Lending & Secured Finance Country Comparative Guide 2021

• Published date: 21 April 2021
• Law Firm: Mayer Brown
• Author: Mr Francis K. W. Chen, Thomas A. Pugh, Dion K. Y. Yu, Jennifer C. Ho and Edwin Y. H. Leung

1. Do foreign lenders require a licence/regulatory approval to lend into your jurisdiction or take the benefit of security over assets located in your jurisdiction?

Lending into Hong Kong

Any person, not being an "authorized institution" authorised by the Hong Kong Monetary Authority under the Banking Ordinance (Cap. 155) carrying on business as a money lender in Hong Kong must obtain a money lender's licence in accordance with the Money Lenders Ordinance (Cap. 163) ("MLO"), unless one of the exemptions set out in the MLO applies (including loans secured by charges registrable under the Companies Ordinance (Cap. 622) ("CO"). However, even though there is no legal authority on this point, it is arguable that the MLO does not have extra-territorial effect, so a lending business carried on outside Hong Kong does not need an MLO licence. This can be the case even if the borrower is incorporated and/or doing business in Hong Kong or the loan is disbursed in Hong Kong, if the lender otherwise operates solely from outside Hong Kong. But the law is not clear, so a cautious view is that the MLO could require a licence if any part of a money lending transaction is carried on in or from, or involves any action in, Hong Kong.

There is also a general corporate registration requirement for "carrying on business" in Hong Kong pursuant to the Business Registration Ordinance (Cap. 310). The test for carrying on business in Hong Kong is not expressly defined, other than to expressly include a company incorporated in Hong Kong or registered in Hong Kong as a registered non-Hong Kong company, and is therefore not precise. However, case law indicates that the threshold is low. Any form of commercial activity is sufficient. The existence of business premises is probably not an essential feature. A business can be carried on through an independent agent. Probably the incurrence of legal obligations within Hong Kong is necessary. As the Business Registration Office ("BRO") is an office of the Inland Revenue Department and the primary purpose of registration is to put the business on the radar of the tax authority (though it also serves to enable persons dealing with the business to find out with whom they are dealing), the test is likely to be based on whether potentially taxable activities are being carried on in Hong Kong. A lender needing to register with the BRO in fact has an obligation only to complete, sign and deliver to the BRO the required application form within 1 month after the business starts (or in the case where the lender is registered as a registered non-Hong Kong company, 1 month after such registration (see below). This is not an approval process and the BRO will later issue a business registration certificate.

Further, there is a requirement to register as a registered non-Hong Kong company where a lender has established a place of business in Hong Kong pursuant to the CO. The test for establishing a place of business in Hong Kong is not expressly defined in the CO and is therefore not entirely precise. However, case law indicates that (a) the term "establishing a place of business" is not the same as carrying on business in the jurisdiction and the expression points to the company having "a local habitation of its own", (b) the establishment of a place of business connotes a degree of permanence or recognisability as being a location of the company's business, (c) the term "business" should be interpreted in the general sense of activities, and not confined to the narrow sense of commercial transactions, and (d) the business carried on must be activities which fall within the company's paramount or subsidiary objects. A company needing to register with the Hong Kong Companies Registry in fact has an obligation only to complete, sign and deliver to the Hong Kong Companies Registry the required application form, containing the particulars prescribed by procedural regulations and details of at least one person who is proposed to be an authorized representative on registration of the non-Hong Kong company, and certain supporting documents, within 1 month after the place of business is established. The supporting documents include a certified copy of each of the company's constitutional document(s), incorporation certificate and (if publication of accounts or delivery of accounts to a person for public inspection is required...