Hour environmental campaign on March 25, 2023.

U.S. government-funded Radio Free Asia is closing its Hong Kong operation out of concern for the safety of its staff and reporters, a move that comes after Hong Kong enacted a tough new national security law known locally as Article 23.

Radio Free Asia President Bay Fang said in a statement Friday that the outlet's programming and content will continue without disruption.

But, Fang said, actions by Hong Kong authorities, including referring to RFA as a "foreign force," raise serious questions about its ability to operate in safety following the enactment of Article 23.

Hong Kong passes a new security law that toughens punishment of dissent

The city's Beijing-backed legislature passed Article 23 legislation earlier this month and comes atop an already existing national security law that the central government imposed on Hong Kong in 2020. Article 23 refers to the part of Hong Kong's post-handover constitution, the Basic Law, that requires the territory to enact national security legislation.

Hong Kong's most prominent pro-Democracy paper, Apple Daily, shut down in June 2021 after its accounts were frozen and its publisher, Jimmy Lai, arrested. The last pro-Democracy paper, Stand News, closed in December 2021 after it was raided and its leadership arrested.

The new law adds to the government's arsenal, with a broad definition of state secrets and language targeting external forces.

State of the World from NPR

China increasing its regional power.

RFA is funded by the U.S. Congress but it says it operates with editorial independence. It's been in Hong Kong since 1996.

U.S. imposes visa bans on Hong Kong officials

Meanwhile, the U.S. State Department announced Friday it was imposing visa bans on some officials from Hong Kong because of the crackdown on freedoms.

Secretary of State Antony Blinken said while China promised a high degree of autonomy for Hong Kong, Beijing has taken a number of steps in the past year to crack down on rights and freedoms in the territory.

Hong Kong jails 12 people for storming the legislature during 2019 protests

That includes Article 23, which Blinken said could be used to eliminate dissent inside Hong Kong and used against critics abroad, as part of what he calls China's transnational repression.

In response, Blinken said the U.S. is imposing new visa restrictions on "multiple" Hong Kong officials, but the statement did not name them or say how many would be affected by this move.

A spokesman for the Chinese embassy in Washington, D.C., blasted the U.S. after news of the State Department's annual review was made public, saying the U.S. "disregards facts, makes irresponsible remarks about Hong Kong affairs, and levels groundless accusations."

He called on the U.S. to "immediately stop interfering in Hong Kong affairs and other internal affairs of China," arguing the new national security law in Hong Kong strikes a balance and ensures rights, freedoms and economic growth.

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Radio Free Asia closes Hong Kong bureau, citing security law concerns

HONG KONG — Radio Free Asia is closing its bureau in Hong Kong , the U.S.-funded media outlet said Friday, citing concerns about staff safety in the Chinese territory after the passage of a new local national security law known as Article 23 .

“Actions by Hong Kong authorities, including referring to RFA as a ‘foreign force,’ raise serious questions about our ability to operate in safety with the enactment of Article 23,” Bay Fang, president and chief executive of Radio Free Asia, said in a statement .

Fang said that while Radio Free Asia will retain its official media registration, the outlet has closed its physical bureau in Hong Kong and no longer has full-time employees in the city, where it had operated since 1996. It was unclear how many employees were affected or whether they would be relocated elsewhere.

The Hong Kong government declined to comment on RFA’s announcement but said it condemned “all scaremongering and smearing remarks” against the Article 23 law.

“To single out Hong Kong and suggest that journalists would only experience concerns when operating here but not in other countries would be grossly biased, if not outrageous,” a spokesperson said.

The Safeguarding National Security Ordinance, also referred to as the Article 23 law , was enacted on March 23 after being approved unanimously by Hong Kong’s opposition-free legislature. The law, which addresses crimes including treason, sedition, state secrets and external interference and makes them punishable by up to life in prison, is meant to supplement a broader national security law imposed by Beijing in 2020.

The Hong Kong and Chinese governments say both laws were necessary to restore stability after 2019 pro-democracy protests that sometimes turned violent. But critics say they are contributing to the erosion of civil liberties in Hong Kong, a former British colony that returned to Chinese sovereignty in 1997.

The State Department had told NBC News earlier this month that it was aware of reports that RFA might withdraw from the city and that “such a decision would represent the latest consequence of Hong Kong authorities’ continuing suppression of media freedom.”

The U.S. and others have strongly criticized the Article 23 law, which Hong Kong was constitutionally required to enact. On Friday, Secretary of State Antony Blinken said the U.S. was taking steps to impose new visa restrictions on multiple Hong Kong officials in connection with the intensifying crackdown on dissent.

Hong Kong has experienced a dramatic decline in press freedom in recent years, falling to 140th out of 180 countries and territories in Reporters Without Borders’ 2023 World Press Freedom Index , down from 70th in 2018.

Pro-democracy news outlets such as Apple Daily and Stand News have been forcibly shut down by the government, while others have closed on their own or moved all or part of their operations out of Hong Kong. High-profile trials of Apple Daily founder Jimmy Lai , 76, and two former Stand News editors are expected to have profound implications for press freedom in the city.

Foreign news outlets have been targeted to a lesser degree, with RFA and Voice of America, another U.S. government news service, accused by pro-Beijing newspapers in Hong Kong of being “anti-China.”

Fang said Radio Free Asia was “among the last independent news organizations reporting on events happening in Hong Kong in Cantonese and Mandarin.”

RFA reported last month that Hong Kong security chief Chris Tang had criticized what he called the outlet’s “false” reports that the Article 23 legislation could be used against the media, saying the law targeted only those who threatened national security. Speaking at a news conference, Tang referred to RFA as a “foreign force.”

The news outlet was also criticized by the Hong Kong police in January over an article about alleged police brutality during the 2019 protests that quoted Ted Hui, a former Hong Kong lawmaker now living in Australia. Hui is accused of national security offenses by the Hong Kong authorities, who have offered bounties of 1 million Hong Kong dollars ($128,000) each for him and 12 other overseas activists.

Cédric Alviani, Asia-Pacific bureau director at Reporters Without Borders, said there had been a trend of media outlets and media-related organizations leaving Hong Kong since 2020, when Beijing’s national security law raised the possibility that journalists could be accused of national security crimes in the course of their work.

Hong Kong’s passage of its own national security legislation “makes the potential threat to locally registered organizations even more credible,” he said, “because the Hong Kong authorities would not appear as going against their own regulations when attacking the media based on national security provisions.”

Though he declined to comment on RFA’s withdrawal, Alviani said the Article 23 law would increase pressure on local journalists and was “obviously aimed at creating self-censorship.”

“There is so much space for interpretation that basically the only way not to fall under the national security provisions would be not to write at all on any of the topics considered by the government as sensitive,” he said.

Jennifer Jett is the Asia Digital Editor for NBC News, based in Hong Kong.