The Securities and Futures (Amendment) Ordinance 2021 (the Ordinance), which took effect on 1 November 2021, enables a foreign corporate structured investment fund established outside of Hong Kong to re-domicile and register in Hong Kong as an open-ended fund company (OFC).
The move to Hong Kong is attractive to fund managers with existing offshore investment funds to take advantage of annual compliance cost savings (no annual fund or director registration fees and minimum outsourcing needs such as registered office, AML officers, overseas legal counsel and overseas auditors) and the simplicity of dealing with a single legal and regulatory jurisdiction. Also, the Securities and Futures Commission (SFC) currently offers a grant scheme to cover up to 70% of local service providers’ fees (up to a maximum of HK$1 million per foreign fund and subject to a quota of three funds for each SFC licensed asset manager) for the re-domiciliation process to Hong Kong as an OFC.
Deacons recently worked on the first re-domiciliation case, successfully bringing a standalone fund established in the Cayman Islands to Hong Kong as a standalone OFC. As provided under the Ordinance, there is no change in either the legal entity or the existing tracking record of the fund upon re-domiciliation, and any contracts, rights and obligations it has entered into will not be affected by making the move to Hong Kong.
The process for re-domiciliation can be split into three stages:
Stage 1 – this involves, amongst other things, ensuring that the constitutive documents of the non-Hong Kong fund and the laws of its place of incorporation do not prohibit the proposed re-domiciliation and the intended de-registration of the fund in such place of incorporation. The approval of existing shareholders would also typically be required by way of special resolutions depending on the terms of the constitutive documents.
Stage 2 – upon receiving the existing shareholders’ consent for the re-domiciliation by way of continuation, an application may be made to the SFC for the re-domiciliation by submitting the requisite forms and confirmations and the proposed Instrument of Incorporation for the OFC upon re-domiciliation. Basic information on the key operators (namely the directors, the investment manager and the custodian(s)) needs to be submitted to the SFC – this is similar to a new OFC incorporation application. For a re-domiciliation application, the SFC requires additional documents and confirmation, such as a confirmation that the re-domiciliation approval in stage 1 has been obtained. For further details, you may refer to the application form and information checklist for registration of a non-Hong Kong fund corporation as a re-domiciled OFC which are available from the SFC’s website (https://www.sfc.hk/en/Regulatory-functions/Products/Open-ended-fund-companies).
If the SFC is satisfied with the application, it will then register the non-Hong Kong fund as an OFC and will notify the Register of Companies (RoC). The RoC will issue a certificate of re-domiciliation, and a business registration with the Inland Revenue Department will be conducted in the same manner. The de-registration process in the fund’s original place of incorporation can also commence and must be completed within 60 days (subject to any extension to be granted upon application to the SFC).
Stage 3 – which can take place concurrently with Stage 1 and Stage 2, the offering documents of the entity need to be updated and be issued to shareholders to reflect the new OFC structure and to comply with disclosure requirements under the Securities and Futures Ordinance, the Code on Open-Ended Fund Companies and the Securities and Futures (Open-ended Fund Companies) Rules. A copy of the offering documents needs to be filed with the SFC as soon as reasonably practicable following its issuance.